In Comtide Holdings, LLC v. Booth Creek Mgmt. Corp., 2009 U.S. App. LEXIS 15086 (6th Cir. July 2, 2009), the following provision was at issue:
CLOSING. Broker shall receive reasonable notice of closing. The BROKER’s fee referred to in Paragraph 4 above is payable in full to the BROKER only upon closing of the escrow/settlement account and payment of the consideration to the SELLER, and the BROKER shall be paid his fee when such consideration is paid, if BUYER buys from, invests in, or manages operations for any SELLER during the term of this agreement, or within twelve (12) months after the termination of this agreement if the BUYER was advised of the SELLER by Broker before termination of this agreement and before BUYER learns of such SELLER from any other source.
The lower court said this language was “perfectly clear,” but the Sixth Circuit Court of Appeals felt differently, saying that it was “hopelessly abstruse.” (Note how each instance of a party name is emphasized in all capitals—a reliable sign of hack work.)
One issue was the meaning of the word “buys”; here’s what the court said:
It seems clear that Schmidt’s right to a commission is conditioned, at the very least, upon Booth Creek “buy[ing]” the Berlin City dealership within twenty-four months of March 9, 2005. What is unclear, however, is what the parties intended “buy[ing]” to mean. Did they mean the point at which an agreement to purchase the dealership was formed, or did they instead mean the point when the deal was closed and the consideration paid? Put differently, did they mean that Schmidt was entitled to claim a commission provided that Booth Creek bought the Berlin City dealership within twenty-four months of March 9, 2005, but was not entitled to actually receive it, until the closing took place; or, did they mean he was entitled to receive his fee and was entitled to payment of the fee at the time of closing?
You might want to bear in mind the potential ambiguity in buys before using it when, for example, specifying a broker’s commission.
3 thoughts on “Another Instance of Semantic Ambiguity: “Buys””
Great example, Ken. As well as the important points that you raise, the paragraph that you have quoted is full of drafting errors, including:
1. Sometimes block caps, sometimes not, for party names.
2. Use of passive in obligations.
3. Approx 100 word sentence, with alternative provisions, conditions and exceptions lumped together in a stream of consciousness.
4. Loose/woolly language generally. The final section seems to be concerned with whether the buyer first became aware of the seller’s existence from the broker, but is not very tightly expressed.
I think that the second court’s questions are a bit disingenuous–e.g., since when does “buy” mean the point at which an agreement to purchase is formed? The intent of the contract language is reasonably clear, with a lot of ambiguity around the edges. It’s just very poorly drafted. What it seems to say is: Broker gets a commission for a deal that closes during the term. Then, Broker has a protection period of 12 months for deals that close with a buyer that Broker brought to the seller during the term.
I think maybe this case stands for a different proposition than the ambiguity of the word “buy”–that is, if you don’t spend the time to make your intent clear, don’t expect the court to do so for you.
“since when does “buy” mean the point at which an agreement to purchase is formed?”
Granted that this decision is not about real estate, but dirt lawyers would ask “since when is “buy” the same as “take a conveyance of”? Under the doctrine of equitable conversion, courts treat the buyer as the owner for most purposes from the time the purchase agreement is signed, even though closing might not occur until months or even years later.
At common law, a broker earns the commission upon producing a buyer who is ready, willing and able to perform. Savvy sellers protect themselves by providing in the brokerage agreement that no commission is payable until closing.