“It Being Understood”

I recommend that you give serious thought to never using it being understood.

In the vast majority of instances, it being understood is equivalent to it is agreed. (Indeed, often enough the phrase used is it being understood and agreed.) When used in this sense, it being understood adds nothing, seeing as the contract lead-in states that the parties are agreeing to that which follows.

In such instances, your best bet is to delete it being understood and perform whatever additional minor surgery is required to carve out as a separate sentence the provision in question:

Except to the extent that Advances may be deemed to be loans, no Seller has any material outstanding loan to any Person Related to the Business, it being understood that [. For purposes of the immediately preceding sentence,] obligations to reimburse employees for relocation, business, travel, entertainment or similar expenses incurred in the Ordinary Course of Business will not be deemed loans for such purposes.

Sometimes it being understood is used to insert, in parentheses, one provision in the middle of another. The reward for such laziness is grossly interrupted flow:

If at any time all of the Equity Interests of any Pledgor owned by the Borrower or any of its Subsidiaries are sold (to a Person other than a Credit Party) in a transaction permitted pursuant to the Credit Agreement (and which does not violate the terms of any other Secured Debt Agreement then in effect), then such Pledgor shall be released as a Pledgor pursuant to this Agreement without any further action hereunder (it being understood that the sale of all of the Equity Interests in any Person that owns, directly or indirectly, all of the Equity Interests in any Pledgor shall be deemed to be a sale of all of the Page 27 Equity Interests in such Pledgor for purposes of this Section), and the Pledgee is authorized and directed to execute and deliver such instruments of release as are reasonably satisfactory to it.

Sometimes it being understood serves the same function as for the avoidance of doubt, in that it introduces language that seeks to clarify preceding language:

If and to the extent that the Company maintains employee benefit plans (including, but not limited to, pension, profit-sharing, disability, accident, medical, life insurance, and hospitalization plans) (it being understood that the Company may but shall not be obligated to do so), the Executive shall be entitled to participate therein in accordance with the Company’s regular practices with respect to similarly situated senior executives.

How to deal with this variant of it being understood depends on the context. In the immediately preceding example, it and the following phrase can safely be deleted, as the “If” that begins the sentence is all that’s required to convey discretion.

Finally, it being understood can also be used to convey the same meaning as acknowledge—that the party in question doesn’t have first-hand knowledge of a given fact but instead is accepting as accurate that fact as asserted by another party. If that’s the intended meaning, then use acknowledge, as it’s the clearer alternative:

If any of the Collateral at any time is in the possession of a warehouseman or bailee, the Borrowing Agent shall promptly notify the Bank thereof, and, upon request of the Bank, Borrowers shall use all commercially reasonable efforts to promptly obtain a Collateral Access Agreement, it being understood and agreed, however, [. The Borrower acknowledges] that any failure to obtain such Collateral Access Agreement may (in accordance with clause (c) of the definition of Eligible Inventory) result in decreased availability under the Borrowing Base.

So, once again, you should steer clear of it being understood.

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.

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