Tag Archives: interpretation

Ambiguity from Multiple Writings–F.A.L. Investments, LLC v. Hawthorne Bank

F.A.L. Investments, LLC v. Hawthorne Bank, 2014 WL 1663767 (Mo. Ct. App., W.D., Apr. 1, 2014), presents a number of interesting issues concerning interpretation of a contractual relationship memorialized in multiple writings.

The facts are not stated succinctly in the brief. And what I would like to see, in order to make my own assessment of the merits, a verbatim, unedited extract of from the operative agreements, is not reproduced in one place. So, understanding the brief would require moving back-and-forth between the brief and other documents. And the arrangements are messy, involving obligations owed by an entity, and LLC, and its members in their individual capacities. So, I do not envy the judges.

In essence, the appellant’s brief seems to reference the following basic circumstances:

  • Existing loans extended by the bank were refinanced by the bank.
  • During that refinancing, what had been unrelated personal debts of one of the members of an LLC (one Samson) were secured by a deed of trust on LLC-owned property (other obligations also being secured under that deed of trust).
  • The deed of trust appears to be a form that was not negotiated.
  • The loan agreement has some oblique provision in it, described on page 10 of the brief, as follows:

“Upon the sale of any portion or all of the 179 property,” proceeds were to be divided as follows:

a. agreed expenses and taxes were payable to Green [a borrower];

b. the Borrowers’ Obligations of $1.781 Million were payable to Hawthorne; and

c. “any remaining proceeds” were to be divided equally between Hawthorne and the Greens, with Hawthorn’s share applied “to the Samson Obligations”.

  • The real property is sold to an affiliate at a price the bank thinks inadequate.
  • The borrower claims that, under the loan agreement, the Bank, after other debt is paid, is limited to getting half the proceeds for purposes of satisfying the Samson Obligations. The Bank claims it is not; the sale of the property triggers a separate due-on-sale provision in the deed of trust, entitling the Bank to additional rights.

One can see that the brief here just provides snippets in quotes. To analyze this, I want to see the entire, unedited language.

The case illustrates that the memorialization of an agreement in multiple writings can create ambiguities, because the separate parts may not fit well together. I recently wrote about this problem in an article styled, Side Letters, Incorporation by Reference and Construction of Contractual Relationships Memorialized in Multiple Writings, 64 BAYLOR LAW REVIEW 651 (2012), which can be downloaded for free at:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2254388.

I would think a form deed of trust unlikely to address satisfactorily the arrangements to provide collateral securing multiple obligations, only some of which are intended to be with recourse to the borrower.

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Long-Term Lease Restricting Improvements–Mayer v. Lindenwood Female College

A long-term lease provides this:

The Lessee shall at all times during the term of this lease, subject to the terms and provisions of this lease, have the sole and exclusive right to erect, build, rebuild, repair, change, alter, or otherwise construct such buildings, appurtenances, or other improvements for commercial use as the Lessee in its sole discretion may determine, so long as same are in no instances used for an unlawful purpose, and so long as the value of such improvements shall not be diminished to less than One hundred Thousand Dollars ($100,000.00) as the result of such work.

The brief is at: Mayer v. Lindenwood Female College, No. ED100587, 2014 WL 2116410 (Mo. Ct. App., E.D.). The question: Does this language allow the tenant to replace a building, as long as the improvement value continued to meet the dollar amount? I would think so. The lessor disagrees. Let’s see the brief.

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“Hereunder” is Hereinafter Banned Herein–Naeger v. Farmers Insurance Co.

One of the practice pointers I received while practicing on Wall Street is that one should review with skepticism use in contracts of “herein” and like expressions.  Though it’s often clear what’s “here”–sometimes it’s not (whether an entire agreement or a section or something else.  So, for the past decade or so, in teaching either Contracts or the law of Corporate Finance (generally involving construction of corporate financing instruments), I’ve shared concern with that phrasing with students.

I’m not always sure they’ve been convinced.  Behold–a brief quoting a dictionary to define “hereunder”.  Naeger v. Farmers Insurance Co., Inc., 2014 WL 462945 (Mo. Ct. App., W.D.).

