Report on Third-Party Remedies Opinions - 2007 Update
APPENDIX 10, Annex A: Charts

Table of Contents

  1. General
  2. Sample Language for Exceptions Relating to Survey Provisions

The following charts summarize the Subcommittee's conclusions, on a Survey Provision-by-Survey Provision basis, followed by a set of samples of language for exceptions with respect to provisions that are classified as either Exception Sometimes Required or Exception Usually Required. Please consult the "Discussion" section in Annex B, immediately following this Annex A, for a more complete discussion of the Subcommittee's reasoning.

General

Survey Provision Classification

1. Choice-of-law provisions.

  • Outbound (choice of law other than California): Generally Enforceable (Such provisions are generally enforceable, unless there is no connection to the chosen-law state. Where there is such a connection, the opinion giver may choose to note that enforceability may be affected by considerations of the fundamental policies of the state whose law would apply in the absence of the provision, an issue that is in any event beyond the scope of the opinion.)
  • Inbound (choice of California law): Generally Enforceable (Such provisions are generally enforceable by statute if the transaction involves $250,000 or more; if it does not, the "outbound" rule applies.)

2. Covenants not to compete.

Exception Usually Required (The enforceability of such covenants may be limited by applicable statutory provisions.)

3. Provisions for penalties, liquidated damages, acceleration of future amounts due (other than principal) without appropriate discount to present value, late charges, prepayment charges, or increased interest rates upon default.

Exception Sometimes Required (Generally, such provisions are subject to a test of reasonableness, which is beyond the scope of a legal opinion. An exception with respect to the reasonableness of economic remedies is implied by customary practice, and need not be expressly stated. Nevertheless, if an opinion giver has determined that a particular economic would be unenforceable, an appropriate express exception should be stated; opinion givers do not customarily rely on an unstated exception for purposes of a provision that is clearly unreasonable. An opinion giver should expect to address whether a default rate of interest (e.g., 95% per year), or a provision for the acceleration of future interest without appropriate discount to present value, would be clearly unenforceable, as well as whether any specific requirements for enforceability other than reasonableness—for example, that the provision be separately initialed, or that it be printed in a specified font size (and some of which apply even to commercial transactions)—have been satisfied.)

4. Time-is-of-the-essence clauses.

Generally Enforceable

5. Confession of judgment clauses.

Exception Usually Required (The enforceability of such clauses is affected by applicable statutory provisions that contemplate the existence of a pending action.)

6. Provisions that contain a waiver of broadly or vaguely stated rights.

7. Provisions that contain a waiver of the benefits of statutory, regulatory, or constitutional rights, unless and to the extent the statute, regulation, or constitution explicitly allows waiver

8. Provisions that contain a waiver of unknown future defenses.

9. Provisions that contain a waiver of rights to damages.

Exception Usually Required (The enforceability of such provisions is often affected by applicable statutory or constitutional provisions or public policy. A general exception with respect to the matters addressed by Survey Provisions nos. 6-9 should be acceptable; an opinion recipient who is concerned about whether a particular provision would be enforceable should request that it be specifically addressed in the opinion.)

10. Provisions that contain a waiver of obligations of good faith, fair dealing, diligence and commercial reasonableness.

Equitable Principles Limitation

11. Provisions that attempt to change or waive rules of evidence or fix the method or quantum of proof to be applied in litigation or similar proceedings.

Exception Usually Required (The enforceability of such provisions may be limited by public policy.)

12. Provisions for the appointment of a receiver.

Exception Usually Required (The enforceability of such provisions may be affected by applicable statutory provisions.)

13. Forum selection clauses and consent to jurisdiction clauses (as to personal jurisdiction or subject matter jurisdiction).

  • Outbound (or if the transaction is not subject to Cal. Code Civ. Proc. § 410.40) : Generally Enforceable
  • Inbound (if the transaction is subject to Cal. Code Civ. Proc. § 410.40): Generally Enforceable
  • N.B.: Choice of venue clauses (i.e., clauses that require all actions to be commenced in a particular court in a particular jurisdiction) are generally not enforceable.

14. Provisions appointing one party as an attorney-in-fact for an adverse party.

Generally Enforceable

15. Waivers of rights to jury trials.

Exception Usually Required (The California Supreme Court has held that pre-dispute provisions waiving a party's right to a jury trial are not enforceable.)

