Updated October 11, 2015:
Gee, I go away for a couple of days and commenters have a party!
Here’s where I end up on this:
First, hereby purchases and hereby sells are both valid to effect sale of whatever it is. I checked with Chris Kunz, and she confirmed as much.
Second, despite suggestions to the contrary in the comments, it doesn’t matter whether you use purchases or sells. Each verb refers not to a unilateral action but instead to transfer of the item in question. The verb you choose simply determines which party’s perspective you adopt; it has no substantive significance.
Third, sells might be the more popular choice. After all, UCC Article 2 is called “Sales”, not “Purchases”.
Fourth, in the interest of logic and concision, I wouldn’t use both hereby purchases and hereby sells, but if someone asked for both, I wouldn’t waste time objecting—I’d give them both.
Fifth, if you use language of performance, the purchase price could be paid as follows:
- on signing the contract, using language of performance to transfer something (for example, a license) in exchange for whatever is being sold;
- concurrently with signing, perhaps using language of concurrence (on signing this agreement, X is paying); or
- later, using language of performance (shall pay).
Sixth, if instead of language of performance you use language of obligation, it would be standard to subsequently effect the transfer by means of a bill of sale that uses language of performance.
And seventh, even though you can use language of performance to effect transfer, if might not be the best way to structure a given transaction.
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Original Post, October 5, 2015:
Last week I received the following inquiry from Kevin Toll, a litigator based in Southfield, Michigan:
Is there any difference between “Acme hereby purchases the Assets from Doe” and “Doe hereby sells the Assets to Acme”? Is one better than the other? And is it ever necessary to say “Acme hereby purchases the Assets from Doe and Doe hereby sells the Assets to Acme”?
That’s the kind of inquiry that makes me want to whack myself upside the head and then buy Kevin a drink. Because it’s so basic, yet it’s something I’ve never asked myself.
To answer Kevin’s first question, Acme hereby purchases the Assets from Doe and Doe hereby sells the Assets to Acme are equivalent. The bigger question is whether one needs to say both, in a reciprocal arrangement.
As a matter of logic, the answer is clearly no, one does not. If Acme is purchasing the Assets from Doe, it follows that Doe is selling them. I routinely say that there’s no point in using agreement of purchase and sale as a title, as it’s obvious that if someone is selling, someone else is also buying—nothing is gained by referring to both sides of transaction. That should apply equally to language of performance. This is Kevin’s view too.
If I’m going to use only one verb, which one would I use? I’d go with hereby purchases, just because the side with the money generally calls the shots.
But a quick survey of the mud volcano that is the SEC’s EDGAR system shows that the reciprocal arrangement (with all sorts of bogus accretions) is way more popular than using just hereby purchases or hereby sells. I see two possible causes.
First, slipshod extension from language of obligation, where reciprocity makes sense: if you omit one of the obligations from Acme shall purchase the Assets from Doe and Doe shall sell the Assets to Acme, the party in question would be free to back out.
And second, I suspect that drafters feel more comfortable having the language explicitly reflect the reciprocal nature of the transaction, even at the cost of redundancy.
So what would I do? And what would I recommend that you do? My heart is on the side of using just hereby purchases, but I wonder whether you’d so routinely be asked to make it reciprocal that you’d have to be stubborn not to do so from the get-go.
What say you?
Is “hereby” appropriate with “purchase”? Purchasing does not seem to be a “speech act”, in the same way a grant of license is. A purchase is just two other acts; a transfer and a payment. Moreover, do we need to state the “act” of purchasing, given we also state the obligation to transfer and the obligation to pay? What is lost by omitting the purchasing “act”? The purchase is implied by the transfer and the payment.
Had the same question. Usually in the contract the important part is creating the obligation to pay and transfer at a later date, unless the contract itself is intended to convey the subject property.
But I’m sort of thinking it doesn’t matter (legally) how you word it—it’s more a question of drafting preference. If I’m wrong and it makes a legal difference, someone please chime in.
I’ve chimed in!
I think Mark is definitely onto something. Most contracts of this type are executory. A promises to sell the goods to B, and B promises to pay for them, details to follow. Not only is “hereby” superfluous, it’s wrong (except see below). And the question of whether you designate this as a purchase or a sale, the latter of which (there’s no definition of the former) UCC section 2-106 defines as “the passing of title from the seller to the buyer for a price, should probably be left to the party drafting the contract, so a seller’s contract will sell and a buyer’s contract will purchase. Easy-peasy.
