C O N T E N T S
List of Tables
xvii
List of Samples
Preface
xix
xxi
Introduction
CHAPTER 1
xxv
The Front of the Contract
The Title
1
The Introductory Clause
2
Format
3
Reference to the Type of Agreement
Verb
4
Date
4
“Between” Versus “Among”
7
Identifying the Parties
8
Parties with a Limited Role
8
Referring to Lists of Parties
9
Describing the Parties
9
Defined Terms for Party Names
12
The Defined Term “This Agreement”
Recitals
1
3
17
18
Function
18
Giving the Recitals a Heading
20
Enumeration
20
Use Simple Narrative Prose
20
Using “In Accordance with this Agreement” in Purpose Recitals
Incorporation by Reference
21
“True and Correct”
22
Defined Terms in the Recitals
22
The Lead-In
21
22
Wording
22
Consideration
23
Giving a Heading to the Body of the Contract
26
Cover Sheet, Table of Contents, and Index of Defined Terms
26
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CHAPTER
2 Categories of Contract Language
Preliminary Note—Using the Third Person
Language of Agreement 28
Language of Performance 29
27
28
Use of “Hereby” in Language of Performance
29
Don’t Use the Passive Voice in Language of Performance
Other Problematic Usages
31
Indicating Absence of Performance
31
Language of Obligation
30
31
Language of Obligation Imposed on the Subject of a Sentence
32
Language of Obligation Imposed on Someone Other Than the Subject
of a Sentence
40
Language of Discretion
45
Using “May” to Convey Discretion
45
Whether Discretion Is Limited
47
The Ambiguity Inherent in “May . . . Only”
48
Using “May” to Convey Possibility
49
“May Require”
50
Using “At its Discretion” with “May”
51
“May” and the Timing and Frequency of Permitted Actions
55
“Hereby Grants . . . the Right To”
56
Using “Is Entitled To” in Language of Discretion
57
Using “Is Not Required To” in Language of Discretion
58
Discretion by Way of an Exception to Language of Obligation
60
Language of Prohibition
60
Using “Shall Not” in Language of Prohibition
60
Using “May Not” in Language of Prohibition
60
Using “Is Not Entitled To” in Language of Prohibition
61
Prohibition by Way of an Exception to Language of Discretion
Choosing Between Discretion and Prohibition for an Action
Subject to Consent
62
Language of Policy
61
62
Tenses to Use in Policies
62
Passive-Type Policies
64
Don’t Use “Shall” in Policies
65
Expressing Conditions
65
Conditional Clauses
65
Language of Policy Used to Express Conditions
68
Language of Obligation Used to Express Conditions
Language of Declaration
70
71
Representations
72
Acknowledgments
72
“Shall” and “May” in Restrictive Relative Clauses
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CONTENTS
CHAPTER
3 Layout
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vii
75
The Components of the Body of the Contract
75
Articles
75
Sections
75
Subsections
80
Enumerated Clauses
80
The MSCD Enumeration Scheme
85
Using a Two-Column Format
85
Arranging Provisions in the Body of the Contract
87
Division
87
Classification
87
Sequence
87
Frontloading 89
Cross-References 90
Function
Wording
Updating
CHAPTER
90
91
92
4 The Back of the Contract
The Concluding Clause
95
95
The Two Kinds of Concluding Clause
95
Using “Signing” Rather Than “Executing and Delivering”
Which Tense to Use
97
Using an “As Of” Date in the Concluding Clause
98
Traditional Concluding Clauses
98
Avoiding Signature-Page Mix-Ups
99
The Signature Blocks
99
Format
99
Parties with Limited Role
101
Seals
101
Witnessing Signatures
102
Notarizing Signatures
103
Signing a Contract Electronically
103
Blank Space After the Body of the Contract 104
Giving the Signature Page an Identifying Notation
Attachments 105
Kinds of Attachments
105
References to Attachments
105
Exhibits
105
Schedules
106
Attachments as Part of a Contract
Virtual Attachments
109
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104
108
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CHAPTER
5 Defined Terms
