In June 2009, Fiat and the new Chrysler Group LLC agreed to honor all the rights consumers had against the “Old Chrysler” under state “lemon laws.” The agreement was contained in a bankruptcy court judge’s order, but it’s analogous to a contract. Here’s the relevant language, with the juicy bit in bold italics:

Notwithstanding anything else contained herein or in the Purchase Agreement, in connection with the purchase of the Debtors’ brands and related Purchased Assets, the Purchaser from and after the Closing, will recognize, honor and pay liabilities under Lemon Laws for additional repairs, refunds (monetary damages) or replacement of a defective vehicle (including reasonable attorneys fees, if any required to be paid under such Lemon Laws and necessarily incurred in obtaining those remedies), and for any regulatory obligations under such Lemon Laws arising now, including but not limited to cases resolved prepetition or in the future, on vehicles manufactured by the Debtors in the five years prior to the Closing.

This language was at issue in connection with a lemon-law case settlement between Chrysler and one Bradley E. Wolff that was entered into shortly before Chrysler filed for bankruptcy in April 2009.

Wolff’s Dodge was made more than five years before the bankruptcy filing. Was his settlement covered by the agreement contained in the court order? At the court hearing, discussion focused on commas in that agreement—the comma after “future” and the absence of a comma after “prepetition.” The Wall Street Journal’s Bankruptcy Beat blog has the full story.

I quote Bankruptcy Beat (although I added to the text in brackets):

Steven L. Holley of Sullivan & Cromwell, a lawyer for Chrysler, said at a court hearing Thursday that the wording is clear: Chrysler is only liable for lemon law damages on cars less than five years old, for cases resolved both pre-petition and in the future

“Under normal rules of English grammar [the comma after "future"] refers to everything that precedes it,” Holley said in court.

But Wolff’s lawyer, Larry R. Hoddick of Caronna, Johnson & Hoddick LLP, had a different take. Again, according to Bankruptcy Beat (although I added the text in brackets):

Hoddick’s argument is that the lack of a comma [after "prepetition"] is a “sleight of hand” that absolves Chrysler from paying some claims settled before the bankruptcy filing, including Wolff’s. Hoddick contends that if the clause, “in the future,” were set off by commas, Chrysler would be liable to pay settlements like Wolff’s made before the bankruptcy filing.

“They cannot just remove a comma and then say they don’t have to pay all the cases pre-petition,” said Hoddick, speaking to the court on the phone from California.

Here’s my take on this:

You can discount Mr. Hoddick’s argument. The lack of a comma after “prepetition” isn’t the result of some trickery—it’s simply how the text of the agreement was written. The question is what one or more meanings the reasonable reader might derive from the language at issue. Sure, if there were offsetting commas around “or in the future,” it would be clear that “on vehicles manufactured by the Debtors in the five years prior to the Closing” modifies “prepetition” as well as “in the future.” And if my aunt had wheels, she’d be a bus.

But that’s not to say that Mr. Holley of S&C offers a compelling argument. Whenever I hear a lawyer refer to “normal rules of English grammar,” my heart sinks, as usually it’s used to support an interpretation that is in fact highly debatable. And that’s the case here.

In referring to “normal rules of English grammar,” Mr. Holley is, whether he knows it or not, alluding to the comma test under “the rule of the last antecedent.” That’s an arbitrary rule of construction that has zero to do with how people actually write. It’s a topic I’m intimately familiar with, as it was at the heart of that epic Canadian contract dispute, “the case of the million-dollar comma,” in which I acted as expert witness. I discussed the comma test in my Globe & Mail article.

Once you disabuse yourself of any notion that the comma after “future” has some magical significance, you’re left with the fact that “on vehicles manufactured by the Debtors in the five years prior to the Closing” is a closing modifier. And it’s not clear whether it modifies just “in the future” or both “prepetition” and “in the future.” (For more on closing modifiers and the risk of syntactic ambiguity they pose, see MSCD 11.19–26.)

I have no idea which meaning is more likely—there may well be plenty of evidence bearing on the question. It’s clear that the agreement was poorly drafted. How it should have been worded depends on what meaning was intended.

If you want to avoid creating this kind of problem, you have to become familiar with the sources of syntactic ambiguity and how to work around them. You might want to consult chapter 11 of MSCD.

I think we should at least all agree that the serial comma is an absolute must in contracts. It doesn’t break up the flow of a series to add the comma–you read it in anyway–but it does provide clarity, which as I understand it is what contracts are all about.

