Reproduced below is an astonishing wall-of-words provision from an asset-purchase agreement among a BP company and others, as the sellers, and a Tesoro company as the buyer. (The agreement is part of the course materials I use in my contract-drafting class.) The provision runs for more than a page and a half in the PDF that I printed from the SEC’s Web site.
The drafter’s goal should have been quick, accurate reading comprehension
Clearly whoever drafted the wall-of-words provision below gave a low priority to helping readers — such as clients, judges, law clerks, and jurors — to comprehend the text quickly.
I’m surprised that the drafter’s client tolerated such work, and that the other parties let the drafter get away with it.
A contract reviewer can break up a wall of words …
It’s generally considered bad form to revise someone else’s draft contract on stylistic grounds alone. But when I’m reviewing a draft that was prepared by another party, I pretty much always break up long provisions like the one below into shorter paragraphs and sentences. I do this for two reasons:
- First, breaking up wall-of-words provisions helps me to make sure that I really understood what the provisions actually say; and
- Second, with shorter paragraphs and sentences, my client will be better able to spot possible problems that I might have missed.
When I do break up a wall of words, I usually include a brief comment to the effect that I’m doing it to help my client review the provision. I’ve never had a drafter complain about it.
… or just delete it entirely and ask for a rewrite
I might try a different approach next time: If a wall of words seems to benefit the other side and not my client, then perhaps I’ll just delete the provision entirely (redlining it, of course) and add a comment to the effect of, “This provision is too long for me to ask my client to read, but we’d be happy to consider one with shorter paragraphs and sentences.”
The BP-Tesoro wall of words
Here’s the wall-of words provision in the BP-Tesoro agreement. As an exercise, try counting the number of sentences in the provision.(The agreement has several other provisions that are nearly as long.)
7.2.1 Non-Assignability of Purchased Assets. Notwithstanding anything to the contrary set forth in this Agreement, this Agreement shall not constitute an agreement of the Sellers to transfer or assign any Purchased Asset (including any lease of a Leased Real Property or Assigned Contract, but excluding any Permits), if the attempted transfer or assignment of the same, as a result of the absence of the consent or authorization of a Third Party or the failure of the notice period to expire under a right of first refusal, right of first offer or other similar preemptive right, would constitute a breach or Default under any such agreement; or would violate any applicable Law. Buyer and Sellers shall jointly use all Reasonable Efforts to take all necessary actions before Closing to permit the Purchased Asset to be transferred or assigned to Buyer, including obtaining any required Third Party consent or authorization for such transfer, assignment or waiver of any applicable right of first refusal, right of first offer, or similar preemptive right. If any such consent, authorization, or waiver is not obtained, or if an attempted transfer, assignment or assumption would be otherwise ineffective, with respect to any such Purchased Asset (or Purchased Asset that is otherwise deemed to constitute an Excluded Asset pursuant to Sections 2.2.8 and 2.2.10, but excluding Permits, any assets and matters governed by the provisions of Article 6), so that the Buyer would not, in fact, receive all Sellers’ rights, or assume all Sellers’ obligations relating to any such period on or after the Effective Time with respect thereto as they exist prior to such attempted transfer, assignment or assumption, then (i) provided that Buyer has satisfied the Leased Real Property Conditions where required under Section 7.9, the Sellers and Buyer shall enter into such supplemental agreements (including subleases, licenses, operating or transportation agreements, the transfer of a Purchased Asset to an Affiliate of Sellers followed by the transfer of such entity to Buyer, etc., as applicable) on reasonable terms and conditions that may be necessary (including enforcement at the shared cost of the Parties of any and all rights of the Sellers against any involved Third Parties) to provide the Buyer with the same benefits of such Purchased Asset as possessed by Sellers immediately prior to Closing, and, notwithstanding anything herein to the contrary, any such Purchased Asset shall be deemed to constitute an Assumed Liability and (ii) the Sellers and Buyer shall enter into such supplemental agreements on reasonable terms and conditions that may be necessary to provide to Sellers the right to purchase certain fuel and petroleum products from Buyer in order to