Corporate & Securities Law

Another Instance of Semantic Ambiguity: ?Buys?

By Ken Adams

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.

Full post as published by AdamsDrafting on July 11, 2009 (boomark / email).