Ancillary Documents Defined
Ancillary documents refer to additional legal or financial paperwork that support and complete the main documents involved in a transaction. In the context of a business transaction, a closing statement may represent an ancillary document. In this case, a closing statement exists in addition to the main transaction, such as the settlement agreement between the parties undergoing the transaction. The closing statement contains most of the relevant material from the original contract in order to summarize it.
The term "ancillary" means subordinate, and these documents serve a behind-the-scenes capacity to provide context and additional detail to the main documents involved in a specific negotiation . The ancillary documents exist along with the main documents to facilitate the agreement or transaction for which the documents are intended.
For example, in a real estate transaction, an ancillary document is any document other than the title deed (main document) that is relevant to the transaction in question. The main document—the title deed—state the ownership of the property. Ancillary documents that support real estate transactions include: inspection reports, insurance policies, leases on any equipment on the property, warranties, environmental reports, survey reports, loan documents, use restrictions, chains of title, easements, licenses, covenants and expense reports.
Examples of Ancillary Documents
Ancillary documents can take many forms. They can be amendments, schedules, exhibits, addendums, side letters, orders, statements and certificates. While courts refer to a broad range of documents as ancillary documents, all ancillary documents share a common purpose, i.e., to provide necessary details required to complete the transaction. It is therefore often necessary to comb through mountains of papers to find that one magical sentence or paragraph containing the description of what is sought in the ancillary process.
Amendments are used when the parties wish to modify a contract or an instrument. Amendments may be unilateral or bilateral. For example, a state agency may agree to an amendment to broaden the scope of software license agreement to include other hardware and software products. Where the parties seek to amend an agreement to address a concern that the parties’ past conduct could be construed as waiving or amending a provision of the contract, they may do so by executing a non-waiver agreement. A non-waiver agreement may also be desirable if parties are amending the terms of a contract that the parties have performed under. The parties may also wish to revoke each of the parties’ prior authority to modify the security interests granted in the various security instruments that secure the debtor’s debts to the lender by executing a release and revocation amendment.
Schedules are sets of information or documents provided with an agreement as an exhibit or an attachment. For example, schedules of excluded merchants may be attached as an exhibit to a credit card processing agreement. In this example, the schedule of excluded merchants is ancillary to the merchant agreement because it provides information necessary to the approval process. Schedules of excluded vendors also appear as attachments to certain credit card processing agreements. Not all schedules are provided as attachments to an agreement or as an exhibit. Some schedules, such as financial statements, may appear in an exhibit or an annex to an agreement as part of the agreement itself.
Exhibits are documents attached to an agreement that are referenced in the agreement itself. An example of the use of an exhibit is the license grant language in a software license agreement where the software license agreement refers to software to be licensed through an exhibit proposed by the customer. In this example, the license grant language, i.e., a term of the license agreement, is referenced in the agreement itself by referring to the exhibit proposed to be provided by the customer.
More than one type of ancillary document may appear in a single agreement. For example, a software license agreement may contain provisions that are set forth in an exhibit or an attachment, i.e., a use schedule, while the parties amendments may appear at various places in the agreement. A merger agreement may incorporate by reference an exhibit that is an opinion letter. The complaint filed by a lender in a lending transaction may also incorporate the credit line agreement by reference and also contain the signed and dated release and revocation amendment as an exhibit or an attachment. In each of these examples, there are degrees of separateness or separability of the parties’ rights under the various terms and documents.
For the purposes of obtaining an ancillary judgment, the types of ancillary documents incorporated by reference or attached to the relevant agreement are not exclusive. Other documents containing terms and provisions that provide or purport to provide information about the agreement or the parties’ obligations under the agreement may also be identified as supporting a creditor’s position that it is entitled to a free standing judgment. These supporting documents may include agreements for which the creditor is not a party. The supporting documents need only provide or purport to provide details needed to assist the court in deciding the creditor’s application for judicial approval of an ancillary judgment.
Role of Ancillary Documents in Contracts
Ancillary documents are often crucial to bringing clarity and certainty to contractual relationships. They might simply explain the terms set out in the main body of the contract in clearer language or might provide additional insight into what is meant by certain clauses in the main body. These documents should not be viewed as mere additions to the contractual document; they can be considered equally important to the parties’ determination of A, B and C after the contractual relationship has commenced. If prepared properly, they will resolve uncertainties and indicate obligations and rights at an early stage after signing.
Who Commonly Utilizes Ancillary Documents
As is often the case in law, ancillary documents can be of particular significance to a wide range of industries. A few where they are particularly common are:
Real Estate
Properties and structures of all kinds involve numerous legal nuances that frequently require ancillary documents. Indeed, in many residential real estate transactions, contracts have strong boilerplate provisions regarding the fiduciary duty of real estate agents that cannot be modified by simple email or letter exchanges (though lessors often use a "Modification of Lease" form that essentially allows amendments through emails). These are generally standard brokerage commission agreements. For properties of even greater value, such as for commercial real estate, broker commissions are almost always paid through these standard agreements, which often entail review by lawyers for both the buyer and seller.