16. Provisions that provide that all remedies are cumulative.

Exception Sometimes Required (Such provisions create issues only if the stated remedies are mutually exclusive or legally inconsistent. Perhaps the best example of a transaction in which such issues are presented is a real property secured transaction--outside the scope of this appendix--in which appropriate exceptions are customarily taken for Cal. Code Civ. Proc. § 726 and other limitations.)

17. Provisions stating that the provisions of a contract are severable.

Generally Enforceable

18. Provisions that purport to waive the defenses available to a guarantor.

Exception Usually Required (Enforceability of such waivers may be limited by applicable statutory provisions. It is not appropriate to request an opinion regarding the sufficiency of the guarantor's waivers.)

19. Provisions that purport to waive a party's right to cure (even where the aggrieved party would not be materially harmed by affording such a right to the breaching party).

Equitable Principles Limitation

20. Provisions requiring arbitration of disputes arising out of the transaction.

Exception Sometimes Required (Arbitration provisions are generally enforceable, but an exception is appropriate with respect to provisions that provide for judicial review of the merits of an arbitration award in violation of applicable statutory provisions or otherwise contain a problematic provision.)

21. Provisions that by their express terms state that fewer than all parties to the contract are entitled to recover attorneys' fees and expenses.

Exception Usually Required (Enforceability of such provisions is affected by Cal. Civ. Code § 1717.)

22. Provisions that prohibit oral modifications.

Generally Enforceable

23. Indemnity of a party for damages arising out of, or that purport to release or exculpate a party from, its own misconduct.

Exception Sometimes Required (Not all such indemnities are problematic, but an exception is appropriate if the indemnity in question purports to indemnify a party in a manner that is limited by public policy, such as against its own gross negligence or willful misconduct. In certain cases--for example, with respect to regulated investment advisers—either statute or public policy prohibits indemnification against the indemnified party's own negligence.)

24. Self-help remedy provisions.

Generally Enforceable (Purported authorizations of breaches of the peace are not enforceable, but are covered by the exception discussed at endnote 6.)

25. Indemnification for securities law liabilities.

Exception Usually Required (There are statutory, regulatory, common law and case law limitations on indemnities for securities law liabilities.)

26. Voting agreements.

There appears to be no customary practice with respect to voting agreements. Some opinion givers refuse to opine to the enforceability of voting agreements, which is affected to some extent by applicable statutory provisions that have yet to be interpreted by case law. Some opinion givers do render such opinions, based in part on the fact that there is no case law, after the enactment into law of the applicable statutory provisions, that calls them into question. The Subcommittee takes no position on whether an opinion giver should address the enforceability of a voting agreement.

27. Provisions that grant rights of setoff to participants or to affiliates of parties to the agreement.1

Generally Enforceable

28. Provisions that are unconscionable as a matter of law at the time of closing.

Exception Sometimes Required (Refusal to enforce a provision by reason of unconscionability requires both procedural and substantive unconscionability. Even if the opinion giver concludes that one of the provisions is substantively unconscionable, no exception need be taken unless the opinion giver is also aware of facts that indicate the existence of procedural unconscionability.)

29. Provisions that require payments to be made free of any setoff, counterclaim or defense.

Generally Enforceable

30. Provisions that purport to waive any applicable statute of limitations.

Exception Sometimes Required (An exception is appropriate if the provision in question fails to take into account applicable statutes.)

31. Provisions that would permit the exercise of remedies without consideration of the materiality of (i) the breach by the opinion giver's client, and (ii) the consequences of the breach to the party seeking enforcement.

Equitable Principles Limitation

32. Provisions that would permit a party to require performance without taking into consideration the impracticability or impossibility of performance at the time of attempted enforcement due to unforeseen circumstances not within the contemplation of the parties.

Equitable Principles Limitation

(An agreement by a party that it will not be excused by specified occurrences, however, is generally enforceable)

Sample Language for Exceptions Relating to Survey Provisions

Survey Position Sample language for exception (where appropriate)2

SP No. 2 (Covenants not to compete):

We express no opinion regarding the effect of California Business and Professions Code § 16600 on the enforceability of [Section __ of the [Agreement]].

