Here’s what I said in this 2014 post:
[I]f a party that is subject to a condition is in a position to act as if the condition has been satisfied even if it in fact hasn’t been satisfied, should the issue in question instead be stated as an obligation?
My answer was yes, it should.
This issue is subtle enough that I thought it worth revisiting. This is from the the Google services agreement I critiqued in this 2014 post:
… except that any settlement requiring the party seeking indemnification to admit liability or to pay any money will require that party’s prior written consent …
The first point is, what’s up with will require? Is it stating a condition or an obligation? Who knows.
Could I state this as a condition to settling? Yes, but that wouldn’t make sense: there’s nothing preventing Party A from not bothering to get Party B’s prior consent and entering into a settlement that admits liability or requires Party A to pay money.
I could instead state it as an obligation:
A party that wants to settle a dispute shall obtain the prior written consent of the other party before entering into a settlement in which it admits liability or or pays, or assumes an obligation to pay, the other one or more parties to that dispute an amount in settlement.
But I think it has more teeth stated as a condition to indemnification:
A party will not be required to indemnify the other if the party seeking indemnification settles that dispute without the prior consent of the other party and in doing so admits liability or pays, or assumes an obligation to pay, the other one or more parties to that dispute an amount in settlement.
So there you have it. It ain’t easy. Get your semantic acuity on.
A few comments:
1/ If the deal term is that B takes on an unconditional duty to get leave from A before B settles with C, language of obligation or prohibition is appropriate. The term, however, leaves unaddressed the effect of B purporting to settle with C without A’s leave. Is the B-C settlement void because B lacked power to make it, or is it valid despite being a breach of the A-B contract?
2/ I wouldn’t place a duty to get prior leave on a party that ‘wants’ to settle — too subjective. Suppose the settling party settles without ‘wanting’ to? Instead, I would draft something along these lines:
‘No party shall settle a dispute without the other party’s leave. This prohibition applies only to settlements whereby the settling party (1) admits liability, (2) pays or takes on a duty to pay a settlement sum to the settlement counterparty, or (c) both’.
(This formula, too, leaves unaddressed whether an unpermitted settlement is void or valid.)
3/ A condition to indemnification is not another way to say the same thing, it’s a substantively different deal term: not a prohibition against unpermitted settlements, but a conditional lack of duty to indemnify. Generally speaking, a drafter qua drafter can’t say that one proposed deal term is better than another, but only that one formulation better expresses the deal term than another.
4/ As written, the provision in the fourth grey box disclaims a duty to indemnify even if the party seeking indemnification did obtain prior leave to settle. I assume that’s an oversight. On that assumption, I’d probably phrase a conditional lack of duty to indemnify along these lines:
‘No party is required to indemnify another party who settles a dispute if the settling party did not first obtain leave to settle from the other party. This lack of duty to indemnify applies to settlements whereby the settling party admits liability, pays or takes on a duty to pay a settlement sum to the settlement counterparty, or both’.
Thanks, I fixed the omission in the fourth gray box. This is a think piece about the implications of different categories of contract language, not my attempt to construct a thing of beauty.