Opinion ID: 203976
Heading Depth: 2
Heading Rank: 2

Heading: New York Contract Law

Text: Although [t]he fundamental, neutral precept of contract interpretation is that agreements are construed in accord with the parties' intent[,] ... [t]he best evidence of what parties to a written agreement intend is what they say in their writing. Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 750 N.Y.S.2d 565, 780 N.E.2d 166, 170 (2002) (internal citations and quotations omitted). A familiar and eminently sensible proposition of law is that, when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms. W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 565 N.Y.S.2d 440, 566 N.E.2d 639, 642 (1990). Thus, [e]vidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing. Id. (internal citations omitted). In addition, when sophisticated commercial parties such as those in this litigation include a merger clause in their contract, its purpose is 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. Primex Int'l Corp. v. Wal-Mart Stores, Inc., 89 N.Y.2d 594, 657 N.Y.S.2d 385, 679 N.E.2d 624, 627 (1997). Even when a merger clause is present, extrinsic evidence may still be used to shed light on the meaning of existing terms, but such evidence is only admissible when the language of the contract is ambiguous on its face. See R/S Assocs. v. N.Y. Job Dev. Auth., 98 N.Y.2d 29, 744 N.Y.S.2d 358, 771 N.E.2d 240, 242-43 (2002). However, `[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 242 (quoting W.W.W. Assocs., 565 N.Y.S.2d 440, 566 N.E.2d at 639). A contract is unambiguous if the language it uses has a definite and precise meaning, unattended by danger of misconception in the purport of the [agreement] itself, and concerning which there is no reasonable basis for a difference of opinion. Greenfield, 750 N.Y.S.2d 565, 780 N.E.2d at 170-171 (internal citations and quotations omitted) (alteration in original). Finally, [w]hether a contract is ambiguous is a question of law. ... S. Rd. Assocs. LLC, v. Int'l Bus. Machs. Corp., 4 N.Y.3d 272, 793 N.Y.S.2d 835, 826 N.E.2d 806, 809 (2005). [7]
At its core, the dispute between ALI and BCC centers around the language contained in § 21(b) of the Program Agreement, which covers termination without cause. Section 21(b) reads as follows: [1] Either party may terminate this Agreement at the end of the initial term or any successive one (1) month term without cause upon ten (10) days' prior written notice to the other party. [2] In the event of such termination, the Insured Lessor [BCC] agrees that all Coverage effective prior to termination shall remain in effect with the Insurance Company [Balboa Insurance]. [3] The Insurance Manager [ALI] shall not thereafter cancel Coverage with respect to any Lease of Equipment that is subject to Coverage at the time of termination of this Agreement, except as provided in this Agreement or the Insurance Policy. Neither ALI nor BCC disputes that, pursuant to the first sentence of § 21(b), BCC was allowed to terminate its agreement with ALI without cause, as it did through its November 1, 2007 termination letter. However, ALI and BCC dispute the legal effect of the second and third sentences of § 21(b). ALI argues that the second and third sentences of § 21(b) unambiguously establish that any existing coverage would survive termination of the Program Agreement. According to ALI, the second sentence is addressed to BCC and prevents BCC from doing exactly what it has done here  it is a categorical prohibition on cancellation of any coverage managed by ALI prior to the termination of the Program Agreement. [8] With respect to the third sentence, ALI argues that it is addressed to ALI and reinforces the protection of BCC's interest by preventing ALI from cancelling existing coverage and thereby leaving BCC uninsured in the event the Program Agreement is terminated. ALI maintains that nothing in the third sentence, even its references to the Insurance Policy, alters the plain meaning of the second sentence. Further, because the Program Agreement contains a merger clause, ALI states