Lighthouse Clauses: A Menu of Fair-Play Contract Terms

Contents:

This semester we'll be experimenting with a phased, "just in time" approach to the course reading: As part of our small-group work in class, you'll do "preview reading" of the summaries below; then on your own you'll follow up with more-detailed reading of the assigned content.

Each reading assignment [still to come for the rest of the semester] will list one or more of the summaries below in this chapter 1.5, for example the "Contract shapes and sizes" summary at 1.5.4.1.

Here's the basic procedure: For each assigned summary:

• Read the summary carefully — it contains key information that new lawyers ought to know.
• In each assigned summary, click on the linked section(s) of this handbook. Read, carefully, the section subheadings, and scan (or if so indicated, read) the complete contents, of the section, which could include clauses, options, and practice notes.
• Strongly recommented: Hand-write a list of subheadings, so that the resulting muscle memory will help you remember the content. (Your list is also likely to be useful to you as a study aid.)

These reading assignments will help familiarize you with the contents of this handbook; later, when you do drafting assignments and take-home quizzes, you'll be better able to look things up to help you with your work.

Contents:

Some of you might remember that TV talk-show host Conan O'Brien's stewardship of The Tonight Show (now hosted by Jimmy Fallon) proved disappointing to NBC. - The network decided to move former host Jay Leno back into that time slot and bump Conan back to 12:05 a.m. This led Conan to want to leave the show and start over on another network — but if he had, he would arguably have been in breach of his contract with NBC.

Conan's contract apparently did not state that The Tonight Show would always start at 11:35 p.m. Conan's lawyers were roundly criticized for that alleged mistake.² But then wiser heads pointed out that Conan's lawyers might have intentionally not asked for a locked-in start time:

•  The Tonight Show had started at 11:35 p.m. for decades; Conan's lawyers could have plausibly argued that this start time was part of the essence of The Tonight Show, and thus was an implied part of the contract.

•  Suppose that Conan's lawyers had asked for the contract to lock in the 11:35 p.m. start time of The Tonight Show — but that NBC had refused. A court might then have interpreted the contract as providing that NBC had at least some freedom to move the show's start time.

•  And for that matter, NBC might have responded by demanding a clause affirmatively stating that NBC was free to choose the start time for The Tonight Show. Given that NBC had more bargaining power than Conan at that point, Conan might then have had no choice but to agree, given that he wanted NBC to appoint him as the host of the show. And in that case, there'd be no question that NBC had the right to push the start time of the show back to 12:05 p.m.

Ultimately, Conan and NBC settled their dispute; the network bought out Conan's contract for a reported $32.5 million. This seems to suggest that NBC was concerned it might indeed be breaching the contract if it were to push back The Tonight Show to 12:05 a.m. as it wanted to do.

As an article in The American Lawyer commented:

… If O'Brien had asked that the 11:35 p.m. time slot be spelled out in any agreement—and had NBC refused—the red pompadoured captain of "Team Coco" would be in a weaker position in the current negotiations.

"If you ask and are refused, or even worse, if you ask and the other side pushes for a 180, such as a time slot not being guaranteed, you can end up with something worse," [attorney Jonathan] Handel adds.

Without having their hands bound by language in the contract on when "The Tonight Show" would air, O'Brien's lawyers are in a better position to negotiate their client's departure from NBC.³

It could well be that Conan's lawyers did an A-plus job of playing a comparatively-weak hand during the original contract negotiations with NBC.

The lesson: Be careful what you ask for in a contract negotiation — if the other side rejects your request but you do the deal anyway, that sequence of events might come back to haunt you later.

The scene:

• You're in a contract negotiation, representing The Good Guys Company.
• The other side, Nasty Business Partner Inc., insists on requiring The Good Guys to get NBP's consent before assigning the agreement.
• Nasty Business Partner has all the bargaining power; the Good Guys decide they have no choice but to go along.

Trying to salvage the situation, you ask Nasty Business Partner for some additional language: "Consent to assignment may not be unreasonably withheld, delayed, or conditioned." But Nasty Business Partner refuses. Have you just hurt your client?

In some jurisdictions — by no means all — The Good Guys might otherwise have benefited from a default rule that Nasty Business Partner Inc. had an implied obligation not to unreasonably withhold consent to an assignment of the contract; see 4.20.14 for discussion.

But you asked for an express obligation — only to have Nasty Business Partner reject the request — and The Good Guys signed the contract anyway.

A court might therefore conclude that the parties had agreed that Nasty Business Partner would not be under an obligation not to unreasonably withhold its consent to assignment — that NBP could grant or withhold its consent in its sole discretion. That's pretty much what happened in two different state supreme-court cases, one in Alabama and the other in Oregon.⁴

See Byron Martz v. Day Development Company, L.C., 35 F.4th 220 (4th Cir. 2022).

The parties dodged a bullet here, because an evidentiary hearing on this point would have been costly: The parties' counsel would have had to sift through the emails and other documentation relating to the negotiations; take the depositions of the people who were involved in the negotiations; and (possibly) hire one or more expert witnesses to try to persuade the trial judge.

In 2020, the Ninth Circuit rejected the notion that a court was required to issue an injunction if the parties had agreed to it:

We hold that the terms of a contract alone cannot require a court to grant equitable relief. In doing so, we adopt the accepted rule of our sister circuits that have addressed the question."

Barranco v. 3D Sys. Corp., 952 F.3d 1122, 1130 (9th Cir. 2020) (reversing grant of disgorgement remedy) (citing cases). See also, e.g., Steven Gordon, Non-Disclosure Agreements and Trade Secrets: 12 Points to Consider (JDSupra.com 2021) (citations omitted).

Likewise, in a 2015 case the Delaware chancery court disregarded a contractual stipulation of irreparable harm:

Parties sometimes … agree that contractual failures are to be deemed to impose the risk of irreparable harm. Such an understanding can be helpful when the question of irreparable harm is a close one.

Parties, however, cannot in advance agree to assure themselves (and thereby impair the Court’s exercise of its well-established discretionary role in the context of assessing the reasonableness of interim injunctive relief) the benefit of expedited judicial review through the use of a simple contractual stipulation that a breach of that contract would constitute irreparable harm.

[In footnote 20 the court added:] In part, this is simply a matter that allocation of scarce judicial resources is a judicial function, not a demand option for litigants.

AM General Holdings LLC v. The Renco Group, Inc., No. 7639-VCN, slip op. at 10, text acc. nn.19-20 (Del. Ch. Dec. 29, 2015) (denying request for preliminary injunction) (footnotes omitted, extra paragraphing added).

Relatedly: In a different context, another court noted: "Since federal courts are not rubber stamps, parties may not, by private agreement, relieve them of their obligation to review arbitration awards for compliance with § 10(a) [of the Federal Arbitration Act]." Hoeft v. MVL Group, Inc., 343 F.3d 57, 64 (2d Cir. 2003) (reversing vacatur of arbitration award) (emphasis and extra paragraphing added). Accord: In re Wal-Mart Wage & Hour Employment Practices Litigation, 737 F.3d 1262, 1267-68 (9th Cir. 2013).

Likewise: In a 2023 decision, Delaware's supreme court affirmed a court of chancery holding that a "conclusive and binding" provision in a corporation's charter was invalid under Delaware corporate law because, said the supreme court, the provision "strips the Court of Chancery of its authority to apply established standards of review to breach of fiduciary duty claims." CCSB Fin. Corp. v. Totta, No. 2021-0173, slip op. at 22 (Del. Jul. 19, 2023).

Similarly, parties should not count on getting a court to rubber-stamp their request to order filed documents to be "sealed," that is, kept from public access. For example, in a 2021 decision, the Fifth Circuit implicitly criticized a district court (while nonetheless affirming summary judgment) because the lower court had granted a broad agreed protective order, which had the effect of sealing documents:

Judicial records belong to the American people; they are public, not private, documents.

Certainly, some cases involve sensitive information that, if disclosed, could endanger lives or threaten national security. But increasingly, courts are sealing documents in run-of-the-mill cases where the parties simply prefer to keep things under wraps.

This is such a case. The secrecy is consensual, and neither party frets that 73 percent of the record is sealed. But we do, for three reasons.

First, courts are duty-bound to protect public access to judicial proceedings and records.

Second, that duty is easy to overlook in stipulated sealings like this one, where the parties agree, the busy district court accommodates, and nobody is left in the courtroom to question whether the decision satisfied the substantive requirements.

Third, this case is not unique, but consistent with the growing practice of parties agreeing to private discovery and presuming that whatever satisfies the lenient protective-order standard will necessarily satisfy the stringent sealing-order standard.

Below, we review the interests at stake and the exacting standard for sealing that protects those interests. Then, we explain the concerns raised by the sealings in this case.

Le v. Exeter Finance Corp., 990 F.3d 410, 417-18 (5th Cir. 2021) (affirming summary judgment dismissing fired employee's breach-of-contract claim) (cleaned up, extra paragraphing added).

Basically the same explanation was offered by the federal district court for the Southern District of New York, in a 2011 decision in which the court:

• granted the parties' joint motion to enter a consent judgment confirming an arbitration award, but
• denied the parties' motion to seal documents:

Here, the Exhibits — the Final Arbitration Award, the Partial Final Arbitration Award, and the [Master Services Agreement] between the parties — directly affect the adjudication of the Petition, and are therefore judicial documents.

That the Court need not decide the merits of the Petition does not change the fact that the Exhibits are judicial documents.

Moreover, because the information contained in the Exhibits directly affects the adjudication of the Petition, a strong presumption of public access applies.

Susquehanna Int'l Grp. Ltd. v. Hibernia Express (Ireland) Ltd., No. 21 Civ 207, slip op. (S.D.N.Y. Aug. 11, 2011) (granting with leave to submit revised motion) (cleaned up, emphasis added).⁵

On the other hand: As noted at 4.15.11.7, in a 2023 decision, the Second Circuit held that:

… the presumption of public access to judicial documents is outweighed here by the Federal Arbitration Act’s strong policy in favor of enforcing arbitral confidentiality provisions and the impropriety of counsel’s attempt to evade the agreement by attaching confidential documents to a premature motion for summary judgment.

Abelar v. IBM Corp. (In re IBM Arbitration Litigation), No. 22-1728, slip op. at 2 (7th Cir. Aug. 4, 2023) (affirming trial court's granting of IBM's motion to dismiss for plaintiffs' failure to comply with an agreed deadline for demanding arbitration and IBM's motion to seal documents) (emphasis added).

In a Ninth Circuit decision, the ride-share company Uber sought mandamus to defeat a preliminary "centralization" decision in a class-action lawsuit; the court rejected Uber's assertion that Uber's arbitration agreement precluded the Judicial Panel on Multidistrict Litigation ("JPML") from ordering "centralization" of the claims against Uber:

Where a federal statute vests a court with the power (or duty) to act of its own accord, a private agreement cannot bind the court and the agreement is entitled to only so much consideration as provided for by Congress. Forum selection clauses neatly illustrate this rule. A forum selection clause cannot eliminate a district court’s jurisdiction to hear a suit. … Rather, courts enforce forum selection clauses because the general change-of-venue statute, 28 U.S.C. § 1404(a) requires that such agreements be considered in the venue analysis.

