Contract Drafting: When Is a Comma Worth $2 M? When Is Boilerplate Not Boilerplate?
A couple of items today emphasize the importance of careful contract negotiation and drafting.
First, the $2M comma:
The Toronto Globe and Mail reports on a dispute over a telecommunications company contract that turned on a single comma.
The company thought it had a five-year deal for stringing cable lines across thousands of utility poles. But early last year, it was told the contract was being cancelled and rates going up.
Here’s the clause at issue:
The agreement “shall continue in force for a period of five years from the date it is made, and thereafter for successive five year terms, unless and until terminated by one year prior notice in writing by either party.”
The company argued that the second comma was a mistake, and that the one-year termination provision was inapplicable during the initial five years.
The Canadian Radio-television and Telecommunications Commission couldn’t see past the comma. Who can blame them?
This comma became worth $2M because that’s the value of the price increase the other party obtained after successfully cancelling in less than five years.
As written, this clause unambiguously allows termination on one year’s notice, even during the first five years. Doesn’t it?
Source:
Toronto Globe and Mail: “Comma quirk irks Rogers”
Hat tip to Holly of my office, upon whom I rely for advice on all questions of grammar and punctuation, and who introduced me to Eats, Shoots & Leaves: The Zero Tolerance Approach to Punctuation (The title of this book reflects a similar comma problem: the difference between a docile panda that eats shoots and leaves; and a crazed terrorist one that enters a restaurant, eats, shoots, and leaves.)
The second contract drafting item:
A recent Eighth U.S. Circuit Court of Appeals opinion gave full effect to a contract clause that is normally considered mere boilerplate. The result was that the court ignored what may have been strong evidence that something had been promised orally that was not written into the contract.
The contract was an employment agreement between a cardiologist and a medical clinic.
The boilerplate was “an integration clause, which provided that it was the entire agreement between the parties, superceding all negotiations, prior and contemporaneous discussions, preliminary agreements, and understandings of the parties as to the subject matters of the Agreement.” The Agreement also required that any modification be in writing.
One finds similar provisions in all manner of contracts.
They became crucial to the parties’ dispute in this case because the doctor wanted the court to consider evidence of oral representations made to him by clinic administrators during contract negotiations leading up to the signing of the Agreement.
The court applied Iowa law, under which such “parol evidence” must be excluded “when a ‘handcrafted contract contains an integration clause, where the parties were sophisticated business persons represented by counsel and of equal bargaining strength, and where terms of the alleged oral agreement reasonably would be expected to be included in the . . . agreement.”
The agreement in question was a handcrafted, specially negotiated document, not a form document using boilerplate language. The court distinguished a case where the integration
clause was contained in a boilerplate, take-it-or-leave-it motor vehicle lease.
Additionally, both parties were sophisticated in business and represented by counsel during lengthy negotiations. The parties negotiated at arm’s length, as demonstrated by the doctor’s negotiation of some more favorable terms than originally proposed by the clinic.
Cagin v. McFarland Clinic, P.C., No. 05-3592 (8th Cir. 07/31/06 - )
So, perhaps sometimes a court may disregard boilerplate — if it is totally shoved-down-your-throat, standard-fine-print boilerplate; and the mere suggestion of negotiating the most minute change in the contract would have caused the other party to fall out of their chair, laugh uncontrollably, and/or tell you exactly where to go.
But in a negotiated, customized contract, it is very tough to squirm out from under the weight of even the most one-sided boilerplate.
Bottom line: read and draft contracts with great care.
Finally, a wise lawyer’s perspective on the dilemma faced by plain-English drafters thinking about radically modifying or eliminating certain boilerplate clauses:
Legal boilerplate is neither mumbo-jumbo nor holy writ. It represents, for the most part, a draftsman’s reasonable attempt to deal with features of a legal, business, social and technological environment.
As that environment changes, well-drafted provisions can become unsuitable. Unfortunately, the ancient provisions don’t come with commentary.
An associate plodding through the firm’s form file is unlikely to know what assumptions underlay the provisions. Perhaps an obscure phrase is there to deal with a legal problem that remains formidable. This possibility renders many lawyers reluctant to tamper with the hallowed hokum.
But the obscure provision may just as likely have been written to deal with bustles or buggy whips.
The conclusion is depressing: safety does not lie in reciting the standard phrases. Perhaps the provisions were drafted by geniuses, but those geniuses may have been wearing powdered wigs.
It would be nice if a committee existed . . . that published revised boilerplate provisions on a continuing basis, with commentary to explain why certain choices were made. Until then, the only solution is to think clearly and act bravely. Courage, mes petits!
Source:
Howard Darmstadter: “Legal-ease: Does the Pony Express Still Stop Here?”
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