“Shall Not Permit”

I noticed this post on Keith Bishop’s California Corporate and Securities Law blog, on the meaning of the verb “permits” in a proposed change to the securities regulations. Here’s the relevant bit of Keith’s post:

The verb “permit” means to give assent to some action or event. This implies an affirmative action on the part of the registrant. Applying this definition, a registrant that has no policy on hedging would conclude that it does not permit hedging because it has never affirmatively assented to it. However, the verb “permit” also means to allow something to happen. Applying this passive definition, a registrant that has no policy on hedging would treat the absence of consent as permission.

Just as confusion in a patent claim can be relevant to contracts (here), so can confusion in regulations. A contract between Acme and WidgetCo contains the following: “Acme shall not permit the Equipment to be removed from the Premises.” Acme doesn’t adopt a policy regarding removal of equipment from the premises. An employee takes some equipment home, and it gets stolen. Had Acme permitted the employee to take the equipment home? I can imagine Acme and WidgetCo getting into a fight over that.

As usual, the solution is thoughtful drafting. You could say “Acme shall prohibit …,” but I suspect that WidgetCo would prefer a more comprehensive approach, namely instead or in addition putting on Acme all liability that results from equipment leaving the premises.

[Updated December 14, 2015: A problem with “Acme shall prohibit” is that arguably Acme would comply simply by adopting a policy, even if it does nothing to enforce it. So perhaps “Acme shall prevent” would be better.]

[Updated June 19, 2015: Well, yes, I have written about this subject before, in this February 2014 post.]

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.