Comments on: The Conspicuousness Requirement of Texas’s “Express Negligence” Rule

By: Jorge Mafud

Jorge Mafud — Thu, 30 Apr 2009 22:59:30 +0000

WOOOOOWWWWW…. as a Mexican lawyer, it amazes me that US law provides to have this conpicuousness rule… I’ve always seen the indemnity clauses in agreements with US parties in capital letters (not bold) and thought.. “man these US lawyers want this clause to stand out…” but never thought that there was a rule to it to make enforceable…

In Mexico it is customary for the agreement to include a wording stating that the parties have read the agreement, understand it and that there is no misinterpretation of its contents…

Interesting!

By: Jack

Jack — Wed, 29 Apr 2009 14:07:22 +0000

We have a similar problem in Ohio, where warrants of attorney must be accompanied by a statutory warning more conspicuous than anything else in the document. Courts hae invalidated the cognovit provision when the warning was no more conspicuous than the section captions or the title. I make sure to put the warning in bold type, at least 2 points larger than anything else in the document, and to enclose the warning in a box or between bars in each side margin. For those who want to use capital letters, using large and small caps is more readable than all caps.

By: Art

Art — Tue, 28 Apr 2009 16:48:39 +0000

Ken, that may well be the case – I was looking at the Porter & Hedges article that you linked to, which I misread. It was in fact the Texas Supreme Court, applying the UCC, which said “language in capital headings, language in contrasting type or color, and language in an extremely short document, such as a telegram, is conspicuous”.

My facts, alas, were wrong. However, I think I stick by the general point – that if the law states explicitly that “contrasting type… is conspicuous” for the purposes of this requirement, it is hard to blame lawyers who capitalise the relevant clauses.

By: Ken Adams

Ken Adams — Tue, 28 Apr 2009 16:41:01 +0000

Art: Methinks you misunderstand the UCC requirement of conspicuousness. I suggest you consult MSCD or the blog post I link. Ken

By: Art

Art — Tue, 28 Apr 2009 16:36:24 +0000

I share Evan’s sentiments – capitals are harder to read, and much less likely to be read than ordinary type if they go over more than one line. Still, as the UCC seems to give US lawyers a “safe harbour” for capitalised text, one can hardly complain that many do it.

Incidentally, I think that the Dresser case uses a dangerous principle in commercial contracts – if a Party A signs a contract and Party B fulfills their side of the bargain on that basis, surely Party B should always be able to rely on the fact that the contract binds Party A? If not, Party A is being rewarded for their own carelessness. Dresser seems to apply an entirely different principle in this regard to that in Ethyl Corp., which was concerned with ambiguity (of one sort or another).

By: Paul Comeaux

Paul Comeaux — Tue, 28 Apr 2009 13:49:14 +0000

Ken–There are actually two different rules that are often lumped together: First, a 1987 Texas Supreme Court case said that if you want to be indemnified against the consequences of your own negligence, you must say so expressly. For example, “This indemnity applies even if the indemnified party was negligent.” Then, six years later, the Dresser case said that these provisions had to be conspicuous. (I like bold, small caps.)

These rules also apply to releases and shifting risk from a party who would otherwise be strictly liable under applicable law.

Here’s the most interesting aspect of the Texas express negligence and conspicuousness rules: The Texas Supreme Court has held that if an indemnity fails to satisfy the express negligence rule, the mere allegation of negligence by the indemnitor in a suit filed against an indemnified party will preclude recovery of anything from the indemnitor, EVEN IF the the indemnified party is ultimately held not to be negligent. In other words, the indemnified party will be unable to plead its case on the merits.

By: Evan Brown

Evan Brown — Tue, 28 Apr 2009 13:39:05 +0000

It sure would be refreshing to see a widespread reform on the use of all caps to denote the parts that must be conspicuous. I’VE ALWAYS FOUND IT IRONIC THAT THESE CRITICAL PARTS OF AN AGREEMENT, PARTS ABOUT WHICH UNDERSTANDING IS CRITICAL, ARE USUALLY RENDERED IN TEXT THAT IS THE MOST INCOMPREHENSIBLE.