Finding Middle Ground: How Purchase Agreements Work

To understand why certain provisions in the Agreement are important, it’s necessary to understand how they interact with one another and how they are enforced.

The Purchase and Sale, Closing, Conditions to Closing, Termination, and Miscellaneous sections are all enforceable through typical contract law principles, meaning that if one of those sections is violated the injured party can bring a lawsuit claiming breach of contract.

On the other hand, the Representations and Warranties (of both parties), Covenants, and Indemnification sections are all tied together by the fact that the Representations and Warranties and Covenants are enforced through the Indemnification section. Because the representations, warranties, and covenants are some of the most important risk management tools utilized in transactions, the indemnification terms become equally important to preserve the effectiveness of those tools. In short, you can get the best representations, warranties, and covenants in the world, but if the indemnification terms don’t provide for meaningful enforcement of them they will be rendered toothless and ineffective. 

Defined Terms 

Although this document skips over the “Definitions” section of the Agreement, the defined terms are essential to understanding the Agreement itself. Perhaps the most difficult aspect of deciphering some contracts is understanding the implications that follow from the use of defined terms in the body of the contract. To help you get accustomed to the use of defined terms, throughout this resource we have capitalized terms that are defined in the Agreement when they are used as defined. If used in a more general sense, the terms are not capitalized (for a good example of contrasting uses, examine the uses of “business” and “Business”).