ABA Section of Business Law

ABA Section of Business Law
Business Law Today
May/June 1998

Cohen is an associate professor at West Virginia University College of Law, in Morgantown.

Agreements formalize obligations. To be effective, the obligations must be unambiguous. Here are three rules to help you draft clear language of obligation.
One: Be consistent in your word choice.
Two: Draft in the present tense.
Three: Draft in the active voice.

The rules are simple; but implementing them takes practice. Begin by reserving a single word to indicate language of obligation. Drafters generally adopt the statutory convention where shall indicates obligation. Then use it consistently. There is an easy test to help you determine when to use language of obligation. If you can substitute "has an obligation to" for shall, then language of obligation is appropriate. If not, choose another word.

Beware of two common pitfalls. First, drafters often use shall to indicate future action as well as obligation. This violates rules One and Two. With rare exceptions, contracts are continuing documents and speak in the present tense. While the past tense is sometimes used to indicate action that has already occurred, the future tense is seldom necessary in an agreement. As I reserve shall to indicate obligation, following rule One, I choose will for the rare instance where the future tense is appropriate.

Second, drafters often use the passive voice in statements of obligation. This violates rule Three. Passive language creates ambiguity because it does not indicate who is required to do what. Following rule Three, I draft obligations in the active voice, attributing every action to a party. The following four sentences are from a promissory note:

(1) Interest on this note shall accrue on any unpaid principal balance...
(2) Interest shall be computed on the basis of a year of 360 days and actual days elapsed.
(3) Payment of interest on the unpaid balance hereof shall be made in arrears on ....
(4) All payments of principal and interest shall be made without setoff, deduction or counterclaim.

Are these statements of fact or obligation? If they are statements of fact, the use of shall violates rule One — consistency. If they are statements of obligation, shall is appropriate but the statements violate rule Three. Written in the passive voice, the statements do not indicate who is obligated to act. Finally, in accordance with rule Two, these sentences should be redrafted in the present tense.

Assume that sentences (1) and (2) are statements of fact, and sentences (3) and (4) are statements of obligation. Better drafting of these sentences would be:

(1) Interest on the note accrues on any unpaid principal balance...
(2) Interest is computed on the basis of a year of 360 days and actual days elapsed.
(3) Maker shall pay interest on the unpaid balance in arrears on ….
(4) Maker shall pay all principal and interest without setoff, deduction or counterclaim.

These rules may not result in eloquent writing, but eloquence is not your goal. Your goal is to create an unambiguous agreement. When you use language of obligation correctly, you take an important step in that direction.