Corporate & Securities Law

Drafting a Contract Provision That Tells Only Part of the Story

By Ken Adams

I’m familiar with the ethics-in-drafting implications of including in a contract a provision that’s invalid. This topic is explored in Gregory M. Duhl’s article “The Ethics of Contract Drafting,” which I mentioned in this February 2010 blog post.

A provision can be invalid because it’s illegal. Gregory’s article gives as an example of an invalid clause a provision that disclaims the implied warranty of habitability in a residential lease even though the law prohibits the landlord from disclaiming the warranty. His article also notes that a provision can be invalid because it’s unconscionable.

As regards the ethics of including invalid provisions, here’s part of what Gregory’s article has to say:

The inquiry is not simply whether the clause is valid or invalid; for the lawyer to run afoul of the Model Rules, the lawyer knowingly had to assist his or her client in deceiving the consumer as to his or her rights.

But here’s a more subtle question: What are the ethical implications of including a provision that’s only partly invalid? Or, to put it another way, including a provision that doesn’t tell the full story.

What brought this to mind was this comment to my recent post on for any reason or no reason. In the post, I propose that you use the following to express at-will employment in a contract:

During the Employee?s employement with Acme, the Employee will be an at-will employee. That means that Acme may terminate the Employee at any time and for any reason, except as provided by law, and Acme will not be required to explain why it terminated the Employee.

The commenter in effect suggested that an employer might want to consider omitting “except as provided by law,” as it “pretty much invites a terminated employee to start looking for reasons to sue.” But if you omit it, you’re deliberately avoding telling the employee that your rights are more limited than they might seem.

And my January 2010 post on waiving the warranty of title in sales of goods contains another example. In that post, I noted that if disclaimer language proposes to exclude all warranties other than those stated in the contract but doesn?t mention the warranty of title, that disclaimer language is in fact insufficient to exclude the warranty of title. Nevertheless, it’s commonplace for disclaimer language to not mention the warranty of title. If you’re drafting a purchase agreement for a purchasing company and you include disclaimer language benefitting the vendor, what are the implications of including disclaimer language that may be standard but offers protection that isn’t quite as all-encompassing as it suggests?

I have no quick answers to offer. Bear in mind that you can consider this issue either in terms of ethics or in terms of what makes for healthy and sustainable contract relations.

Gregory, can I entice you to wade in?

Full post as published by AdamsDrafting on June 01, 2010 (boomark / email).