But, because the UCC does define sale, and not purchase, if I absolutely had to choose one or the other, I’d choose sale. In fact, the UCC goes on to define a “present sale” as one that is accomplished by the contract itself–a sort of speech-act transaction.
Perhaps most contracts use language of obligation for sale, but that doesn’t mean that language of performance doesn’t work. “Wrong”? See my response to Mark.
Very interesting. I’ll ponder and see what others have to say.
I hope your mention of experimental categories of contract language means that all the categories are up for ceaseless scrutiny.
Presuming on that hope, I offer the thesis that an agreement that creates one or more duties, like any other promise, is a speech act like *I quit* and *I grant X* in that saying the words *I agree* (or signing a contract with a lead-in) accomplishes an act, namely, the creation of one or more duties that didn’t exist before. Conclusion: language of agreement that creates duties (1) is a subset of language of performance and therefore (2) deserves its own ‘hereby’ in the lead-in.
I hasten to put out one source of possible confusion: the word ‘performance’ in the label ‘language of performance’ (for speech acts) means something different from ‘performance’ of a contract duty. So the fact that uttering language of agreement in the lead-in does not discharge any duty the contract creates is no basis for saying language of agreement that creates duties is not language of ‘performance’.
By the way, this blog is fun. Shouldn’t you celebrate its anniversaries?
Hmmm. *Unless* you’re in a transaction in which the price is a speech act, as with an assignment, there can be no transfer *for value* until the money is paid or the other property transferred; an obligation to pay, even concurrently with signing the contract, is still, at least for a nanosecond, executory. Therefore, in that garden-variety scenario, the contract document can’t by itself simultaneously accomplish the necessary components of the transaction, and language of performance won’t do any work.
So I’m buying your inventory of widgets, under an extensive contract, and I have with me a briefcase full of cash with which to pay you. How would you reflect that in the contract?
Bearing in mind Kevin Toll’s point, one might say “Upon Buyer’s payment of the Purchase Price, concurrently with the parties’ signing of this agreement [but the timing could be stated elsewhere], Seller shall sell the Inventory to Buyer and deliver to Buyer a bill of sale for it in the form attached as Exhibit MCMLXVI” (you said it was a long contract).
And somewhere, if it’s an entire inventory, someone will have to do the Article 7 necessaries.
I agree that there is no need to express both sides of the transaction. The verb normally used for IP transactions is “assigns”. Yet assignments don’t normally have a reciprocal obligation from the buyer as part of the sale clause (and it is difficult to think of a verb that would express the counterpart to assigning). This suggests that the habit of having reciprocity in the sale of other assets is largely due to there being a convenient corresponding verb.
The key is to be clear when the obligation to pay arises and when the sale becomes unconditional or complete. For what it’s worth, my preference would be to say that the seller sells the assets to the buyer. This is the unique aspect of the transaction – money is just money!
Would the parallel phrasing be ‘the Seller hereby assigns to the Buyer, and the Buyer hereby accepts the Seller’s assignment of, a non-exclusive licence in the Software’?
I haven’t looked closely at assigns; I will. But I’m finalizing an article on granting language in patent license agreements, and one point I make is that there’s no need to say that the licensee accepts the license.
In the case of an assignment, we have had advice from a Dutch lawyer that the assignment should state that the assignee accepts the assignment.
Glad you’re taking this on because that phrase has always bothered me at the back of my mind, but I’ve never stopped and thought it through.
This might be a parroting and rewording of what you wrote above, but realizing it made it more clear to me. I think the language in every (half decent) contract that would make me comfortable with discarding the second half of the phrase in question is simply the lead in: “the parties therefore agree as follows”. If both parties have agreed that one party has to buy something from the other, the only logical implication is that the other party has to sell it.
It would be absurd if a party could simply argue that that implication cannot be made so they could get out of the contract. If every obligation needed an explicit counter obligation, then you wouldn’t be able to say only that e.g. on closing “the seller will deliver share transfer instruments”, you would also have to say that the buyer will accept those instruments. Requiring that each obligation have an explicit counter obligation in order for the contract to be binding would fly in the face of the principle that consideration need not be adequate for a contract to be enforceable (I think that’s the principle it violates).
All that said, I wouldn’t go deleting the second half of the phrase in question if it were included in another lawyer’s draft.
