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.”

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.