I.2. C. What Is The Basic Principle Of New York Contract Law?

• Jurisdiction: New York

C. What Is the Basic Principle of
New York Contract Law?

The basic principle of New York Contract Law is Freedom of Contract. Sophisticated commercial parties are free to chart their own course. When the parties have entered into an agreement after arm’s-length negotiations, a court will enforce their clear and unambiguous agreement in accordance with the plain meaning of its terms.²⁶ Freedom of Contract means the intentions of the parties are enforced by the court so long as the parties’ agreement does not involve illegality or offend public policy.²⁷ The court is concerned with the parties’ intent at the time they entered into their contract.²⁸ Later intentions, particularly those after the deal has gone sour, are irrelevant. The intent that matters is the shared intention of the parties. A party’s subjective intent is irrelevant if it was unknown to the other party. A competent party will be held to the terms of an agreement that it made with its eyes open.²⁹ If a commercial party is not satisfied with the consequences of its agreement, it should have acted to protect itself at the bargaining table.³⁰

The best evidence of what parties to a written agreement intended is what they set forth in their writing.³¹ A deliberately prepared and executed written agreement is assumed to reflect the parties’ intent.³² A court initially might consider the parties’ intent only to the extent that it is set forth in the parties’ written agreement.³³ The court will examine the writing to see if it clearly and unambiguously states the parties’ intent. If so, the court looks no further and enforces the agreement in accordance with the plain meaning of its language. The parties are presumed to have understood the meaning of the words they used.³⁴ The plain meaning of those words may not be changed by parol evidence.³⁵ Natural justice and the stability of society require enforcement of clear and unambiguous contracts as they are written.³⁶ A clear and unambiguous contract is to be interpreted by its own language³⁷ to give effect to the intention of the parties as expressed in the language they used.³⁸ When the writing is clear and unambiguous, the court’s role essentially is to enforce what the parties wrote.

The parties’ intent should be gathered from the whole instrument and not from any detached part of it.³⁹ Courts consider the contract as a whole, without undue emphasis on particular language. Particular clauses and phrases cannot be viewed in isolation but must be considered in light of the agreement as a whole.⁴⁰ Although courts have stated that in determining whether the parties clearly and unambiguously expressed their intent in the written agreement, a court should not look beyond the written contract, courts tend to take a broader view. The court also will consider the purpose of the agreement, what the parties intended to achieve through their contract, and the reasonable expectations of the parties. The contract should be read in light of the circumstances existing at the time of its making for such circumstances may stamp a meaning upon a word or phrase that is different from the strict or primary meaning of the word as it is used in the contract unenlightened by extrinsic aids.⁴¹ To understand the parties’ language in their contract, a court may put itself in the position of the parties at the time of contracting to discern, if possible, the objectives they had in view and the motives that dictated their choice of words.⁴² The contractual language will be considered in light of common speech, the parties’ reasonable expectations, and purpose of the ordinary business person in the factual context keyed to the level of business sophistication and acumen of the particular parties.⁴³ In determining the parties’ reasonable expectations, a court considers not merely the literal language of the document but also takes into account what reasonably may be implied from that language.⁴⁴ The reasonable expectations and purpose of the ordinary business person when making an ordinary business contract serve as the guideposts in determining the parties’ intent.⁴⁵

Although New York law emphasizes enforcement of the plain meaning of the words of a clear and unambiguous contract, there is authority that allows the court, in appropriate circumstances, to depart from strictly following what the parties stated in their contract. A court should, if possible, avoid reading contract language in a manner that gives one party an unfair advantage over the other or puts one party at the mercy of the other.⁴⁶ A court should not give a strict or rigid meaning to general words or expressions without regard to the surrounding circumstances or the apparent purpose which the parties sought to accomplish. The language of a contract, when read as a whole and in light of the circumstances surrounding its...