If a ‘sale’ is the transfer of title from A to B for a price — ie, a completed transaction of tender and acceptance — then a ‘purchase’ is just a ‘sale’ looked at from the buyer’s point of view.
So in a sense, ‘the seller hereby sells’ is not true, because a seller cannot unilaterally bring about a completed transfer without the buyer’s acceptance. In the same way, ‘the buyer hereby purchases’ is not true because it takes two to tango.
A case can be made that ‘the seller hereby sells the assets to the buyer’ *implies* the acceptance by the buyer (and the concomitant completion of the ‘sale’) because the buyer has signed the contract, thereby validating the lead-in which says the buyer ‘agrees’ to everything in the contract, including the seller’s ‘sale’ (completed transfer) of the assets to the buyer.
But that’s a roundabout way to establish the buyer’s necessary acceptance. The directest way to accomplish the two parts of the ‘sale’ (tender and acceptance) is to say ‘the seller hereby tenders title to the assets to the buyer and the buyer hereby accepts the seller’s tender of title to the assets’.
The same reasoning applies to a contract for a future sale. ‘The parties hereby agree that the seller shall tender title to the assets to the buyer and the buyer shall accept the seller’s tender of title to the Assets’.
It’s probably harmless to substitute ‘sell’ and ‘purchase’ for ‘tender’ and ‘accept’, as long as one uses both ‘sell’ and ‘purchase’ to avoid having to rely on the argument that either ‘sale’ or ‘purchase’ alone denotes a completed transfer to the accomplishment of which both parties committed themselves by signing the contract. I prefer the simple life.
Have written specifically about “hereby”? A search of your site bring up 7 pages of hits, so I am asking you. Because why do you say one should include “hereby” in “hereby purchases”.
Go here: https://www.adamsdrafting.com/two-language-of-performance-variants/. And there’s always MSCD 3.20. You do have a copy of MSCD, don’t you? *awkward silence* ;-)
If a sale is by definition the passing of title from the seller to the buyer for a price, why not say ‘Doe hereby conveys the Assets to Acme’?
If the parties want the ‘contract’ (more of a bill of sale, really) to state the purchase price, add something like, ‘Acme is simultaneously with the signing of this agreement paying the Purchase Price of X to Doe’.
If the deal is Doe’s present transfer of the assets to Acme for Acme’s present promise of future payment to Doe, Acme’s duty to pay will need expression in language of obligation.
For the title, I prefer ‘sale agreement’ as conciser.
My understanding of the purpose of the “plain language” movement is to create legal documents that everyone can read and understand without having too look up every word or spend time trying to interpret convoluted language. One of the reasons that contracts today are so verbose and convoluted is that every contingency is accounted for. I recently reviewed a website asset purchase agreement that was 50 pages, not including the table of contents, schedules, and exhibits. This document, which again was for the purchase of four websites, had 9 pages of definitions, including a definition of the United States to mean the United States of America. Perhaps a “right” word exists for every situation, but sometimes you just need to pick a horse and ride it. If everyone can gather the intent by reading the document, does it matter if some uses “purchases” instead of “sells” or “conveys” instead of “transfers” or “assigns”? Perhaps exceptions exist, but sometimes clarity should trump verbosity.
P.S. This is not to say that I do not want to get it right or don’t enjoy this intellectual discussion.
There’s a big difference between doing the 50-pages thing and getting your semantics right. This post is about semantics: how do you best express a purchase? The point Vance makes isn’t a trivial one. Even though I don’t yet know where it will end up, this discussion will certainly be reflected in the next edition of MSCD.
You are correct that Vance is making a valid point, but the UCC itself does not require everything to be spelled out in an agreement unless the parties want to prevent the application of a specific section of the UCC. I am not sure if this has been directly brought up yet, but generally there are additional documents, for example a bill of sale or an assignment. If we say, “Acme hereby purchases 50 widgets from WidgetCo,” and WidgetCo signs a bill of sale, can WidgetCo sincerely argue to a court that the absence of “WidgetCo hereby sells 50 widgets to Acme” somehow invalidates the contract? I guess my question is does everything need to be spelled out in the contract or we can assume that WidgetCo is agreeing to sell by the fact that it signed the agreement and the bill of sale?
This is a good point. A simple sales transaction can be documented with a bill of sale (which, being unilateral, is usually set up as a “hereby” speech act of conveyance) against payment of the price.
A sale, however simple, requires both tender and acceptance. You can’t unilaterally transfer anything because you can’t jam title to anything down someone’s throat. Without acceptance, there’s no transfer.
