Sole Discretion (Meaning In Contracts, Benefits And Limitations)

Sole Discretion (Meaning In Contracts, Benefits And Limitations)

What is the sole discretion meaning?

How do you exercise “sole discretion” rights under a contract?

What is the difference between sole discretion vs reasonable discretion?

We will define sole discretion, look at the sole discretion legal definition, how it is used in contracts, the sole discretion clause and its enforceability, the limits of the sole discretion rights, implied covenants of good faith, sole discretion vs reasonable discretion, how it is used in a sentence and more.

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Sole discretion definition

The phrases sole discretion or at its sole discretion or even in sole discretion are often used in contracts and legal writing to refer to an instance when a person or entity is given the right to make a decision or take certain action based on its own assessment and determination.

According to the TransLegal, sole discretion is defined as follows:

if you have sole discretion then you are the only person with the freedom to decide how to act or what should be done in a particular situation
Author

What’s notable with this definition is that the “sole discretion” gives you the freedom to decide what to do or how to behave in a particular situation.

Sole discretion synonym

If you are looking for a in its sole discretion synonym or looking for variations of phrase “sole discretion”, here are some possibilities: 

  • At its own discretion
  • In sole discretion
  • In its sole discretion
  • At its sole discretion
  • In its sole option
  • In its sole election
  • In its sole assessment 
  • Under the discretion 

Sole discretion in a sentence

You can use sole discretion in a sentence

You can do that in a variety of ways. 

For example:

The content of the will and testament is left at the sole discretion of the testator 
Author
The board of director is the only body able to make a final decision on this matter based on in its sole discretion
Author
Signing an unfavourable contract of adhesion is entirely in her sole discretion 
Author

Sole discretion in contracts

If you are involved in drafting contracts or you have been granted sole discretion rights under a contract, it’s a good idea to quickly evaluate what it means to have “sole” discretion.

Let’s have a look.

Use of sole discretion in contracts

The phrases sole discretion, in its sole discretion or at its sole discretion are used in contracts to define the manner a party may decide certain aspects of the contract, exercise an option or make a decision and the legal consequences that will follow from the decision of one party.

For example:

“Performance Period” means the project commencement to the project end date as determined by the service provider, in its sole discretion.
Author
Pursuant to the terms of the present Agreement, the Investor may elect to convert the required payments due thereunder into the Company’s common stock at a fixed conversion price of $10.00 per share. Furthermore, the Company may, at its sole discretion, convert a required payment at a conversion price equal to 98.5% of the lowest daily volume weighted average price of the Company’s common stock during the ten consecutive trading days immediately preceding a conversion.
Author

Sole discretion clause 

The sole discretion clause or the sole and absolute discretion clause is a contractual provision granting a party complete latitude in deciding on certain contractual elements or having the ability to make certain decisions or exercise certain rights.

For example:

A factoring company may enter into an agreement with a company to buy outstanding account receivables.

In the contract, the factoring company will include a sole discretion clause to ensure that it retains the right to purchase or not to purchase any receivables from its client.
Author

Sample sole discretion clause

A sample sole discretion clause can present itself in a contract as follows:

Party A has the sole and absolute discretion to purchase outstanding account receivables from Party B in the amount it shall determine from time to time, without having any obligation to do so. In no event shall Party A be required or be obligated to make any purchases from Party B nor shall the entering into the present Agreement be construed as Party A having any obligation to make a purchase from Party B during the Term.
Author

Sole discretion clause enforceability 

The sole discretion clause is generally enforceable in many states.

In other words, if the parties to a contract have expressly agreed that a party will have “sole” or even “absolute” discretion with regards to certain decisions or aspects of the contract, the courts will give act to the intention of the parties.

For example:

Many organizations enter into a master services agreement with a subcontractor or a supplier for consulting services or professional services on a long-term basis.

The objective of the contract is to have the subcontract “sit on the bench” in case the client may need services.

Since this master agreement will be valid for many years and will be the basis of many “child agreements”, the client will usually include a sole discretion clause indicating that it is “solely” up to the client to give the subcontractor work or projects from time to time. 

This way, the subcontractor has no expectation of minimum revenues or profits by entering into a contract and the client can utilize the subcontractor “on demand”.
Author

This sole discretion clause to decide whether or not to give a supplier or subcontractor any work is a perfectly valid and enforceable clause.

Implied covenants of good faith

On the flip side, even though a party may have sole and unfettered discretion to act in a certain way or decide certain things, the party must nonetheless comply with the implied covenant of good faith and fair dealing.

