We all know that courts want to read contracts as a whole to effectuate the intent of the parties.  This case provides a textbook illustration of the principle.

In a case arising from the bankruptcy and technology context, Cyber challenged the district court’s interpretation of its contractual agreements with Priva. The dispositive question was whether certain technology fell within the scope of Pro Marketing’s undisputed first-priority lien. Upon reviewing the language of the security agreement, the Sixth Circuit discovered that Priva offered Pro Market an interest in “all types or items of personal property owned by [Priva], whether now owned or hereafter arising or acquired.” As such, the Sixth Circuit reasoned that if Priva ever owed an interest in the  technology, such interest would be included in the collateral, and Pro Marketing would have priority. Cyber argued that the License Agreement with Priva stated that any “updates, modifications, or improvements [to the SKSIC technology]… shall be property of [Cyber].” Through Cyber’s interpretation, the technology and any rights associated with it never belonged to Priva and were, therefore, never included in the collateral of the security agreement with Pro Marketing.

The Sixth Circuit held that Cyber rested on an erroneous reading of the Licensing Agreement and that the plain language of the agreement stated that Priva would assign its rights in modification to the technology. If Cyber’s interpretation were accurate, this provision would be superfluous because Privia would not be able to assign the rights in modifications if Priva never had rights in modifications in the first place. The Sixth Circuit held that Cyber’s interpretation would read meaning out of that provision of the Licensing Agreement and, therefore, Cyber’s interpretation was improper. Because there was a moment in time where Priva had rights in the technology, such rights were included in the collateral of the security agreement with Pro Marketing. Therefore, Pro Marketing had a superior claim to the technology.

Not only does this case reaffirm the importance of secured rights in collateral as opposed to unsecured rights, the Sixth Circuit’s interpretation serves as a reminder that courts will, whenever possible, read contracts to give effect to all of the contract’s terms. An interpretation of an agreement that renders one or more provisions of the agreement pointless will be looked upon less favorably than an interpretation that gives a fair and practical effect to all terms. Agreements, especially sophisticated business to business agreements, must be drafted with this in mind and must be narrowly tailored to satisfy the party’s intentions.

Justin Jennewine is the author of this article.