Contract drafters can influence the interpretation of a contract. They cannot influence the legal qualification of the contractual relationship (unless certain qualifiers are taken out or added). Still, in many (mostly common law originating) contracts a miscellaneous clause is inserted that emphasises the non-existence of a legal quality or qualification. This blog post is about the redundancy (non-sense) of such clause.
The discussion below also appears in today’s free eBook (on Miscellaneous (boilerplate) clauses, part 1 (click here to download).
Although the categorisation of a contract or contractual obligation is a matter of law, in certain contracts originating from a common law environment there may be disclaimers such as:
Independent contractors. The Parties are independent contractors. Nothing in this Agreement shall be deemed to constitute a partnership or joint venture between the Parties or constitute any Party to be the agent of the other Party for any purpose.
The purpose of the clause is to avoid the consequences of an unwanted legal relationship. For example, if a contract, obligation or ‘legal act’ would entail a certain level of dependency, partnership or joint venture; in common law countries, such circumstances may create an unwanted legal structure with undesired (financial or tax) obligations. This imposes important ‘duties of loyalty’ upon the fiduciary, such as a duty to disclose all conflicts of interest and a duty to subordinate the fiduciary’s own interests in favour of those of the other party. However, a contractual denial of the existence of such relationship or facts is not likely to be determinative of the legal effect, at the same time, consider whether the unwanted relationship is realistic at all.
No authority. A more valuable miscellaneous clause would be to provide expressly that the contract does not implicitly grant a power or authority of one party to act on behalf of the other party. This is because the agency doctrine of ‘apparent authority’ may apply. Under this doctrine, a person becomes bound by the acts of someone else, its agent, if after becoming aware of those acts, the former, as (apparent) principal, has been behaving in an acquiescent manner or must otherwise be deemed to have (tacitly) accepted the consequences of such acts (by its apparent agent). An argument to support the opposite intentions is reflected in the following sentence of an ‘independent contractors’ clause. Note, however, that since such provision is not also addressed to unrelated third parties acting in reliance on the representative’s acts, its effectiveness is limited to the internal relationship between the ‘apparent principal’ and its ‘agent’:
No Party shall have any authority to act for or bind the other Party in any way, or to represent that it has such authority.
Typically, a miscellaneous clause on ‘independent contractors’ is dispensable. A stipulation that one party shall not represent the other is of limited use.