Friday, January 14, 2011

Section Headings

In most contracts the drafter will include section headings to make it easier to find specific sections in the agreement.  One of the things to determine is whether those section headings can be used to interpret the terms of the contract.  Without a term that addresses how they will be used, language in a heading may add additional terms or requirements. A common term that is used for that clarification would be something like
“Headings.  Headings to any section or subsection of this agreement are for reference only and shall not be used to interpret or construe the meaning of the specific section or any other provision of this Agreement.

If you have an Agreement that does not contain this type of language you need to make sure that the language in the heading isn’t creating an unwanted term. For example,  I’ve seen agreements that had the warranty section entitled “Ongoing Warranties” and then within the text of the section it says that the “Supplier makes the following on-going warranties”, where the Supplier struck the on-going language in the text but not in the heading.  If there was a headings provision the impact of that would be that warranties would not be classified as ongoing warranties. Without the headings provision even though the language may have been struck in the body of the section, it would still be considered on-going warranties.

Another example is where the heading for the contract term contains the statement that “Time and rated of delivery is of the Essence” or “Time is of the Essence” and then in the body of the section there is also a statement about time being of the essence” the same would occur.  If you struck it in the body and left in it the heading, without a “headings” section the time of the essence commitment would still remain. With a headings section it would be eliminated.

Best practice is to first look to see if there is a “headings” section. If there isn’t one make sure you closely review and manage what’s included in the heading language just to make sure the other party isn’t trying to slide something by you by including language in the heading rather that the body of the clause.

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