Authorized paperwork typically appear to exit of their strategy to be advanced and complicated. One instrument within the complexity toolbox consists of numerical part cross-references, the place the doc refers to another part of the doc by quantity. These cross-references distract the reader with out serving to to elucidate what’s really happening within the doc. Additionally they will at all times sound correct, even when they’re improper. A latest New York case demonstrated simply how improper a bit cross-reference will be and the implications that may observe.
The litigation concerned a principally extraordinary working settlement of a small restricted legal responsibility firm. Article 8, Paragraph 1 stated the corporate can be dissolved—shut down and terminated—if one in all 4 occasions occurred. Article 8, Paragraph 2, the very subsequent paragraph, stated, nevertheless, that the “occasions laid out in Article 7 paragraph 1” wouldn’t trigger dissolution until sure members of the corporate voted to dissolve.
The cross-reference to “Article 7 paragraph 1” was most likely purported to consult with the instantly earlier paragraph, the paragraph that listed occasions that will trigger dissolution. That was paragraph 1 of Article 8, not Article 7. If, nevertheless, the language did in truth consult with Article 7, paragraph 1, then the occasions in Article 8, Paragraph 1 would mechanically trigger dissolution and nobody may cease it. Conversely, if the cross-reference was purported to consult with paragraph 1 of Article 8, then paragraph 1 didn’t actually imply what it stated, as a result of any of these 4 occasions couldn’t trigger dissolution until the events voted to dissolve.
The matter went into litigation, which lasted a few yr – a very quick timeline for New York industrial litigation. The members of the restricted legal responsibility firm who needed to proceed the enterprise argued that the cross-reference to Article 7 actually referred to Article 8. They made arguments based mostly on restricted legal responsibility firm legislation, different provisions of the corporate’s working settlement, logic, and the context of the cross-reference.
The court docket agreed with them, treating the unhealthy cross-reference as a “scrivener’s error.” It nonetheless took a yr of litigation, the price of which can nicely have exceeded the real {dollars} at problem within the dispute.
Of attainable curiosity, the correction of scriveners’ errors in contracts is ordinarily accomplished via an motion for “reformation” of a contract. Below New York legislation, such an motion ordinarily must be began inside six years after the contract was signed. The working settlement at problem right here was signed in 2014. The litigation started (and, amazingly, additionally ended) in 2022. If anybody needed to have the contract “reformed,” they have been out of time, however nobody was making an attempt to do this. As an alternative, the plaintiff was making an attempt to implement it based mostly on its literal phrases, and the defendants efficiently asserted “scrivener’s error” as a protection. Maybe that’s why the six-year time restrict didn’t apply.
The members of the restricted legal responsibility firm may have averted the entire journey by creating the time period “Dissolution Triggers” to consult with the occasions in Article 8, paragraph 1. Then, once they needed to consult with these occasions, they might have referred to “Dissolution Triggers” moderately than a bit quantity. Phrases with which means are comparatively straightforward to get proper. Cross-references may, nevertheless, very nicely be improper. Nobody will know until somebody workout routines the initiative to affirmatively test them, or the doc goes into litigation.
