Opinion ID: 1460047
Heading Depth: 1
Heading Rank: 1

Heading: Applicable New York Law

Text: I would settle the question whether ¶ 1.1(a)(A) is ambiguous by reference to several familiar rules of contract interpretation used to determine the manifest purpose of the parties to an agreement. In re Herzog, 301 N.Y. 127, 135, 93 N.E.2d 336, 339 (1950). When an agreement is clear and complete, that purpose is determined by reference only to the contract's terms: Evidence 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. W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 162, 566 N.E.2d 639, 642, 565 N.Y.S.2d 440, 443 (1990). When a contract term is reasonably susceptible to more than one interpretation, however, it is ambiguous as to the parties' intent. Andy Warhol Found, for Visual Arts, Inc. v. Fed. Ins. Co., 189 F.3d 208, 215 (2d Cir.1999). Whether a term is ambiguous is a matter of law for the court to resolve. W.W.W. Assocs., 77 N.Y.2d at 162, 566 N.E.2d at 642, 565 N.Y.S.2d at 443. [1] If the court identifies an ambiguity, the controlling meaning is determined by application of principles of interpretation and construction under the controlling state law. See, e.g., Wallace v. 600 Partners Co., 86 N.Y.2d 543, 548, 658 N.E.2d 715, 717, 634 N.Y.S.2d 669, 671 (1995); Rentways, Inc. v. O'Neill Milk & Cream Co., 308 N.Y. 342, 347, 126 N.E.2d 271, 273 (1955). Then, only if necessary, extrinsic evidence of the parties' intent is employed. See W.W.W. Assocs., 77 N.Y.2d at 163, 566 N.E.2d at 642, 565 N.Y.S.2d at 443. It is a generally accepted proposition that where the terms of a writing are plain and unambiguous, there is no room for interpretation or construction. . . . However, this formulation may be technically overbroad, in the sense that the interpretation of a contract requires an initial determination of whether the contract is ambiguous . . . and this determination itself involves an assessment of the contract's meaning. Richard A. Lord, 11 Williston on Contracts § 30:4 (4th ed.2008). At least some principles of interpretation therefore ordinarily guide the inquiry into whether a contract term is ambiguous. New York courts conducting the inquiry typically apply three rules of interpretation. First, they determine ambiguity by examin[ing] the entire contract and consider[ing] the relation of the parties and the circumstances under which it was executed, interpreting [p]articular words . . . 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. Kass v. Kass, 91 N.Y.2d 554, 566, 696 N.E.2d 174, 180-81, 673 N.Y.S.2d 350, 356-57 (1998) (quoting Atwater & Co. v. Panama R.R. Co., 246 N.Y. 519, 524, 159 N.E. 418, 419 (1927)); see also Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co., 375 F.3d 168, 173 (2d Cir.2004) (An ambiguity exists where the terms of a contract could suggest more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business. (internal quotation marks omitted)). Second, the New York courts apply the rule that each term is to be assigned its fair and reasonable meaning. Sutton v. E. River Sav. Bank, 55 N.Y.2d 550, 555, 435 N.E.2d 1075, 1078, 450 N.Y.S.2d 460, 463 (1982) (internal quotation marks omitted); see also Bethlehem Steel Co. v. Turner Constr. Co., 2 N.Y.2d 456, 459, 141 N.E.2d 590, 593, 161 N.Y.S.2d 90, 93 (1957) (reasonable and ordinary meaning). Third, they apply the rule that a court should not adopt an interpretation which will operate to leave a provision of a contract without force and effect, Corhill Corp. v. S.D. Plants, Inc., 9 N.Y.2d 595, 599, 176 N.E.2d 37, 38, 217 N.Y.S.2d 1, 3 (1961) (citation, ellipsis, and internal quotation marks omitted), i.e., the rule against surplusage. For example, in R/S Associates v. New York Job Development Authority, 98 N.Y.2d 29, 771 N.E.2d 240, 744 N.Y.S.2d 358 (2002), an opinion by then-New York Court of Appeals Judge Wesley, the Court of Appeals addressed the interpretation of the term `effective cost of funds' in a loan agreement which provided that the rate to be charged by the lender for the loan in question `may be revised from time to time but will not exceed one and one half (1½%) percent over [the lender's] effective cost of funds.' Id. at 31, 32, 771 N.E.2d at 241, 744 N.Y.S.2d at 359. The purchaser and the lender disputed whether the phrase effective cost of funds included  in addition to the interest on the bonds issued to finance the loan and the direct costs of issuance  the cost of defaults by other borrowers. Id. at 32, 771 N.E.2d at 241, 744 N.Y.S.2d at 359. The purchaser argued that the phrase unambiguously excluded the cost of defaults, the lender argued that the phrase unambiguously included it. See id. The Court of Appeals concluded that the phrase was unambiguous and reasonably susceptible to only the lender's proposed meaning. It reached that conclusion by applying the reasonable meaning rule and the rule against surplusage: Under its ordinary usage, the `effective' cost of the funds means the `actual' cost of securing such funds for a specific loan ( see, e.g., 5 Oxford English Dictionary 80 [2d ed 1989] . . .). Regardless of borrower defaults, the [lender]'s funding mechanism required it to repay the underlying bond when due. Thus, the `actual' or `effective' cost of the funds loaned by the [lender] necessarily included the interest it had to pay to the bondholders, the cost of issuing the bond, and the cost of defaults by the borrowers who received loans from bond proceeds. Any other interpretation of this agreement would ignore the import of effective in modifying cost of funds.  Id. at 33, 771 N.E.2d at 242, 744 N.Y.S.2d at 360 (some emphases added, some emphases in original omitted). The ambiguity inquiry commonly involves the application of these three rules. See also Golden Gate Yacht Club v. Societe Nautique De Geneve, 12 N.Y.3d 248, 257, 907 N.E.2d 276, 879 N.Y.S.2d 363, 369 (2009) (Taken as a whole, we conclude that the settlor intended to link the annual regatta requirement to the other eligibility requirements. . . . Any other interpretation would render the annual regatta requirement a nullity. . . . We conclude there is no ambiguity as to the annual regatta clause at issue.); S. Road Assocs., LLC v. IBM Corp., 4 N.Y.3d 272, 277-78, 826 N.E.2d 806, 809, 793 N.Y.S.2d 835, 838 (2005) (concluding that a lease read as a whole reflects that the term `premises' refers only to the interior space of the leased real property, because [t]he lease repeatedly mentions the `premises' separately from the water tower, appurtenances, land, parking lot [,] and building, which language would be superfluous if the term premises covered those exterior areas); Kass, 91 N.Y.2d at 568, 696 N.E.2d at 181, 673 N.Y.S.2d at 357 (rejecting appellant's proposed reading of consent clause because [a]ppellant's construction ignores . . . words that also must be given meaning); Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P., 869 N.Y.S.2d 511, 516-17, 60 A.D.3d 61, 67 (1st Dep't 2008) (In the instant case, the ordinary and natural meaning of the [contract's] words [is] dispositive. . . . A plain reading . . . makes clear that 10 years is the maximum term of the contract at issue. . . . We note that clear contractual language does not become ambiguous simply because the parties to the litigation argue different interpretations.). [2]