111
Purpose 111
The Nature of Defined Terms 111
Selecting Defined Terms 112
Types of Definitions 113
Autonomous Definitions
113
Integrated Definitions
116
Which Type of Definition to Use
The Definition Section 121
120
Versus Defining Terms On Site
121
Where to Place the Definition Section
Cross-References to Definitions
122
123
The Index of Defined Terms
123
Referring to the Definition Section
124
When a Defined Term Is Used Before It Is Defined
Use Defined Terms Efficiently
CHAPTER
124
125
6 Sources of Uncertainty in Contract Language
127
Ambiguity 127
Undue Generality 128
Inconsistency 129
Redundancy 129
Conflict 130
Vagueness 130
CHAPTER
7 “Reasonable Efforts” and Its Variants
The Function of “Efforts” Provisions 133
The Spectrum of “Efforts” Standards 133
What the Different “Efforts” Standards Mean
133
134
The Semantics of “Best Efforts” and “Reasonable Efforts”
The Semantics of Other “Efforts” Standards
136
The Semantics of “All Reasonable Efforts”
136
U.S. Caselaw
136
Other Caselaw
138
The UCC
139
134
Enforceability of “Efforts” Provisions 140
Determining Whether a Party Has Made Reasonable Efforts
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Establishing a Benchmark
141
Balancing Without a Benchmark
Narrowly Directed Efforts
142
143
144
The Wording of “Reasonable Efforts” Provisions
CHAPTER
146
8 “Material” and “Material Adverse Change”
Material
ix
142
Use Only “Reasonable Efforts” 143
Defining What “Reasonable Efforts” Means
The Core Definition
Carve-Outs
144
■
149
149
A Source of Ambiguity
149
How “Material” Is Used
150
Defining “Material”
152
Defining “Significant”
153
Limiting Use of Qualifications
Basic Protection
155
Material Adverse Change
154
156
Using MAC
156
Defining MAC
164
CHAPTER
9 References to Time
Points in Time
181
181
The Prepositions
182
When in a Given Day a Point in Time Occurs
Alternatives to Ambiguity
183
Specifying the Time of Day
184
Time Zones
185
Periods of Time
183
186
Forward-Running Periods of Time
186
Backward-Running Periods of Time
187
Avoid Using “Within”
188
Which Unit of Time to Use
188
Using “On” to Denote a Day-Long Period of Time
Apportioning Quantities Per Unit of Time
The Possible Meaning of Certain Units of Time
Handling Short Periods
191
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190
190
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CHAPTER
10 Ambiguity of the Part Versus the Whole
Plural Nouns
193
Subject Ambiguity
193
Direct-Object Ambiguity
194
Subject-and-Direct-Object Ambiguity
“And”
195
195
Subject Ambiguity
196
Direct-Object Ambiguity
196
Subject-and-Direct-Object Ambiguity
198
Multiple Verb Phrases
198
Ambiguity of Direct Object Plus Objects of Preposition
The Effect of Adjectives
200
The Ambiguity of “Every X and Y”
202
“Or”
193
199
202
Background
202
As Applied to Contracts
Plural Nouns
205
The Effect of Adjectives
204
207
“And/Or” 209
“And . . . Or” 210
“Every,” “Each,” and “Any” 210
Practical Considerations 212
Minding Your “Ands” and “Ors,” and Supplementing Them
On Seeking to Eliminate Every Ambiguity
213
CHAPTER
11 Syntac c Ambiguity
Modifiers
212
215
215
Modifiers Preceding or Trailing Two or More Nouns
Modifiers Occurring Between Two or More Nouns
Squinting Modifiers
219
Modifiers of Uncertain Length
219
Poorly Placed Modifiers
220
Opening and Closing Modifiers
221
“That” and “Which”
215
218
223
Background
223
Current Usage
223
Recommendation
225
Commas
225
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CHAPTER
12 Select Usages
“Action or Proceeding”
“Applicable” 227
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227
227
“Applicable” Plus Noun
227
The Verb “To Be” Plus “Applicable”
“As Applicable”
229
228
“Arising Out Of and Relating To” 229
“As Amended” 229
“As the Case May Be” 231
“Automatically” 231
“Basis” (Including “Timely”) 232
“Bylaws” 233
“Certain” 234
“Certify” 234
“Change in Control” or “Change of Control”?
