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Posted: November 1, 2020

“Notwithstanding” Clause in Indenture Controls Over Other Contract Terms

On October 22, 2020, the Court of Appeals issued a decision in CNH Diversified Opportunities Master Account, L.P. v. Cleveland Unlimited, Inc., 2020 NY Slip Op. 05976, holding that a “notwithstanding” clause controls over other contract terms, explaining:

Defendants also argue that plaintiffs’ rights were not violated because the transaction was authorized by section 6.05 of the Indenture, which empowers the Majority Noteholders to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, including a strict foreclosure under the UCC. Because section 6.07 applies “notwithstanding any other provision in this Indenture,” however, the powers conferred upon the Majority Noteholders by section 6.05 are subject to the limitations in section 6.07. When a preposition such as notwithstanding any other provision is included in a contractual provision, that provision overrides any conflicting provisions in the contract. Therefore, the powers granted to the Majority Noteholders in section 6.05 cannot be used to extinguish the legal right to sue or the legal right to payment of non-consenting Noteholders protected in section 6.07.

(Internal citations omitted) (emphasis added).

This decision illustrates one the many rules for interpreting contracts. If your contract contains provisions including words such as “notwithstanding” or “provided, however”, read what comes after those words very carefully, because they may have particular or special effect on the parties’ rights under the contract. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding a dispute over the interpretation of a contract.

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Posted in Commercial, Contracts
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