Jade Realty LLC v. Citigroup Commercial Mortgage Trust 2005-EMG

Smith, J. (dissenting).

The result in this case is indisputably contrary to what the parties intended. They did not go to all the trouble of providing for voluntary prepayment conditioned on payment of a “yield maintenance amount” on the understanding that no yield maintenance amount could be calculated. Indeed, Jade does not say that the omission of language permitting the amount to be calculated in a non-default situation was anything but a drafting error. Jade’s managing member, a sophisticated real estate lawyer, pointed out the anomaly to his brother and coinvestor in an email saying: “There is a drafting problem with the yield maintenance provision, which applies only where there is a default.” In proposing to his brother the argument that Jade has now successfully made to this Court, the lawyer described it as “[c]ute but textually accurate.”

*885The majority accepts this argument—that no yield maintenance amount is payable—because it finds that to accept it does not lead to “absurdity” (majority mem at 884). The majority does not say what it means by “absurdity.” It is, beyond question, absurd to think that this result is consistent with what the parties intended: If that is not what absurdity means, what does it mean? The majority suggests that it will insist on “economic absurdity”—which, the majority says, is not present here because Citigroup receives interest on the loan and does not lose its principal (majority mem at 884). But why that justifies frustrating the parties’ intention is unexplained.

Perhaps the majority’s literalism could be defended if it were following a strict, consistent rule that all agreements will be enforced exactly as they are written. But the majority endorses no such rule, and it has never been the law of New York. On the contrary, cases involving clear drafting errors hold that “[t]o carry out the intention of a contract, words may be transposed, rejected, or supplied, to make its meaning more clear” (Castellano v State of New York, 43 NY2d 909, 911 [1978]; see also Nash v Kornblum, 12 NY2d 42, 47 [1962]; Bintz v City of Hornell, 268 App Div 742, 748 [4th Dept 1945]; Castelli v Burns, 156 App Div 200, 203 [1st Dept 1913]; Potthoff v Safety Armorite Conduit Co., 143 App Div 161, 163 [2d Dept 1911]). In each of those cases, the Court departed from the literal words of a contract to avoid an absurd result. The majority does not attempt to explain why the result here is less absurd.

I acknowledge that I could (and probably would, if I had been on the Court) have written a similar dissent in two of our cases, Matter of Wallace v 600 Partners Co. (86 NY2d 543 [1995]) and Reiss v Financial Performance Corp. (97 NY2d 195 [2001]). In each of them, we found that the result indicated by the literal language of an agreement was not absurd, though it seems highly unlikely that the result was the one intended by the parties. This case, however, goes further than either Wallace or Reiss. In those cases, the agreements, read literally, were at least internally consistent, so that it was theoretically possible that the parties meant what they said: in Wallace, that the rent for a renewal term could not be calculated until decades after the term began (see 86 NY2d at 546-548), and in Reiss, that warrants to purchase stock were exercisable without adjustment to reflect a reverse stock split (see 97 NY2d at 198). Here, the agreement is, on its face, at war with itself: The parties expressly provided that a yield maintenance amount would be payable in the event of a voluntary prepayment, then described *886the calculation of the yield maintenance amount in a way that is not applicable to that contingency.

Nothing except injustice is accomplished by reading the contract as the majority reads it. I therefore dissent.

Chief Judge Lippman and Judges Ciparick, Graffeo, Read and Pigott concur in memorandum; Judge Smith dissents in an opinion.

Judgment appealed from and order of the Appellate Division brought up for review affirmed, etc.