"Famous Last Words"

Little Things Mean a Lot ( April 2007)

Dear Jim:

This may seem like a really silly question, but how do you read a contract?

Do you really focus on every word, or is it more important to understand the broad outline of what is covered?

Dear DevCo:

They say the devil is in the details, or depending on your outlook, God is in the details.

In law school, my contracts professor told us that every single word in a contract is there for a reason.

It is our job to understand, in each case, why each word is there, how it affects the meaning of the document, and how it defines or affects the relationship of the parties.

And sometimes, it is more than the words that can give meaning.

Consider this real life example, taken from a report on National Public Radio (US) and reported on All Things Considered:

A Canadian telephone company entered into a contract to permit a cable company to use its telephone poles for cable wires.

The telephone company wanted out of the deal.

Here is the effective language in the contract:

"This agreement shall be effective from the date it is made and shall continue in force for a period of five (5) years from the date it is made, and thereafter for successive five (5) year terms, unless and until terminated by one year prior notice in writing by either party."

The phone company argued that the deal could be terminated at any time, by giving the required one year notice. In a filing with the Canadian Radio-Television and Telecommunications Commission, the phone company declared the issue "a classic case of where the placement of a comma has great importance."

The cable company's position, in contrast, was that the agreement could be terminated by notice only after the initial five year period.

In deciding the case, Canada's telecommunications regulator looked to the contract, and more specifically, to the second comma (“,”) in the sentence.

Had there been no comma, the sentence might have been found to mean that the right to terminate would only attach for the period after the initial five years. If that were to be the case, the cable company would have been guaranteed at least five years' rights to use the poles for its wires

But because of the existence of the second comma, the last clause was found to modify both the language covering the initial five year period, and each successive five year period.

This gave the phone company the right to terminate at any time upon one year's notice.

The NPR report estimates that this right to terminate allowed the phone company to save an estimated two million Canadian dollars.

In contracts, little things mean a lot!