Sec. 3.6. Contract Drafting Techniques
A. “Must”, “Shall” “May” and “Will”
- “Must” is the most powerful words because it is unambiguous. It is an imperative which causes a legal obligation to be imposed or a right to be conferred.
- “Shall” is another powerful word for imposing a legal obligation or conferring a right. But it has certain ambiguities. It can be predictive, or an intent to perform an act or omit to act.
- “May” is permissive. It is meant to enable a choice or discretion to act or to omit to act.
- “Will” is predictive in character. Some commentators opine that “will” imposes an obligation and should be used instead of “Shall”. The better practice is to use “Must” or “Shall” to impose an obligation or confer a right.
- “Should” is inherently ambiguous. While it can mean “Must”, “Shall” , “Will”, or “It Would Be Desirable”.
B. Active Language Not Passive Language
- Do Not Write: “The rent shall be paid on the first day of each month.”
Write: “The Tenant shall pay the rent on the first day of each month.” - Do Not Write: “The failure of Tenant to pay the rent on the first day of each month shall not be an uncurable event in default.”
Write: “The Tenant may cure an event in default which was caused by its failure to pay the rent when due.”
C. Present Tense
- Do Not Write: “If a Party should [or shall] die……………”
- Write: “If a Party dies………”
D. “And” and “Or”
Never use “and” and “or” interchangeably. Items connected by “and” will be treated as the same or in the conjunctive. Items connected by “or” will be treated alternatively or in the disjunctive. Never use “and/or”. It is the ultimate ambiguity.
E. “Any” , “Each” and “No”
- If an obligation is to be imposed, use “Each”: “Each Party shall pay its assessment on May 1.”
- If discretion, a power or privilege is to be accorded, use “Any”: “Any Party may pay its assessment on May 1.”
- If an obligation to refrain from acting is to be imposed or a discretion, power or privilege is to be limited or eliminated, use “No”: “No Party shall pay its assessment after May 1.”
E. Number of Days Rather Than Months or Years
Use number of days to measure time rather than calendar periods such as weeks, months or years. Note that “3 months” and “90 days” are not the same time periods. Also, always specify whether the days are calendar days or business days.
F. “Unless”and “As Long As”
Conditions, whether precedent or subsequent, must always be clearly drafted to reflect that they are conditions and not promises. The courts will construe a condition that is also a promise to be only a promise and not a condition. The connectors “Unless” or “As Long As” are language of condition. Use them when the parties intend to create a condition precedent to performance or a condition subsequent for discharge. The connector “Provided” is inherently ambiguous. Depending on the context, it can be construed as either language of condition or as a promise.
G. The “Reasonableness” Clause
A “reasonableness” clause is ambiguous but not inherently ambiguous. It is used to impose a standard or restriction on the time and manner of performance. The context of the contract based on the subject matter, custom/usage in the industry, experience and prior dealing of the parties will define the term “reasonable”.
H. The Legal Terms of Art
A legal term of art is a term that is imprecise in its ordinary usage but which has acquired a particular meaning over years of usage so that it is at least intuitively understood by attorneys and judges. These terms include “promptly”, “commercially reasonable” and “best efforts”. They should be used only when necessary to effect a compromise on language in a “non-deal breaking” provision in a contract.
One of the most abused legal terms of art is “material”. It is most commonly used in connection with determining which event in default is so serious in nature that it causes the contract to terminate or expire or discharges the aggrieved party from further performance. Instead of using “material”, the contract should specify the events in default which are “material”.
I. Use of the Particular and the General
1. List of Particulars
A list of particulars is treated as exhaustive and excludes any item not listed in the list of particulars even if an unlisted item is similar to the items in the list, (referred to as the doctrine of expressio unius est exclusio alterius i.e. the expression of one thing is the exclusion of another).
“The importer shall deliver a country of origin certificate for oranges, lemons and limes.”
No item which is not listed requires a certificate.
2. General Description
A general description which follows a series of particular items includes only those items of the same type or class as the particular items, (referred to as the doctrine of ejusdem generis i.e. of the same kind).
