Typographical Errors, Grammatical Mistakes, and Other Obvious Errors Do Not Render a Contract Ambiguous, Says The New York Court of Appeals

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Posted on: Jun 24 2024

In a prior post, we examined the impact of proofreading failures when drafting an agreement (here). In MAK Technology Holdings Inc. v. Anyvision Interactive Technologies Ltd., 2024 N.Y. Slip Op 03376 (June 20, 2024) (here), the Court of Appeals examined a similar issue – whether typographical errors, grammatical mistakes, or other obvious errors render a contract ambiguous. In a 4-3 decision, written by Judge Cannataro, the Court held that grammatical and typographical errors made by the parties did not render the agreement ambiguous.

MAK Technology involved an agreement to make referral payments to plaintiff in connection with the introduction of potential customers to defendant, an Israeli company that sells facial-recognition software to businesses and governments.

In 2017, defendant engaged plaintiff to arrange introductions with potential customers in exchange for referral payments based on the revenues generated from any resulting product-license agreements. The parties formalized their agreement in a written Referral Agreement containing a defined “Effective Date” of November 23, 2017. Section 8.1 of the agreement provided that “[t]his Agreement shall commence on the Effective Date and shall remain in force for a period of three (3) years unless earlier terminated … (‘Term’). The Term may be extended by the written agreement of both parties.”

The parties amended the Referral Agreement in January 2018 and again in August 2018 to include a compensation arrangement for equity investments in defendant, separate from their arrangement with respect to product licenses. Section 2 of each amendment began with a preambulatory clause that, said the Court, “no one would dispute is written in less-than-perfect English”¹ The clause read as follows: “Each of the undersigned hereby agrees that the with affect as of the date hereof [sic] and notwithstanding anything to the contrary in the [Referral] Agreement, the Agreement shall be amended as follows.” Following this introductory section in the August 2018 amendment (the “Second Amendment”) is a list of supplemental provisions that were to be appended to the Referral Agreement as Exhibit B, including a requirement that defendant pay a referral fee to plaintiff in the event an approved investor consummated an equity investment in defendant “during the Term.”

The Second Amendment was bookended by provisions emphasizing its limits and the continued effectiveness of most of the original agreement’s terms. The first paragraph provided, in italicized language, “[u]nless otherwise defined, capitalized terms used herein shall have the meaning ascribed to them under the [Referral] Agreement.” In a similar vein, the last paragraph provided: “Except as specifically provided above, the [Referral] Agreement as amended hereby, shall remain unchanged as originally constituted.” The parties also “agree[d] that the [Referral] Agreement and … Exhibit [B] [t]hereto constitute[d] the full and entire understanding and agreement between the Parties with regard to the subject matters hereof and thereof and any other written or oral agreement relating to the subject matter hereof existing between the parties [was] expressly canceled.”

Plaintiff commenced the action to recover compensation allegedly owed under the amended Referral Agreement. As relevant to the appeal, the first cause of action alleged that nonparty Eldridge Industries Inc. (“Eldridge”) made an investment in defendant in July 2021 for which plaintiff was owed a $1.25 million fee under the Second Amendment. Defendant moved to dismiss this claim pursuant to CPLR 3211 (a) (1) and (7) on the ground that the transaction occurred eight months after the Term of the Referral Agreement expired in November 2020. The motion court denied the motion and a divided Appellate Division, First Department affirmed, both concluding that the error-infected language in section 2 of the Second Amendment created an ambiguity with respect to the length of the Term.² The First Department granted defendant leave to appeal, certifying the following question: “Was the order of this Court, which affirmed the order of Supreme Court, properly made?”³ The Court of Appeals reversed and answered the question in the negative.

The Court noted that “[u]nder the plain language of the Second Amendment, plaintiff [was] entitled to a fee for the July 2021 transaction only if that transaction was consummated ‘during the Term.’”⁴ “Because the word ‘Term’ [was] not defined in the Second Amendment,” said the Court, “it must—in accordance with the parties’ express directive—be given the meaning specifically ascribed to it in the Referral Agreement, which [was] a three-year period commencing on the Effective Date of November 23, 2017, and expiring in November 2020.”⁵

