[Revised 8:00 a.m. EDT, May 13, 2012, prompted by Mark Anderson’s comment and a good night’s sleep.]
Consider the following, culled from the SEC’s EDGAR system:
The Parties believe that the provisions of this Agreement are in compliance with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), as presently in effect, if and to the extent that such requirements apply.
The Settling Parties believe that it is critical to maintain customer service levels while merger efficiencies are being achieved; that any merger-related workforce reductions should be shared equitably across the several states in which the utilities operate, and that post-merger utility reporting should meet high standards of accuracy.
None of the Parties believe that it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by any of the Parties.
For avoidance of doubt, neither of the parties believes that the Executives provision of services to the Company pursuant to this Agreement would result in any meritorious legal proceeding.
Let’s consider these examples in turn.
I suggest that the first example constitutes yet another previously unidentified category of contract language—language of belief. (Incidentally, Neither party believes that X is Y is equivalent to The parties believe that X is not Y.) You can add language of belief to language of agreement, performance, obligation, discretion, prohibition, policy, declaration, and two other recent additions, intention and recommendation. (Of course, there’s also the related concept of conditions.)
Language of belief fills a gap that’s apparent from the comments to my post on language of intention. An alternative to the language of intention I propose in that post (The parties intend that the Consultant will be an independent contractor) is language of belief (The parties believe that the Consultant will be an independent contractor).
Both language of belief and language of intention relate to matters of law—matters that depend on actual circumstances rather than on what the parties say in a contract. I suggest that language of belief is appropriate if the circumstances are apparent when the contract is signed, language of intention is appropriate if the circumstances are subject to change during performance of the contract. Given that the consultant scenario involves an ongoing relationship, I suggest that language of intention is more appropriate.
Although the three other EDGAR extracts use the verb believe, they don’t constitute language of belief.
The second seems to express what the parties had in mind in entering into the contract. As such, it should go in the recitals, where it would be beyond the reach of “categories of contract language” analysis, which applies only to the body of the contract.
In the third and fourth, instead of referring to belief I’d use to the parties’ knowledge—the uncertainty seems to derive from limited access to facts rather than from the issue at hand being a question of law.
This is brand new, so I’d appreciate your thoughts.
3 thoughts on “Language of Belief?”
Ken, as I mentioned in the discussion of intends, I think part of the difficulty with these words is that, sometimes, they are addressing an external audience such as a taxman or regulator in circumstances where the parties ultimately have no control over the external body’s decision, however much they might wish, believe, hope or intend that the decision is taken in a particular way. At the same time, they may be trying to create some contractual obligations, although this is not always clear.
The first example that you give from EDGAR seems to be talking mainly to an external body, the IRS, over whose decision the parties may or may not have any influence. The second is unclear to me without context, and makes several pious-sounding statements, but potentially is addressing regulatory issues outside the scope of the contract.
The third and fourth are superficially similar in that they also address external eventualities, but the focus here is on the effect of those eventualities on the agreement, rather than the other way around. These examples look to me more like statements by each party to the other party about non-infringement of third party IP, and as such they might be better re-cast as knowledge-based representations. Perhaps the drafter wanted something less onerous than a representation; I find the intended legal effect of the last two really unclear as presently drafted.
I would probably only use “believe” to deal with an external situation over which the parties have no control and where it is not sensible for either party to make a representation, or where the parties have agreed to conduct themselves in a particular way and now it is up to the external agency to take its decision.
Mark: Thank you. Your observations tie in nicely with some loose ends I pondered in the wee hours. I’ve revised the post accordingly. Ken