Keywords: construction, meeting of the minds, penalty clause, interpretation of terms, case briefs, public policy, law, ambiguity
Joyner v. Adams, 87 N.C. App. 570, 361 S.E.2d 902 (1987).
Facts: Joyner (P) owned Waters Edge Office Park and entered into a lease development deal with Brown to lease and develop the property. Brown later had financial difficulties and the contract was amended to substitute Adams (D). Under the amendment, annual rent increases under the original contract were suspended and Adams agreed to pay a fixed rate until September 1980, contingent on having developed all of the remaining lots and having them ready to be leased. Failure to meet the condition by the deadline would result in a penalty to pay rent by the terms of the original contract with Brown.
By the deadline all but one of the lots had been subdivided and had buildings. Joyner filed suit to recover the higher rent penalty due under the terms of the original contract. The trial court entered summary judgment for P. On remand the court found that P had intended the penalty clause to mean that D would merely complete or be ready to begin construction on each building and there had been no meeting of the minds regarding what would trigger the penalty clause. The trial court found in favor of P regarding the ambiguities because D had prepared the contract and awarded P approximately $94,000. Both parties appealed.
Issue: 1) Must a court construe ambiguities against the drafter, where the parties are sophisticated business persons, advised by counsel, and the contract is a product of arms-length negotiations? 2) Must a court enforce a contract according to an innocent party’s meaning, if the other party knows or has reason to know what the innocent party means by certain language, but the innocent party does not know or have reason to know what the first party means by certain language?
Holding and Rule: 1) No. A court need not necessarily construe ambiguities against the drafter where the parties are sophisticated business persons, advised by counsel, and the contract is a product of arms-length negotiations. 2) Yes. A court must enforce a contract according to an innocent party’s meaning, if the other party knows or has reason to know what the innocent party means by certain language, but the innocent party does not know or have reason to know what the first party means by certain language.
The court held that the trial court erred in awarding judgment for P based on the rule that ambiguity in contract terms must be construed most strongly against the party which drafted the contract. The rule’s application rests on a public policy theory that the party who chose the word is more likely to have provided more carefully for the protection of his own interests, is more likely to have had reason to know of uncertainties, and may have even left the meaning deliberately obscure. The record in this case however revealed that both parties were experienced in the real estate business and that they bargained from equal positions of power. Nothing in the record showed that D rather than P drafted the provision. The policy behind the rule would not be served in this case.
The court held that evidence of the negotiations reflected directly on each party’s knowledge of what the other party intended the provision to require. Since the trial court failed to make findings of fact on that crucial question, this case must be remanded.
The court held that if the trial court on remand found that D knew or had reason to know what P meant by the disputed terminology, and that P did not know or have reason to know what D meant by the disputed terminology, the trial court should construe the contract according to P’s terminology; otherwise P’s claim would fail.
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