Take Care: Headings Can Affect Contract Interpretation

As a general practice, section headings should be used to identify the general subject matter of each contract provision, making it easier for the reader. Section headings are very useful for ease of reference. They enable the reader to skim an agreement when searching for a particular provision or group of provisions. But headings can be a trap for the unwary—courts have used them to interpret the parties’ intent when a provision is ambiguous or misleading. Here’s how to protect yourself from the unintended consequences of headings.

Contract drafting best practices dictates that all formal agreements and longer letter agreements should be broken into distinct parts, i.e., “sections,” “paragraphs,” or “articles.” These parts should be designated by a hierarchy of letters and numbers like an outline, so the reader can easily identify and refer to particular provisions and put them in their proper context.

Parties seldom want headings to legally affect the substance of the agreement, but practitioners disagree on whether headings should have no legal effect at all or whether they should merely have no legal effect if read in isolation. The choice could be important in determining, for example, whether a particular provision is a covenant, a condition, or a covenant and a condition.

For those who prefer that headings not affect interpretation of the agreement, include a clear provision to that effect:

Headings. The headings in this Agreement are included solely for convenience of reference and shall not affect the interpretation of any provision of this Agreement or any of the rights or obligations of the parties to this Agreement.

A common rationale for negating their interpretive significance is that a heading might not adequately summarize the provision that follows. For example, during negotiations a provision might be modified in a way that wasn’t contemplated when the heading was originally drafted.

But sometimes the drafter may decide that headings could be valuable in interpreting the agreement and would use a provision like this:

Headings. The headings in this Agreement are included primarily for convenience of reference and shall not be construed alone, by themselves, without reference to all other relevant provisions of this Agreement.

Don’t find yourself trapped by contract drafting mistakes! Use CEB’s Drafting Business Contracts: Principles, Techniques and Forms to ensure that your contracts are complete, clear, and effective.

Other CEBblog™ posts you may find useful:

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2 thoughts on “Take Care: Headings Can Affect Contract Interpretation

  1. Pingback: 4 Reasons to Keep Contract Drafts | CEBblog™

  2. Pingback: How to Draft a Contract with Severability in Mind | CEBblog™

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