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Current Developments in the Commercial Divisions of the
New York State Courts
Posted: July 19, 2016

Inquiry into Commercial Reasonableness Only Permitted Where Contract is Ambiguous

On July 7, 2016, Justice Friedman of the New York County Commercial Division issued a decision in Blue Sage Capital, LP v. Alfa Laval U.S.Holding, Inc., 2016 NY Slip Op. 31285(U), refusing to examine the commercial reasonableness of a contract, explaining:

Under settled principles of contract interpretation, when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms. Evidence outside the four comers of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing. Where an instrument was negotiated between sophisticated, counseled business people negotiating at arm’s length, courts should be extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include. Hence, courts may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing. . . .

The court holds that Purchase AgreementĀ§ 2.3 unambiguously set forth a specific basis
for calculation of the Earnout Payment. . . .

As the Court of Appeals has recently held, an inquiry into commercial reasonableness is only warranted where a contract is ambiguous. Here, as held above, the Purchase Agreement is not ambiguous.

(Internal quotations and citations omitted).

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