Uber Technologies, Inc. v. U.S. Judicial Panel on Multidistrict Litigation, No. 23-3445, slip op. at 18 (9th Cir. Mar. 10, 2025) (cleaned up; citations omitted).

Some drafters don't seem to appreciate the need for verbal humility. Consider the following imperious language in a Bank of America guaranty:

17.  … The court shall, and is hereby directed to [!], make a general reference pursuant to California Code of Civil Procedure Section 638 to a referee (who shall be a single active or retired judge) ….

Archived at https://tinyurl.com/BAGuaranty (sec.gov); emphasis added.

This is more than a little presumptuous, no? The above language doesn't comport well with the cited California statute, which appears to leave it up to the discretion of the trial judge to decide whether or not to grant a request for appointment of a referree. See Cal. Code of Civ. P. § 638

Somewhat less imperiously is section 24 of of a Honeywell purchase-order form, apparently from February 2014:

The amount of insurance carried in compliance with the above requirements is not to be construed as either a limitation on or satisfaction of the indemnification obligation in this Purchase Order. …

Archived at https://perma.cc/84BS-KYXB (emphasis added).

Similar language can be found in section 30 (independent contractors) and section 37 (waivers) of the same Honeywell purchase-order form.

Example: Multiple-signature requirements: Tilly's, Inc. and World of Jeans & Tops, Inc. ("Tilly's") had an employee sign an employment agreement (the "2001 employment agreement").

• The 2001 employment agreement included a provision requiring arbitration of disputes (concerning arbitration, see 4.15), but the arbitration provision had a carve-out for statutory claims, meaning that the employee was allowed to file a lawsuit for such claims in court and didn't need to arbitrate them.
• Importantly for our purposes here: The 2001 employment agreement also stated that any modifications to the agreement's terms would need the signatures of three company executives: The president, senior vice president, and director of human resources.
• Fast forward to 2005: The company had its employees sign an acknowledgement of receipt of an employee handbook containing a revised arbitration provision — which didn't contain the carve-out for statutory claims and thus was more favorable to the company.
• But the employees' signed acknowledgements didn't contain the three executive signatures needed to modify the 2001 employment agreement. (I'd guess that the company's HR people simply didn't remember that three signatures were required.)
• So: Because the company had previously set the bar so high for modifying the 2001 employment agreement, the company found itself facing high-stakes, class-action litigation, whereas it had thought that it would be arbitrating individual, low-stakes claims, one by one. See Rebolledo v. Tilly's, Inc., 228 Cal. App. 4th 900, 924, 175 Cal. Rptr. 3d 612 (Cal. App. 4th Div. 2014) (affirming denial of motion to compel arbitration).

To like effect, in a 2025 California case:

• A worker signed an employment agreement that included a mandatory arbitration provision that included a prohibition of class-action arbitration.
• At the end of the document, the agreement form said, "The parties acknowledge and agree [sic] that each has read this agreement carefully and understand that by signing it, each is waiving all rights to a trial or hearing before a judge or jury of any and all disputes and claims subject to arbitration under this agreement."
• The company never signed the worker's agreement.
• After leaving the company, the worker filed a class-action lawsuit alleging wage-and-hour violations .
• The company move to compel arbitration and to strike the class-action claims.

The district court ruled that the arbitraiton agreement was not binding on the worker because the company hadn't signed the agreement; the appeals court affirmed. See Pich v. LaserAway, LLC, No. B331219, slip op. at 5-7 & n.4 (Cal. App. Jan 28, 2025) (unpublished; affirming denial of motion to compel arbitration, citing cases).

If a confidentiality agreement is drafted to favor the recipient of information, the agreement might state that discloser information isn't considered confidential if the information isn't marked as such when provided to the recipient. That's dangerous because:

• the NDA didn't need to be so strict about marking; and
• in more than one case, such NDA strictness about marking resulted in the discloser forfeiting any chance of asserting trade-secret rights in the information it provided to the recipient (see 6.24.12.1).

Example: Information-purge requirements: Confidentiality agreements often require the party receiving confidential information to purge — return or destroy — all copies of the information in its possession upon termination of the agreement. That's dangerous because the recipient might forget to do the purge; moreover, a complete purge might be costly and burdensome, not to mention depriving the recipient of a record copy of what it received from the discloser. (See 12.9 for more details and suggestions for dealing with these problems.)

Example: Blank spaces, not filled in: See if you can avoid leaving blank spaces to be filled in — such as the effective date of the Con­tract, see 20.20.2 — because Murphy's Law ("anything that can go wrong, will go wrong") says that the parties will forget to fill in the blank.

Example: Spaces to be initialed, that aren't: Here's a variation on the blank-spaces problem: A contract drafter might add blank lines by particular provisions, to be initialed by one or more signers to acknowledge understanding tose provisions — but what if a signer doesn't initial in the spaces provided? (See 12.13.2 for more discussion of this problem.)

These examples illustrate the R.O.O.M. Principle — Root Out Opportunities for Mistakes (or Misunderstandings).

The author of a popular contract style manual once opined — wrongly — that, apart from the opening recitals, "in a contract you don’t reason or explain. You just state rules." Ken Adams, More Words Not to Include in a Contract— “Therefore” and Its Relatives, at http://www.adamsdrafting.com/therefore/ (2008).

That view would be fine — if it weren't for a few inconvenient facts:

1. Even in a business-to-business contract, it's people, not computers, who carry out obligations and exercise contract rights. Computers do exactly as they're told, but people? Not so much — at least not always reliably. (Note: So-called digital "smart contracts" are a very-different thing.)
2. People can forget (sometimes "conveniently") what was agreed to before. Worse: Memories can sometimes be "creative" when individuals' personal incentives — which often are hidden — are involved (3.35). And that in turn means that sometimes people have to be reminded of what the contracting parties agreed to.
3. As time goes on, people (and thus parties) can change their minds about what they regard important. "Buyer's remorse" is just one example of this phenomenon.
4. A contracting party's circumstances can change after the contract is signed. If that happens, the party might want (or desperately need) to back out of the deal.
5. The people who originally negotiated the business terms might not be in the same jobs. Their successors might not know why the parties agreed to the terms that they did. And again, the successors might have a different view of what's important and which obligations to honor.

The upshot: The people who will carry out a contract will sometimes need to be reminded — or even persuaded — to do the specific things called for by a contract. (Examples and explanations, see 8.19.2, possibly stated in footnotes, see 9.4, can serve as useful reminders on that score.)

To be sure, the famous Strunck & White drafting guide counsels writers to "omit needless words." But the operative word there is needless. The contract drafter's mission includes helping remind the parties what they agreed to — and if necessary, to help persuade them to act accordingly. Sometimes, a few extra words of explanation in a contract can help.

Let's not forget another important group of future readers: Judges, jurors, and arbitrators will sometimes be asked to enforce a contract in a lawsuit or arbitration. The vast majority of contracts never see the inside of a courtroom, but drafters must think about the possibility — again, without going overboard or putting the client in the position of being scared of its own shadow.

•  Clarity is the first criterion: It's much easier for a court to grant an early motion to dismiss a bogus contract claim if the contract language itself refutes the claim. [DCT TO DO: Pick an example.] Likewise, if a contract clearly states that Party A must take Action X, and Party A doesn't do so, then a court is more likely to grant at least partial summary judgment on liability.

•  Tone can be a factor: Like all of us, judges and jurors can be influenced by what they think is "fair." Sometimes, the phrasing of a contract's terms can make a difference in how judges and jurors react to the parties and to the positions they're taking. (We'll see examples during the semester.)

For both clarity and tone, sometimes a few extra words can pay off. How much is "a few" is a matter of judgment to be addressed case-by-case — when in doubt, Ask the Partner! (18.1).

It's better to refer to the contract's being "signed" instead of "executed," because the latter could be interpreted as the contract's being performed by the parties. Example: This happened in a Delaware case. See Akorn, Inc. v. Fresenius Kabi AG, No. 2018–0300–JTL, text accompanying n.333 (Del. Ch. Ct. Oct. 1, 2018), aff'd, 198 A.3d 724 (Del. 2018).

Example: A particular referral agreement stated that a referring party would be paid a commission by a supplier whenever the supplier "consummated" a transaction with a referred customer during a stated time period. For one referred transaction, the supplier signed a contract with a referred customer during the stated time period, but nothing else happened until after the time period had ended. This led to litigation whether the transaction had been "consummated" during the time period, and thus whether the referring party was entitled to a commission for that transaction. See Fed Cetera, LLC v. Nat’l Credit Servs., Inc., 938 F.3d 466 (3d Cir. 2019) (reversing and remanding summary judgment).

Lesson: Refer to a more-certain date, such as: • the date the contract was signed; • the date of the invoice; • the date payment was collected.

Example: A tenant leased a house with an option to purchase; the relevant option language was as follows. The tenant didn't give notice by a stated date; the landlord concluded that the tenant's option to purchase had expired. But the trial court and appellate court disagreed:

{¶ 5} … The purchase option provided that "[t]he Option to Purchase period commences on December 1, 2019 and expires on December 1, 2021 11:59 PM with the option to purchase at any time within."

The agreement included the following "notice" provision: "To exercise the Option to Purchase, the Lessee must deliver to the Landlord written notice of Lessee's intent to purchase. In addition, the written notice must specify a valid closing date. The closing date must occur before the original expiration date of the Lease Agreement.

If notice of intent to purchase is not provided by June 1, 2021, [then] Landlord has the right to list the house for sale and make showings available to prospective buyers."

Finally, the agreement reiterated that "[n]otice to purchase needs to be initiated by June 1, 2021. Timing is of the essence in this Option to Purchase Agreement."

* * *

{¶ 16} Although the agreement also stated that notice needed to be "initiated" by June 1, 2021, a failure to meet that deadline did not nullify the option, which, again, could be exercised "at any time" up to December 1, 2021. Rather, the contract identified specific consequences for failing to give notice by June 1, 2021. It provided that "[i]f notice of intent to purchase is not provided by June 1, 2021, Landlord has the right to list the house for sale and make showings available to prospective buyers." …

In other words, if the plaintiffs failed to give written notice of exercising the option by June 1, 2021, [then] the defendants were entitled to begin making alternative plans by listing and showing the house to obtain back-up offers.

If the parties had intended for missing the June 1, 2021 deadline to result in termination of the purchase option, their agreement easily could have said so. But it did not.

McGinnis v. Conley, 2024 Ohio 482 (Ohio App.) (presentation edited).

Lesson: Likewise, don't write that notice must be "given" by a certain date; instead, say that notice must be "received" or "effective" (if effectiveness is defined) or "sent" by that date.