“Competitive” 235
“Complete and Accurate” 235
“Costs and Expenses” 237
“Coupled with an Interest” 237
“Deem” 239
“During the Term of This Agreement” 240
“Execute and Deliver” 240
“Form and Substance” 242
“For the Avoidance of Doubt” 243
“From the Beginning of Time” 245
“Guaranty” and “Guarantee” 245
“Half” and “50%” 246
“Here-“ and “There-“ Words 246
“Including Without Limitation” 246
234
Illustrative Versus Restrictive
247
Few Cases Holding That “Including” Is Restrictive
248
Weak Caselaw Holding That “But Not Limited To” Makes
“Including” Illustrative
248
Cases Disregarding “But Not Limited To” in Holding
That “Including” Is Restrictive
249
Conclusion
250
How to Avoid Any Uncertainty
251
“Incorporated by Reference” 251
“Indemnify”—Whether to Say “Hereby Indemnifies” or “Shall
Indemnify”
253
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“Indemnify and Hold Harmless”
253
Meaning
253
Risks of Using “Indemnify and Hold Harmless”
“Defend”’
255
“Indenture” 255
“It Being Understood” 256
“Joint and Several” 258
“Knowledge” 258
Money—Stating Amounts Of
260
Words and Numerals
259
Decimal Fractions
259
Very Large Amounts
260
Currencies
260
Provision Specifying Drafting Conventions
“Moral Turpitude”
254
261
261
Background
261
What Crime?
262
Involving?
263
Exclusion?
263
What Procedural Posture?
264
Which Jurisdiction?
264
Doubling Up?
264
Recommendation
265
“Mutatis Mutandis” 265
“Mutual” and “Mutually” 266
“Notice”—The Apostrophe in “Five Days’ Notice” 267
“Notice” and “Prior Notice” 267
“Notwithstanding,” “Subject To,” and “Except as Otherwise
Provided In” 269
“Notwithstanding”
269
“Subject To”
270
“Except as Otherwise Provided In”
271
Eliminating Nullified Provisions
271
Obligations—Some Terminology
272
“Obligation” Versus “Covenant”
272
“Obligation” and “Prohibition”
273
“Obligation” Versus “Duty”
273
“Perform” and “Comply With”
273
“Breach” and Its Alternatives
273
“Only” 274
“On the One Hand . . . On the Other Hand”
274
To Indicate Which Conjunction Has Scope Over the Other
To Divide a List into Two Categories
276
Used Unnecesarily
276
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Parentheses 278
“Party” as an Adjective 278
“Promptly” and “Immediately”
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278
“Promptly”
279
“Immediately”
280
The Semantics
281
Recommendation
282
“Provided, However, That” 282
“Representations and Warranties”
284
Distinguishing Between Representations and Warranties
Significance of Use in Contracts
286
Which Term to Use
288
Jurisdictions Outside the U.S.
289
Representations—Certain Related Terminology
“Respective” and “Respectively” 291
“Respective”
“Respectively”
284
290
291
292
“Said” Used as a Pointing Word 293
“Same” Used as a Pronoun 294
“Satisfactory” 294
“Stockholder” or “Shareholder” 295
“Such As” 295
“Such” Used as a Pointing Word 297
“Survival”
298
Survival of Claims
298
Survival of Provisions
299
Survival of Representations
300
“Termination” and “Expiration”
“Termination for Convenience”
300
302
The Implications of “Termination for Convenience”
Alternative Language
303
302
“That Certain” 304
“The Earlier [or Later, Greater, or Lesser] of X and Y”
“Third Party” 305
“Throughout the Universe 306
“Time Is of the Essence” 307
Trademarks—References To 308
All Caps or Initial Caps?
309
Registration Symbol or No Registration Symbol?
