I’m familiar with the ethics-in-drafting implications of including in a contract a provision that’s invalid. This topic is explored in Gregory M. Duhl‘s article “The Ethics of Contract Drafting,” which I mentioned in this February 2010 blog post.
A provision can be invalid because it’s illegal. Gregory’s article gives as an example of an invalid clause a provision that disclaims the implied warranty of habitability in a residential lease even though the law prohibits the landlord from disclaiming the warranty. His article also notes that a provision can be invalid because it’s unconscionable.
As regards the ethics of including invalid provisions, here’s part of what Gregory’s article has to say:
The inquiry is not simply whether the clause is valid or invalid; for the lawyer to run afoul of the Model Rules, the lawyer knowingly had to assist his or her client in deceiving the consumer as to his or her rights.
But here’s a more subtle question: What are the ethical implications of including a provision that’s only partly invalid? Or, to put it another way, including a provision that doesn’t tell the full story.
What brought this to mind was this comment to my recent post on for any reason or no reason. In the post, I propose that you use the following to express at-will employment in a contract:
During the Employee’s employement with Acme, the Employee will be an at-will employee. That means that Acme may terminate the Employee at any time and for any reason, except as provided by law, and Acme will not be required to explain why it terminated the Employee.
The commenter in effect suggested that an employer might want to consider omitting “except as provided by law,” as it “pretty much invites a terminated employee to start looking for reasons to sue.” But if you omit it, you’re deliberately avoding telling the employee that your rights are more limited than they might seem.
And my January 2010 post on waiving the warranty of title in sales of goods contains another example. In that post, I noted that if disclaimer language proposes to exclude all warranties other than those stated in the contract but doesn’t mention the warranty of title, that disclaimer language is in fact insufficient to exclude the warranty of title. Nevertheless, it’s commonplace for disclaimer language to not mention the warranty of title.
If you’re drafting a purchase agreement for a purchasing company and you include disclaimer language benefitting the vendor, what are the implications of including disclaimer language that may be standard but that you know offers protection that isn’t quite as all-encompassing as it suggests?
I have no quick answers to offer. Bear in mind that you can consider this issue either in terms of ethics or in terms of what makes for healthy and sustainable contract relations.
Gregory, can I entice you to wade in?
4 thoughts on “Drafting a Contract Provision That Tells Only Part of the Story”
I agree with your comment on your prior post: “I’m not crazy about saying in a contract something that’s incorrect as a matter of law.” Lawyers should use language accurately so they and their clients maintain healthy relationships.
I do not see anything ethically wrong in either of your two examples. In the employment example, it is probably implied that the parties excluded termination for legally impemissible reasons. Plus, even if the employer’s attorney left out “except as otherwise provided by law” from the agreement, it was not likely done so to deceive the employee.
As to the warranty of title example, lots of lawyers not well versed in Article 2 think that the only Article 2 warranties are warranties of quality. What you write in your January 2010 post is correct, but the uncorrected clause you post results from sloppiness or ignorance, not deceit. That does not mean the language is right. But it does not mean the lawyer is committing an ethical violation.
This is a great question.
Gregory M. Duhl
Greg: The commenter I mentioned in my post, for one, suggested omitting "except as provided by law" so as not to give the employee any ideas. Whether you call that deceit is, I think, a matter of degree. It certainly would seem disingenuous.
And my question at the end of the post supposes that I'm aware of what's required to disclaim the warranty of title but I intentionally use language that sounds all-encompassing but is inadequate the waive the warranty of title. Deceitful? I don't know. Disingenuous? Probably.
I think there's also another wrinkle here – that of the relative positions of the parties. In the one example of landlord/tenant, presumably, the tenant isn't equal to the landlord in terms of positions – the tenant is a consumer, an individual, someone not likely to have a lawyer review their lease. On the other hand, the landlord probably had a lawyer draft the lease and is in the position to force the tenant to sign the agreement without modification (since the tenant presumably wants the space).
In most of my dealings, however, we've got two sophisticated parties – both with MULTIPLE lawyers at the ready. Contract provisions are drafted with business consequence in mind first, legal second. The result is that I'm almost sure that we (the other lawyers and I) have, over time, drafted numerous provisions that might not tell the whole story of the other parties rights. And, in fact, I sometimes advise my client to leave a particular section of language alone if redlined by the opposing party when I know it to not matter because regardless of what's said in the agreement, the law is already settled on that matter.
Warranty disclaimers, as you've already pointed out, are great fodder for this. In the commercial space, it's warranties of merchantability and fitness for use for a particular purpose. Same with liability limitations – where a party will try to exclude certain damage types that, by law, you can't limit. So I let them put in whatever they wish on certain points – knowing that in the event of a dispute, even if we all agreed to the language, the law will trump the wording.
But I don't do this very often… because I don't like to have to trust anything outside the four corners of the document. The law can change without my client's signature on an amendment. :)
I'll throw out the fact that this scenario arises in things like non-disclosure, non-compete and no-hire provisions. In each case, state laws have a huge impact on the enforceability of those provisions. The lawyer from the relevant jurisdiction usually has a better idea of whether a certain clause will be enforceable, or to what extent it may be unenforceable. The other party does not. If the party in the know is also the party with the desire for such a clause and the power to make it happen, it frequently has an incentive to include such a provision even if it is unenforceable simply for its deterrent effects.
In some states, this is, of course, a dangerous game since it could be that the entire contract (not just the provision) will be rendered invalid if it were ever challenged. The question then is: what's the risk?