On certification to the Superior Court, Appellate Division.
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
Ginger Pacifico (now Gaspari) and James Pacifico were married in l978 and divorced in 1997. At the time of the divorce, the two children of the marriage lived with Ginger in the marital home. Pursuant to a December 2, 1996 property settlement agreement (PSA) that was incorporated into the final judgment of divorce, James was to pay Ginger child support of $435 a week and permanent alimony of $100 a week. Ginger, who was unemployed, was to remain in the marital home with the children and was responsible for the mortgage, property taxes, and homeowners' insurance, to be paid out of the support provided by James. The PSA further stated that the parties would hold the marital home as "joint tenants with right of survivorship," until the property was sold upon the triggering of specified events, including the youngest child reaching the age of nineteen. The agreement provided that Ginger had the first option to purchase James' interest in the home. If Ginger did not choose to exercise her option, James would then have the same option. If neither party exercised their option, the house would be sold by a licensed real estate broker and the proceeds apportioned in accordance with the language of the PSA.
When the youngest child reached the age of emancipation, James filed a post-judgment motion to compel the listing and sale of the property. Ginger filed a cross-motion to buy out James' interest for one-half of the $167,000 value that had been established by a broker's market analysis in 1996.
Both Ginger and James provided certifications regarding their respective understanding of the provision in the PSA concerning the sale of the marital home. Without holding an evidentiary hearing, the trial judge ruled that Ginger's right to a buy-out was to be at current market value when exercised. Ginger appealed, and the Appellate Division reversed, concluding that the PSA was ambiguous because it did not specify the price at which the parties could exercise their respective buy-out options. Because the parties offered conflicting proofs concerning the meaning of that provision, and because the court determined that James' attorney drafted the agreement, the Appellate Division held that any ambiguity should be construed in Ginger's favor. The panel further concluded that a plenary hearing was required.
Only James and Ginger testified at the hearing and their testimony was consistent with the facts each set forth in their prior certifications. James stated that the 1996 valuation was obtained to establish the value of the asset because he thought he might sell the home at that time. He ultimately chose not to sell and remained co-owner with Ginger. James further testified that the parties never agreed to freeze Ginger's buy-out at the 1996 valuation, and she made no concessions warranting such an outcome. Rather, the agreement was to sell the house at market value when one of the enumerated triggering events occurred.
Ginger reiterated her contention that the parties agreed that she could buy the house at the 1996 value upon the emancipation of her youngest son. She testified that in exchange for the insider price, among other things, she gave James the tax and mortgage interest deductions. She also pointed to a draft of the agreement that referenced the 1996 value. Various drafts of the PSA were received into evidence. James' attorney prepared the first and third drafts, while Ginger's attorney drafted the second version.
At the conclusion of the plenary hearing, the trial judge found that the PSA was ambiguous and that, in accordance with the Appellate Division's instructions, the ambiguity had to be construed in Ginger's favor because James' lawyer drafted the contract. The judge further determined that Ginger had to buy out James' interest in the marital residence for one-half of $167,000, less the mortgage balance on May 27, 2003. The judge made no findings in respect of the parties' intentions or credibility.
James appealed and the Appellate Division affirmed, reasserting its previous view that because the PSA did not establish value and two prior drafts referenced different values, the PSA was ambiguous and should be interpreted against James, whose lawyer drafted it.
The Supreme Court granted James' petition for certification.
HELD: The doctrine of contra proferentem (which provides that when a contract term is ambiguous, a court is required to adopt the meaning that is most favorable to the non-drafting party) should not have been applied in this case.
1. Courts should enforce contracts as the parties intended and, when necessary, must determine and implement the common intention of the parties. When the parties to a contract have not agreed in respect of term that is essential to a determination of their rights and duties, a term that is reasonable under the circumstances is supplied by the court. Generally, this occurs when the parties failed to agree regarding an issue that was not anticipated or was overlooked. Because the parties disagree over their understanding regarding the buy-out value, the Appellate Division was correct in ordering the plenary hearing to enable the trial judge to probe the parties' intent at the time of the divorce. However, the Court disagrees with the panel's instructions to the trial court regarding the remand. (Pp. 7-10)
2. The Appellate Division erred in directing the trial judge to apply the doctrine of contra proferentem, which provides that when a contract term is ambiguous, the doctrine requires a court to adopt the meaning that is most favorable to the non-drafting party. First, the appellate panel oversimplified the matrimonial settlement process by concluding that James' lawyer "drafted" the PSA. The fourth and final draft was essentially the third draft with handwritten notes that reflected Ginger's changes. Rarely is one party's version accepted without negotiation and input from the other. Thus, no singular "drafter" within the meaning of the doctrine of contra proferentem penned the agreement in this case. Second, the Appellate Division failed to recognize that, even if James' lawyer had drafted the PSA, the doctrine of contra proferentem does not apply because a prerequisite to its application -- unequal bargaining power -- did not exist. (Pp. 10-12)
3. Because the doctrine of contra proferentem should not have been applied in this case, the Appellate Division's judgment is reversed and remanded to the trial judge to evaluate the evidence that was previously adduced at the hearing under the standards referred to by the Court. All inferences need not be drawn in Ginger's favor. Moreover, the trial judge should be mindful of the burden of persuasion. Ginger, as the cross-movant seeking to obtain judicial approval to exercise an option to purchase the marital home at the 1996 value, should bear the burden of establishing that that was the intent of the parties. Ginger should also bear the burden of proof because she is attempting to exclude $137,000 worth of joint marital property from distribution. If Ginger satisfies her burden, she is entitled to relief. If she does not, or if the evidence is in equipoise, her application should fail. The parties' credibility and intentions at the time of the drafting of the PSA will be a pivotal factor on remand. (Pp. 12-14)
Judgment of the Appellate Division is REVERSED and the matter is REMANDED to the trial judge for proceedings consistent with the principles to which we have adverted.
CHIEF JUSTICE ZAZZALI and JUSTICES LaVECCHIA, ALBIN, WALLACE, RIVERA-SOTO and HOENS join in ...