Contract Interpretation: Contracts Are To Be Construed in Accordance With The Parties’ Intent

• Posted on: Nov 4 2024

By: Jeffrey M. Haber

Under New York law, written agreements are construed in accordance with the parties’ intent. “The best evidence of what parties to a written agreement intend is what they say in their writing.”[1] As such, “a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.”[2] “Courts may not ‘by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing.’”[3]

“‘Whether an agreement is ambiguous is a question of law for the courts … Ambiguity is determined by looking within the four corners of the document, not to outside sources.’”[4] “The entire contract must be reviewed and ‘[p]articular words should be considered, not as if isolated from the context, but in the light of the obligation as a whole and the intention of the parties as manifested thereby. Form should not prevail over substance and a sensible meaning of words should be sought.’”[5] “Where the language chosen by the parties has ‘a definite and precise meaning,’ there is no ambiguity.”[6]

Evidence outside the four corners of the agreement – parol evidence – is admissible only if a court finds an ambiguity in the contract. As a general rule, extrinsic evidence is inadmissible to alter or add a provision to a written agreement. This rule gives “stability to commercial transactions by safeguarding against fraudulent claims, perjury, death of witnesses … infirmity of memory … [and] the fear that the jury will improperly evaluate the extrinsic evidence.”[7] Further, when a contract contains a merger clause, a court must fully apply “the parol evidence rule in order to bar the introduction of extrinsic evidence to vary or contradict the terms of the writing.”[8]

The foregoing rules of contract interpretation were examined in Formato v. Formato, 2024 N.Y. Slip Op. 05330 (2d Dept. Oct. 30, 2024) (here), and Weinstein v. Wallace, 2024 N.Y. Slip Op. 05367 (2d Dept. Oct. 30, 2024) (here).[9]

Formato v. Formato

Formato was an action for, inter alia, declaratory and injunctive relief involving real property in Brooklyn, New York.

The parties, who are brothers, together with their mother, Florence Formato (“Florence”), entered into a contract that settled the parties’ respective interests in two pieces of real property – 273A Nassau Avenue (“273A”) and 275A Nassau Avenue (“275A”) – that Florence owned. The contract provided for defendants to receive lump sum payments from the proceeds of the sale of 273A. Florence further agreed to transfer title to 275A to plaintiff and defendants but provided in paragraph 4 of the contract that, in consideration of defendants’ receipt of the sale proceeds from 273A, defendants “agree[d] that at such time as [plaintiff] sells the real property located at 275A Nassau Avenue . . . , they shall not assert any claim to the proceeds of the sale.”

Subsequently, when defendants refused to cooperate with plaintiff in his attempt to sell 275A, plaintiff commenced the action seeking, inter alia, a judgment declaring that plaintiff was entitled to sell 275A and retain the proceeds of the sale and an injunction requiring defendants to execute the necessary documents to effectuate such a sale.

After joinder of issue, plaintiff moved for summary judgment on the amended complaint. By order dated February 3, 2023, the motion court granted plaintiff’s motion. Defendants appealed.

The Appellate Division, Second Department affirmed.

The Court found that “plaintiff demonstrated, prima facie, that the parties’ contract clearly and unambiguously provided him with a unilateral right to sell 275A and to retain the proceeds from that sale.”[10]

The Court rejected defendants’ interpretation of the contract, finding that it “would render paragraph 4 thereof meaningless.”[11] By contrast, the Court found that “plaintiff’s interpretation of that paragraph ‘affords a fair meaning to all of the language employed by the parties in the contract and leaves no provision without force and effect.’”[12]

Accordingly, the Court held that the motion court “properly granted that branch of … plaintiff’s motion which was for summary judgment on the cause of action for a judgment declaring that … plaintiff [was] entitled to sell 275A and retain the entire proceeds of that sale.”[13]

Weinstein v. Wallace

Weinstein was an action for, inter alia, a judgment declaring that plaintiff was the sole voting member and the manager of Weinstein Family Services of New York, LLC (“WFS LLC”).