There might be some situations where bright-line standards aren't practicable or even desired. For those situations, consider the following to give parties an incentive to be reasonable about settlement:

• Escalation to a neutral advisor, along the lines of Clause 8.15; or
• Expert determinations, as often seen in construction contracts. See, e.g., Peter Godwin, David Gilmore, Emma Kratochvilova, Mike McClure, and Conal McFadyen, Expert Determination: What, When And Why?, at https://perma.cc/2NJN-GHS2 (Mondaq.com 2017).

Macaroni is Better Than Spaghetti
      – Dr. Guy L. Steele Jr. of MIT (1977) (he was referring to "spaghetti code" in computer software)⁷

Macaroni is easy to separate and move around; cooked spaghetti is a tangled mess. So: Strive to write "macaroni terms," and eschew — nay, scorn — "spaghetti clauses."

•  Your client wants the deal signed ASAP.

•  You want to try to avoid having your draft contain hidden landmines — which you could later be blamed for if the deal were to go sideways.

•  Your draft might very well get some of the deal details wrong, or create ambiguities — we all do it — that could someday lead to costly litigation. So you want to make it easier for your supervising partner and your client to spot problems in their own review of your draft.

•  Then, your client will be impatiently waiting for The Other Side's lawyer to review your draft.

•  In litigation, the judge, the law clerk, and possibly jurors, will be reading the signed contract; you want them to quickly understand the relevant agreed terms, so that they'll be less likely to be fooled by the BS contract-interpretation arguments of The Other Side's trial counsel.

The Pasta Rule can help.

Following the steps below will help drafters to avoid writing spaghetti clauses:

In each (short) paragraph in a contract, address a single point that might require significant discussion. If that means spinning off some of the draft verbiage into separate paragraphs, then so be it. That way, contract clauses can be more like macaroni — or even broken-up spaghetti noodles.

Example: Here's a side-by-side comparison by Wikimedia of two versions of a well-known Creative Commons license document:

Even without reading the actual language, which version above would you prefer to review?

For more, see the horrible example at the following footnote:⁸

I originally used the term barf clause,⁹ but spaghetti seems to be a better visual metaphor.

The U.S. Government's plain-language Web site says — correctly:

Write short paragraphs and cover one topic per paragraph.

Long paragraphs discourage users from even trying to understand your material.

Short paragraphs are easier to read and understand. …

There is nothing wrong with an occasional one-sentence paragraph.

(Emphasis added.)

Drafters should take the time to craft short paragraphs because — other things being equal:

1.  Short paragraphs are easier for The Other Side to review and, if necessary, revise during negotiation; this can speed up the negotiation process and help the parties get to signature sooner.

2.  Short paragraphs are better workaday tools for business managers — and, if necessary someday, for trial counsel and judges.

3.  Short paragraphs can be more-easily copied and pasted into a different contract without inadvertently messing up some other clause.

For readability, paragraph length matters more than contract length.

True, sometimes contracts run too long as a whole. That's often because of over-lawyering, where the drafter(s) try to cover every conceivable issue.

But focusing too obsessively on the length of a contract will obscure a more-important issue: the contract's readability.

This isn't just a question of aesthetic taste: The harder it is to read and understand a draft contract, the longer it will take (and the more it will cost) to get the deal signed.

Almost certainly, most contract negotiators would prefer to read a somewhat-longer draft, consisting of short, understandable sentences and paragraphs, than to read a shorter draft that contains lots of dense, convoluted clauses.

So: The Way to draft a contract is to write as many short sentences and paragraphs — "sound bites," if you will — as are needed to cover the subject.

And if a sentence or paragraph starts to run long: Seriously consider breaking it up.

Even if the resulting draft happens to take up a few extra pages, your client likely will thank you for it.

In the days of paper contracts, lawyers typically used a "compressed" format for contracts — narrow margins, long paragraphs, small print — so as to fit on fewer physical pages. Readers tended to react negatively when they saw a document with "many" pages.

Those days are gone. Nowadays, pretty much everyone reviews contract drafts on a screen. So larger print and more white space:

• makes the draft easier to review and, if necessary, redline — and making the reviewer's job easier is always a nice professional courtesy that might just help to earn a bit of trust; and
• makes it easier for the parties to discuss any points on which they disagree.¹⁰

Why do drafters persist in creating wall-of-words clauses? Especially when the benefits of short paragraphs are so, well, plain?

An obvious candidate is the classic explanation paraphrased in English as: "If I'd had more time, I'd have shortened this letter." That paraphrase is itself a simplification of Blaise Pascal's original, which has been translated as "The present letter is a very long one, simply because I had no leisure to make it shorter."¹¹

Long, dense, "spaghetti clauses" in contracts might well have come from law practice before desktop computers and word-processing software. When your author was a new lawyer:

• An attorney would typically dictate contract language to a secretary; she (yes) would take down the lawyer's words on a steno pad, often using Pitman or Gregg shorthand. (Sometimes the attorney would use a tape recorder such as a Dictaphone and give the tape to the secretary.)
• If the lawyer was struck by a new thought in mid-dictation, the lawyer might well say, "semicolon; provided, however, that …."
• The secretary would type up the lawyer's dictation on a manual typewriter, possibly with "flimsies" (carbon-paper sets) to make additional copies.
• Any editing of typed drafts was laborious. It was done with typewriter erasers and/or Wite-Out or Liquid Paper correction fluid. Only when necessary, entire pages would be retyped. All that was costly to law firms. (Typists must be paid, after all.)

It's easy to see how wall-of-words contract clauses came to be regarded as acceptable, even unavoidable. Likewise with the occasional "provided, however" interruption.

In the modern era, though, there's no excuse for drafting a contract without editing it to serve the reader as described above — and preferably, to write it mainly in that way to start with.

A long paragraph of dense legalese raises the question: Was the Lazy Or Arrogant Drafter secretly hoping to use the MEGO factor ("Mine Eyes Glaze Over") to sneak an objectionable term past the reader?

This actually happens sometimes. For example, in the estimable redline.net forum (for lawyers only, membership required), a lawyer recounted how:

• One of the commenting lawyer's early clients was a writer who was looking for an agent for representation in dealing with publishers, etc.
• One agency expressed interest in representing the writer and sent over a contract for the writer to sign.
• But: Buried in a long paragraph was language to the effect that the agency would own whatever work product that the writer produced while the agency was representing the writer.

The commenting lawyer naturally advised the writer, "DO NOT SIGN."

Some lawyers might flatter themselves that by using dense legalese, they'll enhance their personal prestige as High Priests of the Profession, privvy to secret legal knowledge not revealed to ordinary mortals. That seems a dubious proposition at best — and indeed a risible one.

A useful rule of readability, borrowed from the U.S. military, is BLUF: Bottom Line Up Front. See, e.g., Kabir Sehgal, How to Write Email with Military Precision (HBR.com 2016), archived at https://perma.cc/B986-5DUY; the author's byline indicates that he is a U.S. Navy veteran.

(If we wanted to stay with the Pasta-Rule theme, see 3.2, we could call this "the Sauce Rule: Sauce goes on top." But BLUF takes less work to remember what it stands for, and a lot of people are already familiar with BLUF.)

To illustrate, here's another unfortunately-typical example of a spaghetti clause that's in serious need of clean-up; it's from the March 2022 merger agreement by which Hewlett-Packard (HP, Inc.) acquired well-known headset manufacturer Plantronics. Since Where's Waldo? is no longer "a thing," let's instead try playing a short game of, Where's the Action Verb?

BEFORE:

SECTION 6.07 Indemnification and Insurance. (a) All rights to indemnification, exculpation from liabilities and advancement of expenses for acts or omissions occurring at or prior to the Effective Time now existing in favor of any individual (i) who is or prior to the Effective Time becomes, or has been at any time prior to the date of this Agreement, a present or former director or officer (including any such individual serving as a fiduciary with respect to an employee benefit plan) of the Company or (ii) in his or her capacity as a present or former director or officer of one or more of the Company Subsidiaries as of the date of this Agreement (each such individual in (i) and (ii), an “Indemnified Person”) as provided in, with respect to each such Indemnified Person, as applicable, (i) the Company Charter, (ii) the Company Bylaws, (iii) the organizational documents of any applicable Company Subsidiary in effect on the date hereof at which such Indemnified Person serves as a director or officer, as applicable, or (iv) any indemnification agreement, employment agreement or other agreement made available to Parent, containing any indemnification provisions between such Indemnified Person, on the one hand, and the Company and the Company Subsidiaries, on the other hand, [ah, here comes the action verb, finally!] shall survive the Merger in accordance with their terms and shall not be amended, repealed or otherwise modified in any manner that would adversely affect any right thereunder of any such Indemnified Person with respect to acts or omissions occurring at or prior to the Effective Time.

For an even worse example in the very next paragraph of that merger agreement, see the following footnote:¹²

This kind of writing brings to mind a savagely-funny Dilbert cartoon about lawyers.

Let's rewrite subdivision (a) above, using the rules we've just discussed:

1.  Short paragraphs;

2.  Just one negotiation point per paragraph; and

3.  Bottom Line Up Front.

Oh, and while we're at it, let's help guide the reader's eye by (judiciously) bold-facing a few key words:.

AFTER:

Is there any doubt which version would be easier to read, understand, negotiate, and revise? Clearly, it's the After version.

And imaging the reader's task in reviewing and thinking about the Before version ….

Before: Here's a contract provision that was litigated in a state court:

If any shareholder of the corporation for any reason ceases to be duly licensed to practice medicine in the state of Alabama, accepts employment that, pursuant to law, places restrictions or limitations upon his continued rendering of professional services as a physician, or upon the death or adjudication of incompetency of a stockholder or upon the severance of a stockholder as an officer, agent, or employee of the corporation, or in the event any shareholder of the corporation, without first obtaining the written consent of all other shareholders of the corporation shall become a shareholder or an officer, director, agent or employee of another professional service corporation authorized to practice medicine in the State of Alabama, or if any shareholder makes an assignment for the benefit of creditors, or files a voluntary petition in bankruptcy or becomes the subject of an involuntary petition in bankruptcy, or attempts to sell, transfer, hypothecate, or pledge any shares of this corporation to any person or in any manner prohibited by law or by the By-Laws of the corporation or if any lien of any kind is imposed upon the shares of any shareholder and such lien is not removed within thirty days after its imposition, or upon the occurrence, with respect to a shareholder, of any other event hereafter provided for by amendment to the Certificates of Incorporation or these By-Laws, [here we finally get to the "bottom line"] then and in any such event, the shares of this [c]orporation of such shareholder shall then and thereafter have no voting rights of any kind, and shall not be entitled to any dividend or rights to purchase shares of any kind which may be declared thereafter by the corporation and shall be forthwith transferred, sold, and purchased or redeemed pursuant to the agreement of the stockholders in [e]ffect at the time of such occurrence. The initial agreement of the stockholders is attached hereto and incorporated herein by reference[;] however, said agreement may from time to time be changed or amended by the stockholders without amendment of these By-Laws. The method provided in said agreement for the valuation of the shares of a deceased, retired or bankrupt stockholder shall be in lieu of the provisions of Title 10, Chapter 4, Section 228 of the Code of Alabama of 1975.

