Today’s case from the drafting hall of shame is a case recently decided by the Nebraska Supreme Court, Coral Production Corp. v. Central Resources, Inc., 273 Neb. 379 (Neb. 2007).
This case arose out of a dispute between owners of fractional working interests in oil and gas assets. When Central put its oil and gas assets up for sale, Coral claimed that under the joint operating agreement between the parties it had a preferential right to purchase Central’s Nebraska assets.
Central disputed this claim and sold 70% of its assets, including its Nebraska assets, to one company without giving Coral an opportunity to purchase the assets. Central had previously sold its other assets to a different company.
The joint operating agreement provided that the preferential right wouldn’t apply if “substantially all of the assets and/or stock of the selling party is sold to a non-affiliated third party,” but Coral contended that Central’s sale of its oil and gas assets didn’t fall within that exception because Central had sold the assets to more than one nonaffiliated person.
Central countered that Coral’s interpretation of the exception conflicted with a rule of construction in article I of the joint operating agreement. That rule read as follows: “Unless the context otherwise clearly indicates, words used in the singular include the plural, the plural includes the singular, and the neuter gender includes the masculine and the feminine.”
With respect to this argument, the district court held in favor of Central, and the supreme court affirmed. But the court’s holding isn’t actually what interests me about this case. Instead, it brings to mind the following two recommendations:
First, whenever you’re drafting a provision that refers to a thing or an unnamed person, consider whether you want that provision to apply (1) regardless of the number of things or persons, (2) only with respect to one thing or person, or (3) only with respect to more than one thing or person. In most contexts, the first meaning is the one you’ll want to convey. In that case, you should make it explicit by using “one or more.” For purposes of the exception in the joint operating agreement, Central would have been advised to have it refer to “one or more non-affiliated persons.” (Note my aversion to third party; see MSCD 9.56.)
Second, don’t rely on a “rule of construction” of the sort included in article I of the joint operating agreement. For one thing, such a rule applies a Procrustean regime to a contract—one’s entitled to wonder whether throughout a contract every use of the singular really is intended to include the plural. And you could drive a truck through the caveat “Unless the context otherwise clearly indicates.” If the parties get into an argument over singular versus plural, it’s entirely likely that this sort of rule of construction won’t dissuade one or more parties from filing a lawsuit. And that’s exactly what came to pass in this case.