“The importer shall deliver a country of origin certificate for oranges, lemons, lime and any other fruits which he imports.”
Items which are fruits such as apples, grapes and strawberries require certificates. Consider tomatoes.
3. Including but Not Limited To
Consider inserting the clause “including but not limited to”.
“The importer shall deliver a country of origin certificate for all fruits including but not limited to oranges, lemons and lime.”
J. Time
Contracts often contain a “time is of the essence” clause. This clause means that to the extent that particular times for performance are specified in the contract, any failure to strictly comply with any such specified time breaches the contract. The clause negates the common law defense of substantial compliance. The clause is most common in real estate sales contracts and leases.
K. No “Whereas” Clauses or Recitals
“Whereas” clauses and recitals are neither binding nor enforceable unless the contract expressly makes these clauses binding and enforceable. If the parties desire to recount the intent of the parties or the transactional facts upon which the contract is based, write them in an article in the body of the contract or in a warrants and representations provision.
L. Nunc Pro Tunc
Translated from the Latin, the term means “now for then”. The principle underlying the term is that a legal effect can be made retroactive to a date prior to the date of a current legal instrument. Parties can agree that, even though they execute a contract today, the rights and obligations under the contract took effect on a date before today. Backdating of legal documents must be done only with the agreement of each affected party and not for deceptive or fraudulent purposes.
M. Antiquated Legalisms
Antiquated legalisms such as “herein”,“hereof”, “thereof”, “witnessth”, “in witness whereof”, “heretofore” or “wherefore” are not precise and hinder the search for meaning,
N. “Consistent with” and “Pursuant to”
If a party agrees to act “consistent with” a particular contract provision, practice or statute then that party is not subject to that contract provision, practice or statute but must simply act in the same or a parallel manner. If a party agrees to act “pursuant to” a particular contract provision, practice or statute then that party is subject to or governed by that contract provision, practice or statute.
O. “Notwithstanding”
The term “notwithstanding” means “despite” or “in spite of”. It is used to carve out an exception or limitation from the legal force or binding effect of another provision of a contract. Depending on how it is used “notwithstanding” can be ambiguous and imprecise, i.e., “notwithstanding anything to the contrary in this contract” or “notwithstanding any provision of this contract”. Rather than using “notwithstanding”, state the exception or limitation. “Section A shall not apply to Section B”.
P. “That” and “Which”
The connectors “that” and “which” are often used interchangeably. However, each word can have different grammatical effect. “That” is restrictive because it distinguishes one item from the universe of items. “Which” simply adds descriptive information about the item that it modifies. Set off a “which” clause with a comma.
- “The property that is to be sold is located in this state.”
- “The property, which is a commercial property, is located in this state.
Q. Run on Sections or Paragraphs
Break down long provisions into sub-sections. This makes the contract easier to read and avoids suspicion that some unforeseen obligation or term is buried in the lengthy provision.
R. Plain Language
Contracts should also be written in plain language. The rules of the Security and Exchange Commission (SEC) and the Federal Trade Commission (FTC) require that legal instruments which are made available to the public must be written in plain language. The SEC has issued the SEC Plain Language Guidelines which is a guide to plain language.
S. Contract Definitions
An effective means of avoiding ambiguity is to define terms in a definitions section in the contract. The courts will almost always apply the contract definition to a term rather than the ordinary definition. If a term is not defined in the contract, dictionary definitions are persuasive but not conclusive evidence of the ordinary meaning of a term. Note that there are different dictionaries each of which may define the same term in a broader or narrower sense. When asserting a dictionary definition, do not rely solely on one definition in one dictionary but rather provide the definition contained in other dictionaries or explain why one dictionary is more persuasive than other dictionaries.
T. Unilateral Mistake
The courts will not reform a provision of a contract where one party claims that there is a mistake in a provision. The mistake can be a substantive in that a provision does not reflect the actual agreement or a provision has a typographical error. The courts will only reform a unilateral mistake if the mistake is the result of fraudulent conduct by the other party.
