As we all have learned, contract drafting is not a simple exercise. For transactional attorneys who draft contracts and the litigators who try to interpret them if and when a dispute arises, even the most expertly drafted contracts can present countless issues. Language that may seem simple and have a well-accepted use in everyday language may be ambiguous in a contract. However, when lawyers aim to be concise in their contract drafting, they run the risk of being less precise. And, unlike prose writing, a person’s natural desire to avoid using the same words again and again, may lead to a poorly written contract.
In this Transactional Practice Tip, we will examine one particular area of contract drafting - terms of obligation. All contracts place some type of obligation on the parties to them (e.g., “The Buyer shall pay the Seller the Purchase Price at the Closing…,” “the Franchisee shall deliver to the Franchisor monthly financial reports…,” “the Employee shall not compete with the company…”). When drafting obligations, lawyers should be careful to choose the appropriate language to ensure that the obligation is properly put in place and their client will be able to seek recourse in the event that the counterparty does not perform its obligation. Particularly, contract drafters must understand and implement the proper usage of “shall,” “must,” and “will.” The consequences of inaccurate usage could lead to prolonged negotiation, litigation, and ultimately, less-than-favorable outcomes for our clients.
Terms of obligation are used when there are actions that parties to a contract are required to take or refrain from taking. As we will (or should we say “shall”?) see, an obligation might arise by virtue of a contract or it may come from some external source (e.g., the law or a separate contract with a third-party). Or an action may be similar to an obligation, but in reality it is really a person’s desire or willingness to take that action. Whatever the case may be will, in part, determine whether it is appropriate to use “shall,” “will,” or “must.”
“Shall” should be used when there is a duty to perform an action under the contract in question (i.e., a person is “hereby required to do/not do” something). Though often used as a stronger, more emphatic substitute for “will,” their meanings are quite distinct. Just because a person says something louder does not make it any more binding. It is most helpful to think of “shall” as an externally imposed mandate, conveying an action that a party is obligated by contract to pursue. Take for example, “Thou shall not covet thy neighbor’s wife.” Here, we quite literally have an imposed command (written in stone, no less) giving rise to a duty to behave. Hence the use of “shall” is most appropriate.
Similarly, “must” can convey an obligation (i.e., a person “is required to do/not do” something). But, unlike “shall”, “must” is best understood as asserting a duty that arises or derives from something other than the contract in question. For instance, someone might say (no offense intended to anyone), “In order to eat the best pizza in the world, I must go to New York.” In this case, the person is not required to consume any pizza, but, if she wants the best pizza, she will have to go to New York (just that there is no requirement to do so). But, perhaps influenced by positive prior experiences, the person feels that traveling to New York is a prerequisite to getting the best pizza.
“Will” may often be conflated with “shall” because they both can be used to convey an obligation. What distinguishes “will” from “shall” is that “will” conveys the occurrence of a future event, even though there is no requirement that the future event actually takes place. Take, for example, “Jenner & Block will regularly update its Nordic clients on recent legal developments, matters of interest, and practical advice on their U.S. operations.” In this case, “shall” is clearly inappropriate, as it would impose a contractual obligation on us to update our clients… but, what happens if we fail to do this one time? Rather, we publish periodic client newsletters, not because we are required to do so, but because we want to do it and we desire to provide the best counsel to our clients.
It is important to note that, as with contract language itself, rules governing contract drafting are not absolute. There is no definitive consensus as to every proper and improper use of “shall,” “will,” and “must.” Context matters - both the context of surrounding contract language and sometimes the surrounding circumstances of negotiation and drafting. The best practice we can advise is to be aware of the type of obligation you wish create, the ways in which those obligations may be created, and how those considerations fit within the context of drafting negotiations.