February 9, 2012
IRIT MAOZ, PLAINTIFF-RESPONDENT,
BARAK MAOZ, DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Middlesex County, Docket No. FM-12-599-01.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted January 19, 2012
Before Judges Axelrad and Ostrer.
Defendant appeals from a post-judgment order compelling him to pay the mortgage balance due upon the sale of the former marital home that plaintiff occupied after divorce. He argues that the parties' Property Settlement and Separation Agreement (PSSA) did not oblige him to pay off the mortgage, or alternatively, the PSSA is ambiguous in that regard, requiring the court to consider extrinsic evidence to determine the parties' intention. We agree that the PSSA is ambiguous and reverse and remand for further proceedings.
A final judgment of divorce (FJD) was entered on March 26, 2001, ending the parties' marriage of almost nineteen years. The FJD incorporated the PSSA, which was executed March 9, 2001. The PSSA equitably distributed the marital home to plaintiff and obliged defendant to pay $1900 a month in alimony, $2100 in child support, and expressly required defendant to make the monthly mortgage payments on the home. As long as the mortgage existed, defendant was also required to pay the insurance and real property taxes, but was permitted to offset those outlays against his alimony obligation. The PSSA provision did not expressly require defendant to pay off the mortgage in a lump sum. Article VI of the PSSA addresses disposition of the marital home and defendant's obligation to pay the mortgage:
A. Re: 18 Whitehall Road, East Brunswick:
1. The parties hereto agree that premises known as 18 Whitehall Road, East Brunswick, New Jersey are owned by the parties by the entirety. The following disposition shall be made of this real property:
(a) The Wife shall have the sole and exclusive right to occupy the marital property as of the signing of this Agreement. The Wife shall own the mortgage on the property and transfer same into her name at the signing of this agreement, however the Husband shall continue to pay the monthly mortgage payments for the property to the Wife until the existing mortgage on the house and any equity loan on the house is paid in full.
(b) Upon the execution of this Agreement, the Husband agrees and shall execute a Bargain and Sale Covenants [sic] against Grantor's Acts, Deed, conveying all of his right, title, and interest in the marital home as set forth above to the Wife and to deliver a standard All-State Affidavit of Title in connection therewith.
(c) The Wife shall pay all carrying charges in connection with said real estate including but not limited to real estate taxes, insurance, utilities and repairs. It is understood that as of January 1, 2001, the Wife shall be responsible for payments of real estate taxes and homeowner's insurance. The Husband shall continue to pay these expenses through his payments to the Wife as long as the mortgage is still in effect. The Husband shall deduct the tax and insurance money from his alimony payment to the Wife. These expenses currently total $450.00 per month. Should that amount change, the Husband shall adjust his deduction accordingly. Once the mortgage is paid off and the Wife begins paying these expenses herself, the Husband shall resume the total alimony payment as set forth in Article V, Paragraph 1.
(d) The Husband shall be entitled to the tax deduction for the marital home as long as he continues to pay the Wife the mortgage and until it is paid in full. It shall be the responsibility of the Wife to claim the deduction on her income tax return and then forward the amount of tax relief from that deduction to the Husband on or before June 30th of every year, as long as the Wife is in receipt of the refund by that date.
The PSSA also awarded plaintiff half the value of the defendant's retirement accounts accrued during the marriage, made defendant solely responsible for $300,000 in IRS debt, and granted plaintiff an interest in defendant's employment-related stock options that was tied to payment of the home mortgage. Plaintiff was entitled to up to half the proceeds of the sale of the stock options, which would be first allocated toward paying off the then-remaining balance on the mortgage (estimated to be $180,000), and then directly to plaintiff, in an amount not exceeding $500,000. The PSSA states in Article VII:
2. The Husband shall continue to sell stock options that he will receive from his employer, as they become vested and the share price makes financial sense, i.e., the sale is done at a substantial gain. The Husband shall pay Wife up to 50%, but not less than 33% of the net proceeds of said options at the time of sale after all provisions for tax have been reserved. The parties agree that the Wife's share of the proceeds of the stock options shall be applied as follows:
a. Husband shall first pay the Wife the amount equal to pay off the mortgage on the marital home of approximately $180,000.00.
b. Husband shall pay Wife additional payments of $500,000.00.
