Chapter 45 HOW COURTS HAVE CONSTRUED CONTRACTUAL LANGUAGE
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Chapter Forty-five
How Courts Have Construed Contractual Language
I. Language Used In Agreements
The cases below are instructive about the degree of care that should be invested in the drafting of agreements. There is no such thing as being overly cautious during the drafting process. No matter how straightforward or obvious certain language may appear to be, there is always the imminent risk that a court may think otherwise. The lesson from these cases is that one should assume that nothing is obvious. Spend the extra few moments to state what is or is not meant, or what is or is not included.
A. "This Agreement Is Binding Upon . . ."
Keller v. Coben6789 held the language that "'all of the terms, conditions and provisions of this agreement shall apply to, bind and be obligatory upon and inure to the benefit of the heirs, executors and administrators of the parties hereto whether so expressed or not.' This provision attaches to every term of the agreement." The court rejected the husband's argument that the obligation was personal.
B. "This Agreement Shall Be Governed and Construed in Accordance With the Laws of the State of New York in Force at the Date of the Execution of This Agreement"
The provision "This agreement shall be governed and construed in accordance with the laws of the State of New York in force at the date of the execution of this agreement" means "in accordance with New York law as it existed at the time the agreement was executed" and only governs its substantive provisions.6790
C. Length of Marriage, "In the Event of an Operative Event"
Many marital agreements contain an "operative event" as the date that terminates the marital classification of subsequently acquired property, or when something else is to occur, such as, support payments or distribution of assets. The court, in Babbio v. Babbio,6791 held that implicit in the term "in the event of an operative event" is that the length of the marriage is to be calculated as of the date of the operative event because it provided certainty that the later date did not and that it was reasonable to infer that the parties intended that there be certainty with respect to the date of their rights.
D. Agreements to Agree
Case law addressing the unenforceability of inartful or other vague language which adds up to nothing more than indefinite agreements to agree to undefined future terms are reviewed in Chapter 1, Agreements in General: Principles of Contract Doctrine. See the sections on "Oral Stipulations Requiring Subsequent Written Agreements," and "Agreements to Agree."
E. Mediation and Arbitration
In Storer v. Kreiter,6792 the parties' agreement included a "whereas" clause which acknowledged the plaintiff's claim to a share of marital "appreciated real estate," settlement of which claim was to occur via mediation. The final clause of the agreement further stated that before resorting to litigation, the parties would first mediate "any questions, disputes, or disagreements that develop with regard to the terms of this agreement." The Appellate Division directed mediation of any questions, disputes or disagreements, not just those relating to appreciated real estate, in accordance with the last clause of the agreement.
Language to the effect that "any dispute arising out of or in connection with the agreement shall be settled by arbitration,"6793 or "all disputes including issues of child support, distribution of assets, debt responsibility, and alimony"6794 mandate arbitration. See Chapter 6, Arbitration.
II. Technical Meanings and Terms of Art
Agreements typically contain terms and language that the parties believe to be basic, routine, and with a common meaning understood by all; such, however, is not always the case. In Madison Ave. Leasehold, LLC v. Madison Bentley Associates LLC,6795 the First Department stated:
Parties who engage in transactions based on prevailing law must be able to rely on the stability of such precedents (Holy Props. v. Cole Prods., 87 N.Y.2d 130, 134, 637 N.Y.S.2d 964, 661 N.E.2d 694 (1995)). While words are generally assigned their ordinary meaning, where a word has attained the status of a term of art and is used in a technical context (here, a lease), the technical meaning is preferred over the common or ordinary meaning.
A. Meaning of Alimony
The meaning of the word "alimony" is unambiguous, being understood in both the lexicons of the legal world and of the general public as support for the spouse or former spouse, generally the wife.6796
B. Bi-Weekly Versus Bi-Monthly
The alimony provision in Grant v. Grant6797 provided that "[t]he Husband shall pay to the Wife, and the Wife agrees to accept, for her support and maintenance, the sum of Four Thousand Eight Hundred ($4,800.00) Dollars a year in equal bi-monthly installments of Two Hundred ($200.00) Dollars, each to coincide with the Husband's pay checks." Biweekly installments of $300 for spousal maintenance and child support meant 26 payments per year, resulting in total yearly payments of $7,800 rather than the $7,200 specified in the agreement. Because of the ambiguous result, the court turned to the extrinsic information and the parties' conduct following the agreement to determine their intent at the time of the negotiations and concluded that the agreement called for biweekly payments.
