In the recent Fourth Circuit case of Williams v. CDP, Inc. (copy here), the court considered the following section of a contract:
Deferred Compensation; Death Benefit; and Payments for Restrictive Covenants. Commencing upon the Employee’s retirement from the Employer and the termination of his employment under the Employment Agreement and continuing for the remaining Term of this Agreement, the Employee shall be paid an amount per annum equal to the greater of (i) $100,000 or (ii) the sum of (a) 33 percent of Available Cash and (b) the CDA Amount. If, at the time of Employee’s death, Employee is survived by, and is still married to, his current spouse (i.e., his spouse as of the date this Agreement is executed), then the Employer shall either (i) pay to such spouse $100,000 per annum for her life or (ii) purchase a commercial annuity that will pay her $100,000 per annum for her life.
The CDP employee who was party to the contract died while still an employee. The question facing the court was whether the employee’s wife was entitled to death benefits under the contract. In other words, did the context of the first sentence (“Commencing upon the Employee’s retirement from the Employer and the termination of his employment under the Employment Agreement …”) apply also to the second sentence?
The lower court thought that it did—it held that it was a condition to payment of death benefits under the contract that the employee have retired. The Fourth Circuit disagreed, holding that the above provision was ambiguous.
I leave you to determine who had the better of this particular argument. Me, I’m more interested in that age-old question, What Should the Drafter Have Done?™
If the parties had intended that the employee would have to retire for his spouse to be entitled to death benefits, the drafter failed utterly in what would have been a simple task—making that clear.
If the parties hadn’t intended that meaning, the drafter muddied the waters by lumping together two unrelated provisions.
MSCD 3.7 notes that “provisions addressing unrelated topics are sometimes lumped together in one section.” It’s not great to combine apples and oranges, but this technique allows you to make more efficient use of space. And MSCD 3.13 says “If a section addresses two distinct issues … you could give it a heading consisting of a word or short phrase for each issue, separated by a semicolon.” That’s the approach used by whoever drafted the section at issue.
Those techniques are unobjectionable when you’re dealing with what should be straightforward “boilerplate” provisions—if, for example, you decide you want to combine a provision governing amendment and a provision dealing with waiver.
But if you combine in one section deal-specific provisions that are otherwise unrelated, that could result in the context of one bleeding into the other. That’s what may have happened here.
So what I take from this dispute is that you shouldn’t combine unrelated deal-specific provisions in a single section.
1 thought on “Combining Unrelated Provisions in a Single Section”
I wonder if the drafter bothered to ask what the parties wanted to do? The parties may have intended retirement as a precondition, but surely did not intend survivorship payments if the Employee had quit to work for someone else.
The drafter could have avoided the problem by starting the second sentence one of two ways, depending on the deal:
“If, at the time of Employee’s death, Employee is either employed by the Company or has retired from the Company, and, in either case, is survived by . . .”
“If, at the time of Employee’s death, Employee has retired from the Company and is survived by . . .”