Contract Must Be Enforced According to Its Clear and Concise Terms Says Second Department

• Posted on: Nov 6 2019

Under New York’s rules of contract interpretation, “when parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms.” Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P., 13 N.Y.3d 398, 403 (2009); W.W.W. Assoc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990). “This rule is applied with special force ‘… where commercial certainty is a paramount concern, and where the instrument was negotiated between sophisticated, counseled business people negotiating at arm’s length.” Riverside, 13 N.Y.3d at 403-404, quoting Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470, 475 (2004) (internal quotation marks, ellipses and citations omitted). In such circumstances, courts are “extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include.” Rowe v. Great Atl. & Pac. Tea Co., 46 N.Y.2d 62, 72 (1978). Consequently, courts will 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.” Reiss v. Financial Performance Corp., 97 N.Y.2d 195, 199 (2001) (internal quotation marks and citation omitted).

When the parties to a contract dispute its meaning, resolution of the dispute often turns on the meaning of a term or terms in the agreement. Charges of ambiguity as to the meaning of the contract typically follow. Such was the case in Gristede’s Operating Corp. v. Scarsdale Shopping Ctr. Assoc., LLC, 2019 N.Y. Slip Op. 07771 (2d Dept. Oct. 30, 2019) (here).

“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.” Kass v. Kass, 91 N.Y.2d 554, 566 (1998) (citations omitted). 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.” Atwater & Co. v. Panama R.R. Co., 246 NY 519, 524 (1927). Where the language chosen by the parties has “a definite and precise meaning,” there is no ambiguity. Greenfield v. Philles Records, 98 N.Y.2d 562, 569 (2002) (citation omitted).

In Gristede’s, the dispute turned on the meaning of an amendment to a contract for the sale of a lease between Gristedes and defendants Walgreen Co. and Walgreen Eastern Co. (“Walgreen”).

In 2006, the Gristede’s plaintiffs and the Walgreen defendants were exploring and negotiating the potential sale of, inter alia, certain leases held by the plaintiffs. By letter dated November 14, 2006, the Walgreen defendants agreed that, for a three-year period, they would refrain from approaching, discussing, or negotiating with the owner of any of the premises at issue (“2006 Confidentiality Agreement”). Approximately five months later, on April 4, 2007, plaintiffs and the Walgreen defendants entered into a contract of sale in which the Walgreen defendants agreed to purchase six leases from the plaintiffs (the, “2007 Contract of Sale”). As relevant to the appeal, one of those leases concerned a property located in Scarsdale, N.Y. – known as Store No. 90 – that was owned by defendant Scarsdale Shopping Center Associates, LLC (“Scarsdale”). The Gristede’s plaintiffs and the Walgreen defendants additionally agreed to extend the 2006 Confidentiality Agreement for five years from the date of execution of the contract of sale.

By amendment dated January 1, 2009, the Gristede’s plaintiffs and the Walgreen defendants amended the 2007 Contract of Sale so as limit its applicability to the purchase of only one lease for a property located in Manhattan, and “to terminate the Contract with [sic] to all other Property which has not been sold, assigned or otherwise transferred by Sellers to Purchaser as of the date hereof” (the “2009 Amendment”). Further, the amendment provided that “the Contract is terminated and deemed of no further force with respect to each and every Property (other than Store 561) which, as of the date hereof, has not been sold, assigned or otherwise transferred by Sellers to Purchaser pursuant to the Contract . . . and that the parties shall have no rights, obligations and liabilities thereto except to the extent that the same expressly survive the termination of the Contract.”

Store No. 90 was one of the unsold properties that was excised from the 2007 Contract of Sale by the 2009 Amendment. In 2011, an alleged agent of the Walgreen defendants contacted Scarsdale about Store No. 90.

Thereafter, the Gristede’s plaintiffs and the Walgreen defendants resumed negotiations regarding the potential sale of leases held by the plaintiffs. By letter agreement dated January 24, 2012 (the “2012 Agreement”), the Gristede’s plaintiffs and the Walgreen defendants confirmed that all the “terms, covenants and conditions” of the 2006 Confidentiality Agreement, as amended by the 2007 Contract of Sale would “remain in full force and effect.”

Later in 2012, the Gristede’s plaintiffs commenced the action against the Walgreen defendants and Scarsdale. As relevant to the appeal, as against the Walgreen defendants, the plaintiffs asserted a breach of contract claim (the “fifth cause of action”) alleging that the Walgreen defendants breached the 2006 Confidentiality Agreement.

The Walgreen defendants moved for summary judgment to dismiss the fifth cause of action. The Motion Court granted the motion. The Gristede’s plaintiffs appealed, and the Appellate Division, Second Department, affirmed.

The Court found that “the Walgreen defendants established, prima facie, that the 2009 Amendment unambiguously terminated the 2006 Confidentiality Agreement insofar as its pertained to Store No. 90.” Slip Op. at 3. “Indeed,” said the Court, “in narrowing the applicability of the 2007 contract of sale to one property located in Manhattan, the plaintiffs and the Walgreen defendants clearly and unambiguously stated that they ‘shall have no rights, obligations and liabilities’ as to, among other properties, Store No. 90, ‘except to the extent that the same expressly survive the termination of the Contract.’” Id. (orig’l emphasis added). The Court noted that “[t]he 2007 contract of sale and 2009 amendment contain[ed] no express language preserving the 2006 confidentiality agreement as to Store No. 90.” Id. Consequently, “since an essential element of a breach of contract cause of action is the existence of a valid contract, the alleged contact between an agent of the Walgreen defendants and Scardale in 2011 could not have constituted a breach of the 2006 confidentiality agreement, as that agreement was clearly and unambiguosly terminated as to Store No. 90 at that time.” Id. (citations omitted).

The Court rejected the claim that there was a breach because the 2012 Agreement provided that 2006 Confidentiality Agreement remained in full force and effect: “Although the subsequent 2012 agreement recited that the 2006 confidentiality agreement ‘remain[s] in full force and effect,’ there was clearly no contractual prohibition against contact between the Walgreen defendants and Scarsdale in existence when the contact between the Walgreen defendants and Scarsdale was allegedly made.” Id.

Takeaway

Gristede’s shows that a clear and concise contract will be enforced according to its terms.  Claims of ambiguity will fail, as in Gristede’s, when the contract, read as a whole, and not in isolation, is susceptible to only one interpretation. This is especially so when the language used has a definite and precise meaning and cannot be the subject of a difference of opinion. In Gristede’s, the Court found that the agreements at issue satisfied these well-settled principles.

Tagged with: Breach of Contract, Business Litigation, Commercial Litigation, Contract