SP No. 5 (Confessions of judgment):

We express no opinion regarding the enforceability of [Section __] of [the Agreement].

SP Nos. 6, 7,8, 9 (Waivers of (i) broadly or vaguely stated rights, (ii) the benefits of statutory, regulatory or constitutional rights, (iii) unknown future defenses, or (iv) rights to damages):

We advise you that waivers of the following may be limited on statutory or public policy grounds: (i) broadly or vaguely stated rights, (ii) the benefits of statutory, regulatory or constitutional rights, (iii) unknown future defenses, or (iv) rights to damages.

SP No. 11 (Attempts to change or waive rules of evidence or fix the method or quantum of proof):

We express no opinion regarding the enforceability of Section __ of [the Agreement] [(if necessary for clarity:) as it relates to [rules of evidence] [or] [issues of] [quantum of proof].

SP No. 12 (Appointment of a receiver):

We express no opinion regarding the effect of California Code of Civil Procedure § 564 on the enforceability of [Section __ of the [Agreement]].

SP No. 13 (Forum selection clauses (non-exclusive) and consents to jurisdiction; where there is a choice of venue):

We express no opinion regarding the enforceability of [Section __] of the [Agreement].

SP No. 15 (Waivers of rights to jury trials):

We express no opinion regarding the enforceability of [Section __] of the [Agreement].

SP No. 16 (All remedies cumulative):

We express no opinion regarding the enforceability of [Section __] of the [Agreement].

SP No. 18 (Waiver of a guarantor's defenses):

We advise you of California statutory provisions and case law to the effect that a guarantor may be discharged, in whole or in part, if the beneficiary of the guaranty alters the obligation of the principal, fails to inform the guarantor of material information pertinent to the principal or any collateral, elects remedies that may impair either the subrogation or reimbursement rights of the guarantor against the principal or the value of any collateral, fails to accord the guarantor the protections afforded a debtor under Division 9 of the [California Uniform Commercial Code] or otherwise takes any action that prejudices the guarantor, unless, in any such case, the guarantor has effectively waived such rights or the consequences of such action or has consented to such action. See, e.g., California Civil Code §§ 2799 through Section 2855; California Uniform Commercial Code § 9-602, Sumitomo Bank of California v. Iwasaki, 70 Cal. 2d 81, 73 Cal. Rptr. 564 (1968); Union Bank v. Gradsky, 265 Cal. App. 2d 40, 71 Cal. Rptr. 64 (1968). While California Civil Code Section 2856, and case law, provide that express waivers of a guarantor's right to be discharged, such as those contained in the [Guaranty], are generally enforceable under California law, we express no opinion regarding the effectiveness of the waivers in the [Guaranty].

SP No. 20 (Arbitration provisions)

We advise you that a court may refuse to enforce [Section __ of the Agreement], which provides [for judicial review of arbitration awards/other reason]. We express no opinion regarding the effect of the inclusion of that provision in [the Agreement] upon the enforceability of the parties' agreement to submit disputes to arbitration.

SP No. 23 (Indemnity/Exculpation of a party in respect of its own misconduct)

We advise you that indemnities may be limited on statutory or public policy grounds. [Exculpation covered by the language proposed for SP No. 6, supra.]

SP No. 25 (Indemnification of securities law liabilities)

We express no opinion regarding the enforceability of [Section __] of the [Agreement] [to the extent that it would require [the opinion giver's client] to indemnify [the opinion recipient] in respect of [the opinion recipient's] violations of securities laws].

SP No. 28 (Unconscionability at time of closing):

If the opinion giver believes that procedural unconscionability exists with respect to one or more provisions of the contract, the opinion giver should decline to deliver an opinion with respect to those provisions, or, if the opinion giver's client consents, should disclose his/her concerns.

SP No. 30 (Waivers of statute of limitations):

We advise you that the waiver of the applicable statute of limitations set forth in Section ___ of [the Agreement] will be subject to the limitations of [the relevant statutory limitation].

Endnotes

1 This addresses only provisions that grant rights of setoff to multiple parties, not provisions that grant rights of setoff against multiple parties. Back

2 If more than one exception is being taken in an opinion, they may be combined with a single lead-in. Back

Appendix 10 / Appendix 10: Annex B / Appendix 11 / Report on Third-Party Remedies Opinions