The parties agree that there will be no limit of time on the above pay-out. Once the mortgage is paid off and the Wife has received $500,000.00 in cash from the husband, the pay out shall be considered fulfilled. It is the sole intention of the Husband to fulfill the above pay out at the earliest date as possible, but is agreed by the parties, that the Husband shall only sell stock options if it makes financial sense, i.e. substantial gain.
The parties understand that there is a chance the stock options may never be sold should they not become sufficiently "in the money", or if the Husband does not receive enough options to meet the numbers listed above. However, any time the Husband sells more options, the Husband shall pay the Wife the share as listed above.
It is undisputed that after the divorce, defendant paid the monthly mortgage payments until plaintiff sold the marital home on August 26, 2010. The proceeds of the sale satisfied the mortgage (as well as $102,000 owed on a second mortgage that plaintiff took out after the divorce), leaving plaintiff with roughly $45,000 in net proceeds after the sale. It is also undisputed that the stock options addressed in Article VII turned out to be worthless.
Prior to the closing, plaintiff filed a motion in aid of litigant's rights, seeking among other relief to compel defendant to pay the balance due on the mortgage. In support of her motion, plaintiff attached what her counsel later conceded was an early, unapproved draft of the PSSA that expressly stated, "The Husband shall pay off the existing mortgage on the house and or any equity loan on the house." The draft also stated, "The Husband shall continue to pay the mortgage(s) until such time as it is paid in full by the Husband and title placed in the name of the Wife." Neither provision was included in the final executed version, which as noted above, expressly required defendant to make monthly payments, but did not expressly require a pay-off except with proceeds of the stock option sales.*fn1
Defendant opposed plaintiff's motion, stating that he expressly rejected the earlier version of the PSSA that required him to pay off the mortgage. He attached a marked-up version of the draft which embodied his proposed language, "The husband shall continue to pay monthly mortgage payments." He asserted that the final, approved PSSA did not oblige him to pay off the mortgage, but only required him to make monthly payments.
In response, plaintiff's counsel then provided the court with the final PSSA. He argued that notwithstanding the omission of the explicit language on the pay-off in the final version, defendant nonetheless was obliged to pay off the mortgage. Counsel also asserted that defendant encouraged plaintiff to sell her home to address her financial needs. He attached to his brief as an unauthenticated exhibit an email from defendant offering financial advice to plaintiff, including the strong suggestion that she sell the home.*fn2
In oral argument on November 12, 2010, defense counsel highlighted the deletion of the express provision obliging defendant to pay off the mortgage. He argued that defendant agreed to pay off the mortgage only with proceeds of the stock option sales. Plaintiff's counsel argued that defendant's agreement to make mortgage payments implied an obligation to pay off the principal due upon sale. The court agreed with plaintiff's interpretation, and entered an order directing defendant to pay the balance due on the mortgage as reflected in the payoff figures in the closing documents. The issue of credits due defendant was reserved for a later plenary hearing.
Before commencing the hearing on the credits issue on March 18, 2011, defendant's new counsel asked the court, without a formal motion, to reconsider its November 12, 2010 order and conduct a plenary hearing on whether defendant agreed to pay off the mortgage. Defense counsel submitted proposed trial exhibits. In argument, he referred to two letters from defendant to plaintiff's attorney during their negotiation of the PSSA, which reflected his intent to make monthly mortgage payments, but not pay off the principal, except with the proceeds of the stock option sales.*fn3 In a January 3, 2001 letter to plaintiff's counsel, defendant wrote:
I received the last version of the agreement and reviewed it carefully. There is one major issue and a few smaller ones which need to be addressed before I can sign it. The major issue first: The way the agreement is written now the distribution of assets is inequitable. I am enclosing a spreadsheet that has the numbers taken from the language of the agreement and it shows that if the liability for the house on 18 Whitehall [R]oad is mine, as well as the total liability for the tax debt for 2000, then my net worth is going to be $405,000 and Irit's net worth will be $795,000. I can not accept such distribution and never have. Instead I proposed that Irit maintains the liability on 18 Whitehall on her name while I continue to make payments.