On reading the comment, I realized—shock horror probe!—that I had never explored how the ambiguity that can arise when you drop the serial comma might manifest itself in a contract. It’s another example of syntactic ambiguity, which is caused by uncertainty over which part of a sentence a given word or phrase modifies. (If you want other examples of syntactic ambiguity, search for “syntactic” on this site.)

Background

The serial comma is the comma used immediately before the and or or preceding the final item in a list of three or more items. You can either include the serial comma (I like apples, cherries, and grapes) or omit it (I like apples, cherries and grapes). At the moment I don’t have access to my usual authorities on usage, but this Wikipedia entry gives a decent account of the arguments for and against the serial comma and which position the various style guides take.

Using the serial comma can resolve ambiguity. Wikipedia provides the following example, a ”possibly apocryphal book dedication”:

To my parents, Ayn Rand and God.

Readers could derive two possible meanings from this. The first is that the book is dedicated three ways. The second that the book is dedicated to the writer’s parents, who happen to be Ayn Rand and God. As Wikipedia notes, “Ayn Rand and God can be read as in apposition to my parents, leading the reader to believe that the writer’s parents are Ayn Rand and God.” That meaning is obviously ludicrous, but change the components and real confusion could be the result.

Inserting a comma before and eliminates the ambiguity:

To my parents, Ayn Rand, and God.

But the serial comma can also create ambiguity. Consider the following adjusted, serial-comma-containing version of the dedication:

To my mother, Ayn Rand, and God.

Readers could derive two possible meanings from this. The first is that the book is dedicated three ways. The second that the book is dedicated to the writer’s mother, who happens to be Ayn Rand, and to God.

Omitting the serial comma eliminates the ambiguity:

To my mother, Ayn Rand and God.

An Example from a Contract

Some rooting around online led me to Telenor Mobile Communs. v. Storm LLC, 587 F. Supp. 2d 594, 605–08 (S.D.N.Y. 2008). (Go here for a PDF copy.) At issue was whether someone was an affiliate of a particular entity, and that brought into play the following definition of “control” contained in a shareholders agreement:

[C]ontrol (including, with its correlative meanings, ‘controlled by’ and ‘under common control with’) shall mean, with respect to any Person, the possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise) of a Person.

Here’s what the court had to say about the alternative meanings made possible by the lack of a serial comma before “or otherwise”:

Contrary to the Altimo Entities’ argument, the Agreement’s definition of control contemplates control exercised through  means other than ownership interests. The definition of control states that the “power to direct” may arise from “ownership of securities or partnership or other ownership interests, by contract or otherwise.” The phrase could be read, as the Altimo Entities assert, as limited to powers arising out of ownership interests. In this reading, “by contract or otherwise,” specifies the source of the ownership rights, and “otherwise” refers to sources of ownership rights other than contract. However, the phrase could also be read, as Telenor suggests, as a list of the sources of the “power to direct.” That is, the power to direct may arise either through “ownership of securities or partnerships or other ownership interests,” through “contract,” or “otherwise.” In this reading, the “power to direct” is not limited to powers arising out of ownership interests. Instead, such powers may also arise through “contract” or “otherwise.”

Telenor’s interpretation is the more reasonable one. First, the Altimo Entities’ proposed interpretation gives “by contract or otherwise” an awkward and cramped meaning. The specification of the ownership interests as being “ownership of securities or partnerships or other ownership interests” is clear on its own. The addition of the phrase “by contract or otherwise” adds little, if any, clarity to the scope of the ownership interests. It also suggests that ownership interests normally arise out of contract, but in fact they more often arise out of ownership of shares, or out of a partnership, than out of contract. Moreover, aside from property, partnership, and contract, it is not obvious how ownership interests might “otherwise” arise. Read as the Altimo Entities would have it, the phrase is either redundant or obfuscating, adding nothing but confusion to the definition.

Second, Telenor’s interpretation more reasonably defines “control.” Ownership is not the only way in which one person or entity may control another. Contractual arrangements, such as shareholder agreements, employment contracts, or agency or other commercial contracts, can allow one entity to wield significant power over another. It would not be consistent with the purposes of the non-competition provision for the parties to prohibit Alfa Group from directly or indirectly owning shares of a competing telecommunications venture, but to control one through another person or entity that was, for some reason other than ownership, its puppet.

This conclusion is fortified by the fact that the contractual provision appears to be modeled on other legal documents that define “control” broadly, for similar purposes. Thus, Telenor’s interpretation squares with the interpretation of the almost  identical definition of “control” used by the SEC in defining the scope of “control person” liability under the Securities Exchange Act of 1934, 15 U.S.C. § 78t(a).