The Court held that the “muddled phrase ‘the with affect as of the date hereof’ in section 2 of the amendment [did] not create a factual issue with respect to the length of the Term, because that language [was] susceptible to only one reasonable interpretation.⁶ The Court explained that the phrase “the with affect as of the date hereof”⁷ could easily be understood to mean “with effect as of the date hereof.” “To reach that interpretation,” noted the Court, “one need only set aside a plainly extraneous article, the word ‘the,’ and correct a common, one-letter spelling error (‘effect’ versus ‘affect’).”⁸ “Employing this common-sense reading,” concluded the Court, “section 2 has no impact on the length of the Term. The basic and essential function of the provision is to clarify when Exhibit B became effective, not alter the agreed-upon Term.”⁹

Having concluded that there was only one way to read the agreement, correcting the language due to an obvious error, the majority turned its attention to the dissent and the First Department’s ruling. The First Department held that an ambiguity existed because the muddled phrase “could also be corrected to state “with the Effective Date as the date hereof’.” The dissent expressed a similar sentiment. The majority concluded that such readings were “strained” because they treated section 2 of the agreement as intended “to amend the Effective Date of the original agreement, the primary but unstated effect of which would be to restart its three-year Term.”¹⁰

We disagree that the problematic language is reasonably susceptible to such an interpretation. As written, section 2 neither references the Effective Date nor purports to amend the Term. There are no extraneous capital letters in the clause or anything else that reasonably suggests an intent to amend the Effective Date of the original agreement rather than simply to use the word “effect” or “affect.” Nor does the defined phrase fit grammatically into the section unless additional words are added and subtracted on both sides. … Defendant’s interpretation comports with these principles by changing only those words in section 2 that cannot grammatically be reconciled with the remainder of the sentence. The alternative interpretations go much farther—they read into section 2 a redefinition of multiple unreferenced and material terms, based on nothing more than speculation as to what the parties might hypothetically have agreed to outside the four corners of their writing.¹¹

“Even putting aside the language in question,” explained the Court, “the suggestion that the parties chose to extend the Term through an elliptical reference to the Effective Date is implausible.”¹²

No party has argued that it was necessary, or even important, to modify the Effective Date of the Referral Agreement in order to extend the Term or advance any other purpose of the Second Amendment. Although the commencement of the Term is tied to the Effective Date, the Referral Agreement authorizes it to be “extended by the written agreement of both parties (emphasis added). Moreover, because the duration of the Term was a matter of multi-million-dollar importance, the parties presumably would have wanted to clearly document any agreed-upon extension. It is not sensible to think they would have chosen to effectuate that change indirectly, using the oblique phrase “with the Effective Date as the date hereof” in a preambulatory clause, rather than by straightforwardly expressing it in Exhibit B alongside the other substantive changes listed after the words “the Agreement shall be amended as follows.” It is even less conceivable, given the increased importance of section 2 under this reading, that the typographical errors and glaring omission of the critical phrase “Effective Date” would have gone unnoticed not once, but twice, in separate amendments executed seven months apart. The parties’ longstanding failure to identify the error-infected language strongly suggests that neither party understood section 2 to have any impact on the duration of defendant’s financial obligations.¹³

Finally, the majority rejected plaintiff’s argument that it was owed a fee for the July 2021 transaction because the proceeds were “payable to [defendant]” pursuant to an earlier Eldridge investment.

Judge Troutman dissented, stating that “[u]nder the circumstances of th[e] case, [he] disagree[d] with the majority that there [was] only one reasonable way to resolve the obvious errors in th[e] contract.”¹⁴

Among other things, Judge Troutman took issue with the series of presumptions the majority made to demonstrate that it was “implausible” that the parties would have intended to change the Effective Date in the manner indicated by the majority. “It is not our role in determining whether a contract is ambiguous to make assumptions about the parties’ underlying intent,” said Judge Troutman. “[W]e should not presume how the parties would have made their intent clear if they had written different language,” concluded Judge Troutman.¹⁵ Furthermore, said the dissent, “the repetition of the errors in both the January and the August amendments is just as consistent with incompetence as it is with indifference.”¹⁶

Interestingly, Judge Troutman opined that there would not be any precedential value in the majority opinion, stating “this case will likely have little to no impact beyond these parties, this litigation, and this contract.”¹⁷ “I merely disagree with the majority about how the well-settled principles regarding contractual ambiguity should be applied to the obvious errors in this contract. One would expect that sophisticated parties such as these rarely make repeated and glaring errors in their contractual provisions that cast doubt upon their intent.”¹⁸