From Lynd v. Marshall County Pediatrics, P.C., 263 So. 3d 1041, 1044-45 (Ala. 2018) (emphasis added).

AFTER: (short paragraphs and BLUF)

(Emphasis added.)

One would hope there'd be no dispute about which of these versions is more readable.

As a statutory example, this rewrite, by law professor Mark Cooney, was retweeted by legal-writing guru Bryan Garner:

Before:

A person who engages in conduct proscribed under section 530 and who in the course of engaging in that conduct, possesses a dangerous weapon or an article used or fashioned in a manner to lead any person present to reasonably believe the article is a dangerous weapon, or who represents orally or otherwise that he or she is in possession of a dangerous weapon, is guilty of a felony punishable by imprisonment for life or for any term of years. If an aggravated assault or serious injury is inflicted by any person while violating this section, the person shall be sentenced to a minimum term of imprisonment of not less than 2 years.

So what exactly is the bottom line of this statutory provision?

BLUF rewrite by Prof. Cooney:

A person is guilty of a felony if, while committing a crime under section 530, he or she:

(1) possesses a dangerous weapon;

(2) possesses an article used as a dangerous weapon; … [etc.]

(Emphasis added.)

Researchers at MIT conducted an experimental study (led by a career-changing Harvard law graduate) of legalese comprehension. The study's results pointed to a chief villain in legalese, namely "center-embedded clauses" — i.e., sentences and paragraphs where the action verb is buried in a spaghetti-clause (see 3.2) mass of verbiage. The researchers found that such clauses "inhibited recall to a greater degree than other features" such as jargon and passive voice. Eric Martínez, Francis Mollica, and Edward Gibson, Poor writing, not specialized concepts, drives processing difficulty in legal language, Cognition (2022).

If you're doing the drafting, you can help speed things up considerably by being reasonable in what you offer to the other side. That's because many business people greatly prefer to sign contracts that are reasonably balanced, because such contracts —

• require less time-consuming legal negotiation; and
• help to promote mutual trust between the parties' business people.

Your author learned this from experience: I used to be vice president and general counsel of BindView Corporation, a publicly-traded, network-security software company, based in Houston but with extensive international operations, until we were acquired by Symantec Corporation, the global leader in our field. As outside counsel, I'd helped BindView's founders to start the company.

As soon as I went in-house, I had to handle all our negotiations with customers about our standard contract form. That was a big time sink, both for me and for our sales people (who would sit in on negotiation calls).

To reduce the time we spent in such "legal" negotiations, in successive deals we gradually revised our standard contract form: We dramatically speeded up our deal flow by revising our contract form to proactively provide balanced legal terms that our customers typically asked for, in ways that we knew we could support.

In addition to helping us get to signature sooner, the (re)balanced contract form indirectly promoted our product in another way: Customers began to tell me how much they liked our contract, which validated their decision to do business with us.

I started making notes of customers’ favorable comments, and eventually quoted some of the comments (anonymously) on a cover page of our contract form. Here are just a few of those customer comments, which I posted online some years ago; all are from negotiation conference calls except as indicated:

– From an in-house attorney for a multinational health care company: I told our business people that if your software is as good as your contract, we’re getting a great product.

– From an in-house lawyer at a U.S. hospital chain: I giggled when I saw the "movie reviews" on your cover sheet. I’d never seen that before — customers saying this was the greatest contract they’d ever seen. But the comments turned out to be true.

– From a contract specialist at a national wireless-service provider: I told my boss I want to give your contract to all of our software vendors and tell them it’s our standard contract, but I know we can’t do that.

– From an in-house attorney at a global media company: This is a great contract. Most contracts might as well be written in Greek, but our business guys thought this one was very readable.

You might wonder whether BindView ever experienced legal- or business problems from having a balanced contract form. I’ll note only that:

• With the CEO’s permission, I talked about our balanced-contract philosophy in continuing-legal-education ("CLE") seminars, and even included a copy of our standard form in written seminar materials; and
• In due course we had a successful "exit" when we were approached and acquired by Symantec Corporation, one of the world’s largest software companies and the global leader in our field.

To be sure: Some business people just love to "win" as much as they can in every contract negotiation, often violating Wheaton's Law ("Don't be a d**k"). If that's you, please consider whether that approach best serves your (or your client's) long-term goals.

The W.I.D.A.C. Rule applies here: When in doubt, ask the client — and document that you raised the issue and what the client's decision was, for example in a quick confirming email to the client..

There's a useful rule of thumb when thinking about including a particular provision in a contract: Suppose that someday the parties' roles were ever to be reversed — which could happen (3.6.3) — and that you'd recommend that your client reject the provision. In that situation seriously consider omitting the provision.

As a contract drafter, you'd do well to follow the negative version of the Golden Rule attributed to the ancient Greek rhetorician Isocrates: Do not do to others that which angers you when they do it to you. Similarly, Jewish sage Hillel the Elder said, What is hateful to you, do not do to your fellow: this is the whole Torah; the rest is the explanation; go and learn. See Golden Rule (Wikipedia.org).

The flip side of that rule of thumb is also handy when thinking about leaving out a provision: If your client would likely insist on having the provision in the contract if the parties' roles were reversed, then think seriously about including the provision.

Here again: W.I.D.A.C. — When In Doubt, Ask the Client.

Agreements that would apply equally if the parties were to switch sides will generally be more balanced; to illustrate this principle, we'll use confidentiality agreements as an example.

In many cases, a two-way confidentiality agreement that protect's each party's confidential information is likely to be signed sooner, because:

• each negotiator presumably keeps in mind that today's disclosing party might be tomorrow's receiving party or vice versa; and so:
• the two-way agreement is thus likely — but not guaranteed — to be more balanced.

Your author saw this, too, as general counsel at BindView, where on a couple of occasions:

• We were the customer, licensing another vendor's software for our internal use;
• On each of those occasions, the other vendor's software license agreement would have required considerable revision and, presumably, negotiation, to make it workable for us, the customer;
• So instead, I proposed to the vendor that we just use BindView's standard software license agreement — but with BindView as the customer instead of as the vendor;
• Each time, the vendor reviewed our license agreement and quickly agreed to our proposal.

(This basic approach — of being reasonable — is analogous to the ancient "divide and choose" procedure, sometimes known as "I cut, you choose," by which children can evenly divide a cookie between them, often used in buy-sell agreements.)

See the discussion at 3.7, especially the tale of how the Trump Organization switched roles from landlord to tenant under its own standard lease terms — and found itself at a significant disadvantage.

With a one-way nondisclosure agreement, only the originally-intended disclosing party's information is protected. This means that any disclosures by the receiving party might be completely unprotected — resulting in the receiving party's losing its trade-secret rights in its information.

That's just what happened to the plaintiff in a Seventh Circuit case: The plaintiff signed a confidentiality agreement with the defendant, but that agreement protected only the defendant's information. Consequently, the plaintiff's later disclosures of its own confidential information were unprotected. See Fail-Safe, LLC v. A.O. Smith Corp. 674 F.3d 889, 893-94 (7th Cir. 2012) (affirming summary judgment for defendant).

(For more about the dangers of unrestricted disclosures of confidential information, see [BROKEN LINK: conf-info-excl-free].)

It's not hard to imagine the thought process that the plaintiff's business people's went through: "We need to disclose our information to you, but hey, we've already got an NDA in place, so sure, let's do it." But the NDA didn't do what the plaintiff needed.

A two-way confidentiality agreement might help avoid future drafter embarrassment: Suppose that Fred and Ginger agree to a confidentiality provision that protects only Ginger's information. Also suppose that the confidentiality provision was strongly biased in favor of Ginger, who is currently the discloser.

But now suppose that, at a later date, Fred and Ginger decided that they also needed to protect Fred's confidential information as well, so that Fred can disclose it to Ginger. In that case, with the shoe on the other foot, Ginger as receiving party might not want to live with the obligations that she previously made Fred accept when she was the disclosing party.

As a result, Ginger might find herself in a doubly-embarrassing position:

• Ginger would be asking Fred to review and agree to a new confidentiality provision — and having to explain to Fred why Ginger wasn't willing to live with the same procedure that she had earlier pressed upon Fred.
• Moreover: Ginger might turn to (or on) her original drafter and ask, Why didn't you do this the right way in the first place, instead of wasting everybody's time?

So: It's often a good idea to insist that any confidentiality provision be two-way in their effect from the start, protecting the confidential information of both parties.

Consider this not-so-hypothetical example: You're helping to negotiate a contract between your client, Ginger, and another party, Fred. Your draft contract is a tough one; among other things, it contains an exclusive-jurisdiction forum clause (see 9.8) that requires all litigation to be conducted in Ginger's home-court jurisdiction.

In negotiating the contract, Fred's counsel says, sure, an exclusive-jurisdiction clause is fine with us — BUT the exclusive jurisdiction has to be our home court, not yours.

If Fred has more bargaining power than your client Ginger, your proposal of a tough first-draft contract might have "boomeranged" to create problems for your own client, by requiring any litigation to take place in a city that she might not want.

(This is an example of "poking the bear"; see 2.1.)

Exactly this once happened to one of your author's past clients:

• In a negotiation of a big commercial deal, the client had forwarded its standard form contract — which I hadn't written — to a prospective customer that had significantly-more bargaining power than my client did.
• The client's standard form contract included a forum-selection provision requiring all litigation to take place exclusively in the client's home city.
• The customer's lawyer saw the forum-selection clause, and said it needed to be reversed, so that the exclusive forum would be the customer's home city.
• That wouldn't have been good for my client, because litigating in the other city would have been costly and inconvenient.

Fortunately, the customer's lawyer went along with my suggestion that we just drop the forum-selection clause entirely — not realizing that this was a win for my client:

• Without a forum-selection stipulation, the customer likely would not have been able to sue my client in the customer's home city at all, because the courts in that city would almost certainly not have had personal jurisdiction over my client. (Of course, that wouldn't have stopped the customer from filing suit anyway, which would have meant that my client would have to spend money to get the case dismissed or transferred.)
• In contrast, my client would have been able to sue the customer in my client's home city, because the customer had significant operations in that city.

The customer's lawyer apparently didn't tumble to the fact that he was making a potentially-big concession.

Example: Trump Corporation ("Trump") has been a real-estate landlord, among other things. (Author's note: I wrote this section before Donald Trump announced his successful 2016 presidential campaign.)

According to AmLaw Daily, years ago Trump's lawyers took one of the company's leases, changed the names, and used it for a deal in which Trump was the tenant and not the landlord. Later, though, Trump-as-tenant found that its lease-agreement form gave Trump's landlord significant leverage:

"The funny part of it is what one of his internal lawyers must have done years ago," [the landlord's president] says. "Normally Trump is the landlord, not the tenant. So what they did is they took one of their leases and just changed the names. And so it's not a very favorable lease if you're the tenant."