Mergers & Acquisitions
Because of their complexity, mergers and acquisitions are one of the areas where boilerplate standard forms are most likely to lead to disputes later on. The asset purchase agreement, for example, is one of the most common. It specifies the conditions under which a party will acquire a particular business, usually for a certain amount that includes cash, stock, or securities. Accompanying schedules can often total hundreds of pages codifying important aspects like representations and warranties that the entity involved has clear title to all of its assets, no litigation with employees or customers, usage of the business name intellectual property, absence of environmental contaminants, a variety of tax matters, and more. Other commonly used agreements include the agreement and plan of merger, stock purchase agreement, agreement for panel purchase, stockholders’ agreement, franchise agreement, earnout agreement, and employment agreement. All of these are often of particular importance to longterm profitability, stability, and growth, and usually require many pages to specify conditions and schedules of obligations.
Corporate Law
A number of ancillary documents are customarily used as part of corporate law practices. Most have multiple versions, with distinctions ranging from the type of business entity such as an S corporation, C corporation, or a limited liability company to payment or performance type agreements. Common collateral agreements include articles of incorporation, bylaws, shareholder or partnership agreements, purchase agreements, and service agreements. As with business agreements, any preformulated arrangement usually requires modification by parties involved.
How to Draft Ancillary Documents
The best ancillary documents are prepared at the same time that the primary document is being drafted. Ancillary documents will rarely be seen or understood by the other side, but they should be drafted correctly because they matter to the client. Such documents can fail to accomplish their intended purpose, be expensive to revise, or need professional drafting assistance before being presented to the other side.
In order to be most effective, ancillary documents should be clear and specific enough to fully carry out their intended purpose. They should not be vague , ambiguous or overly broad. The level of specificity required will depend on the other parties and the nature of the primary document. An ancillary document supporting an equity transfer might need to specify many of the same terms found in a stock purchase agreement. A letter of intent for a joint venture might only need to identify the parties.
Most importantly, ancillary documents should be consistent with the terms and purpose of the primary document. For example, if a licensing agreement has limited territorial scope, royalty payments, or termination events, then a license agreement amendment purporting to authorize an expansion of those provisions will likely be invalid. Inspectors, surveyors, accountants, and financial consultants are good examples of experts who might be consulted to provide advice on preparing ancillary documents.
Legal Implications and Regulations
The creation of ancillary documents is not only a technical exercise for defining relationships and clarifying expectations, but is also a necessary step to ensuring you are compliant with both statutory and judge-made law. Drafting of ancillary documents is governed by the same principles of contractual interpretation that apply to principal agreements. This means that, among other things, both types of documents must not contradict each other, and they must be properly executed in order to be enforceable in court.
For example, when a supplier provides a warranty or guarantee (which are unique forms of ancillary documents) that contradicts the terms of the principal agreement, an issue of enforceability arises. The latter agreement may be held to be invalid as a result. In this case, the most recent terms will govern as between the two parties if they are not inconsistent between those primary and secondary documents, they have been properly executed and there has been no intention to contract out of the terms of the primary agreement.
Competition law is also an issue for consideration when creating ancillary documents. A manufacturer who is attempting to protect its intellectual property by way of a reliance on a non-compete agreement must ensure that such an agreement is both reasonable in its scope and contributes to the purpose of the primary agreement. Abuse of this type of restrictive covenants puts an employer at risk of being in breach of anti-competition law.
Potential special considerations arise in the context of construction contracts and real estate leases which require drafting of unique types of agreements, such as indemnity, waiver and hold-harmless provisions. These may limit any claims a tenant or homeowner may have in the event of a defect or deficiency in the work done to the property. Enforceability of these types of provisions is a function of the common law, however, courts treat waiver and indemnity as two distinct concepts. While they are similar, waiver provisions primarily address the dispute settlement process whereas indemnification provisions primarily address money owed. Both, however, are subject to separate rules of interpretation.
Challenges and Solutions
While ancillary documents, such as affidavits, declarations, or stipulations, typically serve to provide supplementary information or context for the primary document in a legal process, they can sometimes give rise to challenges. One common problem is that these documents can be inconsistent with the primary process or even with each other, creating confusion about the intent of the parties. For instance, an affidavit may contain statements that contradict a complaint, or a stipulation may provide terms that do not align with a settlement agreement.
Another potential issue involves objections to the legitimacy or sufficiency of the ancillary documents themselves. In some cases, the validity of an affidavit may be called into question due to issues such as improper notarization, lack of personal knowledge, or relevance. Similarly, objections to a declaration may be based on grounds such as hearsay, lack of foundation, or procedural deficiencies. These challenges can lead to delays in court proceedings and in the overall progress of a case.
These challenges can be overcome through careful drafting and scrutiny of both primary and ancillary documents. A comprehensive review of all related documents is critical to ensure they are consistent with each other and with relevant laws and regulations. This includes verifying that the information contained in the primary document , such as a complaint or motion, is supported and amplified by the ancillary documents, without creating contradictions or discrepancies.
When drafting ancillary documents, parties should ensure that the information contained within them is relevant, material, and specific to the claims or defenses at issue in the case. In the case of affidavits and declarations, they should be carefully reviewed by an attorney to confirm that all factual assertions are admissible, reliable, and sufficient to support the position being advocated.
When inconsistencies or challenges arise, it is crucial to address them promptly and effectively. Consulting an attorney experienced in handling ancillary issues can help inform strategies for revising or supplementing the ancillary document or responding to challenges elsewhere. In some cases, this may involve submitting a supplemental declaration to clarify any inconsistencies, while in others, it might be necessary to seek leave of court to amend certain documents. At all times, parties should act with diligence to remedy any issues that may negatively impact their case or the outcome of a proceeding.