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Contracts that Say What They Mean, Mean What They Say

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  • Posted on: Nov 1 2021

By: Jeffrey M. Haber

In New York, contracts are to be construed in accordance with the parties’ intent.1 “The best evidence of what parties to a written agreement intend is what they say in their writing.”2 Thus, a written agreement that is clear and unambiguous on its face must be enforced according to the plain meaning of its terms.3 Extrinsic evidence of the parties’ intent may be considered only if the agreement is ambiguous.4 

A contract is unambiguous if “on its face [it] is reasonably susceptible of only one meaning.”5 Parol (or extrinsic) evidence cannot be used to create an ambiguity where the words of the parties’ agreement are otherwise clear and unambiguous.6 

Conversely, “[a] contract is ambiguous if the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings.”7 The existence of ambiguity is determined by examining the “entire contract and consider[ing] the relation of the parties and the circumstances under which it was executed,” with the wording to be considered “in the light of the obligation as a whole and the intention of the parties as manifested thereby.”8 Whether a contract is ambiguous is a question of law for the court to decide.9

Significantly, a court may not, in the guise of interpreting a contract, add or excise terms or distort the meaning of those used to make a new contract for the parties.10 

In transactions involving the purchase and sale of real estate, the Court of Appeals has made clear that the rule requiring a written agreement to “be enforced according to its terms” has special importance:

We have … emphasized this rule’s special import in the context of real property transactions, where commercial certainty is a paramount concern, and where … the instrument was negotiated between sophisticated, counseled business people negotiating at arm’s length.11 

[Ed. Note: This Blog wrote about the foregoing contract principles, here.]

The foregoing principles were recently considered in GCP Capital Grp. LLC v. Greco, 2021 N.Y. Slip Op. 05812 (1st Dept. Oct. 26, 2021) (here), a case involving the payment of a commission in connection with the negotiation of a mortgage extension and workout negotiations regarding certain real property.

GCP Capital concerned a mortgage brokerage commission agreement. Pursuant to the agreement, BNDO LLC (“BNDO”) and Louis Greco, Jr. (“Grego” and together with BNDO, “defendants”) retained GCP Capital Group LLC (“plaintiff”) to assist with a mortgage extension and associated work-out negotiations covering certain real property. If plaintiff assisted with the mortgage extension and workout negotiations “in any amount and/or terms to which Borrower [BNDO and certain others] may agree,” then plaintiff was to be paid a commission of $150,000.00 (the “Commission”). 

On December 7, 2018, BNDO and Madison Realty Capital (“Madison”) entered into a Building Mortgage and Security Agreement by which BNDO borrowed in excess of $4 million. Greco guaranteed the loan. Defendants never paid plaintiff a Commission.

Defendants argued that the transaction with Madison fell short of what they had engaged plaintiff to facilitate. In particular, defendants claimed that plaintiff was to secure additional funds to pay unpaid contractors and material suppliers, many of whom had filed liens on the property where the construction was taking place. However, Madison refused to allocate sufficient funds to pay existing lienors. As a result, Greco claimed he was required to post mechanics liens bonds of about $1.1 million and secure them personally.

Plaintiff brought suit. Thereafter, plaintiff moved for summary judgment in its favor. Defendants cross moved to dismiss the claims against Greco individually and Second Development Services, Inc (“SDS”), another defendant.

The motion court granted plaintiff’s motion to the extent it asserted claims against BNDO and Greco and otherwise denied the motion. The court denied defendants’ cross motion in its entirety.

The motion court noted that, under the agreement, all plaintiff had to do to earn its fee was to “assist with … a mortgage extension and associated work-out negotiations covering the above referenced property in any amount and/or terms to which Borrower may agree.” The motion court held that under that provision, the Commission was “earned and payable on the date of [defendant’s] acceptance of the Loan Workout Terms.” 

Notably, defendants did not argue that plaintiff failed to provide assistance or that they did not actually agree to the amount and terms of the loan with Madison. Rather, their defense was that plaintiff failed to obtain certain financing. The Court noted that “[t]his, however, was not a requirement under the Agreement.”

