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Contracts That Say What They Mean, Mean What They Say Redux

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  • Posted on: Nov 17 2021

By: Jeffrey M. Haber

Earlier this month, we wrote about how courts enforce contracts that are clear and unambiguous. The title of the article, “Contracts That Say What They Mean, Mean What They Say”, aptly describes this fundamental principle of contract interpretation. After all, a contract that is clear and unambiguous on its face reflects the intent of the parties.1 And, the courts will enforce the parties’ intent when it is plainly written in the agreement. 

Courts will not, however, look to extrinsic evidence when the contract is unambiguous.2 Such evidence cannot be used to create an ambiguity where the words of the parties’ agreement are otherwise clear.3

A contract is unambiguous if, on its face, it is reasonably susceptible of only one meaning or interpretation. In determining whether a contract is ambiguous, the contract must be read so as to reconcile sections of the contract with each other “to give rational meaning to all provisions.”4 

In PCT Contracting Inc. v. Riggs Distler & Co., Inc., the Appellate Division, First Department underscored the foregoing principles in dismissing a breach of contract claim because the relief sought was barred by a clear and unambiguous exclusive remedies provision in the subject agreement. PCT Contr. Inc. v. Riggs Distler & Co., Inc., 2021 N.Y. Slip Op. 06328 (1st Dept. Nov. 16, 2021) (here).

PCT Contracting involved a brokerage fee under an Asset Purchase Agreement (“APA”). Pursuant to the APA, Plaintiff agreed to sell certain of its assets, together with the transfer of certain of its liabilities, to Defendant for approximately $33 million. 

The APA required Plaintiff to disclose all material contracts it had with brokers. The APA also provided that Defendant would pay the brokerage fees of the sole owner of HMC Strategic Advisors LLC. Plaintiff disclosed an executed brokerage contract with Madison One Clearing House (“Madison”), a broker involved in the transaction. Plaintiff did not, however, disclose an unsigned proposal it received from HMC because Plaintiff did not consider the proposal to be a binding contract. Defendant was aware of HMC’s existence and involvement in the transaction. 

After the closing, HMC initiated an arbitration against Plaintiff in which the arbitrator found that HMC was entitled to recover a 4% brokerage fee from Plaintiff based on the term sheet. Accordingly, the arbitrator directed Plaintiff to pay HMC and its sole owner $1,950,000.00.

Plaintiff and Defendant asserted claims and counterclaims against each other with respect to who was responsible for the $1,950,000.00 fee and certain related expenses of the arbitration. 

Plaintiff sought summary judgment that Defendant was responsible for those sums. Defendant claimed that the arrangement with HMC was a non-disclosed material contract that should have been disclosed pursuant to the APA and Defendant was, therefore, not responsible for HMC’s fees. Defendant also claimed that Plaintiff’s breach of contract claim asserted against it should be dismissed as it was barred under the APA’s Exclusive Remedies clause, which provided in relevant part that the parties’ “sole and exclusive remedy with respect to any and all claims (other than claims arising from fraud, criminal activity or willful misconduct on the part of a party hereto …) … shall be pursuant to the indemnification provisions set forth in this Article VIII [on Indemnification].”

The motion court denied the parties’ respective motions for summary judgment.

On appeal, the First Department held that the motion court should have granted Defendant’s motion for summary judgment as to Count I (seeking money damages) due to the exclusive remedies clause. The Court explained that the clause was clear and unambiguous and that, as such, “Plaintiff’s first cause of action, seeking damages for breach of contract,” had to “be dismissed .…” The Court found that Plaintiff’s allegations “regarding defendant’s failure to negotiate and pay a broker’s fee” did not rise to the level of fraud, criminal activity or willful misconduct “so as to allow plaintiff to pursue a remedy other than indemnification.”

Takeaway

Nearly two decades ago, the New York Court of Appeals explained that “[t]he best evidence of what the parties … intend is what they say in their writing.”5 Thus, when the contract is clear and unambiguous (i.e., it says what it means) and is susceptible to only one meaning, it should be enforced according to the plain meaning of those words. That was the situation in PCT Contracting.


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.

Footnotes

  1. Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P., 60 A.D.3d 61, 66 (1st Dept. 2008), aff’d, 13 N.Y.3d 398 (2009); Dreisinger v. Teglasi, 130 A.D.3d 524, 527 (1st Dept. 2015).
  2. Ashwood Capital, Inc. v. OTG Mgt., Inc., 99 A.D.3d 1, 9 (1st Dept. 2012) (“[a]bsent a finding of ambiguity in the agreement … parol evidence [is] inadmissible”). 
  3. Id.
  4. See Glencore Ltd. v. Degussa Engineered Carbons L.P., 848 F. Supp. 2d 410, 433 (S.D.N.Y. 2012).
  5. Slamow v. Del Col, 79 N.Y.2d 1016, 1018 (1992)
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