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Experienced M&A practitioners know that the implied covenant of good faith can sometimes be used effectively as a wedge to pry open seemingly airtight contractual provisions in the name of “filling gaps.” However, many may not appreciate that, according to a recent Business Law Today article by contract guru Glenn West, an agreement’s “further assurances” clause can serve the same function.

Further assurance clauses typically include language to the effect that the parties are obligated to “take, cause to be taken, such further actions, as may be necessary, proper or advisable to evidence and effectuate” the transactions contemplated by the agreement.  As this excerpt from Glenn’s article explains, there’s potentially more to this “boilerplate” than meets the eye:

While further assurances clauses are generally used to obtain an additional document necessary to fully evidence a transfer of assets in connection with the closing of a sale and purchase transaction, they are not necessarily limited to that purpose, particularly when they appear in an agreement governing an ongoing relationship.

Further assurances clauses have generally been described as “catchall contract provision[s] by which a party, after making a precise commitment to perform in some manner, makes a vague, more general commitment to take other actions that are incidental to, and necessary for, the performance of the core commitment.”

While “[s]uch a provision does not create a new obligation,” it may require parties to take additional actions that are consistent with the other express terms of the contract. One commentator has even described a further assurances clause as follows:

A further assurances provision is the exclamation point on the parties’ agreement. In the other parts of the agreement, the parties define their mutual objectives and detail their specific commitments to each other. By contrast, a further assurances provision is a general provision designed to require the parties to exercise a certain degree of effort to achieve the agreement’s overall objectives. It recognizes that parties do not and cannot contemplate and draft for every contingency. Thus, the further assurances provision serves as a gap filler and a back stop.

If that sounds a bit like an express version of the implied covenant’s gap-filling function, it should. One court has even suggested that “how other courts interpret the obligation to behave in good faith may suggest how a court should interpret the language contained in the Agreement’s further assurances clause.”

The article goes on to discuss how Vice Chancellor Laster interpreted the obligations imposed by a further assurances clause in a manner similar to those that might be imposed by the implied covenant in his recent decision in Facilities Holdings, LLC v. ASM Global Parent, LLC, (Del. Ch.; 6/26).

– John Jenkins