The motion court rejected defendants’ request for discovery, holding that 

The agreement is plain. All that was necessary for plaintiff to earn its commission was to assist with obtaining a loan, the terms with which defendants agreed. There is no question that plaintiff assisted with obtaining a loan. There is also no question defendants agreed and accepted the terms of the loan when they closed on December 7, 2018. Accordingly, all prerequisites to plaintiff earning a commission have occurred. Thus, plaintiff is entitled to its commission now. 

The motion court also held that the agreement bound Greco, as he was a person “affiliated” with BNDO. However, the motion court held that there was a question of fact as to whether SDS was affiliated with BNDO.

On appeal, the Appellate Division, First Department vacated the judgment as against Greco, and otherwise affirmed the motion court’s order.

The Court agreed with the motion court that “the language of the written commission agreement [was] unambiguous as to whether plaintiff [was] entitled to a commission.”12 The Court found that plaintiff “assisted BNDO and that BNDO entered into a renegotiated loan with the lender.”13 In fact, noted the Court, it was “undisputed”.14 “Thus,” said the Court, “plaintiff [was] entitled to its commission, which was earned and payable on the date on which BNDO entered into the loan modification agreement.”15

However, the Court found that the agreement was ambiguous as Greco; in particular, it was “ambiguous as to the meaning of ‘person . . . affiliated with’ BNDO.”16 The Court said that it was unclear whether Greco signed the agreement in his individual capacity and, therefore, it was ambiguous whether he was “affiliated” with BNDO.17

Finally, the Court held, like the motion motion court, that “[t]he ambiguity in the phrase “affiliated with” in the agreement … present[ed] an issue of fact as to whether defendant SDS was intended to be bound by the agreement.”18

Takeaway

GCP Capital underscores the fundamental principle of contract interpretation – i.e., contracts are to be construed pursuant to the parties’ intention. As the Court of Appeals explained almost two decades ago, “[t]he best evidence of what the parties … intend is what they say in their writing.”19 When the parties’ writing is clear and unambiguous on its face – that is, the terms are reasonably susceptible to only one meaning – it should be enforced according to the plain meaning of those words. 

In GCP Capital, the Court made clear that, in the context of the underlying transaction, the terms of the agreement as against BNDO were clear and unambiguous. In that regard, the agreement expressly provided that BNDO would pay plaintiff a fee if plaintiff assisted with mortgage extension and workout negotiations regarding the property. There was no dispute that plaintiff did just that – that is, plaintiff “so assisted BNDO and that BNDO entered into a renegotiated loan with the lender.” Under those circumstances, plaintiff was entitled to its commission, which was earned and payable on the date on which BNDO entered into the loan modification agreement.


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. See, e.g., Slatt v. Slatt, 64 N.Y.2d 966 (1985).
  2. Slamow v. Del Col, 79 N.Y.2d 1016, 1018 (1992).
  3. See, e.g., W.W.W. Assoc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990). 
  4. Id.
  5. Greenfield v. Philles Records, 98 N.Y.2d 562, 570 (2002).
  6. Innophos, Inc. v. Rhodia, S.A., 38 A.D.3d 368, 369 (1st Dept. 2007), aff’d, 10 N.Y.3d 25 (2008).
  7. New York City Off-Track Betting Corp. v. Safe Factory Outlet, Inc., 28 A.D.3d 175, 177 (1st Dept. 2006) (internal quotation marks and citation omitted).
  8. Kass v. Kass, 91 N.Y.2d 554, 566 (1998) (quoting, Atwater & Co. v. Panama R.R. Co., 246 N.Y. 519, 524 (1927)).
  9. Id. 
  10. Teichman v. Community Hosp. of W. Suffolk, 87 N.Y.2d 514, 520 (1996); Morlee Sales Corp. v. Manufacturers Trust Co., 9 N.Y.2d 16, 19 (1961).
  11. Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470, 475 (2004) (quoting, Matter of Wallace v. 600 Partners Co., 86 N.Y.2d 543, 548 (1995)).
  12. Slip Op. at *1.
  13. Id.
  14. Id.
  15. Id.
  16. Id.
  17. Id. (citations omitted).
  18. Id. 
  19. Slamow, 79 N.Y.2d at 1018.
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