I added, that as cash becomes available from sale of further options, I will be willing to pay off the mortgage and that is still the case.
Alternatively, if Irit wants the liability of 18 Whitehall to be entirely mine, she needs to be prepared to help me pay off the tax debt of around $300,000 come April 2001. To keep an equitable distribution of assets it means she will have to pay as much as $195,0000 [sic] of her savings which is certainly not a good idea. I enclosed a second spreadsheet to demonstrate this scenario but I am not suggesting it at all.
So - if you have an idea how to divide the
[n]et worth equally - please let me know.
I want to emphasize this is not a change from my previous position. I have always maintained that while as a good will I am willing to pay the mortgage on 18 Whitehall
[R]oad, the liability is Irit's. See my letter of November 19 with the spreadsheets enclosed.
In a February 6, 2001 letter, defendant again addressed the mortgage obligation issue.
I reviewed the latest revision of the agreement and here are my comments:
1. I refer you to my fax of January 3rd, [i]n the second paragraph of that fax I am raising the issue of fair distribution of assets. I saw no change in the agreement, reflecting a change in this issue, and as such, can not accept the agreement as is. My suggestion is to remove from Article VI, Par. 1.a. and 1.d (and any other place) any reference to myself paying off the mortgage. The only place I would accept it is in Article VII Par. 2.a. because after all, it is my intention (out of good will) to pay off the mortgage, but only if I have the cash, as mentioned in Article VII. In the meantime, I am still standing behind my word that I will pay the monthly mortgage payments, but it should be clear that I see Irit as responsible for the mortgage should I not be able to make those payments in the future, and if for some terrible reason, I would not be able to pay it off.
The court rejected defendant's request for a hearing, and adhered to its initial ruling that the PSSA unambiguously required defendant to reimburse plaintiff for the pay-off amount of the mortgage. Therefore, the court found no basis to consider extrinsic materials. The court entered an order denying "[d]efendant's request to be relieved of the obligation to pay off the mortgage on the former marital residence[.]" No plenary hearing was held on the issue of credits, as the parties agreed defendant was entitled to a credit of $80,662 and would be relieved of alimony payments until the credit was exhausted at the rate of $1900 a month.
Defendant appeals and argues: the PSSA did not oblige him to pay off the mortgage; alternatively, the PSSA is ambiguous and the court should have considered extrinsic evidence and applied the doctrine of contra proferentem as plaintiff's attorney drafted the PSSA; and the pay-off obligation was unsupported by consideration. Plaintiff responds that the court properly interpreted the PSSA; as the agreement is unambiguous,
reference to extrinsic evidence was inappropriate; the doctrine of contra proferentem did not apply; the pay-off obligation was supported by ample consideration; and defendant was barred by doctrines of estoppel, waiver and laches from denying his payoff obligation.
After reviewing the document, we conclude that PSSA is ambiguous and raises a fact question that, on remand, the trial court should resolve after considering extrinsic evidence of the parties' intentions.
We review de novo the trial court's interpretation of a contract. Fastenberg v. Prudential Ins. Co. of Am., 309 N.J. Super. 415, 420 (App. Div. 1998). "The determination of whether a contract term is clear or ambiguous is a pure question of law requiring plenary review." In re Teamsters Indus. Emp. Welfare Fund, 989 F.2d 132, 135 (3d Cir. 1993). Although we apply principles of equity to assure that a matrimonial settlement agreement is fair and just, see, e.g., Petersen v. Petersen, 85 N.J. 638, 642 (1981), we apply contract principles to ascertain an agreement's meaning. See Pacifico v. Pacifico, 190 N.J. 258, 266 (2007) (applying to property settlement agreement the "basic rule of contractual interpretation that a court must discern and implement the common intention of the parties"); Flanigan v. Munson, 175 N.J. 597, 606 (2003); Aarvig v. Aarvig, 248 N.J. Super. 181, 185 (Ch. Div. 1991) ("The essentially contractual nature of property settlement agreements has always been recognized by our courts and they are to be construed in accordance with contract law."). See also Jennings v. Reed, 381 N.J. Super. 217, 227 (App. Div. 2005) (settlement agreement is a contract like any other).
