More Fun with Language of Discretion—”Party X Hereby Grants Party Y the Right to [Verb]”

Yesterday was devoted to grading assignments submitted by students in my Penn Law contract-drafting course. One of them unintentionally made me aware of the formula Party X hereby grants Party Y the right to [verb]. It’s language of performance functioning as language of discretion.

If a contract contains the provision Acme may sell the Assets, it’s appropriate for the reader to read that as meaning that the contract grants Acme that right. (The alternative would be that Acme acquired that right through some other means and the contract is simply acknowledging that right.) Consequently, saying Widgetco hereby grants Acme the right to sell the Assets would convey exactly the same meaning, but by using ten words rather than five.

So instead of the formula Party X hereby grants Party Y the right to [verb], you’re always better off using Party Y may [verb].

Here are some slightly modfied examples from real life:

Upon occurrence of an Event of Default, Borrower grants to the Holder the right to [read Holder may] set off against this Revolving Note all of Holder’s liabilities to Borrower, if any, and all money or property in the holder’s possession held for or owed to Borrower.

Customer hereby grants to Pegasus the right to [read Pegasus may] use and display, and store on Pegasus’ servers, Customer’s and each applicable Affiliate’s trademarks, service marks, trade names, trade dress, logos, names, and pictures to the extent necessary to perform Pegasus’ obligations in accordance with this agreement.

The Regents also grants to Licensee the right to [read Licensee may] issue to third parties in the Field of Use royalty-bearing sublicenses having rights no greater than those granted to Licensee.

Here’s a wrinkle. In MSCD 3.60 I suggest that when one party’s discretion depends on performance by another party, you’re better off using is entitled to rather than may. So depending on the context, sometimes instead of the formula Party X hereby grants Party Y the right to [verb] you’d want to use Party Y is entitled to [verb], as in the following example:

The Company hereby grants to the Underwriters the right to [read The Underwriters are entitled to] purchase at their election up to 3 million Optional Securities.

This is a distinction that I’ll be running by linguists before I repeat it in MSCD2. But more to the point, “It would … be simplest to ignore this nice distinction and instead address matters directly by using language of obligation.” (MSCD 3.61.) If you were to rephrase the above example using language of obligation, it would look something like this:

The Company shall at the election of the Underwriters sell the Underwriters up to 3 million Optional Securities.

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.