The Different Kinds of Problematic Terms of Art Used in Contracts

[This post replaces this previous post, which I deleted, except for the comments. Very occasionally I write something, post it, and then promptly realize that the topic in question is more complex than I had bargained for. That happened with my previous post. I revised it once, but realized that wouldn’t do the trick, and revising it again seemed a bit much—hence this post. My thanks to those who commented on the previous post, thereby helping to lift the fog. Doubtless I’ll refine further the ideas expressed in this post, but I’ll try not to go overboard.]

Contract language includes legal terms of art—words and phrases that have a specialized doctrinal meaning. Terms of art serve as shorthand for legal concepts, allowing those concepts to be articulated with a minimum of fuss.

Legal terms of art add complexity, but that can be difficult to avoid. Contracts are as complex as the transactions they embody, and many transactions are highly technical. Expressing that complexity usually requires specialized terminology. Attempting to purge contracts of that terminology can result in contracts that fail to articulate the intended meaning clearly and efficiently.

So, for example, it would be awkward to have to do without the term of art security interest for purposes of drafting a contract in which a party grants a security interest. Similarly, it likely would be awkward to draft a security agreement without using the noun perfection or the verb perfect, terms of art relating to security interests.

But a feature of traditional contract drafting is reliance on three kinds of flawed legal terms of art, which I refer to as “misapplied,” “improvised,” and “top-heavy” terms of art. (Longtime readers will recognize my mania for taxonomy, as well as my urge to name newly identified categories.)

Misapplied Terms of Art

A particularly blinkered form of literal-mindedness that has it that a concept doesn’t apply to a contract provision if that provision doesn’t use terminology explicitly associated with that concept, with the associated terms themselves being coopted as terms of art.

For example, traditionalists would have it that a statement of fact can’t support an action for misrepresentation unless that statement constitutes a representation, and that it cannot constitute a representation unless it is introduced by the word represents. And that a statement of fact that uses the word represents cannot constitute a warranty and so cannot support an action for breach of warranty. (Go here for the most recent of my many blog posts on the subject.)

But that’s not how language works. Instead, whether it would be appropriate to use a particular term of art to describe a provision depends on the meaning conveyed by the entire provision.

For example, in a security agreement, why have a party “hypothecate” a security interest? Why not have it simply “grant” the security interest? Hypothecate means, in a nutshell, “to pledge without delivery of title and possession.” That meaning goes beyond the function required of the verb in language granting a security interest, so it adds useless complexity. And that meaning isn’t otherwise necessary, as the security agreement itself will specify what the terms of the security interest are. Hypothecate may have value as shorthand for purposes of court opinions or scholarly texts, but that’s very different from what’s required for purposes of a contract. Using grant for purposes of granting language in a security agreement wouldn’t prevent that grant from constituting a hypothecation, assuming that the remainder of the granting language is consistent with that. If it isn’t, using hypothecate instead wouldn’t fix that.

What characterizes a misapplied term of art is a discrepancy between the meaning conveyed by the term of art and the semantic function required of it in a contract—a misapplied term of art is a dollar word or phrase doing a nickel’s worth of work. That creates three problems. First, using the misapplied term of art can create confusion regarding the semantic function it serves. Second, using the misapplied term can suggest that no other terminology could convey the same meaning. And third, using the misapplied term can suggest that that by itself is sufficient to ensure that the underlying concept applies to the provision in question, regardless of what the provision otherwise says.

Confusion regarding the verb indemnify illustrates the problem with using misapplied terms of art. The verb indemnify conveys a meaning beyond the semantic function it serves in a contract: shall indemnify X simply means will be liable to X for. That discrepancy has resulted in widespread confusion regarding what is required of an indemnifying party. (For more on indemnify, see this blog post.)

Relatively few terms of art are misapplied in this manner. Other examples of misapplied terms of art are attorn (see this blog post) and novation (see this blog post). But terminology associated with misapplied terms of art—particularly the verbs represent, warrant, and indemnify—is pervasive. And so is the confusion it causes.

Improvised Terms of Art

Misapplied terms of art involve doctrinal terminology being shoehorned into contracts. By contrast, improvised terms of art are a function of lawyers and judges seeking to graft doctrinal implications onto terminology that would otherwise be free of them.

Drafters have long added the phrase hold harmless after indemnify, presumably for the rhetorical flourish it offers. But many lawyers and some judges haven’t been able to resist the urge to claim that hold harmless conveys a distinct meaning. (See this blog post.) Similarly, best efforts is a creature of idiom and rhetoric, but many lawyers and some judges ignore that and instead see ludicrous distinctions in the various flavors of efforts provisions (see, for example, this blog post).

The urge to improvise terms of art arises from the rule of construction that every word in a provision is to be given effect. Applied zealously, it requires that significance be attributed to every stray word or phrase and to every variation in terminology, even if you have to disregard the rhetorical urges that gave rise to them.

Top-Heavy Terms of Art

A third category of problematic terms of art is those with a meaning that’s fairly well established but that’s also sufficiently broad, or sufficiently complex, that drafters are quick to use them without fully appreciating the implications. Three examples are consequential damages (see this blog post), coupled with an interest (see this blog post), and time is of the essence (see this blog post). Depending on the term of art, the result of using a top-heavy term of art might be that the provision in question is held unenforceable, or that it has unanticipated consequences.

Replacing Terms of Art

Contracts would be clearer if instead of terms of art, real or imagined, falling into the three categories described above, drafters were to use straightforward alternatives.

But replacing a particular term of art might not be feasible—doing so might prompt too much fruitless debate. The notion of replacing a term of art can seem shockingly novel—for example, using states instead of represents (see this blog post). You have to weigh the risks of confusion against the transaction costs of change.

One way of facilitating change would be to use the term of art but also explain what it means. For an example of that, see the blog post about the phrase coupled with an interest. For another example, see the blog post about the term novation. (Both are linked to above.)

But replacing some terms of art would likely pass unnoticed. For example, in MSCD I discuss an alternative to using the verb warrant.

Replacing terms of art not only makes life easier for the reader, it can also help the drafter realize that although terms of art might suggest professionalism, problematic terms of art distract the drafter from articulating the deal effectively.

If you’re contemplating replacing a term of art, first determine whether there’s any indication that courts accord significance to use of that term of art, then factor that into your analysis. In general, U.S. courts don’t have a literal-minded approach to use of terms of art. MSCD notes some relevant caselaw, and the third edition will add to that.

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.