Most lawyers draft contracts. That's what lawyers do. And they use perceived terms of art ("TOAs") because they want to be paragons of contract-drafting precision. But here is where the canker gnaws: the words that lawyers insert in their contracts as TOAs are actually not, potentially causing problems in clarity and interpretation. And as I've said time and again, these problems lead to disputes, and disputes lead to litigation, which is always time-consuming and expensive for the parties involved.
Let's first define TOAs in the legal context. According to Professor Bryan Garner in his Dictionary of Legal Usage, TOAs have specific, precise meanings that are "locked tight" and based on legal precedent. But then there are the faux TOAs, "whose meanings are often unhinged." Expert contract drafters, Garner says, know that clear, simple drafting is less subject to misinterpretation than using TOAs that are nothing more than "mere jargon."
How many bona fide TOAs exist in the law? According to Professor Emeritus Joe Kimble in Writing for Dollars, Writing to Please: The Case for Plain Language in Business, Government, and Law, probably less than 100. Some examples: plaintiff, bailment, felony. But faux TOAs are rife in contracts. Simply pull up the contracts that you work with (or for the lawyers in the audience, contracts that you drafted) and search for the following - and take heed when they pop up:
- Faux TOA: "material" (as an adjective)
- How commonly used: "material breach," "material default" to trigger contractual remedies. Also used if a contracting party breaches a "material" obligation in a contract.
- Why faux? Vague. What Garner calls a "slipshod extension," i.e., the "mistaken stretching of a word beyond what it is generally accepted as denoting or connoting." Lawyers use "material" in the sense of "significant," thinking that "material" is enshrined in contract case law. It isn't.
- Remedy: Use "non-trivial" as suggested by legal writing expert Ken Adams instead of "material." Or define what events would qualify as a "material" breach or breach of a "material" obligation. Or don't use "material" at all!
- Faux TOA: "reasonable efforts" and variations: "best efforts," "good faith efforts," and "commercially reasonable efforts"
- How commonly used: To hedge (water down) a party's duty to perform a contractual obligation.
- Why faux: "Efforts" provisions are vague. And lawyers mistakenly believe that different "efforts" standards express different meanings. But as contract-drafting expert Ken Adams points out in his acclaimed Manual of Style for Contract Drafting (4th ed), U.S. case law doesn't support that premise. After summarizing the numerous cases discussing "efforts" provisions, Adams concludes that "U.S. courts have overwhelmingly rejected - either explicitly or by adopting an alternative interpretation - the notion that best efforts represents a more onerous standard than reasonable efforts." Further, modifying an "efforts" provision with "good faith" or "commercially" has no significance to a U.S. court's interpretation of the term.
- Remedy: Use "efforts" provisions sparingly. Instead, set specific standards for a party's contractual performance. And consider defining reasonable efforts in your contract. Adams suggests this definition: "Reasonable Efforts means, regarding conduct by a party, the efforts that a reasonable person in the position of that party would use to engage in that conduct competently and promptly."
- Faux TOA: "represents and warrants"
- How commonly used: As an affirmation of fact, that if false, gives rise to misrepresentation and breach of warranty claims.
- Why faux: Again, U.S. case law doesn't support the premise that a contract drafter must use "represents and warrants" to have valid misrepresentation or breach claims against the party making the statement. After a survey of the relevant court decisions, Adams concludes that there is no judicial authority to support the "notion that if you use represents in a sentence, what follows will as a matter of law constitute a representation supporting an action for misrepresentation, regardless of what the sentence says, or that if you use warrants in a sentence, what follows will as a matter of law constitute a warranty supporting an action for breach of warranty, regardless of what the sentence says."
- Remedy: Adams recommends using states to introduce facts and address remedies directly. If the other side argues that states has unknown implications for contractual remedies, add this to the contract: "The verb used to introduce a statement of fact in this agreement does not affect the remedies available for inaccuracy of the statement of fact."
- Faux TOA: "executes"
- How commonly used: As a misleading synonym for signing a contract, e.g., "The parties have executed this Agreement on the 30th day of April, 2022."
- Why faux: Misleading and pretentious. The most common meaning of execute is to implement or perform, as in executing a command or order. (Think Jean-Luc Picard on the Enterprise.) But when the parties are signing a contract, they are doing just that: signing it, not executing it. Their performance (execution) of the contract does not occur after it's signed.
- Remedy: Use signing instead of executing, as in "The parties are signing this Agreement on the 30th day of April, 2022."
- The term indemnify is an established TOA until lawyers use it to apply to a contracting party's obligation to the other contracting party rather than a party's duty to be responsible to the other party for third-party claims.
- Do you need to call out a party's duty to defend a third-party claim, or do you assume that the term indemnify will include the duty to defend? Last I knew, courts are split. Ordinarily, one shouldn't use indemnify without "defend and" in front of it.
- The term consequential (or incidental) damages that is customarily included in a damages disclaimer arguably doesn't include lost profits of the non-breaching party, which most courts will rule are direct damages unless the lost profits arise from collateral business transactions.
- Do you really want to include pandemics in a force majeure provision to excuse a party's performance in view of the fact that we've been living with a pandemic - the Covid virus - for more than two years, and the contracting parties should have adjusted to its impact on their performance by now?
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