The plaintiff/victim was evidently a passenger in a vehicle that was struck by a car being allegedly operated negligently by another.  The victim’s brief recites receipt of $190,000 from underinsured motorist insurance obtained by the operator of the car she had been in, and $50,000 from the insurer of the other driver.  The victim’s brief recites the victim’s policy identifies relevant policy limits of $250,000 for the following coverage  (emphasis removed):

We will pay all sums which an insured person is legally entitled to recover as damages from the owner or operator of an UNDERinsured motor vehicle because of bodily injury sustained by an insured person. The bodily injury must be caused by an accident, and arise out of the ownership, maintenance or use of the UNDERinsured motor vehicle.

According to the brief, there are a variety of limits on this coverage, one of which, as reported by the brief, is this:

 We will not provide insurance for a vehicle other than your insured car or your insured motorcycle, unless the owner of that vehicle has no other insurance applicable hereunder.

So here we have one of those cryptic usages of “herein”, “hereunder”, etc.  Who knows what the sentence means.

Another exclusion recited by the brief is:

This coverage does not apply to bodily injury sustained by a person:
***
3. If the injured person was occupying a vehicle you do not own which is insured for this coverage under another policy.

The victim’s counsel, relying on some out-of-State authority, makes a thoughtful argument–it surely would be an awkward state of affairs if coverage by other insurers aggregating less than the policy limit under the plaintiff’s own underinsured motorist coverage would operate to eliminate coverage under the plaintiff’s own underinsured motorist coverage.  Victim’s counsel seems to categorize the victim’s insurer as taking that position.  Perhaps the insurer/defendant will clarify–there is a cryptic reference in the brief to the $190,000 having been “settled”, although not in reference to policy limits, unlike the $50,000 from the other driver’s insurer.

 

Continuing Our Discussion of an Obligation Perfectly-Well Expressed

A few days ago, we commented on whether contract language adequately indicates a choice that employment is for a term (not at-will).

Tettamble attempts to apply interpretative guidelines–somewhat tedious ones–formulated long-ago. In brief, they require contract language be very clear if it is to opt-out of the default principle that employment is at-will.  Where a tedious, counter-intuitive interpretative principle is long-standing, it is helpful to assess the context in which the principle developed.  If the contextual legal framework has changed, would it not make sense to re-assess the tedious, counter-intuitive principle?

… More after the break

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Paying 2 Years’ Rent for 3 Years Rental? Central Stone Co. v. Warning, 2013 WL 3191815 (Mo. Ct. App., E.D.)

During the term of a long-term lease, the parties chose to enter a new lease.  Appellant’s brief notes:

The parties were two years into a three year written lease for the Oyster Farm when this new lease was created…. The new lease was for 2010 through 2012…. The new lease stated that “The cash rent shall be paid each year in the following method: By April 1 of each year of the contract.” …. Sivill intentionally changed the rent payment due date from December 31, to April 1…. The old lease stated rent was due on December 31. The new lease said the rent was due April 1…. No discussion was held by the parties that rent was due or was not due for year 2010….

Central Stone Company did not receive a lease payment before the May 3, 2010 lease was signed…. Central Stone Company’s position was that the rent was already a month overdue when the lease was signed…. Yet, Central Stone Company management decided not to ask for the rent when the lease was signed…. Central Stone Company did not ask Daniel Warning for rent on the Oyster Farm in 2010. … Nor did Central Stone Company ask Daniel Warning for rent money in 2011, prior to its April 13, 2011 letter terminating the Oyster Farm lease….

Daniel Warning did not plant landlord’s Oyster Farm land in 2010 as this Mississippi bottoms farm was wet.

Daniel Warning made no payment for 2010 rent in 2010….

Appellant’s brief reports the new lease was signed May 3, 2010.  So, should the lessee only have to pay two years’ rent?  That does not seem entirely reasonable, particularly in light of the fact that this was an adjustment to an ongoing lease arrangement.

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