A Reminder Regarding Section-Heading Protocol

A reader told me about the Ohio Supreme Court’s June 2011 decision in Sunoco, Inc. (R&M) v. Toledo Edison Co. (go here for a PDF copy). The issue was whether Sunoco could use a most-favored-nation provision in its contract with the Toledo Edison Company to require that Toledo Edison extend the term of the contract to match the term of Toledo Edison’s contract with BP Oil Company.

The court reversed the decision of the Public Utilities Commission of Ohio and concluded that the most-favored-nation provision did require that that the term of Sunoco’s contract be extended.

Here’s the most-favored-nation provision:

If the Company provides an arrangement, rates or charges which is or may be in effect at any time during the term of this Agreement, to a Comparable Facility within its certified territory, then the Customer will have the right to utilize that arrangement, rates or charges for its Facility. The Customer must comply with all other terms and conditions of the arrangement including firm and interruptible load characteristics/conditions.

The triplet “arrangement, rates or charges” seems particularly awkward—it should come as no surprise that the parties found themselves in a dispute.

Toledo Edison also argued that because the provision was given the heading “Comparable Facility Price Protection,” it should be construed as relating only to price. The court rejected that argument on the grounds that the contract contained a provision stating that no section heading was to be used to interpret the scope and intent of that section. So this case is a reminder of the following:

  1. That drafters should make sure any given provision is clear enough so that no one has to look to the heading for clues as to meaning.
  2. That drafters should make sure no section heading suggest a meaning that is broader or narrower than what’s covered in the related section.
  3. That if you screw up points 1 and 2, a court may well ignore the section heading if the contract contains a provision stating that section headings are to be disregarded when interpreting intent.

So a provision regarding the effect of section headings can save you from the consequences of careless drafting. But as noted in MSCD 3.12, you shouldn’t  use such a provision as an excuse for being lax in formulating headings.

If I’m the drafter, I can do without such provisions, as I’m confident that I won’t screw up points 1 and 2 above. But if you’re establishing boilerplate for contracts to be used by others, you might want to include a provision stating that section headings are to be disregarded when interpreting intent.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.