Delaware Court of Chancery Cites MSCD

Greetings from Geneva! I’m here giving a series of seminars, but I received word that in his recent opinion in GRT, Inc. v. Marathon GTF Technology, Ltd., 2011 WL 2682898 (Del. Ch. July 11, 2011) (go here for a PDF copy), Chancellor Strine of the Delaware Court of Chancery discusses at modest length, in footnote 79, what A Manual of Style for Contract Drafting has to say about “survival” of contract provisions.

For those of you who aren’t inclined to check out the opinion, here’s the text of footnote 79:

A pertinent example of this type of commentary is Kenneth A. Adams’ thought-provoking A Manual of Style for Contract Drafting. From the outset, Adams makes clear that his manual’s purpose is not to comment on the traditional lexicon of contract drafting as it has evolved and been interpreted by the courts, but is instead to advocate for a method of contract drafting that prefers “standard English” over “tested” contract language, or what Adams pejoratively dubs “legalese.” KENNETH A. ADAMS, A MANUAL OF STYLE FOR CONTRACT DRAFTING xxvi-xxvii (2d ed.2008). Indeed, his manual’s opening section makes plain that “[t]he usages [the manual] recommend[s] are those that are clearest and most efficient for accomplishing a given drafting goal. That’s the case even if what [the manual] recommend[s] does battle with the conventional wisdom ….” Id. at xxii (emphasis added).

With respect to survival clauses, consistent with his manual’s thematic underpinning—one that openly rejects the “popular rationale for retaining legalese in contracts … [solely because] traditional contract language has been litigated, or ‘tested,’ and so has a clearly established, or ‘settled’ meaning—Adams, without citation, advocates to putting an end to the standard practice of using survival clauses to serve as a contractual limitations period:

It’s commonplace for most representations in a given contract survive [sic] for a limited time (perhaps a year), whereas others survive until the applicable statutes of limitations expire and still others survive indefinitely. Although it’s entirely standard to refer in this manner to survival of representations, it’s unhelpful to do so. For one thing, you should resort to such legal jargon in a contract only if no clearer alternative presents itself. And furthermore, referring to survival of representations addresses only one of the potential bases of a claim for indemnification—for instance, it doesn’t serve to put time limits on when you can bring a claim for indemnification for breach by the indemnifying party of any of its obligations. That’s why it’s preferable instead to address this topic, head-on and more broadly, in a section entitled “Time Limitations.” ADAMS at xxvii, 300 (emphasis added).

In other words, Adams suggests doing away with the use of the traditional approach to addressing the limitations period applicable to claims seeking remedies for breaches of representations and warranties, which has been tied to the lifespan of the representations and warranties themselves (such as their death at closing) and being more specific by setting forth an express limitations period. His view on progress has adherents. See generally LENNÉ EIDSON ESPENSCHIED, CONTRACT DRAFTING: POWERFUL PROSE IN TRANSACTIONAL PRACTICE 109–112 (ABA 2010) (considering and rejecting arguments against using “plain, conversational English” in contract drafting, including one that promotes adherence to the traditional lexicon because courts have “ ‘blessed’ “ the “archaic jargon and customs” in prior cases, because “language that has been litigated by definition is subject to two or more interpretations.”); see also ABA Model Asset Purchase Agreement (2001) at 228–229 (advocating for the inclusion of a section that is separate and distinct from a general survival clause, entitled “Time Limitations,” that expressly provides when claims for indemnification based on breaches of surviving representations and warranties must be noticed); ABA Revised Model Stock Purchase Agreement With Commentary, Working Draft (Dec. 14, 2009) at 198 (same). Adams’ policy proposal may well have utility, but its admirably candid nature as an advocacy piece underscores the difference between the roles served by courts and judges, on the one hand, and commentators like Adams, on the other. In contrast to a commentator, like Adams, who is free, as he does, to “disregard [ ] [“entrenched assumptions held by many who draft and review contracts”]” and espouse his own beliefs about the lexicon contracting parties ought to use, ADAMS at xxvi, a judge’s role in a contractual interpretation case is to read and understand a contract in the manner that the parties who drafted it intended. Lorillard Tobacco Co. v. Am. Legacy Found.,903 A.2d 728, 739 (Del.2006) (“When interpreting a contract, the role of the court is to effectuate the parties’ intent.”). Although reading a contract inherently involves a degree of interpretation, a judge’s interpretative prowess must be constrained by settled principles of law that are themselves outgrowths of the traditional contractual lexicon as it has been developed by practitioners, and read and interpreted by the courts. One can even share and in fact applaud Adams’ encouragement of clearer forms of contract drafting but find it not useful in interpreting a contract written in the form Adams wishes to abandon. The judge must honor the parties’ bargain by being faithful to his role and not superimposing on them his own views of appropriate drafting.

I’m pleased that Chancellor Strine has seen fit to consult MSCD. My one regret is that he was forced to add a “[sic]” to the passage he quoted—the word “to” got lost in the shuffle. *author gnashes teeth*

And I think that what he says makes sense. Determining how to articulate a concept clearly in a contract differs from the task of making sense of contract language that’s unclear.

Once I’m done with my seminars I’ll take a closer look at this case.

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.