Setting the Scene in Services Agreements

Last week, a reader sent me the following sentence from a services agreement:

Vendor hereby accepts such appointment and agrees to actively and continuously exert its prompt, substantial, and persistent efforts, on Company’s behalf, to provide the Services.

This extract—the lamest thing I’ve seen  since, oh, last week—has already led to my post on actively (here). But two other issues come to mind.

Appointment?

First, appointing someone to a service-providing function (for example, consultant) represents a redundant extra step. Since you have to state what services the service provider will be performing, no purpose is served by also, in effect, sticking on their head a hat with “Consultant” (or whatever) emblazoned on it in big letters. You only appoint someone to a function if by law that appointment comes with a relatively clear set of consequences. One example that comes to mind is appointing someone attorney-in-fact.

Flat Obligation or Efforts?

When stating the obligations of a service provider, you have a choice between stating them as flat obligations (Acme shall put the round peg in the round hole in accordance with the specifications on schedule A) or incorporating a reasonable efforts standard (Acme shall use reasonable efforts to cure cancer).

If you’re able to state exactly what services are to be performed and it’s entirely within the service provider’s power to perform the services, a flat obligation would be appropriate. If that’s not the case, it might well be appropriate to use a reasonable efforts standard.

Posted in Selected Provisions | 12 Comments

  • http://www.lawnotes.com D. C. Toedt

    I suspect that the appointment language might have its origins in the desire for a press release to get some publicity, such as, “ResellerCo is pleased to announce that WidgetCo, a leading manufacturer of widgets, has appointed ResellerCo as a widget reseller ….” Ken, you’re certainly right that there’s no good reason to do that in the contract per se; it just confuses things and arguably creates the potential for later mischief.

    • Ben King

      That’s absolutely the impetus for appointment language in many contracts I draft. I do think it’s a bit of contractual detritus left by my predecessors, but it’s fairly innocuous..

      It strikes me as similar to the following: “The Sales Agent acknowledges that it has paid no consideration in exchange for this appointment.” I haven’t been able to figure out what purpose this clause serves (beyond the obvious) and I can’t see a particular harm in leaving it, so I haven’t insisted on removing it.

      • http://www.adamsdrafting.com/ Ken Adams

        Not insisting on removing it when you’re the reviewer is different from including it when you’re the drafter. The former makes sense, the latter doesn’t.

      • http://www.lawnotes.com D. C. Toedt

        Ben King, I’m not sure what you mean by “the obvious,” but a couple of possibilities come to mind: The no-consideration-from-Sales-Agent sentence might represent an attempt by the appointing party to create ammunition against a later claim by the Sales Agent:

        1. that the Sales Agent was entitled to some sort of reciprocal consideration, e.g., exclusivity within a particular territory; a guaranteed minimum compensation; or some such. If that were the intent, of course, then there certainly would be far clearer ways of doing it; or

        2. that the agreement was a franchise agreement, which could significantly increase the appointing party’s exposure under state- or federal franchise laws; or

        3. that the Sales Agent had paid a kickback — the Sales Agent normally wouldn’t voluntarily make such a claim, but if law enforcement authorities were to intimidate the Sales Agent into making such a claim in order to gain leverage over the appointing party, then the no-consideration language might provide at least some evidentiary help for the appointing party.

  • Mark Anderson

    For general services I agree that appointment is not the right word, but I think stating that you appoint someone as an agent or distributor or franchisee has some meaning. Some US distribution agreements I have seen prefer to use the language of granting licences rather than appointment, which I find odd in the case of a distributorship. The advice from the Dutch contributor to our looseleaf on biotech transactions was that under Dutch law, where the clause provides that a party is appointed (or granted a licence) the clause should also state that this party accepts the appointment or licence.

    • http://www.adamsdrafting.com/ Ken Adams

      You say that appointing someone as agent or distributor has some meaning. I guess the question is, what meaning? I don’t see why you’d need appointment language in a contract in order to be able to say “We’ve made Acme a WidgetCo distributor.”

      As regards Dutch law, in any contract, whatever the governing law, if you appoint someone to something, you’d want to have that person accept the appointment. But that has no bearing on whether you need appointment language in the first place.

      • Mark Anderson

        Maybe you don’t need to use the word appoint, but until I see a better formula I’ll keep using it for agents, distributors and franchisees. “appoints as distributor” seems to me analogous to “grants a licence” – neither phrase is essential but quickly makes clear what is happening. A formal statement that the contracting party has the status of distributor could be useful, eg:
        - so that the distributor can tell the world they have this status
        - to distinguish from an agency relationship, which can create different liability issues (eg agents have a right to compensation on termination under EU laws)

        As for accepting the appointment, no I wouldn’t want to have the person expressly accept the appointment, as (perhaps irrationally) I don’t think it is necessary to say that if the appointee signs the agreement in which they are appointed. It goes without saying. However, I am now including references to accepting in my agreements (including licence agreements) in light of that Dutch comment.

        • http://www.adamsdrafting.com/ Ken Adams

          If I say “Acme shall act as distributor,” also appointing Acme distributor seems redundant. It’s not necessary to make clear what’s happening.

          And, yes, perhaps accepting an appointment is unnecessary; I’ll have to think about that. How does it relate to saying “Acme hereby purchases” without also saying “WidgetCo hereby sells”?

          • Mark Anderson

            Maybe nothing contractual turns on “act” versus “appoint”. Appoint sounds to me more friendly at the start of a long term relationship, which many of these appointments are. On the other hand, perhaps it gives a spurious air of an official position, eg similar to I appoint you as headmaster of the Anderson School of Pedantry, which sounds more official than You shall act as headmaster… In the common law system (unlike the civil code system I suspect) we have moved away from obligations based on status, eg as a common carrier or bailee or innkeeper.

            I haven’t made up my mind on this one. I would be interested to hear comments from others.

          • AWrightBurkeMPhil

            How about “has engaged”? It sounds friendly. My law firm uses “engagement letters” instead of “retainer letters,” partly for its friendly connotations and partly because “retainer” seems to have changed meaning from “engagement” to “a sum of money that clinches the engagement.”

          • Mark Anderson

            In general I don’t like the past tense in contracts, as it raises the possibility of an earlier agreement whose terms may or may not have been superseded by the present agreement. Engages would work.

  • http://www.adamsdrafting.com/ Ken Adams

    It’s all a function of how specific you are in stating the obligations. Sure, if you’re less than entirely specific, you need the cover provided by a “reasonable efforts” standard.