Lawyers are often accused of being wordy. Why say something with one word when you can use several? And the English language is more than accommodating in providing a multitude of synonyms for lawyers to sprinkle into a contractual provision to cover every potential nuance of a concept. This practice has been referred to as “a ‘torrential style’ of drafting, which leaves little scope for finding different meaning or shade of meaning for every word used.” But in defense of that practice, “even where there is a torrent, each stream of which it is comprised can be expected to have added to the flow.” The problem with this practice, however, is that courts may search for and find different meanings in words that were intended to be deliberately redundant, or find the resulting torrent of words ambiguous and search for intent outside the contract. In either event, any supposed benefit of clarity thought to be derived from the resulting deluge of purported synonyms failed in its purpose. And to the extent there was any deletion of words that originally made up the torrent of synonyms during negotiation, that deletion may be the deciding evidence of the meaning of the words that remained.
A recent Delaware Court of Chancery decision illustrates this phenomenon. In Zayo Group, LLC v. Latisys Holdings, LLC, C.A. No. 12874-VCS, 2018 WL 6177174 (Del. Ch. Nov. 26, 2018), the buyer sued the seller of the Latisys Companies for breach of the representation and warranty made by the seller in Section 4.12(b) of the stock purchase agreement (the “SPA”). Section 4.12(b) provided, in relevant part, as follows:
Except as set forth on Schedule 4.12 . . . [n]o Latisys Company has received any written notice that any party to a Material Contract intends to cancel, terminate, materially modify or refuse to perform such Material Contract.
Buyer’s claim was that Section 4.12(b) had been breached because the seller failed to disclose to the buyer that five parties to Material Contracts had provided written notice of “their intent not to renew the contracts or to renew on different terms.” The seller conceded that it had not in fact disclosed the non-renewals of these Material Contracts, but asserted that Section 4.12(b) did not obligate the seller to do so. The buyer’s position was that a notice of intent not to renew the contract was the same as notice of intent to cancel or terminate the contract. And a notice of intent to renew the contract on different terms (at reduced rates) was the same as a notice of an intent to materially modify the contract. Vice Chancellor Slights sided with the seller’s interpretation of Section 4.12(b) and rejected the buyer’s claims.
Vice Chancellor Slights began his analysis by noting that “the terms ‘cancel,’ ‘terminate,’ and ‘refuse to perform’ …[all] appear to be saying the same thing with different words.” As an example, Vice Chancellor Slights noted that “there is considerable overlap between ‘cancel’ and ‘terminate.’” Indeed, “Black’s Law Dictionary defines ‘cancel’ as ‘to terminate a promise, obligation, or right’[,][while][t]he definition of “terminate’ is ‘[t]o put an end to; to bring to an end.’” In other words, “the relevant terms in Section 4.12(b) appear to be redundant.” But rather than then concluding that this redundancy meant that any means by which a contract came to an end (including its expiration without renewal) was covered by Section 4.12(b), Vice Chancellor Slights instead concluded that the redundant words were ambiguous because they were subject to two conflicting, but “reasonable,” interpretations. As a result the court was “free to consider extrinsic evidence to discern the intent of the parties.” According to Vice Chancellor Slights, the conflicting, but reasonable, interpretations of the redundant words were as follows:
One reasonable construction of the apparently redundant terms is that “terminate”/“cancel”/“refuse to perform” capture the scenario where a customer expresses an intent not to renew its [existing contracts], and that “materially modify” includes negotiations for new terms in new contracts. On the other hand, “terminate”/“cancel”/“refuse to perform” reasonably could contemplate notice only when a customer ends, or expresses an intent to end, a contract before the expiration of the contract’s current, non-renewed term, and “materially modify” would apply only to modifications of an existing contract as opposed to a potentially renewed contract.
Having concluded that the clause was thus ambiguous, Vice Chancellor Slights was able to easily identify extrinsic evidence to clarify the ambiguity. In turns out that the buyer’s mark-up of the seller’s auction draft of the SPA not only had added the concept of requiring notice of intent to “cancel, terminate, materially modify or refuse to perform” to Section 4.12(b), but had also included ”refuse to renew” in that litany. The seller had accepted all of the buyer’s changes to Section 4.12(b) except the phrase “refuse to renew.” While there was other testimony supporting the seller’s side, this “legislative history” surrounding the insertion and then deletion of “refuse to renew” appears to have been the clincher.
According to Vice Chancellor Slights, “[t]he fact that [the buyer] inserted this added language in its proposed SPA reveals that [the buyer], like [the seller], believed that ‘refuse to renew’ had a different meaning than the language already included in Section 4.12(b)—i.e., ‘terminate,’ ‘cancel’ and ‘refuse to perform.’” Perhaps, but as deal lawyers know well, another possible explanation is that the buyer’s counsel thought (ill-advisedly as it turns out) that the buyer was already covered by the other redundant words and decided not to push the issue. After all, if the words that were already there basically were all various ways of saying “terminate” or “come to an end,” isn’t one way that a contract comes to an end the expiration of its term without being renewed? And if the contracting party provided written notice of its intent not to renew, isn’t that the same as notice of intent to bring the contract to an end upon the expiration of its current term? Indeed, a recent case from another jurisdiction held that “’termination’ is synonymous with ‘expiration.’” In other words, the expiration of a contract’s term, the exercise of a cancellation or termination right by the parties to a contract, or a mutual agreement by the parties to terminate a contract are all different means of effecting a termination, but a termination (or end to the contract) occurs “regardless of whether it ended by expiration or by cancellation.”
But Vice Chancellor Slights saw this differently, concluding that this was a case falling squarely within the “well-known principle of caveat emptor (‘let the buyer beware’).” It was up to the buyer to “manage [its] risk,” and doing so required the buyer “to address and allocate it clearly in [the SPA].” Having failed to do so, the buyer may be “unhappy” but it’s breach of contract action failed. So, words matter, too many words have the risk of creating rather than resolving ambiguity, and the “legislative history” of how the final words came to be may be relevant in determining what the final words mean if they are susceptible to more than one reasonable interpretation.
- Nicholas Asprey, Read the small print, New Law Journal, 26 April 2013, quoting Norwich Union Life Assurance Society v. British Railways Board,  2 EGLR 137 (Hoffmann J).↵
- Id., quoting Crédit Suisse v. Beegas Nominees Ltd.  4 All ER 803 (Lindsay J).↵
- Alberti v. Sunbay Real Estate Inc., No.337921, unpublished opinion per curiam (Mich. Ct. App. Oct. 30, 2018).↵
- Id. See also Kenneth A. Adams, A Manual of Style for Contact Drafting §13.783-.794 (4th Ed. 2017).↵
- For good measure, Vice Chancellor Slights also concluded that even had there been a breach of Section 4.12(b), any resulting damages did not exceed the agreed-upon basket. As a result, no damages would have been recoverable in any event.↵