How the acceptance is documented or expressed or implied (signature on contract, specific contract term, conduct, receipt of goods, signing a receipt or bill of purchase, failure to object when objection would be expected, or best of all, payment of the purchase price) is all practicalities, not theory.
If Acme says, ‘We don’t want title to your radioactive widgets, Widgetco’, Widgetco cannot effectively respond, ‘Too bad, we signed a unilateral bill of sale, so you own them now, and good riddance to them’.
But I could have it wrong or slantwise. In the words of my motto, ‘I may be wrong, but I’m always Wright’.
Don’t forget the “against payment of the price” component! Nothing says acceptance of a transfer like “I paid the money.” And a bill of sale does usually recite “for value received” or some such. Yes, you need both, but in a simple transaction the two items are present in reality if not in one and the same document.
Agree entirely.
I might be missing something, but what’s the objection to hereby purchases in exchange for the buyer’s assuming an obligation to pay later?
No objection if: ‘purchases’ is understood to mean ‘accepts title’ and the necessary tender by the seller is either express (‘hereby sells’) or implied by conduct or context, such as delivery of widgets or acceptance of payment or signing of bill of sale or contract.
If ‘purchases’ is understood differently to mean ‘effects a transfer’, the objection is that the purchaser cannot unilaterally effect a transfer; a ‘sale’ (=transfer=purchase) requires *both* tender and acceptance.
A transfer of something for a price has *two* pairings: (1) transfer, consisting of tender and acceptance, and (2) payment, also consisting of tender and acceptance — of the price.
This issue was borne home to me by a case. A slumlord (not I) was accumulating huge daily fines for building code violations. To get out from under them, the slumlord deeded the property to the mortgagee bank (lien theory jurisdiction). The bank disclaimed title, and a court held that the deed did not effect a transfer of title, because the grantee did not accept title, which cannot be forced on anyone.
The fact that acceptance of a tender is ordinarily presumed does not make acceptance — however tacit or implied — any less necessary for an effective transfer.
My notion of practicality suggests making all explicit: ‘Seller hereby tenders and Buyer hereby accepts title to the Widgets.’ Upon signing such a contract, a *sale* (=transfer=purchase) takes place.
The objection is that without the actual payment, “hereby” is rather hollow. “Hereby” implies that it’s happening now. An obligation to pay later is an executory promise that, when fulfilled, results in a purchase.
Contrast this with a payment by credit card: when I pay by credit card, the seller is *actually* being paid by the card issuer: the money is going into the seller’s account (less the fees and all that). My obligation is then to the issuer of the card–to repay the loan thereby created. That’s a different transaction from the payment to the seller.
But payment by credit card is just one arrangement. In deals it’s commonplace to pay with a promissory note or by earnout, no? So I suggest there’s nothing “hollow” about it.
“I hereby purchase by giving you my promise to pay later”? Call me old-fashioned, but a promise to pay later isn’t payment now, *except* that if the promise is embedded in a negotiable instrument, you could say it has a distinct present value (I don’t have time now to rummage through the Article 2 and Article 3 law to see if payment is actually effected when the check clears or when it’s given and then clears in the ordinary course). If the signed promissory note is incorporated into the contract, and is negotiable, then you might say it’s a speech action of payment (though more often, what happens in the contract is a promise to pay with a promissory note in the form attached).
But try this thought experiment: if the buyer pays with a promissory note and then reneges entirely, does the seller *only* have an action for damages, or did the deal itself fall through for lack of consideration? If the latter is possible, then there was no speech act, and “hereby” is improper.
Payment by earnout, by contrast, is a pure promise, for which “hereby” is never a proper statement, in my (blog-quality) opinion.
Aren’t you being paternalistic about this? I want to sell widgets to Smith in exchange for Smith’s promise to pay me later; I like the premium I’m getting. I don’t see any structural impediment.
Who’s saying the deal is invalid? I thought we were talking about whether it’s the best use of terminology to say “I hereby sell” or “I hereby purchase,” and I still think it’s preferable to say “Seller shall sell” and “Buyer shall pay.”
If you like your deal, you can keep it (and unlike that other guy, I actually mean it). As my daughter says, I wish you joy of it.
