Opinion ID: 2266393
Heading Depth: 1
Heading Rank: 4

Heading: Burden of the Ambiguity

Text: It is a well-accepted principle that ambiguities in a contract should be construed against the drafter. RESTATEMENT (SECOND) OF CONTRACTS § 206 (1981); see also Arthur L. Corbin, et al., CORBIN ON CONTRACTS § 559, supp. at 337 (1960 & Supp.1996) (imposed as a matter of public policy as a penalty for bad draftsmanship). Courts have disagreed, however, whether the principle should apply in the case of detailed indentures or similar documents. [9] This reflects, in part, contrasting views regarding the respective roles played by underwriters and issuers. See, e.g., Simons v. Cogan, Del.Ch., 542 A.2d 785, 791 (1987), aff'd, Del.Supr., 549 A.2d 300 (1988) (Underwriters of convertible securities do have an interest in negotiating protection on points regarded as material by ultimate purchasers of those securities.); Metropolitan Life Ins. Co. v. RJR Nabisco, Inc., S.D.N.Y., 716 F.Supp. 1504, 1509 (1989) (Since the underwriters must then sell or place the bonds, they necessarily negotiate in part with the interests of the buyers in mind.). In B.S.F. Co. v. Philadelphia Nat'l Bank, Del.Supr., 204 A.2d 746 (1964), the Court reversed a decision of the Court of Chancery which construed against the issuer what the Court of Chancery considered an ambiguous indenture provision. This Court, applying Pennsylvania law, did not consider the applicability of the principle to indentures because it found that the language was not ambiguous. Id. at 751 (The difficulty we think with this holding is that there is no ambiguity in the Indenture.). Unlike the indenture at issue in B.S.F., however, the ambiguity here is manifest and insoluble. We agree that [w]hile debtor corporations are not the actual drafters of bond contracts, they are in a much better position to clarify the meaning of ... contract terms in advance of disputes than are investors generally. Tauke, 1989 COLUM.BUS.L.REV. at 87. The issuer is better able to clarify unclear bond contract terms in advance so as to avoid future disputes and therefore should bear the drafting burden that the contra proferentem principle would impose upon it. Id. at 89; see also Simons, 542 A.2d at 786 (the purchaser... is offered, and voluntarily accepts, a security whose myriad terms are highly specified). Moreover, when faced with an ambiguous provision in a document such as the Certificate, the Court must construe the document to adhere to the reasonable expectations of the investors who purchased the security and thereby subjected themselves to the terms of the contract. Rhone-Poulenc, 616 A.2d at 1196. We caution against this principle becoming a short-cut for avoiding the sometimes difficult tasks of determining expectations.... Tauke, 1989 COLUM.BUS.L.REV. at 88. Certificates of Designation and indentures are necessarily complex documents prepared by sophisticated drafters. They require some effort and careful thought to understand. In the normal course of events, the four corners of the document will yield a result which is consistent with reasonable expectations. See William W. Bratton, Jr., The Interpretation of Contracts Concerning Corporate Debt Relationships, 5 CARDOZO L.REV. 371, 379 (1984). We apply the contra proferentem principle here only as a last resort because the language of the Certificate presents a hopeless ambiguity, particularly when alternative formulations indicate that these provisions could easily have been made clear. [10]