Giving Two Contract Provisions Their Intended Meaning

• Posted on: Jan 6 2025

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 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, in interpreting a contract, a court should favor an interpretation that gives effect to all the terms of an agreement rather than ignoring terms or interpreting them unreasonably.[8] Therefore, “where two seemingly conflicting contract provisions reasonably can be reconciled, a court is required to do so and to give both effect.”[9]

Finally, “agreements executed at substantially the same time and related to the same subject matter are regarded as contemporaneous writings and must be read together as one.”[10]

The foregoing rules of contract interpretation were recently examined in A-US GAL1, L.P. v. National Air Cargo Group, Inc., 2024 N.Y. Slip Op. 06648 (1st Dept. Dec. 31, 2024) (here).

A-US GAL1 involved an alleged breach of an assigned aircraft engine leasing agreement. Defendant National Air Cargo Group, Inc. (“National”) is an airline carrier operating cargo and passenger services. Plaintiff A-US GAL1, L.P. (“AUSG1”) is the succeeding lessor who assumed an aircraft engine lease between Fortress Transportation and Infrastructure Investors, LLC (“Fortress”) and National through a series of assignment and amendment agreements. After the leased engines at issue allegedly failed to satisfy the redelivery requirements set forth in the lease, AUSG1 initiated the action against National, and National asserted a counterclaim for breach of contract against AUSG1, alleging AUSG1 failed to follow the past course of dealing between Fortress and National with respect to the engine redelivery requirements under the assignment.

The motion court denied AUSG1’s motion to dismiss, holding that although paragraph 7.3 of the assignment failed to identify the provisions it sought to amend in accordance with Section 19(b) of the lease, it should not be rendered meaningless simply because of a technical error. The motion court found that the assignment and the lease did not provide enough information on what “course of dealing” meant on its face and that, therefore, dismissal of the motion was premature.

On appeal, the Appellate Division, First Department reversed, holding that the motion court should have granted AUSG1’s motion.

The Court held that “[t]o give meaning to the provisions of the lease and assignment, the only meaningful interpretation of paragraph 7.3 of the assignment would be that it is limited to terms not expressly stated in the lease.[11] The Court pointed to Section 19(b) of the lease, which “states that any amendment to the lease shall ‘specifically identif[y] the provision … that it purports to amend,’ and that ‘[n]o provision of this Agreement shall be varied or contradicted by … course of dealing or performance.’”[12] It also pointed to paragraph 7.3 of the assignment, which, it said, “appears to be a catch-all provision dealing with National’s rights and obligations under the assigned lease,” and which “requires AUSG1 to ‘follow the same course of dealing and return procedures … with respect to other engines previously returned by [National] to [the existing lessor]…’ but does not specifically identify the lease provisions it seeks to amend.”[13]

Reading to the two provisions, the Court held that “[e]ven if, as National argues, it did not have to enumerate the provisions it sought to amend by page or paragraph number under § 19(b) of the lease, the course of dealing provision signals no intention to supersede the redelivery provisions of the lease, unlike § 3.1 of the assignment, which explicitly states that ‘the Lease shall hereby be amended as set forth in Schedule 3,’ which contains no amendments to the redelivery provisions of the engines.”[14] In addition, said the Court, “since paragraph 7.3 of the assignment appears to be a catch-all provision, and § 9 of the lease specifically sets forth the engine return and redelivery procedures, … § 9 of the lease, which contains specific provisions governing the return of engines, would have control over paragraph 7.3 of the assignment as a general provision.”[15]

The Court explained that “[t]o reasonably reconcile the provisions of both the lease and the assignment, without rendering any provision meaningless, we agree with AUSG1 that paragraph 7.3 merely serves as a gap-filler that incorporates the past course of dealing as to terms not explicitly expressed under the lease.”[16] Therefore, concluded the Court, “[s]ince National’s counterclaim against AUSG1 was premised on paragraph 7.3 of the assignment in the sense that it amends the return and redelivery provisions of the lease, National’s counterclaim for breach of contract is refuted by section 19(b) of the lease and should be dismissed under CPLR 3211(a)(1).”[17]

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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] See, e.g., Perlbinder v. Board of Mgrs. of 411 E. 53rd St. Condominium, 65 A.D.3d 985, 986-987 (1st Dept. 2009).

[9] Id. at 987; see also Lenart Realty Corp. v. Petroleum Tank Cleaners, Ltd., 116 A.D.3d 536, 537 (1st Dept. 2014).

[10] Perlbinder, 65 A.D.3d at 987 (internal quotation marks omitted).

[11] Slip Op. at *1 (citing U.S. Bank N.A. v. GreenPoint Mtge. Funding, Inc., 157 A.D.3d 93, 100 (1st Dept. 2017)).

[12] Id.

[13] Id.

[14] Id. at *1-*2 (citing Kasowitz, Benson, Torres & Friedman, LLP v. Duane Reade, 98 A.D.3d 403, 405-406 (1st Dept. 2012), aff’d, 20 N.Y.3d 1082 (2013) (the contract language itself is the best evidence to manifest the parties’ intent)).

[15] Id. at *2 (citing Cronos Group Ltd. v. XComIP, LLC, 156 A.D.3d 54, 61 (1st Dept. 2017) (“Where there is an inconsistency between a specific provision and a general provision of a contract, the specific provision controls”)).

[16] Id. (citing Matter of Trump (Refco Props.), 194 A.D.2d 70, 74-75 (1st Dept. 1993), lv. denied, 83 N.Y.2d 754 (1994)).

[17] Id. (citing M & E 73-75, LLC v. 57 Fusion LLC, 189 A.D.3d 1, 6 (1st Dept. 2020)).