U. Extend and Renew
Extending a contract and renewing a contract have different legal effects. They are not interchangeable. To extend a contract means only that time is added to the time during which the contract is in effect but all provisions of the contract remain in full force and effect. To renew a contract means that the legal relationship remains in effect but each of the rights and obligations of the parties are no longer binding and can be re-negotiated.
V. Expiration and Termination
- A contract expires when each party has performed its obligations under the contract or an event occurs which is specified in the contract as an event which causes the contract to expire.
- A contract terminates if, prior to the date of expiration, if the parties agree to terminate the contractual relationship or an anticipatory breach or an actual breach occurs. An anticipatory breach occurs when a party manifests an intent not to perform before performance is due. An actual breach occurs when a party fails to perform when performance is due.
X. Persistent Default Provision
Consider a situation where a party defaults over and over again but cures the default each time. A persistent default provision enables the aggrieved party to terminate the contract and seek damages. Persistent default provisions are most common in leases or other relational contracts. Usually, the provision sets a number of defaults within a set period of time which cause the contract to terminate.
Y. One Word Instead of Multiple Words
Consider a situation where a party defaults over and over again but cures the default each time. A persistent default provision enables the aggrieved party to terminate the contract and seek damages. Persistent default provisions are most common in leases or other relational contracts. Usually, the provision sets a number of defaults within a set period of time which cause the contract to terminate.
(a)
The meaning of the plain language of the contract is determined not according to what a party thought the language meant but rather according to what a reasonable person in the position of a party would have thought the language meant.
(b)
The reasonable person is presumed to know all of the circumstances surrounding the making of the contract and bound by the usages of terms that the parties know or have reason to know.
(c)
The Plain Meaning Rule applies even though the parties never contemplated that the language of a contract would lead to a particular result.
3. Words Given Particular Meaning in Custom, Trade Usage or Course of Dealing
Words that have particular meaning in the context of the custom, trade usage or course of dealing of the contractual relationship, will be accorded that particular meaning even if it differs from the ordinary meaning.
If an ambiguity is found to exist in the language, then extrinsic evidence may be introduced to determine the intent of the parties. Extrinsic evidence can be in the form of oral testimony about the negotiations, the states of mind of the parties, custom and trade usage in the particular industry or course of dealing between the parties. A contract provision is ambiguous if it is reasonably susceptible to different constructions. It is not ambiguous simply because the parties disagree as to the meaning. Whether or not a term is ambiguous is a question of law to be resolved by the court and not by a trier of fact.
Under the traditional application of the ambiguity exception, where the meaning of the term is “plain” either in ordinary usage or in a particularized usage, then no ambiguity exists and extrinsic evidence of the meaning of a term is not admissible. Under the modern trend, if a term is “reasonably susceptible” to the meaning asserted by a party, then extrinsic evidence of the meaning of the term is admissible.
The Plain Meaning Rule has been criticized by many commentators. They have remarked that, because there are inherent linguistic limits on how precise a word can be, it is both unconstructive and unfair to rely exclusively on the written document to determine the intent of the parties. Moreover, determining whether or not an ambiguity exists is so subjective as to be almost arbitrary. Any competent evidence that is reasonably calculated to elucidate the intent of the parties should be considered.
Despite the criticism, the Plain Meaning Rule is followed in most jurisdictions. Therefore, attorneys must draft contracts not only to avoid ambiguities that are inherent in language but also to avoid ambiguities that may be found by the courts. This is an extremely difficult endeavor because, as one court has pointed out, contract interpretation is largely an individualized process. If the same contractual language from prior cases significantly differs from the contract being interpreted, prior cases cannot control. This means that the use of the principle of stare decisis is limited.
The Plain Meaning Rule is not to be confused with the Parol Evidence Rule. Under the Parol Evidence Rule, where a written contract contains an integration clause which states that it is the final and full expression of the agreement between the parties, no prior oral or written agreement or negotiation or custom/usage can be admitted into evidence in a legal proceeding that adds or removes any term or provision from an integrated written contract.