A contracting party cannot exercise its sole discretion in bad faith or maliciously causing harm to the other party.

A party must exercise its sole discretion in good faith

A party who suffers damages or is harmed by the abusive exercise of another’s discretionary rights or is prevented from benefiting from the consideration of contract unreasonably may file a claim for breach of contract and seek compensatory damages

The court will evaluate the factual circumstances to determine whether the breaching party has violated the covenant of good faith and fair dealing.

How to write a sole discretion clause 

For a sole discretion clause to be effective, the sole discretion contract language must be clear and express.

As such, a contract attorney or lawyer must ensure that:

  • The grant of discretion is expressed in clear and unequivocal terms
  • The scope of the discretion is expressed clearly 
  • There are no other provisions in the contract that may conflict with the grant of discretion clause
  • The grant of discretion should be linked to a consideration to prevent a party from arguing that the contract has become illusory

Limits of the “sole discretion” rights

If the parties expressly negotiated provisions granting a party with “sole discretion” or “absolute discretion”, the courts will enforce the intention of the parties so long as the grant of such right does not render the contract illusory.

However, even a party having the right to act “in its sole discretion” or decide “in its absolute discretion” cannot exercise the rights conferred in an arbitrary, capricious or unreasonable way.

Sole discretion rights must not render a contract illusory

This means that “sole discretion” rights are limited by a party’s reasonableness in the circumstances and in light of the express wording of the clause.

The interpretation of such rights will be a matter of the express contract language, clarity in scope and overall evaluation of the circumstances.

Sole and absolute discretion vs contractual discretion

It’s important to nuance “sole and absolute” discretion from “contractual” discretion.

To have a sole or absolute contractual right means to have the full and unfettered right to exercise certain rights or perform certain obligations.

A contractual discretion is a situation where a party makes a decision or chooses from a wide range of possibilities or options in such a way that the interests of both parties are taken into account.

A party having absolute rights will have less limitations than a contractual discretion but they must always be exercised in good faith.

Sole discretion vs reasonable discretion

Sole discretion is when a party is solely given the right to decide to act (or not to act), to make an election or exercise a right (or not).

The sole discretion rights involves a party making a decision primarily based on its own assessment and driven by its own evaluation of the circumstances.

A reasonable discretion is when a party is given the right to exercise a discretion but “reasonable” in light of the factual circumstances for both parties.

The concept of reasonable discretion can be linked to the requirement of honesty and good faith

A party cannot exercise a “reasonable discretion” based on ulterior motives

A reasonable discretion is one that a party considers the circumstances, the obligations already executed and what remains to be done and so on.

Deciding what’s reasonable and what’s not is a question of factual circumstances.

For example:

In some situations, a party may only have a few “reasonable” options to choose from.

In other situations, due to the complexity, uncertainty or novelty of a situation, a party may have a much wider range of reasonable possibilities to choose from.
Author

It’s not about necessarily assessing the end result to see what’s reasonable but what was the process used by a party to decide (process vs result).

Sole discretion vs covenants of good faith 

Companies enter into contractual relationships where they negotiate sole and absolute rights to make certain decisions, exercise certain options or elect something.

However, even though the contract may give a party full and complete discretion to decide, it does not mean that a contracting party has the green light to make any decision whatsoever. 

The doctrine of good faith and fair dealing must guide a party’s exercise of “sole discretion” rights

Based on the doctrine of good faith and fair dealing, contracting parties must act in good faith and in a manner that allows the other party to benefit from the consideration provided in the contract.

This obligation of good faith is an implied covenant requiring parties to a contract to act in good faith even though they may have full contractual rights to act in the manner they wish to act.

Should a party abuse its sole discretion rights causing harm to the other party, the court may consider such behaviour to represent a breach of the implied covenant of good faith.

Sole discretion FAQ

Sole Discretion FAQ

What is the meaning of the phrase “sole discretion”

The phrase sole discretion is used to indicate that a person is given the right to make a decision or take certain action based on his or her own assessment and determination.

What does sole and absolute discretion mean?

Sole and absolute discretion is essentially a sole discretion right where the term “absolute” is intended to bring an additional layer of precision on the nature of the right granted.

Saying “sole” discretion suggests that only one party can exercise that discretion.

Saying “sole and absolute” discretion means that only one party can exercise that discretion in an unfettered way.

At the end of the day, whether you formulated the contractual provision as “sole discretion” or “sole and absolute discretion”, its interpretation will come down to the express terms of the contract and the construction of the clause.

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