Commercial Division Blog

Posted: April 23, 2015 / Categories Commercial, Contracts

Parol Evidence Admissible to Resolve Ambiguity in Construction Contract

On April 15, 2015, the Second Department issued a decision in Vivir of L I, Inc. v. Ehrenkranz, 2015 NY Slip Op. 03152, affirming the admission of parol evidence to explain the terms of a construction contract.

In Vivir of L I, the parties asserted claims and counterclaims relating to a construction contract. At trial, the plaintiff was found liable for breaching the contract. On appeal, the plaintiff challenged, among other things, the admission of parol evidence to explain the meaning of a contract term. The Second Department affirmed the trial court's decision to admit the evidence, explaining:

A written agreement that is complete, clear, and unambiguous on its face must be enforced to give effect to the meaning of its terms and the reasonable expectations of the parties, and the court should determine the intent of the parties from within the four corners of the contract without looking to extrinsic evidence to create ambiguities. A contract is considered to be clear and unambiguous where the language used has a definite and precise meaning, unattended by danger of misconception in the purport of the agreement itself, and concerning which there is no reasonable basis for a difference of opinion. Moreover, the parol evidence rule operates to preclude evidence of a prior or contemporaneous communication during negotiations of the agreement that contradicts, varies, or explains a written agreement which is clear and unambiguous in its terms and expresses the parties' entire agreement and intentions. Where a contract contains a merger clause, a court is obliged to require full application of the parol evidence rule in order to bar the introduction of extrinsic evidence to vary or contradict the terms of the writing.

Here, contrary to [the plaintiff's] contention, parol evidence was properly admitted into evidence to explain the ambiguous phrase "cost to Owner" in the change order provision of the construction contract, inasmuch as the term "cost" was not defined, and could have various meanings, including one limited to labor and material costs without an additional markup. Accordingly, parol evidence, such as the email from [the plaintiff's] principal . . . stating that change orders would not include markups, which does not otherwise vary or contradict the construction contract, was permitted.

(Internal quotations and citations omitted).