In New York, the ‘Ironclad’ Agreement May Be More Myth than Reality

New York Law Journal February 7, 2023

The Tom Brady divorce spawned a veritable blizzard of articles about Tom and Gisele’s “ironclad” prenuptial agreement. Mass media told us that it was the ironclad prenuptial agreement that enabled Tom and Gisele to swiftly settle their divorce.

Think of all the agreements you have drafted, negotiated and finalized. Were they ironclad, as in, unbreakable by a New York court? They should be. After all, in 2004 the Court of Appeals told us in the “Vermont Teddy Bear” case that New York courts are not empowered to rewrite arms-length contracts.

Unfortunately, as with much of the law, this topic is not a science, and the First Department’s recent decision in Mak Tech. Holdings v. Anyvision Interactive Tech. Ltd., 2022 NY Slip Op 07507 (Dec. 29, 2022) presents a harsh reminder that you should be careful not to assume that the agreements you have drafted, negotiated, and finalized are indeed ironclad.

You may think you have an ironclad agreement with your spouse, your fiancé, your business partner, or otherwise. But if one party decides to challenge that agreement, navigating New York law on whether or not your agreement will be enforced “as is” so to speak, is far from a cut and dried exercise.

The Mak Tech. decision arguably turns the fundamental principle of “Vermont Teddy Bear”—that New York courts cannot rewrite our clients’ contracts—on its head, or at minimum, raises more questions than answers. This author has read the decision multiple times, and my quest for answers—namely, to understand the logic behind the majority opinion—continues.

Any practicing lawyer in New York—matrimonial or otherwise—who drafts contracts as part of his or her practice should read Mak Tech. While Mak Tech. is not a matrimonial case, I nonetheless maintain that it is important for matrimonial lawyers to read and study it, as our practice involves daily drafting (drafting emails, letters, interim agreements, final agreements and more). How we, as lawyers, draft each and every word on the page can, as Mak Tech. shows, have potentially enormous consequences.

Let’s endeavor to understand the decision. Here are what I believe to be the key facts:

MAK (plaintiff) alleges that Anyvision (defendant) breached a “Referral Agreement” by failing to pay a fee for MAK’s referral of an investor to Anyvision.
MAK and Anyvision entered into a Referral Agreement on Nov. 23, 2017.
The “first sentence” of the Referral Agreement states “This Referral Agreement (‘Agreement’) is made and entered into on this 23rd day of November, 2017 (the ‘Effective Date’)”. Translation: Effective Date = Nov. 23, 2017.
Paragraph 8.1 of the Referral Agreement provides “This 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.” Translation: The Referral Agreement does not cover events arising after Nov. 23, 2020.
On Aug. 24, 2018, MAK and Anyvision sign a “2nd Amendment” to the Referral Agreement. MAK claims that the 2nd Amendment reset the “Effective Date” to Aug. 24, 2018, which would mean that referrals up through and including Aug. 24, 2021 trigger a payment obligation by Anyvision. The transaction in question—which MAK alleged entitles it to a $1,250,000 referral fee—happened on July 7, 2021. Translation: Is July 7, 2021 outside the “Term”?

Here is where the rubber meets the road. The 2nd Amendment provides 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 Agreement, the Agreement shall be amended as follows …” (emphasis added)

Do you know what “the with affect as of the date hereof” means? Do you think, before reading further, that the drafters of the 2nd Amendment intentionally wrote “the with affect as of the date hereof”? I do not, nor does the energized dissent in MAK.

The majority opinion explains its decision affirming the denial of Anyvision’s motion to dismiss MAK’s claim for breach of contract based on the July 7, 2021 transaction as follows:

The phrase “the with affect” evidences a clear error, as “the” requires a noun following it, and neither “with” nor “with affect” is a noun. While the dissent argues that the language “the with affect as of the date hereof,” should obviously be corrected to state “with effect as of the date hereof,” it could also be corrected to state “with the Effective Date as the date hereof.” (emphasis added).

The majority tells us that an ambiguity therefore exists as to whether or not the Effective Date was reset and suggests that the dissent attempts “definitional gymnastics.” If you can read MAK and tell me where in that decision there is any evidence that the parties intended to rewrite their contract to provide “with the Effective Date as the date hereof?” please drop me a line. I worry that I’ve missed something, however the dissent convinces me time and again that I have not. Stated differently, where is the evidence that these parties changed the definition of “Term” to go beyond three years from Nov. 23, 2017—I cannot find it.

As the dissent explains, the three year “Term” was never changed, nor was the “Effective Date” of Nov. 23, 2017:

“Nothing in the amendment changes the original agreement’s definition of ‘Term’ to mean a period of three years from the ‘Effective Date’ of the inception of the original agreement”;
“The unchanged definition of the capitalized word ‘Term’ is, as a matter of law, dispositive”, as the amendment provides that “capitalized terms used in the amendment ‘shall have the same meaning ascribed to them’ in the original agreement”;
“The Second Amendment is devoid of language purporting to change the definition of the term ‘Effective Date’ in the original Referral Agreement”; and
“The word ‘the’ before ‘with’ is plainly extraneous and can only be a typographical error, and the word ‘affect’ is apparently a misspelling of the related word ‘effect’ … I fail to see how such obviously inadvertent errors … indicate any intention to change the definition of the capitalized phrase ‘Effective Date’”;

How then, can the majority’s opinion stand? The dissent characterizes the majority’s “‘interpretation’ of the passage in question … as follows: ‘the with the Effective Date as of the date hereof” (emphasis in original).

The majority acknowledges that courts cannot “add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing.” The majority concedes that the general rule is that “[m]istakes 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.” But as the dissent explains, the majority “suggests that typographical errors could be corrected … by completely rewriting ‘the with affect as of the date hereof’ (leaving the errors uncorrected) as ‘with the Effective Date as the Date hereof.’”

Most concerning, the dissent notes that the “majority’s approach opens the door to wholesale rewriting of written agreements based on nothing more than transparent minor typographical errors that cast no doubt on the parties’ intent.” (emphasis added).

Where does that leave us? I for one am stumped. My advice: If you have not already done so, devise a set of best practices when it comes to drafting agreements. If you work on a case with a colleague or colleagues, have one or more of them review the agreements you draft. Better yet, ask someone who has no idea what the case is about to review your draft agreements. And when all is said and done, and the redlines have been exchanged ad nauseum, do a final review to hopefully identify all typographical errors. If you are a solo practitioner, the challenge is admittedly greater given the inherent risk in being your own sounding board.

Based on MAK, a typographical error could cost millions of dollars. Dig out one of the older agreements you have drafted. You are bound to find one with a typographical error, or what might be perceived as an ambiguity. Does that mean the agreement is no longer ironclad?

The majority does not seem to agree with the dissent that this was a case of a simple typographical error: “Contrary to the arguments espoused by the dissent, these are not ‘inadvertent errors,’ or a ‘mistake’ that can be corrected without altering the intent of the parties.” Therefore, the scope of this decision and how it will be applied to agreements generally—versus agreements that contain typographical errors—is not crystal clear.

I am not sure how to conclude this article other than to say this: Consider yourself warned (myself included), because the path towards trying to achieve unbreakable, or “ironclad” agreements for our clients may have just gotten a lot more treacherous in New York.

“In New York, the ‘Ironclad’ Agreement May Be More Myth than Reality,” by Alan Feigenbaum was published in the New York Law Journal on February 7, 2023.

In New York, the ‘Ironclad’ Agreement May Be More Myth than Reality

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