perform Sellers’ sales obligations under such fuel and petroleum product sales contracts to Third Parties; provided that all fuel and petroleum products purchased by Sellers from Buyer under all such supplemental agreements shall be at the same price as such fuel and petroleum products are sold by Sellers to Third Parties under such fuel and petroleum product sales contracts with Third Parties. Notwithstanding the execution of any supplemental agreements, the Parties shall continue to seek the relevant consents, authorizations or waivers and if and when such consents, authorizations or waivers, the absence of which caused the deferral of transfer of any Purchased Asset pursuant to this Section, are obtained, such Purchased Asset shall no longer be an Excluded Asset under Section 2.2.8. The Parties’ obligations under this Section, including with respect to the term of the supplemental agreements entered into pursuant to the above, with respect to the Carson Logistics and Marketing Terminals Assets and the Wilmington Calciner Assets, shall expire on the same date that Sellers’ underlying rights and obligations in connection therewith would expire, and with respect to all other Purchased Assets, shall expire on the date that is the twenty-four (24) month anniversary of the Closing Date; provided, that, with respect to all such other Purchased Assets, if, following such twenty-four (24) month anniversary of the Closing Date Buyer reasonably demonstrates to Sellers that any such other Purchased Assets are necessary for the operation of the Business (excluding any aspects of the Business related to the Excluded Assets other than those subject to the requirements of this Section 7.2.1) in the manner in which it is currently being operated and the expiration of the Parties’ obligations under this Section would have a material adverse effect, then the Parties’ obligations hereunder shall continue to survive; provided, further that any disputes with respect to the continuation of such obligations shall be resolved pursuant to Section 19.10. Subject to (i) above, in the event Sellers are unable to transfer to Buyer that certain Lease dated December 17, 1969 by and between the City of Long Beach, acting by and through its Board of Harbor Commissioners, as lessor, and Atlantic Richfield Company (predecessor-in-interest to BP West Coast Products LLC), as lessee, as amended, supplemented or assigned (the “Barn Lease”) on or before the date that any option to extend the term of the Barn Lease must be exercised then BPWCP shall, pursuant to the terms of the Barn Lease exercise its option to extend the term of the Barn Lease and BPWCP shall exercise Reasonable Efforts to achieve commercially reasonable lease payment rates thereunder. The Parties shall comply with the terms of the Technology Agreement with respect to the identification, assignment and transfer of Third Party Licenses of Third Party IT Systems and other contemplated Third Party license agreements. If any such license cannot be transferred or assigned to Buyer within a reasonable time, the Parties shall comply with the terms of this Section 7.2.1 with respect to such license and, pending resolution of the issue, Buyer shall use Reasonable Efforts to provide, either directly or through a Third Party, any transitional services that are necessary in lieu of that license, and if Buyer is not able to provide such necessary transitional services, Sellers shall use Reasonable Efforts to provide such services, if practicable, subject to the terms and conditions in Transition Services Agreement.
A possible rewrite (partial)
Here’s one way to rewrite the wall-of words provision in the BP-Tesoro agreement. I’ve only done part of the provision, but it should be enough to illustrate the approach. Bold-faced type indicates specific noteworthy language.
7.2.1 Non-Assignability of Purchased Assets.
(a) Except as provided below, the parties do not intend for this Agreement to be interpreted as an agreement of the Sellers to transfer or assign (“Assign“; likewise, “Assignment” and “Assigned”) any Purchased Asset, if the attempted Assignment:
(1) would constitute a breach or Default under any agreement due to:
(A) the absence of a consent or authorization of a Third Party; or
(B) the existence of a right of first refusal, right of first offer or other similar preemptive right; or
(2) would violate any applicable Law.
[DCT NOTES: (A) The exceptions in the original text have being moved to separate paragraphs in subdivisions (1) and (2). (B) In subdivision (a), the phrasing, “the parties do not intend” is better than the original language, which presumptuously instructed future judges that “This Agreement shall not be interpreted ….”]
(b) For clarity, subdivision (a):
(1) applies, by way of example and not of limitation, to (i) lease agreements for Leased Real Property, and (ii) Assigned Contracts; but
(2) does not apply to Permits.
