I’ve previously touched on “future facts”—statements regarding circumstances in the future—but I haven’t addressed the topic head-on. I fix that with this post.
The Conventional Wisdom
It’s easy to find future facts in contracts. What the ABA Model Stock Purchase Agreement says about future facts sums up the conventional wisdom: “Representations are statements of past or existing facts and warranties are promises that existing or future facts are or will be true.” My 2015 article on represents and warrants (here) demolishes that notion (starting page 213), so we’re not going to spend any time on it.
Instead, let’s consider the semantics, which show that there’s always a better option that addressing an issue using a future fact.
Maintaining a Current Status
What got me thinking again about future facts was the phrase will continue to own. Here are two examples:
Operator agrees and acknowledges that Customer solely and exclusively owns and will continue to own all right, title and interest in and to the Customer Content and all Customer ’s Confidential Information , and all data collected from users of the Customer App and the Customer website, if any, in any and all media now known or hereafter developed, and all IP Rights inherent therein or appurtenant thereto (collectively, the Customer Property).
The Company and each of its subsidiaries owns, and will continue to own immediately following the Closing in all material respects, legally enforceable rights to use all patents, patent rights, inventions, trademarks, trademark applications, trade names, service marks, copyrights, copyright applications, licenses, software, know-how and other similar rights and proprietary knowledge as presently conducted (collectively, “Intellectual Property”) necessary for the conduct of their respective businesses.
Saying will continue to own makes that part of the sentence a future fact. I see two problems.
First, a statement of future fact is simply a prediction—an estimate of what will happen, based on existing evidence. In a contract, I don’t want to rely on the other party’s prediction, I want them to state what their evidence is for that prediction. In the first example above, the operator is willing to acknowledge that the customer will continue to own all its stuff. Presumably, that’s because the operator has no basis for claiming ownership of the customer’s stuff and knows of no basis for anyone else claiming ownership. If I were the operator, I’d rather say that.
And second, when a party isn’t acknowledging the other side’s facts but is stating its own facts, a statement of future fact in effect constitutes a risk-allocation mechanism. In the case of the second example, the company’s confidence that it will continue to own its intellectual property might be unfounded. As with the first example, I’d replace the future fact with a statement of fact that the company knows of no basis for anyone else claiming ownership. But that might leave the other party without a remedy if the company is mistaken, so I’d also make the risk-allocation mechanism explicit by providing for indemnification if the company ends up owning less than all the IP.
Addressing Future Circumstances
A supply agreement says, The Units will comply with the Specifications. Again, that’s simply a prediction. I’d want to address directly what’s going on. That could be accomplished in three ways.
- By incorporating the issue of compliance in the primary obligation: The Seller shall sell to the Buyer Units that comply with the Specifications.
- By using must to express obligation: All Units that the Seller sells to the Buyer must comply with the Specifications.
- By addressing the issue in an explicit remedy: If a Unit fails to comply with the Specifications, then … .
Addressing Future Actions
What looks like a future fact might be a poorly expressed obligation. A services agreement says, The Equipment will be maintained. That’s in the passive voice, with the by-agent missing and a suboptimal verb structure. I’d say instead Acme shall maintain the Equipment.
Don’t Make Your Litigation More Difficult
A postscript regarding litigation: relying on a future fact might make it harder to bring a tort claim. One requirement of an action for misrepresentation is that a party have made a false representation as to fact regarding a past event or present circumstance, but not a future event. See 18 Williston on Contracts §69:5 (4th ed.). And this from 37 American Jurisprudence 2d Fraud and Deceit § 84 (footnotes omitted):
Generally, fraud must relate to a present or preexisting fact, and, although they may give rise to an action for breach of contract, mere unfulfilled promises to do a particular thing in the future do not constitute fraud in and of themselves.
There are plenty of exceptions and qualifications, but why complicate matters? An incidental benefit of purging future facts from your contracts is that you eliminate this as an issue in litigation.
1 thought on “Future Facts? Don’t Use Them”
Getting caught up on old posts here…
That phrasing is indeed a bit goofy.
The “will continue to own” phrase in at least the first example seems to be saying that the Customer’s rights in the Customer Content and Confidential Information are not being transferred in whatever transaction or transactions the contract contemplates. It would be clearer just to say that.
The second example smells like part of a “representations and warranties” section where someone is promising that the Company–which perhaps is going to be acquired–owns its IP and isn’t going to transfer or otherwise be divested of the IP before closing. If that’s the case, the “will continue to own…” phrasing could be omitted, and the promisor could simply promise that the statement about ownership will still be true as of the Closing. Surely there must also be other statements that the promisee expects to be true as of Closing.