See Nate Raymond, Trump Misses Rent Payments …, http://goo.gl/B72TIr (AmLawDaily.Typepad.com) (accessed Apr. 27, 2015).

Oops ….

For the opposite story, see 3.6.3 about how your author's former company successfully used its own standard contract for a transaction in which we were the customer, not the supplier.

Tilly's, Inc. and World of Jeans & Tops, Inc. ("Tilly's") had an employee sign an employment agreement (the "2001 employment agreement") containing an arbitration provision. The 2001 employment agreement included a carve-out for statutory claims (which thus could be brought in court, not in arbitration). Importantly, the 2001 employment agreement also stated that any modifications to the agreement would need the signatures of three executives: The company's president; senior vice president; and director of human resources.

In 2005, the company had its employees sign an acknowledgement of receipt of an employee handbook containing a different arbitration provision, which didn't contain the carve-out for statutory claims. BUT: The signed acknowledgement didn't contain the three executive signatures needed to modify the 2001 employment agreement.

So: Because Tilly's set the so bar high for modifying the 2001 employment agreement — requiring three executive signatures — the company found itself facing high-stakes litigation by a class of plaintiffs, whereas it had thought it would be arbitrating low-stakes claims individually. See Rebolledo v. Tilly's, Inc., 228 Cal. App. 4th 900, 924, 175 Cal. Rptr. 3d 612 (Cal. App. 4th Div. 2014) (affirming denial of motion to compel arbitration).

When getting a drafting assignment from a partner (or a senior associate, or some other supervisor), always ask whether there's a recent actual contract that you should use as a starting point.

• Caution: An existing contract will often reflect prior concessions that were made by one or more parties during negotiations. This means that when drafting a new contract, you should carefully review the existing contract's terms and determine whether that's really where you want to start this project.
• Caution: Lawyers even at blue-chip law firms aren't infallible, so you won't want to conclusively presume that the existing contract is of A+ quality in every detail.

Law firms often try to maintain form files. But seldom does anyone get paid or otherwise receive meaningful reward for doing that drudgery. So the quality and currency of law firm form files can be dicey.

Thousands of contract forms are available online from commercial companies that screen and curate contracts filed with the U.S. Securities and Exchange Commission EDGAR Web site. Some of these commercial sites include:

• LawInsider.com (membership required)
• OneCLE.com

Other sites such as RocketLawyer.com and LegalZoom.com offer forms, but it's hard to know what their quality is, nor whether they take into account the "edge cases" that sometimes crop up in real-world situations.

If you want to search the SEC's EDGAR Web site yourself, it helps to know that many if not most contracts will be labeled as Exhibit 10.something (and possibly EX-4.something) under the SEC's standard categorization. This means that the search terms "EX-10" (and/or "EX-4") can help narrow your search.

Example: A quick search and scan turned up the 2019 separation agreement between CBS Corporation (the TV network) and its now-former chief legal officer.

Pro tip: Online contract forms are best relied on as sources of ideas for issues to address. The clause language is not necessarily what you'd want to use in a contract for a client.

Pro tip: In some contracts you find online, the "Notices" provision might include the names and addresses of the parties' outside counsel — if counsel are in name-brand firms, that might give you increased confidence. Example: In the 2007 real-estate lease between Stanford University (landlord) and Tesla (tenant), the counsel to be notified for Stanford was a partner at Bingham McCutchen, a large Boston-based firm that closed its doors in 2014 when hundreds of its lawyers left to join the Morgan Lewis firm.

Caution: Many of the rule in this chapter are stylistic conventions —

• If your supervisor (e.g., law-firm partner) prefers one way over another, then do it that way.
• Don't make purely-stylistic revisions in another party's draft contract, for reasons discussed at 3.23.

1.  Spell out the numbers one through ten; use numerals for 11, 12, 13, etc. EXCEPTION: For payment terms, it's "net 10 days," not "net ten days" (see generally 16.1). Some style guides say to spell out numbers one through nine. See also When Should I Spell Out Numbers? (Grammerly.com).

2.  Both in the same sentence? Consider using just numbers: The quiz will contain between 8 and 12 questions.

3.  Don’t start a sentence with numerals; either spell out the numerals in words or (preferably) rewrite the sentence.

BEFORE: 42 was Douglas Adams’s answer to The Ultimate Question of Life, the Universe, and Everything.

AFTER: According to the late novelist Douglas Adams, the answer to The Ultimate Question of Life, the Universe, and Everything is … 42.

Example: More than 300,000,000 300 million people live in the United States.

Example: Alice will pay Bob $5 thousand $5,000.

1.  Don't say "in United States dollars" if there's no possibility of confusion. (If you feel the need to be clear that dollars refers to U.S. dollars, you can do that in your definitions & usages section; see 3.39.)

2.  If currency confusion is a possibility, then use ISO 4217 currency abbreviations such as USD, as in: Buyer will pay USD $30 million. (The USD abbreviation goes where indicated, not after the numbers.)

3.  Don't spell out dollar amounts in words. Example: Alice will pay Bob five thousand dollars $5,000.

4.  Omit zero cents unless relevant. Example: Alice will pay Bob $5,000.00 $5,000. But: Alice will pay Bob $3,141.59.

1.  Spell out a percentage if it’s at the beginning of a sentence — or just use numbers and rewrite the sentence to avoid starting with the percentage.

• Example: 30% Thirty percent of the proceeds will be donated to charity.
• Better: Of the proceeds, 30% will be donated to charity.

2.  Time is written with digits: 5:00 p.m. not five p.m.

And if you send the other side a draft or a redline, don't send a PDF or a locked Word- or PDF document — doing so implicitly signals a lack of trust; between lawyers especially, it's more than a little lacking in professional courtesy.

Open the other party's draft in Microsoft Word and immediately save it as a new document whose file name reflects your revision.

Example of file name: "Gigunda-MathWhiz-Services-Agreement-rev-2020-08-24.docx"

Add a running header to the top right of every page of your revision to show the version date and time (typed in, not an updatable field) (and matching the date in the file name). Example of running header: "REV. 2020-08-24 18:00 CDT" (note the use of 24-hour time for clarity).

Always use "Track Changes" in Microsoft Word (or whatever word processor you use). See 3.22 for tips — and 20.21 for why it's vital to do this to avoid legitimately angering the other side.

It's not worth spending scarce negotiation time — and it won't go over well with either the other side or the client — to ask the other side to change things that don't have a substantive effect.

Example: Suppose that the other side's draft contract leads off with "WITNESSETH" and a bunch of "WHEREAS:" clauses. As a well-trained drafter, you'd prefer to have a simple background section. You'd have left out the legalese. (See 5.4 for more details.) Let it be: If the other side's "WHEREAS:" clauses are substantively OK, then don't revise those clauses just because you (properly) prefer to use a plain-language style.

Another party's draft is likely to have long spaghetti clauses (3.2). That might be accidental — or perhaps not.

So, break up the spaghetti clauses:

• It'll make the clauses easier for your client to review.
• It'll also help you to do a thorough review with lower risk of the MEGO factor ("Mine Eyes Glaze Over").

After you save a new Word document (see above), use 1.5 spacing for the entire text (except signature blocks and other things that should be left in single-space) if not that way already.

1. Break up long sentences, as explained in more detail at 3.2.

In the agreement title at the top of the draft, add a Word comment bubble along the lines of the following:

(It's hard for another lawyer to object to your doing something to make things easier for your client, right?)

I've been doing this for years and has only once gotten pushback on that point from the original drafter — in fact, the parties pretty much always end up eventually signing a double-spaced version with broken-up paragraphs, as opposed to the original wall-of-words format.

Never gratuitously revise another party's draft to favor the other party:

• not even if your revision seems to make business sense; and
• certainly not if the revision might someday put your client at a disadvantage or give up an advantage.

Example: Suppose that this time:

• Your client MathWhiz is a customer, not a vendor.
• A vendor that wants to do business with MathWhiz has sent MathWhiz a draft contract.
• The draft calls for MathWhiz to pay the vendor's invoices "net 90 days" — that is, the vendor expects MathWhiz to pay in full in 90 days; see 16.1. (That'd be really unusual for a vendor contract form.)
• You know that vendors like to be paid as soon as they can. You suspect that the vendor's 90-day terms are a mistake, perhaps left over from a previous contract: The vendor's contract drafter might have taken a previous contract and changed the names, but without changing the 90-day terms to, say, 45-day terms.
• You know that MathWhiz, like all customers, pretty-much always prefer to hold onto its cash for as long as they can — not least because delaying payment can give a customer a bit of extra leverage over its suppliers.
• You also know that MathWhiz usually pays net-45 and is even willing to pay net-30 if the other terms are acceptable.

Let it be — don't take it on yourself to unilaterally change the vendor's net-90 terms to net-45. You don't want to raise the bar 2.5 for MathWhiz by requiring MathWhiz to pay the vendor's invoices earlier than the vendor had even asked for in its own draft contract.

To be sure: The vendor's drafter might later embarrassedly confess to having overlooked the net-90 terms and ask to change it to net-30. That's no bad thing: It gives MathWhiz an opportunity to be gracious. Graciousness is a useful signal to the vendor that MathWhiz might well be a Good Business Partner. Most companies like dealing with Good Business Partners.

This is also a lesson about the possible danger of reusing an existing contract without carefully reviewing it to identify — and possibly strip out — any concessions that were made in the course of previous negotiations. (See 3.37 for more on this subject.)

(It can also be helpful to explain, in comments — for example, in Microsoft Word comment bubbles — the reasoning behind specific changes, to save time in negotiation conference calls.)

See Securities and Exchange Commission Press Release, SEC Charges Former Logicon Executive With Aiding and Abetting Financial Accounting Fraud at Legato Systems, Sept. 8, 2003 (SEC.gov).

• The customer's executive later consented to a $35,000 fine and a cease-and-desist order prohibiting him from future violations — which was not a good career move, because it's the sort of thing that can hinder someone's future job prospects, possibly disqualifying the person from certain regulated- or licensed positions in the financial industry.

See Securities and Exchange Commission Litigation Release No. 19385, Court Enters Final Judgment Against Former Sales Executive of Customer of Legato Systems, Inc., Sept. 21, 2005 (SEC.gov).

Example: In 2007, a former CEO was sentenced to four years in prison for securities fraud that included, among other things, the use of secret side letters to "cook the books."

See Ex-Enterasys CEO sentenced to four years (NHBR.com 2007); see also, e.g., Joel M. Cohen and Mary Kay Dunning, Does that settle it? Well, maybe not, Nat'l L.J., Apr. 9, 2012 (GibsonDunn.com) (scroll down to "Obligations and Risks"); Boris Feldman, What to do When You Find the Side Letter: Guidelines for CEO’s, CFO’s, and Audit Committee Members in Investigating Accounting Fraud (BorisFeldman.com).