The "polestar" of contract construction is "the intention of the parties . . . as revealed by the language used, taken as an entirety. . . ." Atl. N. Airlines v. Schwimmer, 12 N.J. 293, 301 (1953). See also Jacobs v. Great Pac. Century Corp., 104 N.J. 580, 582 (1986). "[I]n the quest for the intention, the situation of the parties, the attendant circumstances, and the objects they were striving to attain are necessarily to be regarded." Atl. N. Airlines, supra, 12 N.J. at 301.
Thus, to discover the intention of the parties, and to determine whether a contract is ambiguous, courts may consider extrinsic evidence offered in support of conflicting interpretations. Conway v. 287 Corporate Ctr. Assoc., 187 N.J. 259, 268-69 (2006). See also In re Teamsters Inds. Emp. Welfare Fund, supra, 989 F.2d at 135. "Evidence of the circumstances is always admissible in aid of the interpretation of an integrated agreement, even where the contract is free from ambiguity, not for the purpose of changing the writing, but to secure light by which its actual significance may be measured." Newark Publishers' Ass'n v. Newark Typographical Union, 22 N.J. 419, 427 (1956); Atl. N. Airlines, supra, 12 N.J. at 301-02 (1953). "There is no requirement that an agreement be ambiguous before evidence of a course of dealing can be shown[.]" Restatement (Second) of Contracts § 223 comment b (1981).
Extrinsic evidence may include the structure of the contract, the bargaining history, and the conduct of the parties that reflects their understanding of the contract's meaning. In re Teamsters Inds. Emp. Welfare Fund, supra, 989 F.2d at 135. See also Restatement (Second) of Contracts § 214(c) (1981) ("[N]egotiations prior to . . . adoption of a writing are admissible in evidence to establish . . . the meaning of the writing, whether or not integrated"); Restatement (Second) of Contracts § 214, Reporter's Notes to comment b (1981) (noting jurisdictions that have adopted "the proposition that there need not be a finding of ambiguity before parol evidence is admitted to interpret an integrated agreement").
Subsequent dealings of the parties under the contract may also be considered to illuminate the parties' understanding. Restatement (Second) of Contracts § 202(4) (1981). "The parties to an agreement know best what they meant, and their action under it is often the strongest evidence of their meaning." Restatement (Second) of Contracts § 202(4), comment g (1981).
At issue is the parties' objective manifestations of intent. See Friedman v. Tappan Dev. Corp., 22 N.J. 523, 531 (1956) ("It is not the real intent but the intent expressed or apparent in the writing that controls."); George M. Brewster & Son, Inc. v. Catalytic Constr. Co., 17 N.J. 20, 32 (1954) ("[T]he quest is for the reasonably certain meaning of the language used, taken as an entirety, considering the situation of the parties, the attendant circumstances, the operative usages and practices, and the objects the parties were striving to achieve."). "[A] contracting party is bound by the apparent intention he outwardly manifests to the other contracting party. To the extent that his real, secret intention differs therefrom, it is entirely immaterial." Cohn v. Fisher, 118 N.J. Super. 286, 291 (Law Div. 1972).
In interpreting a contract, the court must also consider it as whole, and avoid interpreting one provision in isolation from others pertaining to the same subject.
Disproportionate emphasis upon a word or clause or a single provision does not serve the purpose of interpretation. Words and phrases are not to be isolated but related to the context and the contractual scheme as a whole, and given the meaning that comports with the probable intent and purpose. . . .
