Table of contents

Drafting contracts

(d) ‘Subject to…’

Subject to in contracts: priority or hierarchy? Subject to introduces a priority of clauses. Obligations sometimes contradict or overlap each other. Obviously, a contradiction should be clarified; and an overlap of provisions would require revision or a clarification as well. In most cases, the issue is solved by the words Subject to section…, indicating the hierarchical interaction between both provisions. In other cases, a hierarchy of provisions is not present but indispensable for one party. Also in these cases the hierarchy of clauses can be indicated by the words Subject to….

Subject to the terms of this Agreement. The phrase Subject to the terms of this Agreement (or, equally, subject to the terms and conditions of this Agreement) is often superfluous for its being overly broad. Clearly, the rights and obligations of the parties to a contract must be established by considering the agreement as a whole rather than each clause in isolation. But property law aspects interfere in this respect. This would in particular be the case with a sale and transfer of a right or good under a contract governed by the laws of a jurisdiction of the Roman legal tradition or by the laws of Germany (because Germany applies the so-called abstract system for a transfer of ownership): The seller will want to ascertain that the transfer of the right or goods (e.g. embodied in section 2.1 of the sales agreement) is conditional on the due performance of all other key obligations. If the conditionality is not present, a non-performance by the purchaser will leave the seller with the goods or rights being transferred and a claim for payment of the purchase price. If the conditionality is established and the purchaser breaches its obligations, the seller is deemed (in hindsight) to have remained the owner and has a claim for damages.

Case law has largely smoothed the effects of the underlying legal concepts but not entirely. For example, if a party grants the other party an option in one section and the exercise price and exercise period in other sections, it would be inconceivable that the option is without an exercise price or exercisable indefinitely. It is nevertheless recommended to establish an express link at least between key obligations of an agreement.

Best practice rules. The words Subject to… should not be used to supplement a provision or merely to link two or more clauses. Also, undercutting a clause to other provisions should be specific (i.e. referring to specific sections) and, if possible, not generically be referring to this Agreement. Avoid combining the words subject to with except as provided in one sentence.

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Drafting contracts

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