As the case of NNN Realty shows, years of litigation and legal costs could be avoided with proper use of punctuation marks. A lender made a secured real estate loan to several entities who owned the real estate as tenants in common. When one on the borrowing entities, owning 3.3% of the property, filed for bankruptcy, the lender accelerated the loan and demanded full repayment from one of the borrowers, NNN Realty. The lender argued that the guaranty was clearly triggered upon the property or any part thereof becoming the subject of a bankruptcy proceeding “of Borrower.”

The defendant argued that the guaranty was not triggered because it defined the “Borrower” as all of the borrowing entities collectively and not individually. That was so because the guaranty listed the various entities as X, Y, and Z, “each a Delaware [LLC] (as defined in the Security Instrument), the “Borrower”). The crux of the issue relates to the quoted language; either an extra parenthesis is mistakenly included, or one is missing resulting in an ambiguity as to what is being referenced by “as defined in the Security Instrument.”

Relying on the word “and,” the district court ruled for the defendant holding that the defined term “Borrower” includes all of the borrowing entities collectively. Since only one borrower filed for bankruptcy, the guaranty was not triggered.

The U.S. Court of Appeals for the Fifth Circuit reversed. First, the weight put on the word “and” was unjustified. The term "Borrower" was defined in the guaranty in the context of referencing the loan made by the lender to these entities. In that context using “and/or” instead of “and” would have been plain wrong, since the loan was made to all of them. Second, the Security Instrument clearly defined the Borrower as each entity individually or collectively, as the context requires, and interpreting the guaranty in the context of the Security Instrument makes it clear that the guaranty incorporated the Security Instrument’s definition. Finally, the court held that the district court’s ruling rendered various provisions of the guaranty meaningless.

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