To its discussion of the difference between the shareholders agreement’s definition and the SEC’s definition, the court added the following footnote:

One other difference, which is perhaps illuminating, is that the Shareholders Agreement drops the comma after “by contract” and before “or otherwise.” The use of a comma before a conjunction joining the last two items in a list—the so-called “serial” or “Oxford” comma—is not universal, though it is “strongly recommend[ed]” by at least one authority, “since it prevents ambiguity.” The Chicago Manual of Style (University of Chicago Press, 15th ed. 2003). Indeed, the omission of the serial comma in the Shareholders Agreement definition of “control” accounts for much, if not all, of the confusion here. Had the Agreement incorporated the serial comma—i.e., control is power to direct “through ownership of securities or partnership or other ownership interests, by contract, or otherwise”—it would have been substantially clearer that non-ownership types of control are contemplated. The Shareholders Agreement omits the serial comma elsewhere, for example, in the text of the non-competition provision, see Section 6.02. This pattern of omitting the serial comma, together with the overwhelming consistency between the Agreement’s definition and the SEC’s definition, suggests that the omission of the comma was either inadvertent or a stylistic choice not intended to affect the meaning of “control” under the Agreement.

Recommendation

I think the Telenor court’s analysis makes sense. But as always, the question for the contract drafter is not how to make sense of a dispute but how to avoid dispute in the first place.

The simplest approach would be always to use the serial comma in a simple list of three or more items. It’s very unlikely that you’d find yourself in a situation where a serial comma creates ambiguity rather than resolves it.

And if you’re inclined to use what Wikipedia refers to as apposition, you certainly shouldn’t rely on omitting or including the serial comma to accomplish that meaning. Instead, restructure the provision. For example, instead of the fourth example above, you could say To God and to Ayn Rand, who is my mother. The language at issue in Telenor could have been restructured to match the SEC definition, or maybe including could have been used instead of or otherwise.

But more generally, you might want to limit your use of apposition, which I refer to as “needless elaboration.” (See MSCD 16.24.) It occurs when a contract provision refers not only to a given set but also to elements that compose all or part of that set, even though there’s no question as to the boundaries of the set. Needless elaboration is when you say “fish, whether fresh-water or salt-water,” rather than just “fish.” Similarly, for purposes of a contract it would be redundant to refer to your parents and then identify them as Ayn Rand and God.

Not all such elaboration is needless. It would, for example, be hard to eliminate it entirely from the language at issue in the Telenor case. But if you eliminate needless elaboration and are aware of, and scrutinize the wording of, any remaining instances of apposition, that would help you reduce the odds of confusion down the road.

But I wouldn’t want to overstate the significance of this kind of ambiguity. It seems to occur relatively rarely in contracts.

In 1987, Michael Douglas starred as Gordon Gekko in the famous film “Wall Street.” Twenty-three years later, Douglas is starring in “Wall Street: Money Never Sleeps,” which follows Gekko after his release from prison after serving time for the insider trading that occurred in the first movie (“Blue Horseshoe Loves Anacott Steel!“).

In the decades between the two movies, Douglas divorced his wife, Diandra, and their divorce settlement provided that she was entitled to money from “spinoffs” of work created when the couple was married. Now, THR, Esq. reportsDiandra is claiming that she is entitled to money from “Money Never Sleeps,” but Douglas argues that the new film isn’t a “spinoff” but rather a “sequel.”

The lesson for the contract drafter, whatever their practice area, is that you should be wary of industry jargon. As discussed in the video below, it seems generally accepted in the entertainment community that the terms “spinoff” and “sequel” have distinct meanings. But evidently those meanings aren’t sufficiently established to preclude Diandra from starting a fight over the issue. And in contract drafting, what really matters is whether you were able to avoid getting into a dispute, not whether you were able to win one.

And you need to be particularly careful when you’re using jargon to divide a bundle of rights or obligations among the parties. This dispute wouldn’t have occurred if Diandra had been granted rights with respect to spinoffs and sequels.

So when you resort to industry jargon, rather than, say, a legal term with a more established meaning (in this case, “derivative work”), you should make sure that its meaning is clear enough to preclude the possibility of a fight, even by a party sufficiently aggrieved that it’s willing to be somewhat unreasonable. If necessary, explain in the contract what the term means.

Of course, you might think the meaning sufficiently established that it would be silly to provide any such explanation. But making that determination requires judgment, as there’s no clear line separating the lexically ambiguous from the unambiguous.

