Consider the shall in this sentence from a public-company merger agreement:
As soon as practicable after the First Effective Time, the Exchange Agent shall, on behalf of all such holders of fractional shares of Parent Common Stock, effect the sale of all such shares of Parent Common Stock that would otherwise have been issuable as part of the Merger Consideration at the then prevailing prices on the NYSE through one or more member firms of the NYSE.
The exchange agent isn’t a party, yet that shall suggests that the exchange agent has an obligation to act as specified. That doesn’t make sense. What should we do instead?
How about Parent shall cause the Exchange Agent to … ? I wouldn’t do that either—shall cause is for when the nonparty is a subsidiary of the party and so is under the control of the party. The exchange agent doubtless has a contract obligation to Parent, but that’s different from being under the control of Parent. And it would get annoying to have to trot out shall cause whenever the exchange agent is required to do or not do something.
So I propose saying the Exchange Agent must. It’s analogous to what I propose in MSCD in table 3 (Language of Obligation Imposed on Someone Other Than the Subject of the Sentence): The arbitrator must … .
But the exchange-agent example differs from the arbitrator example in one important respect: the arbitrator is neutral, whereas the exchange agent has been hired by Parent. I suppose you could make that explicit by saying the Exchange Agent, acting on behalf of Parent, must, but that would get annoying too. If anyone cared about this issue, the best way to address it would be to say in the contract that Parent will be liable for any damages caused by the exchange agent’s not acting as contemplated in the contract. For all I know, it might be standard to do so.
Of course, I suspect that only hard-core MSCD readers will be attuned to the nuances of shall and must. So the primary function of this distinction is to allow the drafter to maintain their discipline in choosing verb structures.
Ken:
I like and use this case of must. It also feels like the use of must to convey conditions. I can’t explain that feeing very well busy imagine you start with “the parties shall arbitrate.” Then you describe characteristics of the arbitration with conditions, such that the parties don’t meet their obligation if they obstruct the conditions: “the arbitration must be in New York City,” “the arbitration must be before three neutral arbitrators wearing funny wigs,” etc. Adding “the arbitrator must issue a decision within 30 days” feels like one of those conditions. It’s obviously not exactly the same, but there’s some similarity that tugs at my brain. Maybe there’s something to that; I dunno. But I like it and use it.
Chris
As a suggestion (have used it myself):
‘Party X [the party with the relationship with the Exchange Agent] must exercise all available contractual and other powers to require the Exchange Agent to…’
Yes, it requires Party X to have some powers over the Exchange Agent (and if X doesn’t, then whether or not the Exchange Agent does the thing is outside the control of both parties – might become a force majeure event of sorts).
And for this to work, it assumes the other Party Y knows that Party X indeed has any such powers at all, and knows what they are (has Party Y seen Party X’s contract with the Exchange Agent?).
But to impose obligations on someone who is a non-party is a waste of ink.
Ken, I may not have a better answer, but I do see problems with your proposal.
The drafter, in fact, has no idea what obligation the Exchange Agent has to the Parent, if any, so to say that they ‘must’ do something seems overly wrought.
As well, you’re making a distinction between shall and must that is far from obvious to a reader (unless, perhaps they have the MSCD to hand).
So it seems like one should stick with the ‘Parent controlling the Exchange Agent’ – which you’ve rejected (though I prefer it, since that is what does happen, practically speaking) – or perhaps you grit your teeth and accept a generalization of this future event and say the Exchange Agent will effect the sale.
Hi Scott. I assume that the target will be aware of the contract between the acquirer and the exchange agent.
I’m OK with “the Exchange Agent, acting on behalf of Parent, must”, as long as it doesn’t get annoying. If it does get annoying, the express the relationship in a separate sentence.
I’ve acknowledged the only hard-core readers will be aware of the function of the distinction between “shall” and “must”, but the audience for this isn’t the reader, it’s the drafter, to keep them alert to the nuances. Addressing the issue directly (see the preceding paragraph) means that nothing is riding on the distinction.
“… the Exchange Agent is to …”?