Last week, the Massachusetts Supreme Judicial Court (SJC) highlighted the importance of grammar to contract interpretation, proving that disregard for our elementary school lessons when drafting agreements can lead to liability where it was not otherwise expected.
In DeWolfe v. Hingham Centre, Ltd., the defendants - a real estate agency and its broker - listed a certain property for sale, advertising the property as "zoned as Business B," and providing a copy of the relevant zoning ordinance at the property location. The plaintiff, who had been searching for a location to open a six-station hair salon, saw the defendants' listing for the subject property, as well as the zoning ordinance made available at the property. Because the operation of a hair salon would have been a permitted use at a property zoned as "Business B," the plaintiff made a written offer to purchase the property. Thereafter, the plaintiff executed the defendants' standard form purchase and sale agreement. The agreement contained the following clause, titled "Warranties and Representations":
"The BUYER acknowledges that the BUYER has not been influenced to enter into this transaction nor has he relied upon any warranties or representations not set forth or incorporated in this agreement or previously made in writing, except for the following additional warranties and representations, if any, made by either the SELLER or the Broker(s): NONE."
Shortly after the transaction closed, the plaintiff learned that the property was zoned as "Residential B," rather than "Business B," and that a six-station hair salon was not among the permitted uses of the property. The plaintiff sued the defendants, alleging misrepresentation and violation of the Massachusetts Consumer Protection Statute. The defendants, however, relied upon the "Warranties and Representations" clause in the purchase and sale agreement, arguing that the clause relieved them of any liability for prior misrepresentations.
The SJC disagreed. Turning to both the standard rules of contract interpretation and the standard rules of grammar, the SJC concluded that the clause permitted the plaintiff to rely upon prior written representations, made by either the seller or the broker, that were not set forth or incorporated in the agreement.
First, in applying standard rules of grammar, the SJC examined the phrase "nor has he relied upon any warranties or representations not set forth or incorporated in this agreement or previously made in writing." Specifically, the SJC focused on the adverb "not" as it appeared before two phrases linked by the conjunction "or," noting that under such circumstances, the word "not" is applied to both such phrases. Thus, the SJC interpreted the clause to mean that the buyer has not relied upon any warranties or representations that (1) were not set forth or incorporated in the agreement, and (2) were not previously made in writing. The defendants' representation that the property was zoned as "Business B" was not a representation set forth in the agreement, but it was previously made in writing. Because the representation did not meet both conditions, the clause did not preclude the plaintiff from relying upon it.
Moreover, the SJC noted that, to interpret the clause as preventing reliance on any representations that were not expressly contained in the agreement, regardless of whether those representations had been made in writing, would render the phrase "or previously made in writing" meaningless, because the clause would have the same meaning with or without that phrase. Because it is a basic rule of contract interpretation that every word be given effect whenever reasonably practicable, the SJC rejected this alternative interpretation.
Following this analysis, the SJC concluded that the clause did not shield the defendants from liability for the written misrepresentations made prior to execution of the purchase and sale agreement. Though it may well have been the defendants' intent to shield themselves from such liability, the language selected to accomplish that result, when closely scrutinized, failed to do so.
This case had commenced in November 2006. After more than six years of attorneys' fees and other litigation costs, including visits to the Massachusetts Appeals Court and the SJC, the defendants now face the possibility of a trial and a judgment against them. With the appropriate use of words and grammar and a strong understanding of the rules of contract interpretation, a well-drafted "Warranties and Representations" clause could have avoided this result.