News & Noteworthy



Authored - NJ Contract Law Update - Construing Language Against the Drafter
Clark Alpert (Partner, Madison) asks: What is the law, and what to do about it?
APRIL 17, 2012 | Windels Marx - Commercial Litigation

Ever since Pacifico v. Pacifico, 190 N.J. 258 (2007), the doctrine of contra proferentum isn't what it used to be---but many courts haven't gotten the message. That doctrine, as you may know, traditionally required ambiguities in a document to be construed against the party who selected the language. E.g., In re Estate of Miller, 90 N.J. 210, 221 (1982). In Pacifico, our Supreme Court explained that contra proferentum is, at most, "a doctrine of last resort", and even then is not available when the parties have equal bargaining power.1Since such power will never be exactly equal on both sides, and there was clearly no intent for a trial within a trial to measure that exactitude, the Court's obvious intent was that the bargaining power be roughly equal. See also, Chubb Custom Ins. Co. v. Prudential Ins. Co., 195 N.J. 231, 246 (2008).

Thus, when dealing with two "worldly-wise" and sophisticated parties, the doctrine does not apply. Pacifico 190 N.J. at 368. The Pacifico Court also indicated the doctrine's inapplicability if the agreement was not the product of a singular 'drafter' within the meaning of the doctrine (id.)---but not necessarily (in this author's view) that both factors need be shown.

The Court thus emphasized that the adage of construing a contract against the drafter has little if any significance in a commercial (or, there, matrimonial) context. Rather, other more direct means of determining intent should be employed; such as (in addition to the terms of the contract) common usage and custom, and the "circumstances surrounding the [the contract's] ... execution". Id. at 267.

Although the Pacifico Court was clear in its instructions to the lower courts, those courts have frequently disregarded those instructions. For example, in City of Union City. v. AC Construction Corp., 2011 WL 6003954 (N.J.App.Div. 2011), the Appellate Division cited to earlier precedent (Miller not Pacifico); and contradicted Pacifico by holding, in part:

  • The problem here is that Union City, as the drafter of the contract documents and the associated bid package, is responsible for the contents of those documents, including the arbitration provision ... any ambiguity must be construed against Union City and its agent ... , as the contract drafters. [City of Union City v. AC Construction Corp., Docket No. A-2300-10T2.] 2

See also, e.g., ATIM Family Partnership v. LMW Properties Corp., 2009 WL 857456, *4 (N.J.App.Div. 2009).

The federal courts have also strayed. In New Jersey Regional Counsel of Carpenters v. Jayeff Construction Corp., 2011 WL 4810039 (D.N.J. 2011), the Court acknowledged Pacifico, but resorted to the concept of construing against the drafter, ostensibly because the parties were not exactly of equal sophistication (at *4)---which seems antithetical to the thrust of Pacifico.

Some may think that Kieffer v. Best Buy, 205 N.J. 213, 224 (2011), represents a retrenchment by the Court from Pacifico; but not in this author's view. Whether sensibly or not, cases such as Kieffer involving indemnification provisions still invoke a strict construction principle (unique to that type of provision) that goes beyond contra proferentum. It may have been unwise for Kieffer to superfluously combine Pacifico with indemnification law, thus potentially confusing the courts as to its intent in Pacifico; but I think that clear intent survives.

My litigation tip, therefore, is to be particularly strong in explaining to your tribunal what Pacifico means--- and to the extent later cases have gotten the issue wrong, to be forthright about that (because your adversary will undoubtedly cite these cases); explain why Kieffer is sui generis; and point to Chubb as well.

My drafting tip would be to remember to include, in your agreement, language verifying that the parties both believe contra proferentum to be inapplicable, because the parties are of equal bargaining power and the agreement has been negotiated (and/or certainly the opportunity for such negotiation has existed). The traditional expression of this concept has normally been something like, "The parties acknowledge that this Agreement has been fully negotiated between the parties, and agree that it shall be construed without regard to any presumptions against the party causing the same to be prepared"3; although obviously that language can be refined to make the Pacifico holding even more predictable.

The short message is not to assume the correct outcome when the doctrine may be lurking, but rather to protect yourself both in drafting and litigation.

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 fact that the Court used the matrimonial setting to establish this Rule is particularly telling, since rough equality of bargaining power in a traditional commercial context is even clearer.

2The sophistication of AC Construction seems indubitable, if only from a glance at its website.

3 Note that the following similar language was enforced in Montoya v. Montoya, 280 Conn. 605, 909 A.2d 947 (2006): "The parties acknowledge that this Ante-Nuptial Agreement is a document which has been negotiated by both parties and the parties agree that for purposes of construction neither party is deemed to be the draftsman thereof."

 




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