C. Definition: Income
1. Gross Income, Gross Earnings
The separation agreement in Paul v. Rodems6798 provided that, upon the termination of maintenance as a result of the petitioner's remarriage, the respondent's child support obligation "shall be increased to seventeen percent (17%) of the husband's then gross income less FICA, in accordance with the guidelines set forth in DRL § 240, or as otherwise provided by law, and shall be modified thereafter pursuant to DRL § 240." The petitioner's remarriage terminated maintenance and triggered the recalculation of child support in accordance with the agreement. The hearing examiner erroneously concluded that health, life, and disability insurance premiums paid by the respondent's employer, as well as the employer-provided tickets to sporting events used by the respondent for business purposes, were properly included in the respondent's "gross income."6799 Paul held that under the statute, which was incorporated by reference into the separation agreement, "gross income" is a component of "income."6800
2. Gross Earned Income, Gross Earnings
Ott v. Ott6801 ruled that the terms "gross earned income" and "gross earnings" made it apparent that they intended that all income derived from the defendant's employment, including fringe benefits and perquisites supplied by his employer, be used as the basis for calculating maintenance. Only the income reported in box 5 of the defendant's W-2 form included the value of fringe benefits and perquisites. The court rejected the defendant's contention that the doctrine of practical construction was applicable.6802 If the parties had intended that maintenance payments be tied to the defendant's "gross taxable income," as the defendant contends, they could have so provided. In Huntington v. Huntington,6803 the separation agreement explicitly defined income and that the standard to be applied was not that of the Internal Revenue Service. Had the parties intended that the measure of deductions and income should be tied to the Internal Revenue Code, they could easily have so stated.
3. "Gross Income from All Sources" Includes Maintenance Income
Hint to the Practitioner:
Recent case law, not discussed here,6804 teaches that to avoid findings of ambiguity parties to an agreement who choose to condition obligations on income be extremely cautious and take additional time to make absolutely certain that the intended income stream is consistent throughout the agreement by defining the specifics of the standard without leaving anything to "oh, yeah, we know what the term means." If it refers to an IRS definition, at the very least, cite the section. This is most certainly when there are multiple obligations contingent upon different income streams.
The separation agreement, in Toscano v. Toscano,6805 required the mother to pay the father $4,000 per month in maintenance. Upon the happening of any "adjustment circumstances", the father's child support obligation would be adjusted pursuant to the Child Support Standards Act (CSSA): "(i) December 31st of any year in which the Father's earned income exceeds $25,000; (ii) December 31st of any year in which the Father's gross income from all sources exceeds $45,000.
In 2015, the mother moved to modify the father's child support obligation because in 2012 she paid him $48,000, and thus his "gross income from all sources" exceeded $45,000, triggering a mandatory adjustment of his child support. The father argued that the agreement did not contemplate his maintenance as part of child support calculations – that it was illogical to accept maintenance from the mother only to repay her with her own money.
The parties' intention was based on clear and unambiguous language. The precise terms "gross income from all sources," each of which has a clear and plain meaning in and of itself, coupled with the agreement's distinction between "earned income" and "gross income from all sources," established that the parties contemplated a clear distinction between income the father earned and monies the father obtained from any sources, including maintenance for himself.
The agreement required the father to report his support payments as income on his tax returns, which he did. The CSSA establishes basic child support as a function of the "gross (total) income" that is, or should have been, reflected on the most recently filed income tax return. The father thus knew or should have known that his maintenance would be considered income to him by any court.
4. "Gross Earned Income"
The stipulation of settlement, in Abramson v. Hasson,6806 was incorporated but not...
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