CONTRACT-DRAFTING NOIR (Episode 338)
Man sitting in a nondescript motel room at night. Bright lamp illuminates him but leaves his face in shadow, as does his fedora. His voice is as world-weary as his slouch.
It’s real simple, see: Use the passive voice, drop the actor, bad stuff happens.
Today’s cautionary tale comes from another tipster in the contracts deep state. The opinion is ASR 2620-2630 Fountainview, LP v. ASR 2620-2630 Fountainview GP, LLC, No. 14-17-00271-CV, 2019 WL 470240 (Tex. App. Feb. 7, 2019) (PDF here).
No dreary recitation of dreary facts. Instead, check this out:
Under section 6.2, entitled “Distribution of Partnership Capital Event Receipts,” the Partners agreed that “[n]o later than fifteen (15) days after the closing of any Capital Transaction, all Partnership Capital Event Receipts (subject to requirements of applicable law with respect to the priority of other creditors of the Partnership, if any) shall be paid or distributed” according to a formula for calculating the amount of the distribution to the Class A Partners and possibly to the Class B Partner.
Passive voice (“shall be paid or distributed”) and no actor, so people get into a fight over whose obligation it was. The limited partnership? The general partner? Who knows. And I don’t care who won. I’m in the business of avoiding fights. Cleanup? That’s some other guy’s job.
Whenever a party is involved, use the active voice and nobody gets hurt. “X shall pay or distribute.” That’s it. But maybe some other time someone can tell me what “distribute” is doing in there.
Man gets up, face still in shadow, throws a $5 bill on the still-made bed, and exits the room.
Agree fully. Further thoughts:
1/ The quoted language could be theoretically justified if another part of the contract said ‘The Paying and Distributing Partner shall pay or distribute all receipts that this agreement requires be paid or distributed’.
2/ Even so justified, ‘shall’ in the quoted language would have to change to ‘will’, since the subject of the passive phrasal modal is ‘receipts’ and not a party.
The slip opinion: https://cases.justia.com/texas/fourteenth-court-of-appeals/2019-14-17-00271-cv.pdf
If “distribute” is being used to signal that it is a distribution of LLC assets, then my suggestion would be to ditch “pay or,” and just use “distribute”
Why is “distribute” in there? Because in finance, “pay” typically means money, “distribute” might be non-money property.
Actually it’s “pay” which should be left out, I think; “distribute” includes “pay”. If you want to be very clear that the partnership has the option of liquidating property for cash before distribution (or not doing so), that should be written clearly somewhere else.