“Closing”

[Updated 12:05 p.m. EST Feb. 24, 2010]

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.

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.