Contracts are an inescapable reality for most these days—from buying, selling or leasing a home, taking out a loan, or running a business to re-upping with your mobile phone carrier (and everything in between).
But beyond the terms of the agreement—what exactly the parties agree to do—there are certain key words that speak to the condition upon which that particular term or provision will go into effect. Words like “agree,” “may,” “shall,” and “hereby” are critical to defining the agreement and, perhaps more importantly, the performance. What is the timing or what is the trigger that will cause a particular provision to become effective?
Naturally, there is more nuance to contract language than what I briefly cover here, but at the very least, I offer a few practical tips:
1. The Mistake of “Agrees”
We see this all the time.
EXAMPLE:
“Party A agrees to release and forever discharge Party B and their respective agents, employees, independent contractors, representatives…”
Does Party A truly have to grant Party B his/her release? And if so, when does that release go into effect? In the example above, you can imagine a scenario where the question of timing or performance is contested. Party A agreed to release Party B, but (1) she did not intend it to go into effect at the time of the agreement; or (2) it would be contingent on some other condition being met.
Such an argument may not carry the day but using the word “agrees” in lieu of the options below creates unnecessary ambiguity. This is what happens when the language of agreement is used instead of the language of performance. While “agrees” may characterize the spirit of the parties, it is not indicative of an action or performance.
Law students learn from their earliest introduction to contracts that an agreement to agree is not enforceable. The use of “agrees” in this context seems to run afoul of that basic tenet.
2. “May” vs. “Shall”
Most people understand the distinction between “may” and “shall” and can issue spot immediately if misapplied. “May” offers one party the permission or discretion to act, while “shall” mandates such action. Various contracts, statutes and regulations, etc. all rely on these auxiliary verbs that work in conjunction with a main verb to permit or compel performance (e.g. “may purchase” or “shall grant”).
3. “Hereby”
However, there can remain an unanswered question of timing even when it comes to the use of the word “shall.” “Hereby” is often a critical performance term.
EXAMPLE:
“Buyer shall waive his option to extend the Closing Date…”
“Buyer hereby waives his option to extend the Closing Date…”
While performance may be mandatory in the first example, a party will still need to know the condition, contingency, or timing upon which Buyer “shall” waive his option. On the other hand, “hereby” clarifies that Buyer has waived his option as of this writing. It is a term of immediate effect. So, whereas “shall” may set forth a mandatory agreed-upon term, “hereby” specifies that the provision is effective upon execution.
Of course, the nature and timing of any provision can be clarified with other clauses (e.g. “upon the sale of the property” or “within five days”), but anyone reviewing or drafting a contract would benefit from noting the language of performance as well.
To learn more about contract language and effects on performance, please contact Beresford Booth at info@beresfordlaw.com or by phone at (425) 776-4100.