Great care is needed when drafting the definition section (or ‘defined terms’ section) of a contract. Some people call the definitions section the ‘dictionary’ of the contract. If it is not carefully and thoughtfully drafted, it can create many problems. In this post, we will offer a few tips about drafting definitions of words (and phrases) used in a contract.

1. Ask yourself if you really need to define the word?

Deciding whether a word or phrase really needs to be defined is a skill in itself. A defined terms section is useful because it can reduce the overall length of your document. For example, it is easier and more efficient to define ‘Cambridge Jacket Button Manufacturing Company Limited’ as the ‘Buyer’ than to keep repeating ‘Cambridge Jacket Button Manufacturing Company Limited’ in your document. It makes sense to define it.

The tip here is, only define a word or phrase in a contract if there would be doubt about the meaning if you didn’t define it!

2. Capitalise your defined terms.

What do I mean by this? If, for example, you decide to define the ‘Cambridge Jacket Button Manufacturing Company Limited’ as the ‘Buyer’, make sure the first letter of the word being used – here ‘Buyer’ – is capitalised. This lets the reader know, clearly, that the word (or phrase) is a defined term and the meaning can be found in the defined terms section.

Some modern contract drafters now suggest that you do not capitalise your defined terms. However, for your reader, the advantage of capitalisation is that it leaves the reader (and possibly a judge or tribunal) in no doubt about which words and phrases are defined and where a definition of them can be found.

3. Be careful using the definite and indefinite articles (‘the’/’a’/’an’)

Often, it is better to avoid using an article (‘the’/’a’/’an’) with a defined term. This is because there is the possibility of confusion, particularly if your document uses the same word or phrase in a different way. For example, you may want to define the phrase ‘the bill of lading’ in your document. If your document refers to other kinds of ‘bills’ (such as invoices), using the article may cause confusion about which ‘bill’. This, of course, is another reason for capitalising your defined terms. For these reasons, you will often see defined terms in a document without an article. For example,

Seller agrees to indemnify Purchaser for and to hold Purchaser harmless from, all loss, liability, costs, and expenses.”

If you are going to include (or exclude) an article from your definition, just make sure you have thought carefully about it and know why you are doing it.

4. Do not include ‘operative provisions’ in a defined terms section

What does this mean? Operative provisions are essentially contract terms and conditions which create obligations, duties, rights, and permissions. Do not, therefore, include any warranties, representations, conditions, and so on, in your defined terms section. An example of this might be:

“ ‘Delivery Date’ means the 30th November 2020, on which date Seller shall deliver the Goods to Buyer, time being of the essence.”

5. Define your defined terms as precisely, and narrowly, as possible.

This means that your defined term must fit perfectly, and clearly, in every place in the document you wish to use it. Do not add anything to the definition that may change its meaning (here, we are talking about adjectives or other words which may qualify or change the meaning).

6. Avoid using acronyms as defined terms.

What is an acronym? Acronyms are letters which stand for something. For example, UN is an acronym for United Nations. There are many possible acronyms in the field of commercial and company law. For example, a share purchase agreement is often referred to as an SPA or a letter of credit as an LOC.

The main reasons for avoiding this are that,

· by using acronyms, you are expecting more from the reader of your document than you need to; and

· using acronyms can create technical issues during the formal drafting of your document.

7. Always check your document carefully once it is drafted – and then check it again.

This may seem an obvious point, but you would be surprised how often busy lawyers do not check for this, or do not check carefully enough. We have seen recently how careful checking of defined terms may have prevented costly legal proceedings, in the case of Winlink Marketing Limited v Liverpool Football Club [2020] EWHC 2271 (Comm), which we posted about here:

[Note: This article is intended as an educational resource, for study purpose only. Nothing in it is intended, or should be, taken as legal advice. If you need legal advice or guidance, you must consult an appropriate lawyer.]

© Cambridge Legal English Academy 2020

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