Court Excludes Parol Evidence Where Contract Is Complete, Clear And Unambiguous

• Posted on: Aug 21 2017

The foundation of virtually every business and commercial transaction is a contract. Indeed, it is hard to imagine any transaction for the purchase or sale of goods, the merger or acquisition of a business, or the provision of services that is not founded upon a contract.

There is almost nothing more frustrating, or potentially costlier, to businesses and commercial practitioners than a dispute over the meaning of a contract. Such disputes often arise over the performance or non-performance of a term in the contract.

The dispute as to the meaning of a contract can take many forms. It may be that the language used is ambiguous; or the language is reasonably clear but is susceptible to different meanings; or although the language is clear, taken literally, it might not reflect the parties’ intent; or, as is often the case, an event has occurred that was not contemplated by the parties at the time of drafting, so the contract does not specifically provide for it.

When parties enter into a contract, each assumes that the language in their agreement accurately memorializes their understandings and intentions. For this reason, when a dispute arises, the courts in New York look to the intent of the parties as expressed by the language they chose to put into their writing. Ashwood Capital, Inc. v. OTG Mgt., Inc., 99 A.D.3d 1 (1st Dept. 2012). A clear, complete document will be enforced according to its terms. Id. at 7.

When the parties have a dispute over the meaning of their contract, the court first asks if the contract contains any ambiguity. Id.  Since New York is a textual jurisdiction (where the courts look to the agreement itself to determine the meaning of the agreement), whether there is 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). Thus, courts will examine the parties’ intentions as set forth in the agreement and seek to afford the language an interpretation that is sensible, practical, fair, and reasonable. Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P., 13 N.Y.3d 398, 404 (2009); Abiele Contr. V. New York City School Constr. Auth., 91N.Y.2d1, 9-10 (1997); Brown Bros. Elec. Contr. v. Beam Constr. Corp., 41 N.Y.2d 397, 400 (1977).

A contract is not ambiguous if, on its face, it is definite and precise and reasonably susceptible to only one meaning. White v. Continental Cas. Co., 9 N.Y.3d 264, 267 (2007). The “parties cannot create ambiguity from whole cloth where none exists, because provisions are not ambiguous merely because the parties interpret them differently.” Universal Am. Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 25 NY3d 675, 680 (2015) (citation and internal quotation marks omitted).

“Whether or not a writing is ambiguous is a question of law to be resolved by the courts.” WWW Assocs., Inc. v Giancontieri, 77 N.Y.2d 157, 162 (1990). “[E]xtrinsic and parol evidence is not admissible to create an ambiguity in a written agreement which is complete and clear and unambiguous upon its face.” Id. at 163. This rule is especially applicable where the parties are commercially sophisticated and their contract contains a merger clause. Schron v. Troutman Sanders LLP, 20 N.Y.3d 430, 436 (2013) (“where a contract contains a merger clause, a court is obliged to require full application of the parol evidence rule in order to bar the introduction of extrinsic evidence to vary or contradict the terms of the writing.”) (citation and quotation marks omitted).

Finally, since a “contractual provision that is clear on its face must be enforced according to the plain meaning of its terms,” Bank of N.Y. Mellon v. WMC Mortg., LLC, 136 A.D.3d 1, 6 (1st Dept. 2015) (citation omitted), courts may not “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.” Id. (citations omitted). This is especially so “in commercial contracts negotiated at arm’s length by sophisticated, counseled business people.” Id.

Hoeg Corporation v. Peebles Corporation

These principle were at play recently in Hoeg Corp. v. Peebles Corp., 2017 NY Slip Op. 06066 (2d Dept. Aug. 9, 2017). There, the Second Department ruled that the contract before it was clear, complete and unambiguous and, therefore, should have been enforced according to its terms.

Background

Hoeg arose from a dispute over a contract concerning a joint venture the parties formed in May 2012. The venture came about in December 2011, when Hoeg contacted Peebles about the possibility of forming the relationship for the purpose of responding to requests for proposals from the New York City Economic Development Corporation (“EDC”). Thereafter, the parties entered into a written retainer agreement in May 2012 (the “Retainer Agreement”), setting forth the terms of their relationship and, inter alia, the compensation to be paid to the plaintiff.

Hoeg alleged that, notwithstanding the written Retainer Agreement, it had earlier entered into a separate oral agreement with Peebles for the joint venture wherein the equity would be split 75%/25% in favor of Peebles. Hoeg filed suit asserting, inter alia, that Peebles breached that oral agreement.

According to Hoeg, after Peebles used it to win a bid to purchase and develop an EDC property and ultimately sold the development rights to that property in a multimillion dollar deal, Peebles failed to honor the terms of the oral agreement. Peebles moved to dismiss. Relying on parol evidence, the motion court granted Peebles’ motion. The Second Department reversed.

The Court’s Ruling

The Court held that the motion court should have granted Peebles’s motion to dismiss the breach of contract claim.

The Court found that the written Retainer Agreement was “a complete written instrument,” which prohibited the motion court from considering “evidence of what may have been agreed orally between the parties prior to the execution of this integrated written instrument.”

The Court held that because the written Retainer Agreement “was comprehensive in its scope and coverage,” the motion court should not have received parol evidence “to vary the terms of the writing.” The Court explained:

The written retainer agreement provided that the plaintiff would act as a consultant in order to facilitate the defendant’s acquisition and development of real property in New York City. The written retainer agreement did not limit its application to any particular project or property, or carve out any exceptions to the plaintiff’s full-time dedication to the purpose of the agreement. The written retainer agreement also set forth different commission structures for work performed by the plaintiff in facilitating the defendant’s acquisition and development of certain specified properties in Harlem, as well as the acquisition and development of properties other than the specified Harlem properties. Additionally, the written retainer agreement provided for the reimbursement of all expenses incurred by the plaintiff in connection with any work performed by the plaintiff on the defendant’s behalf.… Thus, the documentary evidence submitted by the defendant conclusively disposed of the plaintiff’s claim alleging breach of the purported oral joint venture agreement.

Citation omitted.

Takeaway

Hoeg is yet another case in a long line of New York cases that stand for the proposition that a written agreement, which is complete, clear, and unambiguous on its face, must be enforced to give effect to the meaning of its terms, even in the absence of a merger clause. (This Blog recently discussed merger clauses and their effect on contract interpretation here.)  As Hoeg demonstrates, a contract is considered to be complete, clear and unambiguous where the language used has a definite and precise meaning, unaccompanied by the risk of misconception in the language of the agreement itself, and where there is no reasonable basis for a difference of meaning or opinion. Thus, as Hoeg learned, parol evidence of a communication made during negotiations of the written agreement that contradicts, varies, or explains the agreement or a term therein cannot be used to vary or contradict the terms of that writing.

Tagged with: Business Law, Business Litigation, Commercial Litigation