WFS LLC was formed for the purpose of owning real property to be used in the funeral services business. WFS LLC was managed by plaintiff’s brother, H. Seymour Weinstein (“Seymour”). By 2009, plaintiff and Seymour each owned a 50% membership interest in WFS LLC after purchasing their siblings’ membership interests.

In 2012, Seymour died. Thereafter, plaintiff commenced the action for, inter alia, a judgment declaring that, upon the death of Seymour, he became the sole voting member and the manager of WFS LLC. Defendants moved for summary judgment dismissing the amended complaint and declaring that plaintiff was not the sole voting member or the manager of WFS LLC.

In an order dated October 13, 2022, the motion court denied defendants’ motion and, upon searching the record, awarded plaintiff summary judgment declaring that he was the sole voting member and the manager of WFS LLC. Defendants appealed.

The Appellate Division, Second Department reversed the order.

The Court found that defendants demonstrated their prima facie entitlement to judgment as a matter of law dismissing the amended complaint and declaring that plaintiff was not the sole voting member or the manager of WFS LLC.[14] The Court noted that “Section 8.1(d) of the WFS LLC operating agreement unambiguously provide[d] that a deceased member’s estate shall have all of the rights of a member for the purpose of settling or managing its estate, which would include a member’s voting rights.[15] “Thus,” concluded the Court, “pursuant to the operating agreement, upon Seymour’s death, his estate became a voting member of WFS LLC for the purpose of settling or managing the estate.”[16]

Further, said the Court, “plaintiff did not become the manager of WFS LLC upon Seymour’s death, as section 5.1(c) of the operating agreement require[d] a successor or replacement manager to be elected by a vote of the members.”[17]

“Accordingly,” held the Court, the motion court “should have granted the defendants’ motion for summary judgment dismissing the amended complaint and declaring that the plaintiff [was] not the sole voting member or the manager of WFS LLC.”[18]

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] Greenfield v. Philles Records, 98 N.Y2d 562, 569 (2002) (internal quotation marks and citation omitted).

[2] Id. This Blog has frequently written about cases in which the courts have underscored the point that words in a contract have meaning. See, e.g., here, here, here, here and here.

[3] Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P., 13 N.Y.3d 398, 404 (2009) (quoting Reiss v. Financial Performance Corp., 97 N.Y.2d 195, 199 (2001)).

[4] Id. at 404 (quoting Kass v. Kass, 91 N.Y.2d 554, 566 (1998)).

[5] Id. at 404 (quoting Atwater & Co. v. Panama R.R. Co., 246 N.Y. 519, 524 (1927)).

[6] Id. at 404 (quoting Greenfield, 98 N.Y.2d at 569).

[7] W.W.W. Assoc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990) (internal quotation marks and citation omitted).

[8] Matter of Primex Intl. Corp. v. Wal-Mart Stores, 89 N.Y.2d 594, 599 (1997). This Blog has written about the merger clause on numerous occasions. See, e.g., here, here, here, here, and here.

[9] This Blog has examined the rules of contract interpretation on numerous occasions. See, e.g., here, here, here, and here.

[10] Slip Op. at *2 (citing Liptis Pharms. USA, Inc. v. Liptis for Pharms. & Med. Prods., SAE, 228 A.D.3d 927, 929 (2d Dept. 20204); Gristede’s Operating Corp. v. Scarsdale Shopping Ctr. Assoc., LLC, 176 A.D.3d 1185, 1188 (2d Dept. 2019)).

[11] Slip Op. at *2.

[12] Id. (quoting Hooper Assoc. v. AGS Computers, 74 N.Y.2d 487, 493 (1989), and citing Med Mac Realty Co. v. Lerner, 154 A.D.2d 656, 659 (2d Dept. 1989)).

[13] Id.

[14] Slip Op. at *2.

[15] Id. (citing Limited Liability Company Law § 608; Matter of Andris v. 1376 Forest Realty, LLC, 213 A.D.3d 923, 924 (2d Dept. 2023); and Crabapple Corp. v. Elberg, 153 A.D.3d 434, 435 (1st Dept. 2017)).

[16] Id.

[17] Id.

[18] Id.