I recently had occasion to consider one kind of quick fix for this issue. Consider the following provision:

The Vendor will not be liable to Acme or any Buyer, and neither Acme nor any Buyer will be liable to the Vendor, for any damages that are not a reasonably foreseeable consequence of breach.

The offsetting commas indicate that for any damages … is meant to modify both The Vendor will not … and neither Acme nor any Buyer will … . But someone might be willing to argue the point and claim that the Vendor isn’t liable to Acme or any Buyer, period.

And as is, this provision could cause a reader miscue—you might not realize that the opening phrase isn’t self-contained until after you read the second comma and what follows. So I suggest that you revise this provision to read as follows:

The Vendor will not be liable to Acme or any Buyer for, and neither Acme nor any Buyer will be liable to the Vendor for, any damages that are not a reasonably foreseeable consequence of breach.

By moving for before each comma—in effect subdividing a single prepositional phrase, namely for any damages …—you make it clear that in both instances something is yet to come. That makes life easier for the reader and eliminates any possibility of misunderstanding.

Three variations on a closing theme:

Does “Closing” Refer to a Process or a Moment in Time?

Does closing mean the moment a transaction is consummated? Or does it refer to the process leading up to that moment, with contracts being finalized and signed, opinions being issued, and funds being sent whizzing through the banking system? I suggest that it means both—in other words, closing is an example of lexical ambiguity. The suggested alternative meanings bring to mind the alternative meanings of foreclosure, which I discussed in this May 2007 blog post. A spot in the AdamsDrafting Blog hall of fame is reserved for the first person who points me to a dispute in which the meaning of closing was at issue in this manner.

In connection with this, consider the defined term Effective Time. It’s used in merger agreements and invariably is defined to mean the time that the certificate of merger is filed with the appropriate secretary of state’s office or any later time specified in the certificate of merger. (If a merger involves corporations from different states, Effective Time will be defined to refer to filing of a certificate of merger with each state.) If that’s what Effective Time means, then what the freak does Closing mean? Does it refer to some other point in time? Or does it simply refer to the time spent hanging around a conference room eating takeout Chinese? Given that a company’s ability to walk or make a claim for indemnification is, or should be, keyed to accuracy of the other guy’s representations at closing, the meaning of closing in the context of a merger is matter of some significance.

Does “Closing” Refer to When Documents Are Signed or When the Money Is Paid?

In a bold bid to make the AdamsDrafting Blog hall of fame, reader Ben Diederick pointed me to Benavidez v. Benavidez, 145 P.3d 117 (2006 N.M. App.), a case in which the plaintiff argued that the closing in a real-estate transaction occurred when the warranty deed was signed, not when the plaintiff paid for the property. Those weren’t the alternative meanings I had in mind, but here at the AdamsDrafting Blog, we reward that kind of impertinence with a spot in the hall of fame. Congratulations, Ben!

For something to be considered ambiguous, the alternative meanings have to be apparent to the reasonable reader. I suspect that the plaintiff in Benavidez was more belligerent than reasonable. But in contracts, you have to go the extra mile to avoid giving ammunition to someone looking for a fight. If in a given transaction closing does mean consummation of the transaction, maybe you want to say as much in the definition of closing, or use that phrase instead of the word closing.

“Closing” Versus “Closing Date”

Finally, I routinely see the defined term Closing Date used when it would make a bit more sense to use the defined term Closing:

Each of the other representations and warranties of the Company contained in Article 3 of this Agreement shall be true and correct as of the date of this Agreement and the Closing Date as though made on and as of the Closing Date, except …

Immediately following the Closing Date, the officers of Parent shall consist of those individuals nominated by DE Qinba.

Use of plural nouns and the words and, or, every, each, and any can result in ambiguity. In each case, the question is whether it is a single member of a group of two or more that’s being referred to, or the entire group, so this manual uses the phrase “the part versus the whole” to refer to this sort of ambiguity.

This topic is fiendishly complex, with the ambiguity varying depending on the grammatical context and the category of contract language that you’re dealing with. The literature on drafting has botched its treatment of this subject, and courts can be relied on to oversimplify it. When revising this chapter for the second edition, I bugged linguists and kept close at hand a copy of The Cambridge Grammar of the English Language. I’d like to think that the MSCD analysis is by far the most comprehensive and practical for purposes of understanding legal prose. (If I’m wrong, I’d like to know it!) But I’m looking forward to improving it for the third edition.

