Ambiguous “Effective Date”?
The First Department, in a fully explored decision over a two justice dissent, ruffled some feathers in its application of well settled principles of contract interpretation. In the case Mak Technology Holdings Inc. v. Anyvision Interactive Technologies Ltd. the court was tasked with resolving a motion to dismiss a complaint stemming from a dispute over the effective date of a contract. On its face, the dispute centered around a grammatically incorrect sentence in a second amendment to a contract — “[e]ach of the undersigned hereby agrees that the with affect as of the date hereof and notwithstanding anything to the contrary in the Agreement, the Agreement shall be amended as follows…”. The Plaintiff, arguing in favor of a longer term, alleged that the erroneous sentence amended the Effective Date (a capitalized, defined term in the original agreement). The Defendant, arguing in favor of a shorter term, alleged that the erroneous sentence could not amend the Effective Date.
While the facts were simple, the legal analysis is not. To resolve this dispute, the First Department takes a deep dive into analysis of complex legal issues, including reasonable interpretations of a contract and whether corrections of grammatical errors can be made without altering the parties’ intent. The extensive legal analysis laid out in each opinion is essential reading for a commercial litigator.
In the end, the majority held that dismissal was inappropriate because the sentence created an ambiguity requiring examination of extrinsic evidence to ascertain the parties’ intent. The dissent would have held that the plaintiff’s proposed interpretation was unreasonable and dismissed the complaint.
The General Rule
Both the majority and the dissent acknowledge the long held principle of the Court of Appeals expressed in Brad H. v. City of New York, 17 NY3d 180, 185 (2011):
“A written agreement that is clear, complete and subject to only one reasonable interpretation must be enforced according to the plain meaning of the language chosen by the contracting parties. To determine whether a writing is unambiguous, language should not be read in isolation because the contract must be considered as a whole. Ambiguity is determined within the four corners of the document; it cannot be created by extrinsic evidence that the parties intended a meaning different than that expressed in the agreement and, therefore, extrinsic evidence may be considered only if the agreement is ambiguous. Ambiguity is present if language was written so imperfectly that it is susceptible to more than one reasonable interpretation.”
The majority and the dissent diverge over whether the grammatically incorrect sentence “is reasonably susceptible of only one reasonable interpretation” Mak Technology Holdings Inc., at *4.
The Majority’s Position
The majority holds that the grammatically incorrect clause “the with affect as of the date hereof” constitutes a clear error that could be corrected to state either “with effect as of the date hereof” or “with the Effective Date as the date hereof”. Thus, given the possibility of multiple interpretations, an ambiguity exists and extrinsic evidence must be considered to ascertain the parties’ intent.
To justify its holding, the majority accuses the dissent of choosing, pre-discovery, a single interpretation among many to fix the grammatical error — “[u]nlike the dissent, we are not ascribing one interpretation over the other. Rather, we are pointing out the multiple reasonable interpretations and concluding that additional information is necessary to ascertain the proper interpretation.” Id.
The majority did not hold that the defective clause amended and extended the Effective Date. After the exploration of extrinsic evidence it is possible, or even likely, that the parties did not intend to amend the Effective Date with its botched sentence.
Rather, according to the majority, at this early stage of a motion to dismiss, the clear error created an ambiguity which cannot “be corrected without altering the intent of the parties. While mistakes in grammar, spelling or punctuation should not be permitted to alter, contravene or vitiate manifest intention of the parties as gathered from the language employed, the [amendment] cannot be rendered grammatically correct without possibly altering the parties’ intent.” Id. at *5.
Therefore, dismissal is inappropriate and extrinsic evidence must be considered.
The Dissent’s Position
The dissent would hold that the grammatical error does not create any ambiguity and dismissal of the complaint is appropriate.
The dissents agrees with the majority’s stated rule that “[m]istakes in grammar, spelling or punctuation should not be permitted to alter, contravene or vitiate manifest intention of the parties as gathered from the language employed” Banco Espirito Santo, S.A. v. Concessionaria Do Rodoanel Oeste S.A., 100 AD3d 100, 109 (1st Dept. 2012), but disagrees in its application.
In sum, the majority’s alternative reading of the contractual language is so far-fetched that it cannot be said to constitute a “reasonable interpretation” that could support a finding of ambiguity. The majority’s approach opens the door to the wholesale rewriting of written agreements based on nothing more than transparent minor typographical errors that cast no doubt on the parties’ intent… Id. at *11. Nonetheless, based solely on these trivial typographical errors, the majority proposes that a factfinder be permitted to read an otherwise absent defined capitalized term from the original agreement (“Effective Date”) into the sentence, so as to create a redefinition of that otherwise absent term. Id. at *12.
In the dissent’s view, it is entirely unreasonable to interpret the defective sentence as amending the “Effective Date”, a defined term in their original agreement, because:
- The amendment made reference to the defined term “Term” (thus evidencing the parties’ awareness of defined terms);
- The amendment did not include the capitalized phase “Effective Date” anywhere in the document (including the disputed grammatically incorrect sentence); and
- The amendment included the very specific provision “[e]xcept as specifically provided above, the [Original] Agreement as amended hereby, shall remain unchanged as originally constituted” (thus evidencing their intention to remain bound by the unaltered terms of the original agreement).
Factually, the dissent’s position makes sense. The majority’s interpretation, requiring changes to seventeen letters, is so far removed from what is actually written on the page, that a finding of ambiguity would allow “every typographical error in a contract… [to] create an ambiguity. Perhaps the majority is not troubled by this prospect, but I am.” Id. at *11.
Who Is Right?
It is undisputed that the grammatically incorrect sentence is, in the non-legal sense, ambiguous. However, the majority and the dissent disagree on whether it is legally ambiguous such that a finder of fact would be permitted to rewrite the contract in the manner alleged by the plaintiff. Like many legal disputes, an ultimate decision is based on where the facts lie on a spectrum and where the court draws the line.
The First Department’s majority flings the doors wide open to allow wild allegations of far-fetched interpretations. While it is true that the plaintiff still faces an uphill battle to prove the parties intended to actually amend the Effective Date, it is unfortunate that the defendant is required to defend an otherwise clear and unambiguous contract in court.
The real lesson? Proofreading could have saved these litigants a lot of attorneys’ fees.