I think “hereby purchases” is an unhelpful expression when it comes to analysing the transaction, at least under English law, and that “hereby sells” is better. But first we should analyse what a sale is. According to Chitty on Contracts (30th edition), chapter 43 – Sale of Goods, section 43-009:
“Sales distinguished from agreements to sell. It is necesssary to make this distinction because a sale of goods is both a contract and a conveyance; an agreement to sell, on the other hand, is a contract and nothing more…”
Hereby sells would therefore seem to be saying this is a sale, I am both agreeing to sell and now conveying title to the goods to you. (By the way, separate bills of sale are not needed under English law – following the 1954 repeal of section 4 of the Sale of Goods Act 1893).
Hereby purchases is less useful on its own, as it doesn’t involve a declaration by the seller that they are conveying title to the purchaser. Okay, it could be viewed as an acceptance of title, but isn’t that already covered by other express or implied terms under which the purchaser signs the sale agreement and thereby agrees to purchase? It probably doesn’t do any harm when combined with hereby sells, other than adding unnecessary verbiage. But it shouldn’t be used as a substitute for hereby sells.
Ken:
My thought is that the fundamental speech act is the transfer of title. That transfer is (pretty much) an action by the seller. That is, it is (pretty much) equivalent to “Seller hereby transfers all ownership in the goods to Buyer.” If that’s the case, then I prefer the verb to be “sells.” The seller might have additional obligations, such as those of delivery, that occur later, and would be expressed as obligations. Note that, with this language of performance, I’d believe that title transfers immediately, wherever the goods are. If there is a later statement that title and risk of loss transfer later, then the agreement now has an internal conflict.
I don’t think that the language of purchase should be language of performance. It could fundamentally mean three things: (a) accepting title, (b) relinquishing any rights to reject non-conforming goods, or (c) transferring title over the consideration (typically money). Using “purchases” for any or all of these isn’t much in the way of explanation. I’d rather deal with each on its own, in a “transfer of title” provision, an “acceptance” provision, and a “payment” provision. The only case where I would not is one where the seller shows up with goods and the buyer shows up with money, then they swap, with the intent that title transfers then and there’s no rejection for non-conforming goods. But who needs an agreement in that scenario?
Chris
Isn’t saying that a transfer of title ‘is (pretty much) an action by the seller’ like saying that a completed pass is (pretty much) an action by the thrower?
I think the flaw with this analogy is that the buyer doesn’t need to catch, and can’t fluff the catch through poor ball skills. Once he has agreed to take the ball (through contractual promises), the unilateral act of the seller conveying title is sufficient (in the case of goods, UK patents and many other assets) to convey that title. Perhaps in some cases there is then a right for the buyer to reject the goods, but until they do so the have good title.
All analogies limp, but once the buyer has ‘agreed to take the ball (through contractual promises)’, you have, shall we say, an ‘anticipatory catch’.
The first point is, there cannot be a completed transfer without a willing transferee any more than without a willing transferor. When and how the willingness of each is manifested are details.
The second, more debatable, point is why a drafter would prefer to leave either the throw or the catch to implication from contractual or extra-contractual context, however obvious, when a word or two would concisely state the two in tandem.
AWB:
Assuming that the agreement says that the seller sells, what is gained from saying that the buyer purchases? You would still need to explicitly address things like amount and time of payment, right to reject, and so on. The only time I could see not doing so is if the law supplies those terms (in which case, why bother with an agreement), or if the transaction is supposed to be instantaneously and simultaneously completed (in which case, why bother with an agreement).
Chris
I’m not saying that anything is gained by saying ‘the buyer purchases’. Quite the opposite: I would never say it, nor would I say ‘the seller sells’, nor both phrases together, for reasons already stated.
AWB:
I suspect that, in most cases, a unilateral statement from the seller that it is transferring title to the buyer will be effective unless the buyer actually objects. E.g., gifts and quitclaims. I doubt that positive assent is required. That’s also why rejection of goods as non-conforming is a thing.
Chris
A ‘unilateral’ transfer (=sale=purchase) without acceptance is a contradiction in terms. The necessary acceptance need not be express. It can be inferred from non-objection for a period or a host of other things. The advantage of expressing the necessary acceptance is nothing more than not leaving things to inference.
When I originally asked Ken my questions, I thought a simple answer existed. Boy was I wrong (or perhaps naïve). I never imagined the debate that would result from my questions. You have all given me a lot of food for thought. I am now second guessing my choice of “purchases.” Hopefully the drafters of the revised model asset purchase agreement are giving this much thought to the language as we are.