Takeaway

In New York, whether a contract is clear and unambiguous is a question of law to be resolved by the courts.¹⁹ In deciding that question, the court must compare the competing interpretations advanced by the parties to the contractual language, which represents “[t]he best evidence” of the parties’ intent.”²⁰ Nonetheless, courts are prohibited from entertaining an interpretation that would rewrite the parties’ agreement.²¹ In any review of a contract, the ultimate inquiry is an objective one: is the language “written so imperfectly that it is susceptible to more than one reasonable interpretation”?²²

Courts must give meaning to every word whenever possible.²³ They may not “transpos[e], reject[], or supply[] words to make the meaning of the contract more clear … only in those limited instances where some absurdity has been identified or the contract would otherwise be unenforceable either in whole or in part,” may they do so.²⁴ In MAK Technology, the majority did the latter – that is, it corrected the obvious errors to give the phrase in the Second Amendment meaning. As stated by the Court of Appeals, obvious errors and mistakes “should not be permitted to alter, contravene or vitiate [the] manifest intention of the parties as [expressed] from the language employed” in the remainder of the agreement.²⁵

MAK Technology serves as an important reminder to parties (both sophisticated and unsophisticated) and their counsel that they should proofread their documents before signing. This reminder was recently expressed by First Department in NCCMI, Inc. v. Bersin Props., LLC, 2024 N.Y. Slip Op. 01161 (1st Dept. Mar. 5, 2024) (here).²⁶ In NCCMI, the First Department warned practitioners about the importance of proofreading, stating that “proofreading is an essential, indispensable tool in the drafting of contracts.” As noted in NCCMI and MAK Technology, the failure to proofread can have consequences.

Whether MAK Technology will have precedential value remains to be seen. Judge Troutman opined there would be no precedential value in the majority opinion, stating “this case will likely have little to no impact beyond these parties, this litigation, and this contract.”²⁷ Judge Troutman based this opinion on an expectation that “sophisticated parties such as [those in the action]” would not “make repeated and glaring errors in their contractual provisions that cast doubt upon their intent.”²⁸ Since contracts are negotiated and executed by sophisticated and unsophisticated parties alike, it does not seem likely that the decision in MAK Technology will be limited to the facts before the Court. Certainly, the majority did not indicate that it believed the application of its decision was so limited.

Footnotes

Slip Op. at *2.
213 A.D.3d 28, 33 (1st Dept. 2022).
2023 N.Y. Slip Op. 66323(U) (1st Dept. 2023).
Slip Op. at *2.
Id.
Id. (citation omitted).
Id.
Slip Op. *2-*3 (citing Merriam-Webster’s Collegiate Dictionary 397 (11th ed. 2012) (“Effect and affect are often confused because of their similar spelling and pronunciation”); and Banco Espírito Santo, S.A. v. Concessionária Do Rodoanel Oeste S.A., 100 A.D.3d 100, 109 (1st Dept. 2012) (“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”)).
Id. at *3.
Id.
Id. (citations omitted).
Id.
Id. (footnote omitted).
Id.
Id. (citation omitted).
Id.
Id. at *4
Id.
Matter of Banos v. Rhea, 25 N.Y.3d 266, 276 (2015); Kass v. Kass, 91 N.Y.2d 554, 566 (1998); W.W.W. Assoc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990).
Greenfield v. Philles Records, 98 N.Y.2d 562, 569 (2002) (internal quotation marks omitted).
See Reiss v. Financial Performance Corp., 97 N.Y.2d 195, 199 (2001); Rowe v. Great Atl. & Pac. Tea Co., 46 N.Y.2d 62, 72 (1978).
Brad H. v. City of New York, 17 N.Y.3d 180, 186 (2011); see also Law Deb. Trust Co. of N.Y. v. Maverick Tube Corp., 595 F.3.d 458, 466 (2d Cir. 2010).
See IKB Intl., S.A. v. Wells Fargo Bank, N.A., 40 N.Y.3d 277, 298 (2023).
See Jade Realty LLC v. Citigroup Commercial Mtge. Trust 2005-EMG, 20 N.Y.3d 881, 883-884 (2012) (internal quotation marks omitted).
Banco Espirito Santo, S.A. v. Concessionaria Do Rodoanel Oeste S.A., 100 A.D.3d 100, 109 (1st Dept. 2012).
This Blog examined NCCMI here.
Slip Op. at *4.
Id.

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.