(c) Buyer and Sellers will jointly use all Reasonable Efforts to take all necessary actions before Closing to permit the Purchased Asset to be Assigned to Buyer; such actions are to include, as applicable, seeking any required Third Party consents or authorizations.
(1) This subdivision (d) applies in any circumstance in which:
(A) an Assignment (i) would not be effective, and/or (ii) is prohibited by another applicable agreement; and/or
(B) for any other reason, Buyer would not, in fact, (i) receive all Sellers’ rights, or (ii) assume all Sellers’ obligations relating to, a Purchased Asset.
(2) IF: Buyer has satisfied the Leased Real Property Conditions where required under Section 7.9, THEN: Sellers and Buyer shall enter into such supplemental agreements, on reasonable terms and conditions, as may be necessary to provide the Buyer with the same benefits of the Purchased Asset in question, as possessed by Sellers immediately prior to Closing.
[DCT NOTE: In subdivision (d)(2), notice the use of all-caps “IF: … ; THEN: ….,” with colons and semicolons, as eye-catching signals of where the different subclauses begin and end.]
[REMAINING PROVISIONS OMITTED]
See also: Why you should draft contracts with long, run-on paragraphs (a satire).
What about turning it into a declaration? Except as provided [insert location], this Agreement is not ……
As a declaration, it gives the party the right to a declaratory judgment. By stating intent, I would worry that a judge might do something anomalous: I understand that was your subjective intent, but, objectively, you wrote X, so you must have changed your mind.
In 7.2.1(a)(1)(B) you could make that a defined term <Consent> and use it in (c) and the rest of the rewritten section for “relevant consents, authorizations or waivers”. I also agree with Tina that a declaration would be best. Statements of intent that aren’t solely clarifications make me uneasy.
Also you can deal with (d) and the rest of 7.2.1 all at once by flipping around the IF/THEN order of (d), generalizing that structure for all the situations outlined in 7.2.1., and turning (c) into a “use Reasonable Efforts” obligation that the paragraphs dealing with those situations would target. For example:
(c) would say something like <Buyer and Sellers will jointly use all Reasonable Efforts to take the actions specified in paragraphs (d)-(e) as applicable to each situation.> Instead of elaborating on the meaning of Reasonable Efforts in (c), you could do it on a situational basis in the following paragraphs. Alternatively you could amend the definition of Reasonable Efforts to add “which includes [also assuming they have an interpretation clause that says includes = includes but not limited to] entering into supplemental agreements, providing transitional services as necessary, and achieving reasonable lease payment rates, as applicable to the circumstances”. I would prefer the former option.
(d) would be related to supplemental agreements to provide the same benefits of Purchased Assets before closing as if the assignment were effective;
(e) would be related to supplemental agreements to provide fuel and petroleum products using that price scheme; and
(f) would require compliance with the Technology Assessment or provision of transitional services.
Apparently placing example language in <> was a stupid idea. I don’t know if your site uses HTML or phpBB tags but that got lost. Oh well. (c) said something along the lines of “Buyer and Sellers will jointly use all Reasonable Efforts to take the actions specified in paragraphs (d)-(e) as applicable to each situation”.
Jacob, I fixed the angle-brackets thing. I couldn’t tell what defined term you defined at the start, so I used “Consent.” (I use Wordpress; I guess its comments allow HTML.)
Tina and Jacob, thanks for your comments. The reason I didn’t use a declaration for “this isn’t an assignment” is that:
(1) third parties would be the ones to object to such a declaration — I’ve been involved in litigation over exactly that point — and they would be neither bound by nor impressed with such a declaration;
(2) neither would a judge be bound by such a declaration;
(3) having come up doing (IP) litigation, I’ve been in front of enough judges to know that some of them would react to such a declaration, probably sub silentio, with the thought: hey, wait a minute, I’m the one wearing the black robe, and I’ll be the one to determine whether or not this document is an assignment, thank you very much;
(4) in making the determination referred to in (3), a judge almost certainly would take into account the parties’ intent as best they can; so, I provide an explicit statement of that intent so as not to leave the judge guessing.
Thanks for fixing that, and for your comments. I have not spent much time in a courtroom. I always think of the negotiators on the other side of the table but sometimes forget about the judges.