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Nemco Construction Corp. v. AARK Construction Group

A-4809-07T3 (N.J. Super. App. Div. 2009) (Unpublished)

CONTRACTS; INTERPRETATION — Extrinsic evidence cannot be used to change a contract, but can only be used to help interpret ambiguous writings.

A contractor was hired for a grocery store construction project. It, in turn, hired a subcontractor to perform certain work. The property owner was delinquent in making payments under the contract. As a result, the contractor did not pay the subcontractor. The contractor terminated the subcontract claiming that the subcontractor had breached their agreement. The subcontractor sued the contractor for breach of contract. The contractor and the property owner entered into a settlement agreement with each other. When the contractor and the property owner were unable to settle the litigation with the subcontractor, they submitted their claims to arbitration.

The arbitration award did not allocate payment responsibility to the subcontractor as between the contractor and property owner. The subcontractor sued both, seeking to confirm the arbitration award. The Law Division entered a judgment in favor of the subcontractor against the contractor and property owner, jointly and severally. The property owner appealed. The Appellate Division affirmed as to the amount owed to the subcontractor, but remanded to the lower court to determine the respective liabilities of the contractor and property owner.

After a trial on the issue, the Law Division held that the settlement agreement clearly stated that any damages awarded by arbitration were to be considered “pass through claims” for which the contractor was responsible.

The contractor appealed, but the Appellate Division affirmed. It rejected the contractor’s argument that the settlement agreement was ambiguous as to the allocation of liability for the subcontractor claims. The Court ruled that clear and unambiguous contracts must be enforced as written without resort to extrinsic evidence. Extrinsic evidence cannot be used to change a contract, but only should be used to help interpret ambiguous writings. It noted that although the term “pass through claim” had a specific meaning in the construction industry, the parties in this case chose to define it differently, and clearly, in their agreement.

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