Court Erred in Considering Extrinsic Evidence in Interpreting an Unambiguous Agreement

On May 16, 2018, the Second Department issued a decision in World Ambulette Transportation, Inc. v. Lee, 2018 NY Slip Op. 03560, holding that the trial court erred in considering extrinsic evidence in interpreting an unambiguous agreement, explaining:

[W]e disagree with the Supreme Court to the extent that it determined that the parties' written agreement constituted nothing more than a profit-sharing agreement. A court's fundamental objective in interpreting a contract is to determine the parties' intent from the language employed and to fulfill their reasonable expectations. To this end, a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms. A contract is ambiguous if the terms are reasonably susceptible of more than one interpretation. Whether or not a writing is ambiguous is a question of law to be resolved by the courts. A court should determine the intent of the parties from within the four corners of the contract without looking to extrinsic evidence to create ambiguities.

Here, we disagree with the Supreme Court's reliance upon extrinsic evidence to conclude that the parties had entered into nothing more than a profit sharing agreement, despite the wording of the agreement dated January 2, 2012. Contrary to the court's conclusion, the written agreement was not ambiguous such that it could be construed as a profit-sharing agreement. The written agreement is entitled "Shareholder Agreement," and it contains numerous provisions setting forth the rights and obligations of shareholders. In addition, the written agreement provides in paragraph 5, under the section entitled "Warranties," that Chang owns 102 Class "A" shares and that the defendant owns 98 Class "A" shares. Accordingly, the plain language of the written agreement unambiguously demonstrates that the defendant was a shareholder.

(Internal quotations and citations omitted).

One reason that commercial parties all over the world choose to have their contracts governed by New York law is that the general rule in New York--as shown here--is if the contract is unambiguous, it is enforced as written despite what someone might later argue in a lawsuit. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure how to enforce rights you believe you have under a contract.