I feel a bit proprietorial about this topic, and I’ve revisited it sporadically in this blog, including in this May 2009 post about a Toronto restroom notice. I’m delighted to be able to revisit it again, thanks to this post by Neal Goldfarb on Language Log.

Neal’s post concerns a recent decision of the United States Tax Court regarding how cosmetic surgery is defined in the tax code. It’s defined as—

any procedure which is directed at improving the patient’s appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease.

The question presented was whether in order to constitute cosmetic surgery a procedure has to neither meaningfully promote the proper function of the body nor prevent or treat illness or disease, or whether not doing just one of those two elements is sufficient.

I’ll leave you to read Neal’s post for the gory details, but here’s my take: if you don’t want to find yourself in court haggling about, in Neal’s words, “disjunction under negation,” you should familiarize yourself with the sources of “the part versus the whole” ambiguity and root it from your contracts. The kind of ambiguity at issue in the Tax Court case is discussed at MSCD 10.42–44.

Incidentally, Neal’s an interesting fellow, in that he’s a lawyer who’s knowledgeable about linguistics. By contrast, I’m entirely unschooled in the subject—my approach is to try to figure out what sounds right, then hit the books to determine the linguistics underpinnings of my instinct. I’m sure I would have benefitted from a more formal education in the subject, but a saving grace is that my approach ensures that my analysis is rooted in the needs of drafters.

It begins as follows:

It’s always best to say what you mean as clearly and as simply as you can, right?

Maybe.

…

Ambiguity, however, is indispensable to the drafter of commercial contracts.

At this point you might expect me, as a painstaking chronicler of contract ambiguity, to start hopping up and down in rage. But I believe that what we have here is differences in terminology.

The point William makes in his blog post is that contract negotiation can often be as much about what you don’t include in a contract as what you do include. I certainly wouldn’t argue with that. For example, it’s been suggested that Conan O’Brien’s lawyers intentionally didn’t ask that his contract with NBC specify that The Tonight Show would start at 11:35 p.m. (That’s discussed in this American Lawyer article by Brian Baxter.)

Since the tactic William writes about is based on omitting issues from a contract, it’s best understood as not involving ambiguity, which is a function of alternative meanings offered by a given word or phrase. Instead, it creates a void that the parties can fill with their competing interpretations if the issue subsequently raises its head.

In particular, that’s very different from what I refer to as “creative ambiguity”—intentionally adding ambiguous language to a contract so that you can, if it works to your advantage, reopen an issue that the other side assumed had been settled. That’s something I discussed in this January 2009 post.

In chapter 6 of MSCD I discuss the tendency of lawyers and judges to attribute to ambiguity all sources of uncertainty in contract language. This March 2008 blog post contains my first crack at this topic.

But prevailing in any comma dispute comes a distant second-best to avoiding such fights. If the meaning of a given contract provision changes drastically depending on the presence or absence of one or more commas, you might want to restructure it.

Updated 12:46 p.m. EST, Dec. 17, 2009: Reader Steven Sholk joined in the fun by telling me about this story on Bloomberg.com, about a “single contentious comma inserted into a paragraph of a United Nations climate deal two years ago.”

I’m not particularly interested in what the court held, because my goal as a drafter is to avoid getting into such scrapes. But this case is yet another indication that if you want to reduce the risk of unpleasant contract-language surprises, you’d be advised to become familiar with the sources of syntactic ambiguity and how to avoid them. Chapter 11 of MSCD goes into that in excruciating detail.

Incidentally, I find that ambiguity is different from other drafting issues I deal with, in that discussing it doesn’t require hacking through legalese. Instead, it’s more of a puzzle and as such can be simpler to explicate. I gather that others share my interest, as the session on the topic at the recent ACC annual meeting was one of only two sold-out sessions.

Consider the following:

If a proceeding seeks to compel the Recipient or any of its Representatives to disclose any Confidential Information …

I’m wondering whether one could improve on that formulation—given that or can be inclusive or exclusive, it’s not clear whether the above sentence would cover a proceeding to compel the Recipient and one or more of its Representatives to disclose information. Here’s an alternative:

If a proceeding seeks to compel any one or more of the Recipient and its Representatives to disclose any Confidential Information …

It’s not particularly elegant, but it articulates the intended meaning without any ambiguity. But I don’t know that I care enough about the possible ambiguity to bother with this alternative version.

[Updated 7:45 p.m. EDT: Thank you to the commenters for pointing out that any ambiguity in the first version is benign. I will begin intensive therapy for my and and or paranoia.]