Imagine that you're looking at a simple list of titles of a particular company's contracts —

• Perhaps you're doing due diligence for a financing- or merger transaction and reviewing a long list of the target company's existing contracts.
• Perhaps you're doing a document review for a lawsuit or arbitration and looking at a similarly-long list of contracts.

Consider the following styles of title:

Title style 1 below is simplicity itself. But it's not especially informative when seen as part of a list of agreement titles:

Example: See the 2000 "Agreement" between Amazon and Drugstores.com — you guessed it, the title is "Agreement."

AGREEMENT

This Agreement, dated as of January 24, 2000 is made and entered into by and between Amazon.com Commerce Services, Inc., ("ACI"), an indirect wholly owned subsidiary of Amazon.com, Inc. ("Amazon.com"), and drugstore.com, inc. ("drugstore.com"). ACI and drugstore.com sometimes are referred to collectively as the "Parties" and individually as a "Party." ACI and drugstore.com agree as follows:

A more-expansive style is fairly typical for contracts:

A third style is more informative still — but it might be overkill:

The example of style 3, incidentally, is from the 2023 the "Agreement and Plan of Merger" (that's the customary title for such contracts) under which Nippon Steel was to acquire U.S. Steel until the Biden Administration blocked the transaction.

Caution: From style 3, be careful about including "Dated as of …" because the contract date might change but the old date might be inadvertently left in the document — especially if there's a rush to get to signature; this would violate the Don't Repeat Yourself principle and could lead to trouble, as discussed at 3.43.)

Drafters and reviewers should do an appropriate review of any material incorporated by reference, because the material likely will have the same force and effect as though it had been reproduced in the body of the document itself.

In a 2022 decision, Colorado's supreme court, citing other state supreme-court opinions, noted that:

… for contract terms outside the four corners of a contract to be incorporated by reference into the contract, the terms to be incorporated generally must be clearly and expressly identified. …

General or oblique references to a document to be incorporated, in contrast, are usually insufficient to support a finding that the document was incorporated by reference.

French v. Centura Health Corp., 2022 CO 20, 509 P.3d 443, ¶ 30-31 (Colo. 2022) (reversing court of appeals; extra paragraphing added, citations omitted). The French case is described in a Washington Post article: See Timothy Bella, She expected to pay $1,337 for surgery. She was billed $303,709 (WashingtonPost.com May 19, 2022).

This general rule is likely to apply with special force in insurance policies. See, e.g., ExxonMobil Corp. v. Nat'l Union Fire Ins. Co., 672 S.W.3d 415 (Tex. 2023) (reversing and remanding appeals court's reversal of summary judgent in favor of Exxon).

Wording can matter – Example: In a 2024 decision, the "Warranty" section of the contract in suit 3stated: "For a complete list of our Terms & Conditions and Warranty details, please visit our website at [omitted]." Affirming denial of a motion for prevailing-party attorney fees, the First Circuit noted the general consensus that for external terms to be considered part of a contract, "the contract must clearly communicate that the purpose of the reference is to incorporate the referenced material into the contract." The court held that "[t]his section did not convey a clear message that, by accepting the offer, Holsum would agree to bind itself to further promises (including the fee-shifting term)." Holsum de Puerto Rico, Inc. v. ITW Food Equip. Grp., LLC , 116 F.4th 59, 68 (1st Cir. 2024).

If you incorporate external material by reference, but the other party can't readily identify and find the material, then a court might hold that the external material isn't not part of the contract.

Example: In a 2015 decision, Oklahoma's supreme court ruled that a contract form for the sale of hardwood flooring did not successfully incorporate "Terms of Sale," mentioned in the form, because the contract form gave no indication where to find the referenced terms:

[A] contract must[:]

• make clear reference to the extrinsic document to be incorporated,
• describe it in such terms that its identity and location may be ascertained beyond doubt, and
• the parties to the agreement had knowledge of and assented to the incorporated provisions. …

BuildDirect's attempt at incorporation was nothing more than a vague allusion.

Walker v. BuildDirect.com Technologies, Inc., 2015 OK 30, 349 P.3d 549, 551, 554 (2015) (on certification from 10th Circuit) (extra paragraphing and bullets added).

Pro tip: At the very least, provide a Web link — preferably a short, memorable one — where the additional incorporated terms can be found.

When you reference external material in a contract, you'll want to be very clear that you intend to incorporate the material by reference. Example: Illustrating this point, in a 2015 Nebraska supreme court decision:

• An architectural-services contract stated that "[t]he Architect’s Response to the District’s Request for Proposal is attached to this Agreement for general reference purposes including overviews of projects and services."
• But the architect firm's response to the RFP wasn't attached to the contract — for that matter, the title wasn't even as stated in the contract provision.

Agreeing with the trial court, the state's supreme court held that "[t]he expression 'for general reference purposes,' interesting though it may be [!], contrasts with a provision, common in contract law, which incorporates another document by reference. … [The contract language] simply does not incorporate [the architect firm's] responses into the contract." Facilities Cost Mgmt. Group v. Otoe Cty. Sch. Dist., 291 Neb. 642, 653-54, 868 N.W.2d 67, 71, 75 (2015) (affirming partial summary judgment but reversing and remanding on other issue); after retrial, 298 Neb. 777, 906 N.W.2d 1 (2018).

Caution: It's not hard to see, though, how another court could have held that the contract did incorporate the architecture firm's guaranteed-maximum-price response. Still, the contract's drafters, who presumably worked for the school district, might have been more clear about their client's intent.

In a 2014 decision, the Fifth Circuit held that a supplier's price quotation sufficiently incorporated by reference a standard-terms-and-conditions document published by the European Engineering Industries Association (the "ORGALIME"), which contained an arbitration provision.

– The supplier's price quotation didn't expressly incorporate the ORGALIME by reference; instead it stated, "Terms and conditions are based on the general conditions stated in the enclosed ORGALIME S2000." (Emphasis added.)

– The Fifth Circuit reviewed Texas law on the point, summarizing that "when the reference to the other document is clear and the circumstances indicate that the intent of the parties was incorporation, courts have held that a document may be incorporated, even in the absence of specific language of incorporation."

The appeals court concluded that "the district court erred in holding there was no agreement to arbitrate." Al Rushaid v. National Oilwell Varco, Inc., 757 F.3d 416, 420-21 (5th Cir. 2014) (reversing denial of motion to compel arbitration) (cleaned up, citations omitted, emphasis added). To similar effect, see CSI Aviation, Inc. v. Dept. of Homeland Security, 31 F.4th 1349, 1351 (Fed. Cir. 2022) (vacating administrative decision; commercial vendor's terms and conditions were incorporated by reference into GSA contract).

Drafters should pay attention to just what portion or portions of another document are being incorporated by reference. That issue made a difference in a 2015 Second Circuit decision, where:

… Addendum 5 [to the contract in question] refers only to a single specific provision in [another agreement]—the non-compete clause.

Where, as here, the parties to an agreement choose to cite in the operative contract only a specific portion of another agreement, we apply the well-established rule that a reference by the contracting parties to an extraneous writing for a particular purpose makes it part of their agreement only for the purpose specified.

VRG Linhas Aereas S/A v. MatlinPatterson Global Opportunities Partners II L.P., No. 14-3906-cv (2d. Cir. July 1, 2015) (nonprecedential summary order affirming denial of petition to confirm arbitration award) (cleaned up, formatting modified).

In a 2014 Eighth Circuit decision:

– A buyer's purchase-order form referred to an external document with additional terms and conditions, and said the document would be provided on request.

– In a subsequent lawsuit, however, the seller denied having ever received the additional document.

That led to (what had to have been) an expensive court fight over whether an arbitration provision and an indemnification provision were part of the contract.

The case gives us a nice illustration of the Battle of the Forms; the Eighth Circuit ruled that the district court should have conducted a bench trial (no jury was demanded) to make findings of fact about just who had received what contract documents, and therefore just what terms were, or were not, part of the parties' contract under UCC § 2-207. Nebraska Machinery Co. v. Cargotec Solutions, LLC, 762 F.3d 737 (8th Cir. 2014).

Lesson: It's understandable that the buyer didn't want the hassle and expense of having to provide a hard copy of its additional terms and conditions form with every purchase order. Merely offering to provide a copy of the form, though, might well have been insufficient to bind the seller to its terms. The buyer could have put itself in a stronger position in court if it had posted the form on its Web site and then included a link to the form in its printed purchase order.

Failing to incorporate everything you want into a contract could result in losing rights your client thought it had. Example: In a 2024 Third Circuit decision:

–  Nationwide online used-car dealer Carvana tried unsuccessfully to compel arbitration of a class action brought by some of its buyers.

–  Carvana had included a separate arbitration agreement in the set of agreements signed by the buyers.

The district court court held, and the Third Circuit affirmed, that the arbitration agreement was unenforceable under Pennsylvania's Motor Vehicle Sales Finance Act ("MVSFA") because the buyer's installment-sale contract did not incorporate the arbitration agreement, as required by that statute:

Under Pennsylvania's MVSFA, a contract governing an installment sale must, inter alia: (1) be in writing; (2) contain all of the agreements between a buyer and an installment seller relating to the installment sale of the motor vehicle sold; and (3) be signed by the buyer and seller.

The statute creates a one-document rule for the installment purchases of vehicles requiring that all agreements between the parties must be incorporated into the RISC [Retail Installment Sale Contract]. …

Here, the arbitration agreements exist independently of the RISCs and are therefore unenforceable.

Jennings v. Carvana, LLC, No. 22-2948, slip op. (3d Cir. Mar. 21, 2024) (nonprecedential; affirming denial of Carvana's motion to compel arbitration; cleaned up, emphasis and extra paragraphing added).

Carvana's brief had pointed out (at 3) that the district court refused to enforce the parties' arbitration agreement "because the RPA [Retail Purchase Agreement] incorporated the RISC and not the other way around." The district court took it as a given that an arbitration agreement could be incorporated by reference and did not have to be reproduced in the body of the RISC.

In a 2016 decision, a California appeals court case considered a purchase order that a prime contractor had issued to a subcontractor:

–  The purchase order mentioned — but did not expressly incorporate by reference — a sales quotation that the subcontractor had previously sent to the prime contractor.

–  Further down in the purchase order, though, the P.O. language referred to "the contract documents described above or otherwise incorporated herein …." (Emphasis added.)

Applying the contra proferentem rule of contract interpretation (see 6.36), albeit without using that Latin phrase — and therefore construing the quoted term in favor of the subcontractor — the court held that the phrase, "described above or otherwise incorporated" had the effect of incorporating the subcontractor's sales quotation by reference into the prime contractor's purchase order.²⁰

Example: In 2014 the Seventh Circuit rejected an argument that incorporation by reference negated a contract's entire-agreement clause.²¹

An advantage: Drafting can sometimes be speeded up, and contracts shortened considerably, by incorporating external material by reference.

