“Hereinbelow” (No Prizes for Guessing What the Fight Was About)

We’ve had occasion to explore the risk you run when a contract refers to itself in confusing ways. See this post about herein; see this post about hereunder; see this post about except as provided below.

Well, if a lesson is worth learning three times, it’s worth learning yet again. So thanks to relentless lead generator Steven Sholk, I present you, hot off the presses, Dean St. Capital Advisors, LLC v. Otoka Energy Corp., No. 15-CV-824 (RJS), 2016 WL 413124, at *1 (S.D.N.Y. Feb. 1, 2016) (PDF here).

The plaintiff alleged that the defendants had breached an oral agreement to pay the plaintiff broker fees related to the financing of a power plant project in California. The defendants moved to dismiss the complaint because, among other reasons, the plaintiff was not a third-party beneficiary of contracts that provided for New York personal jurisdiction over the defendants.

The court denied the defendants’ motion. Here’s why:

One of the contracts at issue, a purchase and sale agreement (the “PSA”), contained, in section 11.12, the following no-third-party-beneficiary language:

[e]xcept as provided hereinbelow, the terms and provisions of this Agreement are intended solely for the benefit of each party hereto and their respective successors or permitted assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other Person other than any Person entitled to indemnity under Article IX [a section of the contract not relevant to this dispute]

Section 3.19 of the PSA noted that, “[e]xcept as set forth on [the corresponding] Schedule 3.19, no broker, finder, investment banker, or other person is entitled to any brokerage, finder’s or other fee or commission” in connection with the power plant transaction. Schedule 3.19 said that the plaintiff was entitled to receive the fees at issue.

Here’s what the court had to say (citations omitted):

[T]he contract excludes third-party claims “[e]xcept as provided hereinbelow.” While “hereinbelow” clearly does not apply to terms earlier in the document, the word suffers from the same ambiguity as the word “herein” in the Bayerische Landesbank agreement. Put simply, it is not at all clear whether the word “hereinbelow” refers only to Section 11.12 of the PSA, or whether the word also applies to all subsequent portions of that agreement, including Section 3.19’s reference to Schedule 3.19 and Plaintiff’s fee. Moreover, the sentences following the term in Section 11.12 do not appear to limit the scope of “hereinbelow”; rather, they provide further exemptions from the negating clause tailored to specific groups of rights holders discussed later in the Agreement. Under these circumstances, and in light of the governing case law, the Court concludes that, while the [other contract at issue] unambiguously excludes Plaintiff’s claim—and therefore precludes Plaintiff from asserting jurisdiction based on that Agreement, the PSA is ambiguous in its terms and further inquiry is required to discern its meaning.

So if you traffic in the various here– words (other than hereby used in language of performance, for reasons I explain in this post), you’re asking for trouble. Quit it already.

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.

2 thoughts on ““Hereinbelow” (No Prizes for Guessing What the Fight Was About)”

  1. Couple comments:

    1/ Spare a quick frown for the following:

    (a) ‘purchase and sale agreement’ (describes one transaction from two points of view);

    (b) ‘terms and provisions’ (redundant);

    (c) ‘successors and assigns’ (I forget why and MSCD isn’t in reach).

    2/ Pondering ‘it is not the intention of the parties’:

    (a) Does language of intention need a companion category, ‘lack of intention’, the way language of obligation (positive duty) has its companion, language of prohibition (negative duty)?

    (b) Is language of intention appropriate here in lieu of stronger language, such as ‘by this [section X *or* agreement] the parties are not conferring [third-party beneficiary?] rights on any nonparty other than any Person’ etc. Is the stronger language an inappropriate attempt to ‘tie a court’s hands’?

    (c) To what category does ‘the parties are not [hereby?] conferring rights on nonparties’ belong? ‘Performance’ is tempting, but what action is accomplished by the words? The noncategory of nonperformance seems a better fit. Was sagen Sie, Herr Doktor?


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