Using “Reasonable” and “Reasonably” in Contracts

In my recent post on moral turpitude, I noted that I found odd the phrase “its reasonable but good faith opinion,” and a couple of commenters weighed in on that. So I thought I should take a more general look at the relationship between those two concepts.

But I’ll start by considering in this post how the notion of reasonableness is used in contracts.

Let’s consider what reasonable means. Black’s Law Dictionary gives as a definition “Fair, proper, or moderate under the circumstances.” Nothing surprising about that, but note in particular “under the circumstances.” Determining whether someone has behaved reasonably is an objective standard—you consider the circumstances, not the intent of the actor.

Reasonableness appears in contracts in the form of the adjective reasonable and the adverb reasonably. Here are some examples:

Reasonable

  • Vital will separately charge such surgeons a reasonable fee for any such services
  • the amount of any reasonable reserve established in accordance with GAAP
  • The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing

Reasonably (modifying a verb)

  • in each case acting reasonably to accomplish the purposes of this Section 2.16
  • other matters as the relevant L/C Issuer reasonably requests
  • as any Agent, Lender or group of Lenders reasonably determine are necessary

Reasonably (modifying another adverb)

  • Lessee shall reasonably promptly cause an inspection of the Leased Property

Reasonably (modifying an adjective)

  • and reasonably satisfactory to the Administrative Agent
  • an amount reasonably necessary to satisfy the emergency need
  • nor has there occurred any event which is reasonably likely to result in a material adverse change

Use of reasonable is straightforward enough, but reasonably raises some issues.

Reasonably can be paraphrased as “in a reasonable manner/way.” But that works only when reasonably is used with a verb. When reasonably is used other than with a verb, drafters can lose sight of what they’re trying to say.

Sometimes reasonably is superfluous. Consider reasonably promptly. MSCD 12.261 says that “courts have uniformly held that promptness is a function of circumstances.” That being the case, reasonably is redundant.

How about reasonably likely? The meaning most offered for likely—itself worth a blog post—is a degree of probability greater than 50%. In that context, what on earth does reasonably mean? I suggest that it’s acting as a wishy-washy qualifier, like quite. It’s unhelpful—if you have to use likely, use it on its own.

And what about reasonably necessary? Something is necessary, or it’s not. What purposes does reasonably serve? Here’s what I suspect the drafter of the fragment quoted above was trying to say: an amount necessary to satisfy the emergency need, as determined by a reasonable person in the Participant’s position.

As for reasonably satisfactory, MSCD 12.335 says that it’s a succinct way of making it clear that an objective standard is intended. But I wonder whether a clearer alternative to reasonably satisfactory to Acme would be satisfactory to a reasonable person in Acme’s position.

So, drafters, I recommend that if you find yourself using reasonably other than with a verb, think what you’re trying to say. If you do in fact need to express the notion of reasonableness, consider whether you can do so more clearly than by means of reasonably with an adverb or adjective.

[Updated April 25: Reasonably can also be redundant when used with a verb. Consider Acme shall cooperate reasonably with Widgetco: in that context, reasonably is redundant, as reasonableness is inherent in the notion of two parties cooperating.]

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  • http://pulse.yahoo.com/_APLJZY3HMTXYKLNBYKL2BCBEXU demigoogle!

    Great blog!  I’ve bookmarked it.

    A quick question regarding the peppering of a contract with “acting reasonably”, “reasonable”, etc., where there exists a “Parties to Act Reasonably and In Good Faith” clause.

    Are these redundant?  I believe so, but I’m getting resistance from those I am negotiating with and those I report to who believe that most are a non-issue and “easy gives” in the negotiating process.  I think these may, if put in the wrong place, make intent ambiguous such as “reasonable” legal costs.  In my opinion, legal costs are what they are, and we can’t control the actions (and fees) of a third party (the lawyer).

    • http://www.koncision.com Ken Adams

      First off, it would be redundant to include a “Parties to Act Reasonably and In Good Faith” provision in a contract.

      And reasonable and its variants isn’t ambiguous, it’s vague. Whether vagueness is appropriate depends on the context.

      • http://pulse.yahoo.com/_APLJZY3HMTXYKLNBYKL2BCBEXU demigoogle!

        Thanks Ken.  I understand your point that it would be redundant to include the clause because of the expectation to act in good faith.  So that answers my question in a roundabout way regarding the point of adding “acting reasonably” or “reasonable” in a contract where we already have good faith clause.     The clause is in a majority of contracts in my industry in Canada. 

         I am dealing with an ambiguity regarding outside legal costs that is a result of including the word “reasonable” in the wrong place.  It is being interpreted as a) no legal costs are payable and b) only some legal costs are payable.

        • http://www.koncision.com Ken Adams

          An “act reasonably” provision doesn’t render redundant use reasonable or reasonably elsewhere: they’re apples and oranges.

          Regarding the issue you’re facing, I can’t offer any opinion without knowing more.

          • http://pulse.yahoo.com/_APLJZY3HMTXYKLNBYKL2BCBEXU demigoogle!

            That’s interesting.  Your explanation is opposite to the direction I’ve received from the chief counsel in the corporation I started with.  He advised not to allow “acting reasonably” in a document and explained that it was redundant because of the Good Faith/Act Reasonably clause in the beginning of the contract. For instance, if we have the Good Faith/Act Reasonably” clause in the contract and elsewhere in the contract it lays out the terms for the Lessor right to determine, “acting reasonably”, (or “reasonably determine”) a third party contractor for a service that the Lessee will use, is the addition of “acting reasonably” redundant?

            If not, why is it apples to oranges?  In all sincerity, if I have been directed incorrectly all this time, I welcome the correction! 

            I didn’t intend to sidetrack my comments with the legal costs issue.  I won’t get into it as it’s involved, but thanks for offering.
             
            I appreciate your time!

          • http://www.koncision.com Ken Adams

            Using “acting reasonably” would be redundant, but not, for example, “reasonable attorney’s fees.” They convey entirely different meanings.

          • http://pulse.yahoo.com/_APLJZY3HMTXYKLNBYKL2BCBEXU demigoogle!

            Yes, I do understand the difference and I have muddied the waters by including “reasonable” in this instance.

            You’ve been really generous with your time and knowledge, so thank you very much.  This site has already become one of my favorites and I’ll be referring to it often.

            All the best…