A classic example is the use of the INCOTERMS (International Commercial Terms), in purchase orders, to specify:

• how goods are to be delivered; and
• when title and the risk of loss will pass from the seller to the buyer.

(Concerning the INCOTERMS, see generally 12.5.)

A disadvantage: It might be tempting not to review material that is incorporated by reference into a document, even though the material will almost certainly have the same force and effect as though the material had been fully set forth in the body of the document itself.

Incorporation by reference can even turn an unenforceable contract into an enforceable one. Example: In R3 Composites (7th Cir. 2020),²² the court held that "Paragraph 12.2 of the NDA [nondisclosure agreement] was not enforceable by itself, but it could, as that paragraph expressly contemplated, combine with subsequent writings and/or conversations and/or conduct to become enforceable."

In 2024, Delaware's chancery court rejected a claim that a governance agreement among a corporation's shareholders — which was not available to the public — was validly incorporated by reference into the corporation's charter (i.e., the corporation's articles of incorporation, or in Texas, its certificate of formation).²³

Put the defined-term label* in bold-faced type and quotation marks (and possibly parentheses).

Examples:

Another example:

BUT: Don't bold-face other uses of the defined term:

If using a defined term before the definition occurs, consider using a forward reference:

In some contracts you might have both "in-line" definitions and a separate general-definitions section. In that situation, you should seriously consider serving future readers by including, in the separate general-definitions section, appropriate cross-references (in their proper alphabetical spots) to the in-line definitions.

That way, the general-definitions section does additional duty as a master index of defined terms.

See #4 in Bryan Garner's [Seven] Guidelines for Legal Definitions (2024):

Avoid burying substantive rules within definitions. For example, "'Labor' means an employer, contractor, or contractor’s assistant, provided that the contractor obtains the appropriate work order before hiring an assistant and completes the work in timely fashion."

The following are some personal style preferences that help enhance readability (in your author’s view):

– Put the defined term in "quotes and bold type" to make it stand out on the screen or page and thus make the term easier to spot while scanning through the document.

– Use the phrase refers to instead of means, because the former often just sounds better in different variations; see the following example (where bold-faced type is used to highlight differences and not to set off defined terms):

Before:

After:

If you alphabetize your defined-terms section (as you should), there's no need to number the paragraphs. The purpose of numbering contract paragraphs is easy referencing, both internally and in later documents. That purpose is sufficiently served just by having the definitions in alphabetical order. Ken Adams gives an example of a real-world contract that contained so many defined terms, in alphabetically-lettered paragraphs, that the paragraphs went from (a), (b), (c), etc., all the way to (cccccccccc), that is, with ten "c" letters. Just imagine trying to cite that in a cross-reference or a legal brief. See Ken Adams, Deranged Definition-Section Enumeration (AdamsDrafting.com 2020).

See 6.2 for some "deal crash" stories.

See Bryan Garner's succinct [Seven] Guidelines for Legal Definitions (2024).

See also:

• D.R.Y.: Don't Repeat Yourself (in critical areas) (3.43)
• Schedules: Use for deal-specific "variables" (3.26)

Your contract might contain a complex formula or some other particularly tricky provision. If so, consider including a hypothetical example or sample calculation — preferable a simple one — to "talk the reader through" how the formula or provision is intended to work.

Following that advice, here's a simple example in which subdivisions c and e show both examples and sample calculations. (This is a model provision, not the law.)

(These examples could be put in footnotes, as discussed at 9.4.)

In one litigated case, the drafters of $49 million of promissory notes would have been well served to include a sample calculation to illustrate one of their financial-term definitions. The court specifically mentioned particular calculations that the lender had submitted with its motion for summary judgment; if the promissory-note drafters had thought to include one or two sample calculations in the body of the contract itself, then by being forced to work through those sample calculations, the drafters and their client(s) might well have spotted the problems with the promissory-note language in time to fix it before signature.

Examples are one of the most effective teaching tools. That's significant here because one of the principal goals of any contract is to educate the parties' business people — and, possibly, future judges and jurors — about just what the parties have agreed.

An MIT note points out: "[I]n the field of law, worked examples have been used to teach students how to reason through legal cases and construct legal arguments, while worked examples have similarly been used to assist learners in understanding negotiation strategies." Worked Examples (MIT.edu, undated; citations omitted), archived at https://perma.cc/2TYJ-ECFY.

One professor of education asserts that:

… When a student forms a concept from its examples, he or she knows more than the definition of a term (e.g., river: he or she also knows some vivid examples of the concept that add flesh to a bare-bones definition, such as the Mississippi, the Amazon, the Yangtze, and the Volga). This is deep conceptual learning rather than superficial knowledge of a vocabulary word.

Walter Parker, Concept Formation (TeachingHistory.org).

Moreover, you've doubtless seen examples in well-written user manuals.

Examples can speed up legal review of a complex formula or some other particularly tricky provision — and help make sure the drafter(s) accurately captured the parties' agreement. So in any such case, drafters should consider including a hypothetical example or sample calculation that "talks through" how the formula or provision is intended to work — such as in the definition of day at 7.2.

(Alternatively, an example could be put in a footnote, as discussed at 3.41.)

Example: In BKCAP (2009), a Seventh Circuit case, the drafters of $49 million of promissory notes would have been well served to include a sample calculation to illustrate one of their financial-term definitions:

• The court observed that the plain language of the promissory notes "would produce absurd results" and that while the language was clear, "it is nonetheless ambiguous because it makes no economic sense."
• The court specifically mentioned that the "absurd results" were proved by the example calculations that the lender had submitted to the court with the lender's motion for summary judgment, but that were not part of the promissory notes. See BKCAP, LLC v. CAPTEC Franchise Trust 2000-1, 572 F.3d 353, 355-57, 359 (7th Cir.2009) ("BKCAP-1") (reversing and remanding summary judgment) after remand, 688 F.3d 810 (7th Cir. 2012) (affirming judgment in favor of borrowers after bench trial).

Now imagine that — during the deal negotiations — the drafters of the promissory notes had thought to include one or two such example calculations in the body of the notes. The drafters and their client(s), by being forced to work through those example calculations, might well have spotted the problems with the language in time to fix the problems before signature.

This is an example of following the R.O.O.M. Principle — Root Out Opportunities for Mistakes (or Misunderstandings).

Don't assume that word-processing software will reliably update a document's "automatic" internal cross-references between sections when editing the document to add new sections.

Example:

• The original, correct cross-reference is, "See section 14.3" (where the number 14.3 is inserted by the software to match the section number).
• During editing, a new section is added between section 8 and section 9.
• This means that section 14.3 should now be section 15.3 — but don't count on it. (See below for a real-life example where a similar occurrence changed the course of a court case.)

That's one reason why this handbook is not written in Microsoft Word — but perhaps things are different now than when your author started this project several years ago ….

Example: In a Delaware contract lawsuit, a pair of screwed-up cross-references in the contract led to major problems for the parties:

1.  One of the defendants, Robert Urich ("Dad"), was the father of Stephen Urich, who was one of the principal actors in the events leading to the lawsuit.

• Dad was the treasurer of Stephen's company; Dad had signed the contract that was the subject of the lawsuit, but only for purposes of two, referenced sections of the contract — including "Section 7.5."
• Unfortunately for Dad, there was no Section 7.5 in the contract.

So, Vice Chancellor Zurn deferred until trial the question of Dad's liability under the contract — meaning that Dad would have to incur the expense, burden, and uncertainty of trying the case. Labyrinth, Inc. v. Urich, No. 2023-0327, slip op, at part II.B.2, text accompanying nn.248, 255.

2.  The screwed-up cross-references also hurt the plaintiff — one of them led to the court's refusing to grant preliminary injunctive relief against defendant Stephen for allegedly breaching a noncompetition covenant:

• Section 9.12 of the contract expressly allowed any party to sue for specific performance; that normally would have provided a basis for the court to grant a preliminary injunction to enforce the noncompetition covenant.
• But the contract also contained an exclusive-remedies provision: Apart from a carve-out for "Section 10.12," the parties' only recourse would be indemnification in certain stated circumstances.

Vice Chancellor Zurn said that she was inclined to agree with the plaintiff that this carve-out of Section 10.12 was meant to cover the specific-performance provision of Section 9.12. But she ruled that she'd have to wait for trial to make that determination based on a more-developed factual record. See id. at part II.C, text accompanying n.261.

Great: More expense and uncertainty for all concerned, because the drafters (presumably) relied on word-processing software to update their cross-references — which shouldn't be a problem, but there you go.

(Hat tip: Matthew Dedon, who posted an alert at the invaluable lawyer site redline.net.)

Example: In a 2024 UK court of appeals case, the court noted acidly that "The Agreement is riddled with cross-referencing errors of the most basic kind." Topalsson GmbH v Rolls-Royce Motor Cars Ltd., [2024] EWCA Civ 1330 at n.2

Your author has not used any of these products, so YMMV (Your Mileage May Vary):

•  Contract Companion by Litera looks for cross-referencing errors, among other things. The company seems to have a lot of related products.

•  CrossCheck365 appears to be a Microsoft Word add-in that will • use an "Expando" feature to turn "spaghetti clauses" into "macaroni" (breaking up wall-of-words clauses into outlines); and • check cross-references.

(Author's note: Decades ago I briefly knew one of the company's people, lawyer Steve Gullion, which I learned when he reached out to me after I posted the above software references in the daily class plan for my Contract Drafting course. Steve noted that "we have a two-minute video that's just about the Expando feature: https://www.youtube.com/watch?v=26N-SZ605kw".)

Don’t spell out a number in words and then restate the number in numerals. Example:

This is an example of what software people call "D.R.Y. — "Don't Repeat Yourself." It can be a very expensive mistake if: • a term is revised during negotiation, but • the revision is not made in every place that the term occurs.

Some real-world examples are set out below.

Example: In a Delaware case, a party lost its rights under an intellectual-property license agreement because it cured a breach, but did so too late: • The license agreement allowed the other party to terminate if a material breach was not cured within "fifteen (30) days" after notice of the breach. (Emphasis added.) • The breaching party initially refused to cure the breach, so the non-breaching party terminated the agreement shortly after 15 days had elapsed from the notice of breach. • The breaching party had a change of heart after receiving the notice of termination and proceeded to cure the breach. • The court said, in effect, "sorry, too late" — because the word fifteen took precedence over the numerals 30.²⁶

Example: In a Texas case, a D.R.Y. mistake once cost a bank $693,000: • The bank sued to recover $1.7 million from defaulting borrowers and their guarantor. • In the trial court, the bank won a summary judgment. • Unfortunately for the bank, though: The loan documents referred to the amount borrowed as "one million seven thousand and no/100 ($1,700,000.00) dollars" (capitalization modified, emphasis added). So the appeals court held that, under standard interpretation principles, the words, not the numbers, controlled; thus, the amount guaranteed was only $1.007 million, not $1.7 million.²⁷

(You probably wouldn't want to be the junior associate or paralegal who oversaw the document preparation in that case.)

