You have problably seen them before: the two or three words preceding a contract section, briefly highlighting the scope of that clause. These words are called ‘caption’ and, together with the article title (‘headings’) contract drafters may become so nervous about the risk of reliance on such caption or heading that they insert a boilerplate in the contract that such words must be ignored by the reader. This blog post is about headings and captions.
Article titles (headings). The articles themselves are mere headings of the sections and, if you use chapters within an agreement, the chapter headings are also mere headings (immediately followed by an article). Choose an article title that covers all section topics. Do not use an article title that promises more than the sections actually deliver or that is otherwise misleading. Furthermore, the overriding principle is: keep it short (no more than a few words).
Common article titles are (see also paragraph 3.5):
- Interpretation (for article 1; if no interpretation guidelines are inserted, Definitions would be fine as well)
- Scope or Scope of this Agreement (for article 2; alternatively use the key obligation addressed in this article: Sale and purchase or Sale and delivery, as appropriate)
- Conditions precedent (or simply Conditions)
- Covenants (or, if more articles contain covenants, as the context requires: Pre-Closing covenants, Ongoing covenants, Financial covenants and Restrictive covenants)
- Ordering and delivery
- Licence restrictions
- Limitations of liability
It is a good idea to bring all the miscellaneous provisions under one article heading called Miscellaneous (except, as you may prefer, for confidentiality, applicable law and dispute resolution). Finally, it is recommended that you use article titles consistently for all the (model) contracts the company or firm drafts (but do not change the article titles chosen by the other party).
Captions. Many contract drafters, including myself, prefer to use captions. Captions are the one, two or three words at the beginning of a contract clause; they signal the subject of the contract clause. For example, the words preferred supplier is such a caption:
2.3 Preferred supplier. The Shareholders and their Affiliates shall treat the JVC and its Subsidiaries on an arm’s length basis and vice versa. The Shareholders and their Affiliates shall be the Preferred Supplier of the JVC and its Subsidiaries.
Like the division of an agreement into articles (with inevitably an article title), the indication of the subject matters of contract clauses may guide the reader through the contents. Obviously, using captions introduces a possibility that eventually, the caption does not cover the contents of the clause anymore. With brief contract sections such risk is fairly limited, whereas the captions still help the reader.
No captions for subsections. Do not use captions for subsections, unless it outweighs the disadvantage of losing readability.
Presentation of captions. Captions enable a law firm to distinguish its style from that of other firms. The preliminary question is of course whether or not agreements should contain captions at all. The presentation may subsequently take several forms: as an inline clause header in bold or underlined (being the most frequently used styles, as reflected in the above example) or as the numbered, bold heading of a non-numbered contract clause:
2.3 Preferred supplier
The Shareholders and their Affiliates shall treat the JVC and its Subsidiaries on an arm’s length basis and vice versa. The Shareholders and their Affiliates shall be the Preferred Supplier of the JVC and its Subsidiaries.