Why are some words in your contracts capitalized and others aren’t’?

ContractsI recently received a telephone call from a policyholder asking this question because of a minor issue that arose when the term “notice of award” was capitalized in the general conditions, but was not capitalized in the instructions to bidders. His attorney advised that “it could be argued” (a not-unusual term for an attorney to use when trying to interpret contract language) that since the term was not capitalized in the instructions to bidders that it was not the same as the written notice defined in section 1 of the general conditions. The policyholder advised that the issue of telephone notification vs. written notification had been resolved, but it got him thinking about the many terms in his contract documents that are sometimes capitalized and sometimes not and he wondered why.

Capitalized words by convention usually mean defined terms. For example, “XYZ Corporation (‘Client’) promises to….” allows the rest of the contract to use “Client” instead of the full name. The same applies to other defined terms. You define them and then use the capitalized word thereafter to differentiate it from common English terms interpreted as their common meaning.

If you look at the EJCDC documents, for example, you will note provisions such as, “This Agreement is based on Laws and Regulations and Owner-provided written policies and procedures as of the Effective Date” (Article 6.01.E.3). If you then look at Article 7-DEFINITIONS, all of the capitalized words are defined. “Effective Date” is defined as “The date indicated in this Agreement on which it becomes effective, but if no such date is indicated, the date on which this Agreement is signed and delivered by the last of the parties to sign and deliver.” “Laws and Regulations” is defined as “any and all applicable laws, rules, regulations, ordinances, codes, and orders of any and all governmental bodies, agencies, authorities, and courts having jurisdiction.” You can see why it’s a lot easier to say “Effective Date” or “Laws and Regulations” throughout the rest of the agreement.

This is only one of the reasons we recommend using standard form agreements such as those developed by the EJCDC or AIA—they are internally coordinated and consistent. Custom agreements should always be reviewed by local legal counsel to ensure that they respond to the specific requirements of the project and to the laws of the appropriate jurisdiction.

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