“Intends That”

This post is a companion piece to my post on intends to (here). It looks at unhelpful uses of intends that, looks at uses that seem legitimate, and then suggests how all this change the MSCD categories-of-contract-language framework.

Compliance

One use of intends that is to signal that an arrangement under a contract complies with law, notably tax law. Here’s an example.

The Company intends that all payments and benefits provided under this Agreement or otherwise are exempt from, or comply with, the requirements of Section 409A so that none of the payments or benefits will be subject to the additional tax imposed under Section 409A, and any ambiguities and ambiguous terms in this Agreement will be interpreted in accordance with this intent.

Here’s what MSCD § 13.104 says about that:

Don’t state categorically in a contract the legal implications of facts as they exist on the date of the contract, as in This agreement complies with the requirements of section 409A of the IRS Code—that would seem an attempt to preempt judicial discretion (see 1.68). It would be more realistic for a party to give its opinion, as in The parties believe this agreement complies. Saying instead The parties intend that this agreement complies offers less comfort, as intention is different from actuality.

Redundancy

Some uses of intends that are redundant. Here’s an example:

The Adviser understands and intends that the Fund will rely on this Agreement in preparing and filing its registration statements on Form N-1A and in accruing the expenses of such Fund for purposes of calculating net asset value (and otherwise) and expressly permits such Fund to do so.

This is language of declaration, so I’d replace understands with acknowledges. I’d delete intends that as being redundant.

Some uses of intends that constitute the special form of redundancy that is “throat-clearing”—my term for a redundant verb structure stuck in front of the main verb structure. Here’s an example from a section providing for a guarantee, with the throat-clearing preceding language of policy:

Without prejudice to the generality of Clause 17.5, Bidco expressly confirms that it intends that the provisions of this Clause 17 shall extend from time to time to any variation, increase, extension or addition of or to this Agreement.

The throat-clearing is in strikethrough. Note that it’s not your average throat-clearing! It’s double throat-clearing, with two redundant verb structures. For other examples of double throat-clearing, see this 2019 blog post. (In that post, I screenshot the Matt Boyd joke that alerted me to the possibility of double throat-clearing.)

And here’s another example with, yet again, double throat-clearing preceding language of policy:

The Executive acknowledges that the Executive specifically intends that Released Actions shall include the ADEA, except for any allegation that a breach of the ADEA occurred following the effective date of this Agreement.

That I found two such examples in quick succession is a sign that intends that is prone to the legalistic disease.

And here’s another example of redundancy that requires a bigger fix than just striking out a verb structure or two:

Each of the parties hereto intends that the provisions of Section 5-1401 and Section 5-1402 of the New York General Obligations Law shall apply to this Agreement.

Because section 5-1401 says contract parties “may agree that the law of this state shall govern their rights and duties in whole or in part, whether or not such contract, agreement or undertaking bears a reasonable relation to this state,” here’s what I’d say instead:

In accordance with section 5-1401 and section 5-1402 of the New York General Obligations Law, New York law governs this agreement.

Because the law applies only to transactions that meet the requirements, whether New York law applies could be subject to judicial scrutiny. But as MSCD § 3.500 says, in this sort of context “it would be awkward to insist on using for a governing-law provision language of intention rather than language of policy: The parties intend that New York governs … .”

Addressing Uncertainty

So far, we’ve seen only expendable instances of intends that. But starting at MSCD § 3.491, MSCD devotes an entire category of contract language—language of intention—to intends that. Here’s the example offered:

The parties intend that the Consultant will be an independent contractor.

Use of intend that is justified in this context. At signing, the parties might be satisfied that the relationship between the company and the consultant complies with legal requirements, but the relationship might change. If it changes to one that is incompatible with a consulting arrangement, a provision saying The Consultant will be an independent contractor would no longer reflect reality. Using intend that reflects that reality.

But perhaps a more accurate way to express what’s going on would be to say, The parties believe that the arrangement provided for in this agreement is consistent with the Consultant being an independent contractor.

MSCD § 9.97 offers another provision—a novel one—featuring intend that:

Double Materiality. Regardless of whether any court recognizes it for other contracts, the parties intend that the contract-interpretation concept known as “double materiality” does not apply to this agreement, so the level of statement-of-fact inaccuracy permitted by the materiality qualification to which section x [the bringdown condition] is subject will not be affected by a materiality qualification to which a statement of fact is subject.

Perhaps these two examples share an extra dose of uncertainty that makes it legitimate to deploy intend that.

Where This Leaves Us

I’m contemplating two changes:

First, creating a new category of contract language that I’d call language of state of mind. It would encompass wants to, believes that, and intends that.

And second, eliminating language of intention and moving what’s covered by that topic to a new section on language of state of mind.

Those changes enhance things, but they won’t happen until the sixth edition of MSCD appears in a few years. In the interim, I don’t think having these changes (if they appear on my blog) will confuse matters significantly.

But all this is provisional. In due course, I’ll create riders that will offer my new analysis is a way that can be plugged into the fifth edition of MSCD.