News & Noteworthy

Authored - NJ Contract Law Update - Ambiguity is in the Eye of the Beholder
AUGUST 13, 2012 | Windels Marx - Commercial Litigation

In Heller v. Lauren J. Gardner Trust, 2012 WL 2401675 (N.J.App.Div. June 27, 2012), the Court relied upon contractual language it found to be clear and unambiguous, in holding an offerer of stock bound by that offer (pursuant to a complex, predetermined procedure). The Court found out that even though there were surrounding circumstances that could have led to the conclusion that the offerror did not mean literally what he said, the clear wording of the offer (even surrounded by comments heading in a different direction) was controlling.

Specifically, because the offeror stated in part, "This letter should be construed as a put offering notice." (per a specified section of the underlying agreement), the remainder of the letter 'didn't matter' under the parol evidence rule.

Ironically, the Court cited Conway v. 287 Corporate Center Associates, 187 N.J. 259 (2006); which could arguably be interpreted as implicitly holding the opposite, while expressly applying normal parol evidence principles. Specifically--as the dissent in Conway pointed out with some force--Conway seemed to find an ambiguity that a court like Heller wouldn't. The language in question in Conway was that an attorney bonus was due "[s]hould the lawsuit produce any modification of the zone change which permits construction of any type [etc.]." But Conway held that this actually meant that there had to be both a zone change and road access.

Road access was thus held to be an unstated condition--or (the Conway majority held) an implicit part of the express condition. But such an expansive approach seems to violate not only the basics of the parol evidence rule, but also Palisades Properties, Inc. v. Brunetti, 44 N.J. 117 (1965)(not cited by either the Conway majority or dissent); which had established the following principle (emphasis added below):

  • However, under general contract law terms may be implied in a contract, not because they are reasonable, but because they are necessarily involved in the contractual relationship so that the parties must have intended them and have only failed to specifically express them because of sheer inadvertence or because the term was too obvious to need expression.

The Conway dissent's reasoning has more force when one considers that the actual phrase at issue--held to be ambiguous enough to imply a further "street access" condition--was "any modification...which permits construction of any type..." That sort of absolutist language is a clear signal that further conditions were never intended.

The Conway dissent thus implied that legal gymnastics were needed by the majority to get to the result, because there was no express ambiguity, but rather wording that could have stood on its own. Moreover, under the Palisades test, 'necessity' in Conway would have been a stretch; and 'obvious overlooking' of the supplemental street condition seems to have been unlikely.

The Conway Court appears to have also made the conceptual error of assuming that Mr. Conway's litigation positions on behalf of his client regarding street access (in the underlying litigation preceding the fee litigation) were reflective of the intent of the fee agreement itself. As an advocate, counsel will argue any good-faith position to advantage his client; but that presumptively bears no relationship to a private financial deal by the attorney premised on reality and self-preservation, not argumentative optimism.

Perhaps the most understandable source of confusion for the Conway majority was the existence of a "memorandum" that accompanied the retainer agreement eventually signed; which arguably (in the broadest sense of that term) might have supported the ambiguity. The Court may have been subconsciously influenced by the fact that the cover memorandum was contemporaneous. And had the Court's Opinion gone in that direction (legally speaking)--as the first Appellate Division in Conway seems to have done, 187 N.J. at 266--the Supreme Court's ruling might have been more understandable; since it is well established that a cover letter or memorandum will often be interpreted in pari materia with an agreement that it accompanies. This may not create ambiguity where there is none, but it might sensitize a court to believing that an ambiguity may be more likely.1

In sum, ambiguity in the eye of the beholder; and predictability in the area of parol evidence may approach the impossible, as these cases are not fairly reconcilable.

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education, originally published in 2007 and updated in November 2011. His updates on New Jersey contract law are based in recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

1 The subject of cover letters or cover memoranda, as an aid to interpretation of contracts, will be dealt with in a separate article.


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