The Contract Drafting Series: One

Contract Drafting Series: The Subject Matter Covenant.

Hey! It’s Shaunt of the Oozoonian Law Corporation and welcome to a new series I intend to develop in the next couple weeks. Let’s go through a purchase and sale agreement together. A purchase and sale contract is, as its name suggests, a contract used by a buyer to purchase something and used by a seller to sell that same thing – I mean we hope it’s the same thing, otherwise we’d have a bit of a problem. The purchase and sale agreement is referred to in abbreviation as “PSA” or “SPA.”

Today’s contract provision:

“Buyer shall purchase from Seller, and Seller shall sell to Buyer, the Waffles.”

I refer to this provision as the subject matter covenant because it is typically the only covenant that makes specific mention of the subject matter underlying the transaction the contract is utilized for in the first place. A covenant is an obligation or promise that is due as performance by a party to a contract. The subject matter of the contract is the product or service contemplated by the transaction. In this case, the subject matter is the selling and buying of waffles. If we had no other part of the contract except for this part of the contract, we’re able to determine that one party is selling a waffle to another party and that the contract is being drafted to determine the terms of the transaction. Here, the buyer has promised to buy the waffles from the seller, and the seller has separately promised to sell the waffles to the buyer.

The word “shall” is mandatory, rather than permissive. On the other hand, the word “may” or “can” is permissible, rather than mandatory. Because the word “shall” was used in this provision, the buyer has no other alternative but to purchase the waffles from seller. If the word “may” or “can” or another permissive word was used, the buyer would have the option to purchase the waffles from the seller and would not be forced to buy the waffles under the contract.

In this contract provision, the contract drafter has created a covenant on both the part of the buyer and on the part of the seller. If the contract provision read: “Buyer shall purchase from Seller” then, technically, the seller would have no obligation to sell his waffles to Buyer. Only the Buyer would have the obligation to purchase the waffles. Of course, this can create a problem because if the seller rightfully prevents buyer from buying the waffles, the buyer can’t force the seller to sell the waffles.

We also notice that the terms “Buyer”, “Seller” and “Waffles” are capitalized. That tips me off that we’re dealing with specialized or specifically defined terms in this contract. If we haven’t already identified the term earlier in the contract, we want to go to search for it. Most likely, the term “Buyer” and the term “Seller” are going to refer to the party or parties that are actually buying the waffles and are selling the waffles. I recognize that seems obvious. But the term “Waffles” is specially defined, too. So we need to search for that term to truly understand what is meant by the term Waffles. It could be the warm grid-designed pan-cooked dough that we know, frozen versions of the same product, or a term of art that construction professionals use on a regular basis.