“Willful”—It’s Ambiguous

You should avoid using in your contracts the word willful (alternative spelling wilful), as it’s ambiguous.

This lesson comes courtesy of Judge Gerard E. Lynch of the Southern District of New York, in his opinion in Johnson & Johnson v. Guidant Corp., 2007 U.S. Dist. LEXIS 64114 (S.D.N.Y. Aug. 29, 2007). (Click here for a copy of this case.)

This case involves the dispute that followed on J&J’s failed bid for Guidant. Here’s how the court introduced the question of what willful means:

The Agreement provides that in the event of termination, no party shall be liable beyond the specific liabilities imposed in the Agreement (i.e., the termination fee), except “that no such termination shall relieve any party … from any liability or damages resulting from the wilful and material breach … by a party of any of its representations, warranties, covenants or agreements set forth in this Agreement.” (Agreement § 7.02; emphasis added). J&J argues that defendants’ conduct was “wilful.” Whether a factfinder could so find depends on the meaning of that term as it is used in the Agreement. While defendants argue that a breach is only willful if it is committed with malice or in bad faith, plaintiff [J&J] contends that “wilful” merely means “intentional.”

The court went on to discuss at some length how willful can in fact convey two different meanings, “intentional” and “malicious.”

The court held that as it wasn’t clear from its use in the agreement just what “wilful” meant, it was too early in the litigation to conclude what meaning it conveyed; discovery might bring to light relevant evidence. The court dismissed the defendants’ argument that J&J had failed to state a claim of willful breach.

I won’t go into more detail than that, because one of the pleasures of being a drafter rather than a litigator is that you don’t have to get too caught up in autopsies of dead contracts. Instead, all you have to worry about is that you avoid the usage that created the problem.

What should you use instead? I suggest that intentional should suffice. One could use malicious or in bad faith, but then demonstrating breach by the other party would require showing not only that the other party had intended the action in question but also that it had been mean about it. I can’t imagine that a contract party with any bargaining power would accept that extra hurdle.

Incidentally, willful is certainly used frequently, judging by contracts filed on EDGAR. In the past month, 2,149 contracts filed on EDGAR contained willful or wilful, as opposed to just 531 that included the word intentional and 49 that contained the word malicious.

Before I sign off, I can’t resist quoting, simply for its schadenfreude value, one further passage from Judge Lynch’s opinion (I added the emphasis):

In support of their argument that the Agreement preserves liability only for malicious breaches, defendants argue that the word “willful” would be unnecessary unless it meant “malicious.” There is no reason to limit liability to breaches that are intentional, they claim, because any breach of this Agreement would be intentional—”[h]eavily counseled parties to mega-mergers do not breach merger agreements out of inadvertence, negligence, or mistake.” (Guidant/BSC Reply 5.) As a factual matter, this claim is questionable. It could just as well be said that heavily counseled parties to mega-mergers do not sign merger agreements containing glaringly ambiguous terms that lead to avoidable litigation—but here we are.

Ouch!