[Newark Publishers' Ass'n, supra, 22 N.J. at 426.]
Resolution of ambiguity, if found, is a fact issue. Michaels v. Brookchester, Inc., 26 N.J. 379, 388 (1958); Deerhurst Estates v. Meadow Homes, Inc., 64 N.J. Super. 134, (App. Div. 1960), certif. denied, 34 N.J. 66 (1961). A contract is ambiguous if it is susceptible to two reasonable alternative interpretations. M.J. Paquet v. N.J. Dep't of Transp., 171 N.J. 378, 396 (2002). However, a plenary hearing is required to resolve an ambiguous contract only if, after considering all relevant materials, a genuine issue of fact remains. In re Teamsters Indus. Emp. Welfare Fund, supra, 989 F.2d at 135 n.2.
Applying these principles, we conclude that the trial court erred in refusing to consider the proffered extrinsic evidence and in finding that the contract unambiguously requires defendant to be responsible for the mortgage pay-off. On its face, the PSSA explicitly made defendant responsible only for monthly mortgage payments, taxes and insurance. It is fairly disputed whether it impliedly made him responsible to pay the total principal due, whenever plaintiff decided to sell the home. Reference to the extrinsic evidence of the negotiation history only reinforces our view.
We turn first to the language of the agreement. Perhaps most significant of all is the absence of an explicit provision requiring defendant to pay the principal due on the mortgage upon a sale, as opposed to paying monthly mortgage payments as they came due. There obviously is a significant difference between obliging defendant to pay, say, $2000 a month on a mortgage, even until the debt is retired, and obliging him to generate as much as $180,000 in a lump sum upon a sale that the home-owning former spouse may unilaterally schedule.
Reading Article VI in conjunction with Article VII, one may reasonably interpret the PSSA to require defendant to pay off the mortgage principal only through the sale of stock options. Article VI expressly imposed the duty to pay monthly mortgage payments of principal and interest, as well taxes and insurance. Article VII provided plaintiff would receive up to half the value of stock options, to be paid out in two stages: first to retire the mortgage (estimated at $180,000), and second no more than an additional $500,000.
Defendant's payments of principal, taxes and insurance under Article VI were essentially refunded to him. The taxes and insurance payments were to reduce his alimony payments. To the extent defendant reduced the principal amount due on the mortgage through monthly payments, he received the funds back in the form of reduced distribution to plaintiff from the stock option proceeds. That is because the first stage of stock option payments to plaintiff was fixed at the amount then due on the mortgage; the second stage was capped at $500,000.
One may plausibly argue that the parties contemplated that defendant's mortgage-payment obligation would be short-lived, lasting only until sale of the stock options, and not until retirement of the total mortgage debt. Consequently, the mortgage payment obligation could be seen as a stop-gap measure for the plaintiff's benefit, without major cost to defendant. Defendant would assist plaintiff in the carrying costs of the mortgage until plaintiff was able to retire the debt with stock option proceeds. Article VI required defendant to make monthly mortgage payments "until the existing mortgage on the house is paid in full." Defendant would receive credits, in one form or another, for the taxes, insurance, and principal reduction he paid. Only the mortgage interest payments would be a final cost to defendant.
According to this view, the PSSA required plaintiff to allocate her initial receipts of stock options proceeds to retire the mortgage, in order to relieve defendant, as soon as possible, of the continuing obligation to pay that expense. Arguably, if the parties did not contemplate that defendant's mortgage payment obligation would terminate, they would have allowed plaintiff to use her stock option proceeds any way she wished.
Moreover, the parties apparently contemplated that the mortgage would be retired not by the sale of the home, but by using the stock option proceeds, with plaintiff remaining in the home and then assuming the obligation to pay taxes and insurance. "Once the mortgage is paid off and the Wife begins paying these expenses herself, the Husband shall resume the total alimony payment as set forth in Article V."
