The Concept of “Tested” Contract Language

In the past ten days, I have twice had people mention to me, in the course of conversation, the notion of “tested” contract language. The idea is that while contract prose could certainly be improved, changing it would be risky—traditional contract language has been litigated, or “tested,” and so has a clearly established meaning (is “settled”).

This argument has long been debunked, but because it still has some currency among contract drafters, it’s worth considering again.

A useful place to start is Robert W. Benson, The End of Legalese: The Game is Over, 13 N.Y.U. Rev. L. & Soc. Change 519, 561 (1984–85). Benson restates the argument for the significance of “tested” contract language by quoting a 1978 Alabama Law Review article:

[L]egal language gradually has become precise and relatively certain; when a word, term or phrase is used in a contract, and that contract has been the subject of judicial interpretation, the precise meaning of the words therein has become more certain or determinable. Thus, one can depend upon what the particular words mean (or certainly what they do not mean) because a court has ruled, and probably would rule in the future, that they mean just that.

Benson correctly points out that this argument defends some of the vocabulary of legalese, but nothing else. It doesn’t seek to defend archaisms such as witnesseth, clutter such as the traditional recital of consideration, rampant misuse of shall, redundant synonyms, inefficient layout, and all the other problems that afflict contract prose. In other words, as Benson says, this argument concedes most of the debate.

But let’s now turn to vocabulary, which is all that is left to those who would invoke “tested” contract language as a reason for not making traditional contract prose clearer and more readable. By way of a representative example, consider a phrase that looms large in contract drafting, material adverse change, or “MAC.”

The leading case on MAC provisions is IBP, Inc. v. Tyson Foods, Inc., 789 A.2d 14 (Del. Ch. 2001), in which the court held that “the Material Adverse Effect should be material when viewed from the longer-term perspective of the reasonable acquiror.” There you have it—the phrase has been “tested.”

But just because a court in one jurisdiction attributes a certain meaning to a given phrase doesn’t mean that a court in another jurisdiction is required to do so. Furthermore, as I point out on page 24 of my law review article on MAC provisions, and in MSCD ¶ 7.86, it’s not clear that the one-size-fits-all “reasonable acquiror” standard of the IBP court could be applied to a different set of facts.

So what are your options? You could parrot the language at issue in the IBP case and then hope that in any litigation the facts match those in the IBP case and the court accepts the IBP court’s analysis. But a better bet would be to define MAC so as to incorporate the essence of the IBP meaning, and in a way that would allow it to apply to a broader set of circumstances. I offer such a definition on page 21 of my MAC law review article and in MSCD ¶ 7.77. (The MSCD updates and corrections contain a slightly revised version of the definition, one that matches the definition in the MAC law review article.)

The benefits of adopting an alternative approach to defining MAC demonstrate the flaw inherent in relying on “tested” language. If contract language came to be tested, it’s because it failed to clearly state the intent of the parties. Why rely on language that resulted in litigation? Instead, express any given concept clearly, so you don’t have to gamble on case law breathing into it the desired meaning.

So, to summarize, invoking “tested” contract language as grounds for not overhauling traditional contract prose fails for two reasons: First, this notion has no bearing on most attributes of contract prose. And second, if a given word or phrase is sufficiently unclear that it results in litigation, that’s a sure sign that you’d be better off using alternative language.