Corporate & Securities Law

An Instance of Formula Ambiguity

By Ken Adams

No one has ever mentioned to me MSCD chapter 13 (Numbers and Formulas) or asked me any questions about it, so evidently the subject isn’t high on anyone’s list of concerns. But I have a soft spot for that chapter anyway?it discusses the fiendishly subtle forms of ambiguity that can arise in expressing formulas in prose and mathematical equations, and it shows you how to avoid that ambiguity.

I was disappointed not to be able to cite any caselaw in that chapter, but thanks to reader Mark Anderson, I won’t have that problem in the third edition of MSCD. Mark pointed me to his firm’s analysis of a recent English case in which the following language was at issue:

23.4% of the price achieved for each Residential Unit in excess of the Minimum Guaranteed Residential Unit Value less the Costs and Incentives.

The problem is that this formula expresses two alternative meanings. Here’s how I’d express them:

Meaning 1

An amount equal to (1) 23.4% of the price achieved for each Residential Unit in excess of the Minimum Guaranteed Residential Unit Value minus (2) the Costs and Incentives.

Meaning 2

An amount equal to 23.4% of the result of (1) the price achieved for each Residential Unit in excess of the Minimum Guaranteed Residential Unit Value minus (2) the Costs and Incentives.

The idea is to spot this kind of ambiguity and instead articulate whichever of the alternative meanings you intend.

Full post as published by AdamsDrafting on August 30, 2009 (boomark / email).