Parts of the Uniform Commercial Code require that text be “conspicuous.” For example, section 2-316(2) states that a disclaimer of the implied warranty of merchantability must be conspicuous.
Although section 1-201(10) of the UCC specifies that “language in the body of a form is ‘conspicuous’ if it is in larger or other contrasting type or color,” the UCC doesn’t say anthing about all capitals. And Amercian General Finance, Inc. v. Bassett, 285 F.3d 882 (9th Cir. 2002), debunked the notion that text needs to be in all caps to be conspicuous.
The lack of more detailed guidelines means that drafters can be nervous about whether contract text is conspicuous. So I was intrigued but not surprised when a participant at last week’s “Drafting Clearer Contracts” seminar in Denver mentioned how he had recently encountered a contract that contained a provision stating that the text that had to be conspicuous was in fact conspicuous.
Here, from EDGAR, are two examples of such provisions:
GRANTOR AND GRANTEE AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW TO BE EFFECTIVE OR ENFORCEABLE, THE PROVISIONS IN THIS CONVEYANCE IN ALL CAPS FONT ARE “CONSPICUOUS” FOR THE PURPOSE OF ANY APPLICABLE LAW.
ASSIGNOR AND ASSIGNEE AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LEGAL REQUIREMENTS TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED IN THIS SECTION ARE “CONSPICUOUS” DISCLAIMERS FOR THE PURPOSES OF ANY APPLICABLE LEGAL REQUIREMENT.
And here are two examples that take a different approach, in that they have each party agree not to claim that the text in question isn’t conspicuous:
Each party hereto agrees and covenants that it will not contest the validity or enforceability of any exculpatory provision of this Mortgage on the basis that the party had no notice or knowledge of such provision or that the provision is not conspicuous.
EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS MORTGAGE ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT “CONSPICUOUS.”
The drafting of these provisions is, of course, clumsy, but that’s not what interests me. Instead, these provisions had me wondering which category of contract language is most appropriate. Using stripped-down language, here are the possibilities:
- Language of agreement: The parties agree that the text is conspicuous. [The lead-in is the only place for language of agreement. It’s redundant elsewhere, including here.]
- Language of policy: The text is conspicuous. [Whether text is conspicuous isn’t an objective fact, so language of policy wouldn’t work.]
- Language of belief: The parties believe that the text is conspicuous. [This acknowledges that conspicuousness represents a legal standard, but using language of belief suggests that conspicuousness is unrelated to the parties’ views on the matter. I don’t think that makes sense.]
- Language of prohibition: Neither party shall claim that the text is not conspicuous. [I’m wary of provisions that prevent a party from claiming something. I’d rather have it acknowledge that it has no basis for bringing a claim.]
- Language of declaration: The parties acknowledge that the text is conspicuous. [This is what I’m inclined to go with, except that …]
- Language of declaration: The Buyer acknowledges that the text is conspicuous. [… perhaps it makes sense to limit this sort of acknowledgment to the party to whom the conspicuous text is directed.]
Sorting through the possible categories of contract language helps a drafter determine exactly what they’re trying to say.
This raises another interesting question. As we know, all capitals are hard to read. There are various artistic fonts that can be hard to read, especially some of the script versions. Conspicuous is often considered to be synonymous with noticeable, but other synonyms include words such as clear and obvious. If parts of a contract are in a form that stand out but can’t be read easily, are they conspicuous?
And what if the statutory requirement is that the text be “clear and conspicuous”? Some court might reasonably say that the combination of long legalistic text and all capitals is not clear enough in a consumer context.
Chris Lemens
A few disparate, meandering comments:
1 To the extent that allcapping makes text less, not more, readable, it could be construed as obfuscation. Maybe using bolded sentence case in a slightly larger font would make the language clear and conspicuous. I’d be tempted to put the special text in the body of the contract in a larger, bolded font, then put the same language in all caps in an appendix. Suspenders and a belt.
• It’s difficult to imagine a court saying, “Well, you put it in twice, once in all caps, once in larger boldface type, once in sentence case and once in all caps, once in the body of the contract and once in the back of the contract, but it still wasn’t clear and conspicuous.”
2 I’d like to hear more about why explicitly waiving a claim or agreeing not to make a claim is less desirable than a declaration that there is no basis for a claim. As Smokey the Bear used to say, “Crush all smokes dead out.” So why not have the potential claimant: affirm that there’s no basis for a claim, waive any such claim, agree not to make such a claim, affirm that the agreement forms a complete defense to any such claims, and affirm that any such claim would be vexatious? Why prefer capillaries to the jugular?
• The other side might want to negotiate some of that away, but doing so would be rhetorically awkward, like saying, “We want to soften this clause that says we won’t steal from you.” What good faith motivation can there be for softening that?
3 I’m wary of multiplying the categories of contract language. Language of belief and intention seem more like subcategories of language of declaration, as does language of policy. Contracts are about what the parties must, mustn’t, and may do. The other categories of contract language are the servants (I almost said “handmaidens”) of obligation, prohibition, and discretion. So the key question to ask about any language outside of the core categories is, “How does this affect the existence or boundaries of a right or duty?” Through that lens, what’s the significant difference between the following statements: (a) This agreement expires at the end of 2012; (b) Acme represents that it is in compliance with all applicable laws; (c) The parties believe that Acme owns the Baja California Homesteads under all applicable Mexican laws; and (d) “Including” does not limit the generality of any term before it. For example, “fruit, including tomatoes,” means the same as “tomatoes and all other similar or dissimilar fruit”? These are, respectively, instances of language of obligation, declaration, belief, and policy. (I say the expiration date is language of obligation because it describes the chronological boundary of one or more duties.) Items (b) and (c) are obviously dancing without partners, so to speak, in that they both raise the question, “What if not?” or, put otherwise, “how would falsity affect the duties of the parties?” Yet (a) and (d) function the same way, describing or helping to describe the boundaries of one or more duties.
• Language of agreement is similarly auxiliary to the expression of duties: it describes their boundaries. Use of it more than once is more a redundancy error than a true category error.
“Wright” (nudge nudge wink wink): Regarding point 1, one of the Prime Commandments is “Don’t say the same thing twice in a contract.”
Regarding point 2, I’ll be doing a blog post on that topic.
Regarding your point 3, example (a) is language of policy.
I’m too am wary of creating too many categories of contract language. That’s why I lumped statements of fact and acknowledgments in language of declaration. But ultimately, the semantics are what determines the categories.
Ken