Relationship to Trademark Guidelines
311
305
310
“Unless the Context Otherwise Requires” 312
“Unless the Parties Agree Otherwise” 312
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The Virgule, Also Known as the Forward Slash 312
“Warrant,” “Warrant Certificate,” and “Warrant Agreement”
“Warranty” 313
313
Background
313
Definition of “Warranty” and “To Warrant”
313
Using the Verb “To Warrant” to Introduce a Statement of Fact
314
Using the Verb “To Warrant” to Introduce an Obligation
315
Using the Word “Warranty”
316
“Willful” 316
“Without Limiting the Generality of the Foregoing” 317
Words that Don’t Belong in the Body of the Contract 319
CHAPTER
13 Numbers and Formulas
Words or Numerals
Formulas 322
321
321
Using Prose
322
Using Mathematical Equations
Consecutive Ranges of Numbers
329
330
Distinguishing Between “Stepped Rates” and “Shifting Flat
Rates”
330
Gaps and Overlaps
332
CHAPTER
14
Provisions Specifying Dra ing Conven ons
Provisions that Might Be Moderately Useful
Provisions that Should Be Redundant 336
Provisions to Avoid 338
CHAPTER
335
15 Typography
Typefaces
335
341
341
ClearType
343
Aesthetic Considerations
344
Compatibility
345
Serif Versus Sans Serif
346
Weighing Change
346
Justification 347
Emphasis 348
Emphasizing Names and Article Headings
348
Emphasizing Section Headings and Defined Terms
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What Not to Emphasize
Emphasizing Provisions
350
350
Font Size 352
Characters Per Line 353
Line Spacing 355
Space After Punctuation 355
“Curly” and “Straight” Quotation Marks and Apostrophes
CHAPTER
xv
■
357
16 Dra ing as Wri ng
359
Don’t Make Sentences Too Long 359
Keep Subject, Verb, and Object Close Together 360
Don’t Bury Verbs 361
Avoid Redundant Synonyms 363
Avoid Needless Elaboration 365
Be Restrained in Using Rhetorical Emphasis 366
Avoid Gender-Specific Language 367
Avoid Lawyerisms 368
Avoid Other Wordy Phrases 369
“To the Extent That”
369
“The Fact That”
369
“There Is,” “There Are”
370
Use Possessives 371
Don’t Overuse Initial Capitals
The Extraneous “The” 372
Don’t Use “(s)” 373
Contractions 373
CHAPTER
371
17 Amendments
375
Amending, or Amending and Restating 375
Title 376
Introductory Clause and Recitals 376
The Lead-In 376
Language of Performance 377
Distinguishing Between Amending and Supplementing
Adding, Deleting, and Replacing Language 377
Change Affecting Part of a Provision
Change Affecting an Entire Provision
Layout
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378
380
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CHAPTER
18 Le er Agreements
381
Function 381
Components 381
Sender’s Address
381
Date
381
Recipient’s Address
382
Salutation
382
Introductory Sentence
382
Substantive Terms
382
Closing Sentence
382
Sender’s Signature
383
Recipient’s Signature 384
CHAPTER
19 Dra ing Corporate Resolu ons
385
The Title 386
The Lead-In 386
Recitals 388
Resolutions 388
Where to Place the Verb “Resolve”
Factual Resolutions
389
Suasive Resolutions
391
Don’t Use Language of Obligation
The Concluding Clause
388
392
393
Wording
393
What Date to Use
394
Counterparts
395
The Signature Blocks 395
Attachments 396
A Sample Written Consent, “Before” and “After”
Appendix
401
Appendix Part A: Before
402
Appendix Part B: Before, Annotated
Appendix Part C: After
Certain Works Cited
Cases Cited
Index
396
410
425
433
439
443
About the Author
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L I S T
O F
T A B L E S
Table 1
Language of Performance
29
Table 2
Language of Obligation Imposed on Subject
of Sentence
32
Language of Obligation Imposed on Someone
Other than Subject of Sentence
41
Table 4
Language of Discretion: “May”
46
Table 5
Language of Discretion: “Is Entitled To”
58
Table 6
Language of Discretion: “Is Not Required To”
58
Table 7
Language of Policy
63
Table 8
Conditional Clauses
66
Table 9
Conditional Clauses—The Matrix Clause
67
Table 10
Language of Policy Used to Express Conditions
69
Table 11
Language of Obligation Used to Express
Conditions
70
Table 12
Language of Declaration
71
Table 13
Misuse of “Shall” and “May” in Restrictive
Relative Clauses
74
Table 3
xvii
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L I S T
O F
S A M P L E S
Sample 1
Title and Introductory Clause
Sample 2
Recitals
19
Sample 3
MSCD Enumeration Scheme, “Articles” Version
76
Sample 4
Staggered First-Line-Indent Format
78
Sample 5
Staggered Hanging-Indent Format
79
Sample 6
Integrated and Tabulated Enumerated Clauses
82
Sample 7
Tabulated Enumerated Clauses Followed
by Dangling Test
83
MSCD “Sections” Enumeration Scheme
in Two-Column Format
86
The Concluding Clause and Signature
Blocks—Date Stated in Introductory Clause
96
Sample 8
Sample 9
3
Sample 10 The Concluding Clause and Signature
Blocks—Signatures Dated
100
Sample 11 Typefaces
341
Sample 12 Justification
347
Sample 13 Emphasis
348
Sample 14 Font Size
353
Sample 15 Line Spacing
356
Sample 16 Use of Italics in Amendments
380
Sample 17 Letter Agreement
383
Sample 18 “Before” Version of Written Consent
397
Sample 19 “After” Version of Written Consent
399
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