The parties expressly recognized that it was possible that the stock options would not yield enough to retire the mortgage. The PSSA states, "The parties understand that there is a chance the stock options may never be sold should they not become sufficiently 'in the money', or if the Husband does not receive enough options to meet the numbers listed above." On one hand, the PSSA did not expressly relieve defendant of his mortgage payment obligation if the stock options became worthless or insufficient. On the other hand, it did not expressly require him to pay off the principal in a lump sum if the stock options did not produce the level of proceeds addressed in Article VII.
The extrinsic evidence before us reinforces an interpretation that does not oblige defendant to pay off the principal due upon sale. In his correspondence with plaintiff's attorney, defendant explicitly rejected an unconditional duty to pay off the mortgage. The objectionable provisions were thereafter deleted. Defendant's correspondence reflects an understanding that the mortgage payment obligation was a stopgap measure - he called it a "good will" measure - and that his obligation to pay off the mortgage was contingent upon the availability of cash upon sale of stock options.
My suggestion is to remove from Article VI, Par. 1.a. and 1.d (and any other place) any reference to myself paying off the mortgage.
The only place I would accept it is in Article VII Par. 2.a. because after all, it is my intention (out of good will) to pay off the mortgage, but only if I have the cash, as mentioned in Article VII. In the meantime, I am still standing behind my word that I will pay the monthly mortgage payments, but it should be clear that I see Irit as responsible for the mortgage should I not be able to make those payments in the future, and if for some terrible reason, I would not be able to pay it off.
Plaintiff's initial reliance on the rejected draft version of the PSSA may also be evidential. Perhaps, she was unaware of the changes made at defendant's request. Her understanding that defendant was obliged to pay off the principal due was apparently based not on her interpretation of the final PSSA, but upon an earlier draft.
Alternatively, one may plausibly interpret the PSSA's plain language to impose a duty to pay off the mortgage principal.
According to this view, defendant expressly assumed the ongoing obligation to pay monthly payments. Since the PSSA does not terminate this obligation, except if the mortgage is retired through stock option proceeds, defendant is ultimately responsible for paying down the mortgage. The PSSA does not restrict plaintiff's right or power to sell the house, nor does it relieve defendant of the obligation to make mortgage payments upon sale. Rather, it requires him to continue paying "until the existing mortgage on the house and any equity loan on the house is paid in full." Arguably, this imposes upon him the obligation to pay the mortgage until paid in full.
Plaintiff also argues that defendant's email urging her to sell the house reflects the parties' mutual understanding that he was obliged to pay off the principal due at closing. She argues he was urging plaintiff to sell the house to reduce her financial burdens, not his. However, according to his interpretation of the PSSA, his financial burden to pay the mortgage would be relieved by the sale. Parties' dealings subsequent to making a contract may certainly illuminate the parties' intent.
In sum, we conclude that the PSSA is ambiguous, as it is susceptible to two reasonable alternative interpretations. Thus, a fact issue arises as to its meaning. While the limited extrinsic evidence before us on balance may tend to support defendant's interpretation, it is apparent the parties did not fully explore evidence of the PSSA's negotiation, subsequent dealings of the parties, and other extrinsic evidence that could illuminate the parties' intent. Conceivably, after discovery and the submission of relevant evidence, the court may find that no genuine issue of material fact remains, and the court may interpret the contract without a plenary hearing. Alternatively, the court may determine that a plenary hearing is required.
Plaintiff's claim that defendant should be barred from denying the obligation to pay off the mortgage, based on principles of laches, waiver, and estoppel, was inappropriately raised first on appeal. We decline to address it. But plaintiff may raise the argument in the trial court on remand. Resolution of those issues as well may require discovery.
We also do not address defendant's argument that the doctrine of contra proferentem should be applied in his favor. The doctrine's applicability should be determined in light of a full picture of the negotiation of the PSSA, mindful that a prerequisite to applying the doctrine is unequal bargaining power. See Pacifico, supra, 190 N.J. at 268.
Reversed and remanded.