that we cannot look to the Insurance Policy or other extrinsic evidence to interpret the second sentence of § 21(b). For its part, BCC maintains that the district court correctly held that the Program Agreement was ambiguous and that the Insurance Policy supplies requisite clarification. Alternatively, BCC argues that even if the Program Agreement is unambiguous, it is still proper to look to the Insurance Policy because it was recognized and incorporated by the third sentence. With respect to the Insurance Policy, BCC argues that § V.1(b) [9] allows BCC to cancel coverage for all leases no matter how this other coverage came about, who provided the notification or who the named insured is or will be. Specifically, it contends that the 1452 individual cancellation notices it sent to ALI are notices that there is other specific insurance on the individual Covered Equipment which meets BCC's own criteria, as determined by BCC. [10] We disagree with BCC and conclude that § 21(b) of the Program Agreement is unambiguous. By its plain terms, the second sentence states that coverage will continue even if BCC cancels without cause. The third sentence does not place a limit on BCC's obligation under the second sentence; rather it is phrased as a condition on ALI's behavior (and not BCC's) and speaks to ALI's continuing obligation to BCC if either party were to terminate without cause. [11] Also, while BCC is correct that the Insurance Policy is expressly incorporated by the Program Agreement, see CooperVision, Inc. v. Intek Integration Techs., Inc., 7 Misc.3d 592, 794 N.Y.S.2d 812, 819 (N.Y.Sup.2005) (The well settled rule is that `a reference by the contracting parties to an extraneous writing for a particular purpose makes it a part of their agreement only for the purpose specified.') (quoting Guerini Stone Co. v. P.J. Carlin Constr. Co., 240 U.S. 264, 277, 36 S.Ct. 300, 60 L.Ed. 636 (1916)), the Insurance Policy's legal effect is incorporated only to the extent that it details particular circumstances where ALI is exempt from its obligation to continue coverage post-termination as specified by third sentence in § 21(b). [12] Even if we were to consider the Insurance Policy more broadly, BCC's reading would still fail because it contravenes the intent of the parties as expressed by the Insurance Policy's plain language. Specifically, § V.1 is addressed to individual lessees, not to BCC, ALI, or Balboa Insurance. [13] Further, § V contains two separate provisions that deal with cancellation of the agreement by BCC (§ V.2 entitled How YOU may cancel this Policy) and by Balboa Insurance (§ V.3 entitled How WE may cancel this Policy). [14] Under both cancellation provisions, leases insured by Balboa Insurance (with ALI as agent and manager) are to continue after termination of the overall policy. Both provisions thus contemplate a continuation of the status quojust as do the Program and Finance Agreements. This is consistent with ALI's claim that the contracts were structured to fully compensate ALI for its front-loaded work. [15] The parties included two sections clearly designed to cover each side's cancellation, as indicated by the titles of each section and their language. BCC's interpretation is especially unpersuasive when we read § V of the Insurance Policy alongside § 21(b) of the Program Agreement. BCC's obligations (if any) under § V.1(b) must remain consistent with the second sentence of § 21(b). It would be inconsistent with that sentence to allow BCC to effect 1452 individual terminations under § V.1(b), and it would frustrate the purpose of that sentence to give BCC an alternative means of cancellation under the Insurance Policy. Instead, it is clear that the Insurance Policy is only referenced to ensure that ALI's existing managerial obligations continue even after a prospective termination. Thus, we agree with ALI that a proper construction of the Program Agreement and the Insurance Policy does not allow BCC to unilaterally cancel individual insurance policies, and any existing coverage would survive termination of the Program Agreement.
