An Instance of Confused Enumeration in a Contract

Via this post on Legal Writing Prof Blog I learned of a recent opinion of the Second Circuit Court of Appeals that involved an odd instance of confused enumeration in a contract.

The case is Karmely v. Wertheimer (here). It’s discussed in this post on allgov.com. The facts are way too involved for me to get into, but here’s the language at issue:

The foregoing provisions are solely for the purpose of defining the relative rights of the holder or holders of the Mezzanine Loan and the holder or holders of the Anglo Senior Loan, and nothing herein shall impair, as between the Mezzanine Borrower and Mezzanine Lender, the obligation of the Mezzanine Borrower, which is unconditional and absolute, to pay the Mezzanine Loan in accordance with its terms, nor shall anything herein prevent Mezzanine Lender from exercising all remedies otherwise permitted by applicable law or under the Mezzanine Note, Mezzanine Pledge or other Mezzanine Loan Documents, subject to the provisions of this Agreement.

This language was contained in an unenumerated paragraph in an intercreditor agreement, at the end of section 8. It followed a paragraph designated “(i)”. And that paragraph was preceded by section 8(h) of the intercreditor agreement. The district court held that the language at issue was the second subparagraph of two subparagraphs constituting section 8(h)(i) of the intercreditor agreement. The Second Circuit disagreed, holding that the “(i)” wasn’t a lowercase Roman numeral (“romanette”) but instead represented the lowercase letter “i”, making the language at issue text that ended section 8 without being part of any of the subsections of section 8. The Second Circuit noted that the confusion was due to errors in positioning the text.

Whoever drafted the contract created this confusion by ignoring two principles underlying the MSCD enumeration scheme. First, every block of text should be enumerated (with obvious exceptions, including indented addresses and the text of legends on stock certificates). And second, if a section is divided into subsections, all the text of that section (except the heading) should be placed within a subsection. For more about the MSCD enumeration scheme, see this post.

But despite all the fuss over the enumeration in the opinion, that’s not what the dispute is about! Instead, it’s about the significance of the words “foregoing” and “herein” in the language at issue. In other words, we have here our old friend antecedent ambiguity, discussed most recently in this post.

The district court held that “foregoing” and “herein” referred to the entire intercreditor agreement; the Second Circuit held that they referred only to section 8 of the intercreditor agreement. I don’t think that the enumeration issue has much of a bearing on the meaning of “foregoing” and “herein.”

Posted in Ambiguity, Layout | 4 Comments

  • Loik

    This is probably more of a sad admission of the state of my “exciting” life than it is insightful or even on topic…but this post brings to mind thoughts I had during my son’s elementary school holiday concert the other day when he and his classmates sang the Twelve Days of Christmas. It occurred to me during that song that if the lyrics were turned into an agreement and that the contract wasn’t well constructed–sloppy enumeration and didn’t properly address the notion of the “foregoing”–you’d end up with a little holiday mess…an aggressive recipient of the song’s “true love’s” affections might have a decent argument for entitlement to 12 partridges and pair trees, 22 turtle doves, 30 french hens, etc., (12 verses each reciting a new promise and repeating all the prior promises)…instead of providing for one of each thing as is likely the intent…

    • http://www.adamsdrafting.com/ Ken Adams

      Yes, the mind tends to wander during school concerts!

    • http://rickcolosimo.com Rick Colosimo

      Funny — that is exactly how I’ve always interpreted the song’s meaning, since I was a kid: each day’s gifts include all the prior days, so it’s a dramatic amount of stuff going on. I think that is what the lyrics mean, now that I think of them without looking up an “authoritative” version. Each verse is a sentence.

  • Joshua Stein

    Intercreditor agreements seem to create more than their share of issues. They tend to be highly complex/turgid, often rivaling the underlying loan documents for complexity/turgidity. The people who draft them think really hard to identify and parse through every possible issue ad nauseum. Inevitably the problems that arise are the problems that these great minds never thought of. And intercreditor agreements are particularly likely to get dragged out of the drawer and actually looked at and applied if problems arise. Even the “standard form” of intercreditor agreement for securitization contains major defects and uncertainties. Those deficiencies created huge surprises in the Stuyvesant Town debacle in NYC as well as other litigations, because of issues just like those addressed in this case. Stay tuned for more litigation on intercreditor agreements. For my brief article on “It’s Complicated, But Is It Right?,” click here: http://www.pdf2go.org/100006.html