The Parol Evidence Rule is a substantive rule of contract law or a rule of evidence but not a rule of interpretation. The Parol Evidence Rule is used to determine the content of the contract i.e. which terms and provisions are to be included in the contract. The Plain Meaning Rule is used to determine the meaning or legal effect of the terms and provisions of the contract.
B. Interpretation of Words Construed Against Drafter
In choosing among alternative reasonable meanings of a word, the preferred meaning will be the one that operates against the interest of the drafter of the disputed words, (referred to as the rule of contra proferentum). This parties must be in equal bargaining positions.
C. Accord Meaning to All Terms
Parties are assumed to intend legal and practical consequences when they enter into a contract. Where two interpretations of a term are possible in a contract and one such interpretation would render the term or the contract without legal or practical effect, the interpretation that accords legal or practical effect to the term or contract prevails.
D. Conflicting Terms
Where two terms conflict with one another, the more specific term will be deemed an exception to the more general term. Where part of the contract is handwritten or typewritten and part of the contract is printed and the handwritten or typewritten parts conflict with the printed part, the handwritten or typewritten parts will control.
E. The Doctrine of the Last Antecedent and the Doctrine of the Series Qualifier
1.
Under the doctrine of the last antecedent, a modifying or limiting clause modifies or limits only the words or phrases immediately before the modifying or limiting clause and not the words or phrases that are physically remote from the modifying or limiting clause. Examples:
The tenant shall pay the rent, real estate taxes, electric bills and water charges on the first day of the month.
Interpretation: The tenant is required to pay only the water charges on the first day of the month.
(b)
Redraft: On the first day of the month, the tenant shall pay the dollar amount of each of the rent, real estate taxes, electric bills and water charges.
2.
Under the doctrine the series qualifier, a modifying or limiting clause modifies or limits each word or phrase in a series of words or phrases as long as they are in parallel construction and the modifying or limiting clause was clearly intended to modify or limit each word or phrase in the series. Examples:
The doctor shall diagnose, medicate, and treat each symptom using the highest professional standards.
Interpretation: The clear intent is that the doctor uses the highest professional standards for “diagnose” and “medicate” and not just for “treat”.
(b)
Suggested Re-Draft: Using the highest professional standards, the doctor shall diagnose, medicate, and treat each symptom.
F. Canons of Interpretation
The canons of interpretation derive from the 17th Century British jurist Blackstone who included ten such canons in his Commentaries. The canons are not rules of law but rather “rules of thumb” or “axioms of experience” by which legal meaning can be inferred. The canons have been criticized over the years. One commentator has written that for each canon there is an equally correct but opposing canon. Although the canons have been criticized, the courts still resort to them so the drafter must know them.
1.
“Expressio unius est exclusio alterius” – The expression of one thing excludes any other things.
If a provision enumerates specific items or specific exceptions to a general prohibition, other items or exceptions not so enumerated will not be implied.
Example:
A provision states that constituent must deliver written notice of dissociation. A court will not imply that oral notice satisfies this provision even though oral notice is reasonable under the circumstances.
2.
“Noscitur a sociis” – A word is known by the company it keeps.
Words that are grouped together in the form of a list are deemed to have a related meaning. This rule limits a broad term to the attributes that the broad term has in common with the terms with which it is grouped.
Example:
A provision states that the entity shall indemnify a constituent for the dollar amount of “filing fees, court costs and brief reproduction”. The entity is not obligated to indemnify the constituent for attorneys’ fees.
3.
“Ejusdem generis” – Of the same kind.
Where general words follow an enumeration of specific items, the general words apply only to other items that are similar in nature or function to the items specifically enumerated.
Example:
A provision states that a constituent is authorized to make withdrawals from entity accounts, prepare financial accounts, file tax returns and other management duties. The general term “other management duties” does not include hiring and firing employees.
G. Scrivener’s Error
A contract can be reformed where there has been an error in the text when it was reduced to writing. If the intent of the parties remains the same despite the error it is a mutual mistake. The error can be corrected using the equitable remedy of reformation. If a party asserts that correcting the error would alter the intent of the parties, then it is a unilateral mistake for reformation is not available.