Using the right words in contracts: knowing your 3Rs

learningThe 3 ‘R’s – for readers who have not come across this expression – are the basic subjects one first learns at school: reading, [w]riting and [a]rithmetic.

In this article, the 3Rs have a different meaning. We discuss 3 words used in contract law that start with an ‘r’.  They are technical, legal expressions, and many of us get by without using them at all, in contracts or elsewhere. Yet they feature in standard textbooks on contract law and in case law. The larger point is whether it is necessary to understand and use legal terms of art in contracts.

flynnThe 3 words are: revoke, repudiate and rescind. While they have other meanings in everyday life (eg if the authorities revoke – take away – your driving licence for drinking alcohol or speeding), these verbs have specific meanings in contract law. Like the Three Musketeers, they have a colleague who might be one of them, yet is slightly apart.  The noble Gascon of the contract world is (in noun form) restitution. Their colleagues in the corps of musketeers – rectification, release and replevin – will not be discussed in this article. Nor will their decrepit former colleague, rescous, which should not be confused with a type of wheat grain popular in North African cooking.

This article was prompted partly by a question that Ken Adams raised yesterday on Twitter:

adamsKen has followed up his question with a blog posting, titled simply Revoke. He suggests that there is no need to use the word revoke in relation to an IP licence, and that terminate is preferable.  IP Draughts agrees, but on technical questions of law he always keeps an open mind.  Property law has developed in strange ways over centuries (just think of the many types of legal and equitable interest that have been recognised) and there may be some point lurking in the shadows of old case law that he has not considered.

Whenever he hears any of the 3 R-words in a contract law context, IP Draughts has to concentrate to remember what they mean and to make sure he is not mixing them up.  Think of this article as remedial therapy for IP Draughts.  By forcing himself to articulate the different meanings, they may finally sink into his head. References below are to the leading tome, Chitty on Contracts, Volume 1, General Principles (30th edition, 2008).

Revoke

licence revokedOne of the traditional requirements for a binding contract is that one party makes an offer and the other accepts it.  A party can usually withdraw an offer before it is accepted.  The technical term for withdrawing an offer to enter into a contract is to revoke the offer (Chitty, 2-060).  Looking at the word revoke, it appears to have an etymology that suggests another word, “recall”.

This is different to terminating a contract that is already in existence.

Another sense of revoke is where a right or privilege that has been granted is subsequently withdrawn.  A driving licence may be withdrawn by the court for motoring offences such as speeding.  Some people use the term revoke for the termination of an IP licence, as the article linked above mentions.  As IP licences typically form part of contracts, this usage could be said to form part of contract law, but it is not conventional to refer to revoking a contract, and Chitty makes no mention of this usage.

Repudiate

In fact, there seem to be a pair of words with very similar meanings in contract law: repudiate and renounce.

IP Draughts is familiar with the expression “repudiatory breach” where a party acts in such a way as to make clear that he does not intend to perform his obligations under the contract, and the other party is entitled to “accept” this repudiation and terminate the contract.

Chitty seems to prefer the term renunciation for this type of breach (Chitty, 24-018) although the word repudiation appears in the discussion of several types of termination, eg in relation to contracts with minors (Chitty 8-031).

Rescind

voidThe correct use of the term rescind is to describe a situation where the contract is treated as never having come into existence, and not the situation where a contract is terminated part-way through its ‘life’.

For example, if a contract is terminated by acceptance of a repudiatory breach, this is sometimes inaccurately described as a rescission (Chitty 24-027).

Rescission from the start of the contract (ab initio) may occur if a party is induced to enter into the contract by (for example) misrepresentation or mistake (Chitty 6-103).  If rescission occurs after the contract has started, it will have retroactive effect to cancel the contract (Chitty 6-106).

Discussion

The 3 R-words have acquired different meanings in English contract law.  The differences in meaning are quite subtle.  A breaching party may repudiate the contract, but termination only occurs if the other party accepts the repudiation.  If a party is induced to enter into a contract by a misrepresentation, he may be entitled to rescind the contract. Contracts cannot generally be revoked, but an offer to enter into one can be revoked before the other party accepts.  There is also a suggestion that a licence can be revoked.

And this is just what the terms probably mean in one country’s development of the common law.  There is no certainty that these terms have identical meanings in other common law systems. It seems even less likely that there is an identical meaning in civil code systems, and if the words are translated into other languages, the subtleties of meaning may be completely lost.

rwordIP Draughts view is that it is better to avoid using terms such as rescind, revoke and repudiate in a contract, and instead to state specifically what rights and remedies and party has, eg the right to terminate for breach.  If termination is to be retroactive, this should be specifically stated. By using legal expressions of this kind, you may point a court to a particular understanding, based on case law, which may or may not work in the context of the contract under discussion.  Or you may find that the court is not familiar with the meaning you intended, particularly if the case is litigated outside your home jurisdiction. Or you may even use the wrong expression anyway – easy to do when they are so similar.

2 Comments

Filed under Contract drafting, Legal practice

2 responses to “Using the right words in contracts: knowing your 3Rs

  1. dezoysa

    Thanks Mark for this very informative article. As a German/Dutch translator, I know that these languages have a plethora of words to indicate the termination of a contract in different circumstances. I have always wanted to use ‘repudiate’, ‘revoke’ or ‘rescind’ – they somehow sound so grown-up, so sophisticated – dare I say so sexy. However, as it would be unethical for me to use words I don’t understand (up until now of course), I have always opted for ‘terminate’ and now I can justify that.
    I still have one nagging question however: can we distinguish in English between a contract terminating by coming to its natural conclusion (the expiry of the contract) and a contract being terminated for breach? Interestingly, there are some articles that discuss the difference between the expiry of a contract and its termination (e.g. http://www.ashurst.com) and I wondered what your take on this is?

    • Some people regard expiry of a contract as different from termination. My personal view is that this is tiresome. To address the issue, many of my contracts include an interpretion clause that says “In this Agreement …references to termination include termination by expiry.”

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