Wal-Mart Case Raises Issue of Categories of Contract Language

D.C. Toedt has posted on his On Technology Contracts blog this item about an opinion of the Ninth Circuit Court of Appeals dismissing a case against Wal-Mart.

Here’s D.C.’s summary:

Wal-Mart requires its suppliers to agree to a code of conduct. It was sued, in California, by employees of suppliers in various Third World countries, on grounds that • the retail giant had failed to police the suppliers’ compliance with the code’s standards, and • the employees were allegedly third-party beneficiaries of those standards.

Wal-Mart succeeded in having the case dismissed, on grounds that it did not undertake to police compliance, and therefore had no duty to do so; consequently, the foreign employees were not third-party beneficiaries.

Here’s the sentence from the code of conduct that was at issue (emphasis added):

To further assure proper implementation of and compliance with the standards set forth herein, Wal-Mart or a third party designated by Wal-Mart will undertake affirmative measures, such as on-site inspection of production facilities, to implement and monitor said standards.

According to the Ninth Circuit, “The language and structure of the agreement show that Wal-Mart reserved the right to inspect the suppliers, but did not adopt a duty to inspect them.” That makes sense, as it would have been odd for the suppliers to want to impose on Wal-Mart a duty to inspect them, and for Wal-Mart to have assumed such a duty.

I agree with D.C. that the language at issue could have been clearer. In the MSCD scheme of things, the clause “Wal-Mart or a third party designated by Wal-Mart will undertake affirmative measures” sounds like language of policy with respect to a contingent future event—in other words, a ground rule of the contract with respect to something that’s to happen automatically in the future under certain circumstances.

But in this context, that doesn’t work. Instead, the sentence in question would have made more sense as language of discretion. This is where I part ways with D.C. Tracking the court’s analysis, he would have used reserves the right to instead of “will.” But I say that reserves the right to is one of many pointless alternatives to may, which is what I’d have used instead. See MSCD 2.87.

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.

2 thoughts on “Wal-Mart Case Raises Issue of Categories of Contract Language”

  1. I would agree with use of the word “may”.

    What interests me though (with apologies for the off-topic query) is that third parties can have the right to enforce a contract in Californian common law. This was not the case in English common law, though the law was changed by the passing of the Contracts (Rights of Third Parties) Act 1999. CRoTPA allows parties to an agreement to “opt out” by specifying that third parties may not take the benefit of the contract – is it possible to do the same in Californian law (or US law generally), or are parties stuck with this?

  2. Art, its very common for US contracts to state that the contract confers no rights on persons other than the parties. If the contract requires the other party to indemnify my client’s officers, agents, employees etc., or contains a release of those persons, I will sometimes state that those specific provisions, and only those provisions, are for the benefit of the persons to be indemnified or the persons released and that those persons can enforce those provisions directly against the party. I have not come across anyone else who uses a similar exception.


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