Example: One of your author’s clients was contemplated being acquired. A potential acquiring party proposed a confidentiality agreement (a.k.a. nondisclosure agreement a.k.a. NDA). • The text said, in part: "… said [confidentiality] obligations shall survive for a period of five (3) years from the later of the following: …." • I fixed the inconsistency even though I hadn't created it.4.22

Example: From a tweet: A legal-review software product flagged the term "One Million, Seven Hundred and Fifty Million Dollars ($1,750,000) of Security Deposits …."

Pro tip: Here's an example of one way to avoid the D.R.Y. problem:

Repetition can be used (cautiously) to emphasize a point. Part of the contract drafter's mission is to remind and persuade (see 2.8), not merely to slavishly follow drafting guidelines like this one.

A contract term is ambiguous if it is susceptible to two or more plausible interpretations that can't be resolved by the usual tools of interpretation (known as "construction").

If a potential ambiguity comes to light after a contract is signed, each party might have new, self-interested reasons — such as changed circumstances, or different people calling the shots — to argue for interpreting the provision in a way that disadvantages the other party. That in turn can lead to disputes and even lawsuits.

And there might well be a lot of money riding on whether a court concludes that a contract term is or is not ambiguous.

Example: In one Texas case, the losing party ultimately missed out recovering the roughly $44 million that it had claimed it was owed under the contract in suit, because the state's supreme court concluded that the relevant contract language unambiguously ruled out the losing party's claim. Plains Explor. & Prod. Co. v. Torch Energy Advisors Inc., 473 S.W.3d 296, 305 (Tex. 2015).

Example: As discussed in the comments to Clause 4.6, a lawsuit over the meaning of the word from resulted in a party not being entitled to some $180 million. See Apache Corp. v. Apollo Exploration, LLC, 670 S.W.3d 319, 321 (Tex. 2023) (reversing and remanding court of appeals).

Example: In a Fifth Circuit case, an off-shore drilling rig was severely damaged by fire while in drydock in Galveston for maintenance:

• The drilling rig's owner and the drydock owner disputed which of the two parties had had "control" of the rig at the time of the fire.
• The intended meaning of "control" was important because under the parties' agreement, if the drilling rig's owner had control at the time of the fire, then the drydock owner was not financially responsible for the fire damage.
• Needless to say, the parties hotly contested that meaning (as it were …).

The trial court held that the term "control" was unambiguous, and granted summary judgment that, on the undisputed facts, the rig owner, not the dock owner, had been in control at the time of the fire. The appeals court affirmed; thus, the parties were spared the expense, inconvenience, and uncertainty of a trial on the issue of control of the rig. See Offshore Drilling Co. v. Gulf Copper & Mfg. Corp., 604 F.3d 221 (5th Cir. 2010) (affirming summary judgment in relevant part).

Of course, the drilling-rig owner would certainly have preferred to go to trial and take its chances, versus losing on summary judgment without ever getting a shot at persuading a jury. But for the drydock owner, not having to go to trial was most assuredly a win in its own right.

Court generally use a two-step process in dealing with potentially-ambiguous contracct terms?

1.  The judge might be able to use standard legal rules of interpretation to decide the case quickly, e.g., on a motion to dismiss on the pleadings or a motion for summary judgment (see 12.16.2).

2.  But if applying those rules doesn't resolve the dispute, then the term in question is indeed ambiguous. When that happens, (in the U.S.) the court is not allowed to grant a quick summary judgment on undisputed facts — instead, the court must conduct a trial (if they're lucky, a trial on just that one issue), so that the trier of fact (a jury, or perhaps the judge) can find facts as needed to determine the parties' intent concerning the disputed provision.

"Mere disagreement over the interpretation of an agreement does not necessarily render the contract ambiguous." Plains Explor. & Prod. Co. v. Torch Energy Advisors Inc., 473 S.W.3d 296, 305 (Tex. 2015).

Spotting and fixing potential ambiguities in a contract before the contract is signed should be a prime goal of all contract drafters and reviewers.

To adapt an in-class comment by one of your author's former students (in a different context), determining the meaning of an ambiguous term in a signed contract is "a conversation we don't want to have."

A New York City judge notes: "President and later Chief Justice Taft got it right, though in the negative: 'Don't write so that you can be understood; write so that you can't be misunderstood.'" Gerald Lebovits, Free at Last from Obscurity: Achieving Clarity, 96 Mich. B.J. 38 (May 2017), SSRN: https://ssrn.com/abstract=2970873 (emphasis added, footnote omitted).

That's It. That's the tweet (so to speak).

But why usually?

Answer: Because there are (rare) times when you might not want to fix an ambiguity, as discussed in more detail at 3.44.9.

Savvy contract drafters prefer not to roll the dice about whether a court will apply the above principles in a way that favors the drafter's client. So: An extremely-useful general principle of contract drafting is, W.I.D.D. – When In Doubt, Define!.

But don't go overboard — see #3 in Bryan Garner's LawProse Lesson #442: Guidelines for Legal Definitions (2024): "If you create a defined term, then use it. (You know how often this rule is broken.)"

The A.T.A.R.I. Rule (4.22) and W.I.D.D. are great rules of thumb — but neither is a hard-and-fast rule; a drafter should think strategically before deciding whether to revise a potentially-ambiguous contract term during negotiations.

•   Did your side draft the potentially-ambiguous language? Then yes, fix it — especially if the draft hasn't yet been sent to the other side. That's because under the doctrine of contra proferentem (6.36), a court might resolve the question in favor of the other side because your side was responsible for the ambiguity.

•   What if the other side drafted the potentially-ambiguous language? If the other side drafted the language in question, then you might not want to say anything about it, in the hope that contra proferentem (6.36) would result in an interpretation favorable to your client.

If you didn't have the superior bargaining position, it might be especially tempting to keep mum about a potential ambiguity: If you were to "poke the bear" (2.1) — that is, call the other side's attention to the issue — then the other side might wake up and ask for something that's even worse for your client. (See 2.1 for examples.)

BUT: Later, the other side might be able to show that you noticed, but failed to raise, an ambiguity created by the other side's drafter — and under those circumstances, the other side might try to argue that, because your client "laid behind the log," your client should be held to have waived any benefit that it might otherwise have accrued from the contra proferentem doctrine.

And pragmatically: If you don’t ask the other side to correct an ambiguity that they created, then you might be setting up your client for an expensive, burdensome, future fight — a fight that perhaps might have been avoided with clearer drafting — and it might have been better to have that fight before the contract is signed, while your client still had the option to walk away.

The W.I.D.A.C. Rule applies here: When In Doubt, Ask the Client (and/or your supervising attorney), and be ready with a recommendation, including your reasons — also, be sure to confirm the decision with the client with a quick email. (See 18.1 for more on this.)

As one type of potential ambiguity, a term is vague if its precise meaning is uncertain.

–  A classic example is the term tall: If you say that someone is tall, you could be referring to that a third-grader who is tall for his- or her age but is still very-much shorter than the general adult population.

–  Another classic example of vagueness is the word cool; depending on the season and the locale, the term could refer to a wide range of temperatures. For example, in Houston in August a mid-day temperature of 80ºF would be regarded as (comparatively) cool, whereas in Point Barrow, Alaska, the same temperature at that time would likely be thought of as a real scorcher.

(Of course, as any parent in an English-speaking family knows, the word cool could also be ambiguous — in the sense of having multiple possible meanings — in addition to being vague.)

Let's look at another example, this time a silly one. Consider the following provision in a contract for a home caregiver:

Nurse will visit Patient's house each day, check her vital signs, and give her cat food.

The sentence above is potentially ambiguous, in that conceivably it could take on any of three meanings:

1.  Nurse is to put a bowl of food down for Patient's cat each day.

2.  Nurse is to deliver cat food to Patient when Nurse visits.

3.  Nurse is to feed cat food to Patient. (OK, that one might be a stretch.)

In addition, the sentence above might also be vague if it turned out that Patient had more than one cat.

Moreover, meanings #1 and #2 above are vague in another sense as well: The term cat food encompasses wet food, dry food, etc.

Vagueness is not necessarily a bad thing. Parties might be confident that, if a question ever arises, it'll be clear (or can be expeditiously determined) just what was intended by, say, the term reasonable efforts.

But: Too-vague a term might lead to an agreement being held unenforceable. Example: Idaho's supreme court affirmed a divorce court's holding that, in a divorce settlement agreement, the term "[s]pousal support shall be reviewed every two years" was "so vague, uncertain, indefinite, and incomplete that it is unenforceable." Smith v. Smith, No. 50184 (Id. Dec. 19, 2024).

So here's a rule of thumb: Vagueness is not always worth fixing — but a vague term is always worth taking a look at to see if it should be replaced by a more-precise term.

It's been known to happen that, during contract negotiations, Party A asks to rewrite an ambiguity, but Party B's lawyer says, there's no need to rewrite it, because the courts construe it the way you say. Is that good enough? Should Party A meekly accept Party B's assertion? Very possibly not:

• In a dispute, Party B's lawyers will argue — often shamelessly — for whatever interpretation seems good to them at the time, regardless of what was previously said by Party B.
• Party A will be reluctant to risk having a court hold that, by not insisting on clarifying the ambiguity, Party A waived its own preferred interpretation of the language.
• On the other hand: Party B might be stuck with its prior assertion to Party A, on estoppel grounds or analogously to contra proferentem (see 6.36).

This will ultimately come down to how Party A's business people judge the overall business risk.

Some amusing examples of ambiguity can be read at the Wikipedia article on Syntactic ambiguity, at https://goo.gl/6zmrH5

See also numerous categorized case citations by KPMG in-house attorney Vince Martorana, at A Guide to Contract Interpretation (ReedSmith.com 2014).

Here's a simple example of a potential ambiguity: Suppose that our hypothetical client MathWhiz (1.5.2) has signed a lease for office space, where it is the tenant. And suppose also that the lease says the following:

(Bold-faced emphasis added.)

Now suppose that a MathWhiz representative calls you up and says that they can't move out before 10:00 a.m. on December 15.

QUESTION At that time, on that day:

• Would MathWhiz still have 14 hours left in which to finish moving out?
• Or would MathWhiz already in material breach because it didn't move out by the previous midnight?

In other words, does "by midnight" mean before midnight at the start of the day, or before midnight at the end of the day?

This illustrates a useful drafting principle: W.I.D.D. – When In Doubt, Define! (3.44.8)

Ripple-effect business complications can arise from such potential ambiguities — in the December 15 example above, the landlord might have already re-leased the premises to a new tenant, with a promise that the new tenant can move in on that date.

QUESTION: How would you rewrite the "Tenant will vacate the Premises no later than 12 midnight on December 15 …." sentence to resolve this ambiguity?