We turn next to the relationship between AICCDC and BCC. The Finance Agreement is nominally separate from the Program Agreement and the Insurance Policy. We construe the three documents together because they were part of the same transaction. [16] See This Is Me, Inc. v. Taylor, 157 F.3d 139, 143 (2d Cir.1998) (noting that [u]nder New York law, all writings forming part of a single transaction are to be read together and approving jury instruction that New York law requires that all writings which form part of a single transaction and are designed to effectuate the same purpose be read together, even though they were executed on different dates and were not all between the same parties). The relevant provision of the Finance Agreement is § 14, entitled Termination. Most of the language in § 14 explicitly covers termination for cause. It is clear that the first sentence authorizes termination by either side without cause given ten days notice, similar to the Program Agreement. And, similar to the Program Agreement, § 14 of the Finance Agreement also contains a continuation proviso: in case of termination without cause, this Agreement shall continue in full force and effect with respect to Leases which remain subject to Coverage at the time of termination of this Agreement (Continuation Proviso). The parties disagree about the effect of the lengthy final sentence of the paragraph which provides as follows: Whenever any party notifies the other party of the termination of this Agreement, upon the effective date of such termination ...: (a) AICCDC shall pay in immediately available funds to Insured Lessor the unearned portion of the Insurance Charges remitted by Insured Lessor to AICCDC for all then existing Coverage, and (b) Insured Lessor shall pay to the AICCDC in immediately available funds to the extent that Insurance Charges are earned prior to such date: (i) all such Insurance Charges, less Subcontractor Fees, collected from Lessees prior to such date and not previously remitted, and (ii) all such Insurance Charges, less Subcontractor Fees, collected on or after such date, which shall be remitted to AICCDC promptly upon such receipt. That is, each party will return any unearned money and will be entitled to any money earned up to that point. BCC argues that, the Continuation Proviso notwithstanding, the language of the final sentenceWhenever any party notifies the other party of the termination of this Agreementcontrols in this case because the Agreement has been terminated, and therefore both parties must reconcile their finances in accordance with the rest of the final sentence. Thus, BCC argues, § 14 clearly contemplates a clean and simple termination of the agreement. Arguing against this reading, AICCDC contends that the Continuation Proviso would be rendered meaningless under BCC's reading of the final sentence. However, AICCDC argues that the Continuation Proviso can be reconciled with the final sentence by noting that the final sentence has effect only upon the effective date of such termination. Because the Continuation Proviso states that this Agreement shall continue in full force and effect with respect to Leases which remain subject to Coverage at the time of termination of this Agreement, there never is a termination with respect to leases covered at the time of the overall Agreement's termination, and the provisions of the final sentence are never triggered. That is, AICCDC sees termination without cause under § 14 as prospective only, covering new leases but leaving undisturbed existing leases. We agree with AICCDC's reading of § 14. In construing a contract, one of a court's goals is to avoid an interpretation that would leave contractual clauses meaningless. Two Guys from Harrison-N.Y., Inc. v. S.F.R. Realty Assocs., 63 N.Y.2d 396, 482 N.Y.S.2d 465, 472 N.E.2d 315, 318 (1984) (internal citations omitted); see also Galli v. Metz, 973 F.2d 145, 149 (2d Cir. 1992) (noting that [u]nder New York law an interpretation of a contract that has the effect of rendering at least one clause superfluous or meaningless ... is not preferred and will be avoided if possible and that an interpretation that gives a reasonable and effective meaning to all terms of a contract is generally preferred to one that leaves a part unreasonable or of no effect) (internal citations and quotations omitted); God's Battalion of Prayer Pentecostal Church, Inc. v. Miele Assocs., LLP, 6 N.Y.3d 371, 812 N.Y.S.2d 435, 845 N.E.2d 1265, 1267 (2006) (A contract should be read to give effect to all its provisions.) (internal quotations omitted). BCC's reading of § 14 would render the Continuation Proviso meaningless surplusage and would call its inclusion in the document into serious question. AICCDC's reading leaves the Whenever clause with meaning: it applies in cases of termination for cause. AICCDC's reading is also consonant with our interpretation of the Program Agreement. Moreover, when general language, such as the Whenever clause (which on its face covers termination for or without cause) is in conflict with more specific language, such as the Continuation Proviso (which on its face applies only in case of termination without cause), the specific language controls. See Muzak Corp. v. Hotel Taft Corp., 1 N.Y.2d 42, 150 N.Y.S.2d 171, 133 N.E.2d 688, 689 (1956); Bank of Tokyo-Mitsubishi, Ltd., New York Branch v. Kvaerner a.s., 243 A.D.2d 1, 671 N.Y.S.2d 905, 910 (N.Y.App.Div. 1998) (same); see also William Higgins & Sons, Inc. v. New York, 20 N.Y.2d 425, 284 N.Y.S.2d 697, 231 N.E.2d 285, 286 (1967) (A specific provision will not be set aside in favor of a catchall clause.).