SYLLABUS
(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).
Argued February 13, 2007 -- Decided April 18, 2007
LONG, J., writing for a unanimous Court.
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
JUSTICE LONG’S opinion.
SUPREME COURT OF NEW JERSEY
A-
61 September Term 2006
GINGER PACIFICO,
Plaintiff-Respondent,
v.
JAMES PAUL PACIFICO,
Defendant-Appellant.
Argued February 13, 2007 – Decided April 18, 2007
On certification to the Superior Court, Appellate Division.
John E. Lanza argued the cause for appellant (Lanza & Lanza, attorneys; Kenneth
W. Thomas, on the brief).
George G. Gussis argued the cause for respondent.
JUSTICE LONG delivered the opinion of the Court.
Plaintiff, Ginger Pacifico (now Gaspari) and defendant, James Pacifico, were married in 1978
and divorced in 1997. At the time of their divorce, the parties’ two
sons, Anthony and Jason, lived with Ginger in the marital home. Pursuant to
a property settlement agreement (PSA) dated December 2, 1996, 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 boys 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 premises as “joint tenants with right of survivorship” until
it was sold and that:
[t]he marital residence shall be sold upon the first happening of any of
the following events:
1) Youngest child’s attainment of the age of 19;
. . .
Upon the first happening of any of the foregoing events, the Wife shall
have the first option to purchase the interest of the Husband. Should the
Wife not choose to exercise this option, the Husband shall then have the
same option. If neither party desires to purchase the other’s interest the Real
Estate shall be listed with a licensed Real Estate broker to be sold
and the Real Estate shall be sold. Upon payment from the proceeds of
the sale of the house of the outstanding mortgage, Real Estate commissions, transfer
tax, recording fees, reasonable attorney’s fees, the Wife shall be responsible for all
outstanding property taxes or entitled for a credit for overpayment. . .. Any
debt/lien attaching to the property as a result of any action or inaction
by Husband or Wife shall be deducted from that party’s portion of the
proceeds.
See footnote 1
On Jason’s 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.
Ginger certified that her understanding was that the PSA gave her the right
of first refusal at the 1996 value in return for her obligation to
pay all of the carrying charges on the house although allowing James to
take all of the tax benefits. James certified that he obtained the 1996
market analysis merely to assist him in deciding whether to sell to a
third party at the time of the divorce. Furthermore, James contended that the
tax benefits served to off-set the child support and the alimony he agreed
to provide Ginger, and also as an acknowledgement of his decision to permit
Ginger to live in the house until their youngest son reached nineteen years
of age.
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.
See footnote 2
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 the
provision, and because the panel found that James’ attorney drafted the agreement, it
held that “any ambiguity would be construed in Ginger’s favor.” Moreover, the panel
stated that “[g]iving Ginger the benefit of all favorable inferences from the evidence,
a factfinder could conclude that the agreement should be construed as she contends,”
and thus, a plenary hearing was required.
At the hearing, only James and Ginger testified. Their testimony was consistent with
the facts each set forth in their prior certifications. James maintained that the
1996 market valuation was obtained to establish the value of the asset because
he contemplated selling it at that time.
See footnote 3
Ultimately, he chose not to do
so because he did not want to uproot his sons. Therefore, he remained
a co-owner of the house and allowed Ginger and their sons to live
there. Furthermore, James testified that the parties never agreed to freeze Ginger’s buy-out
at the 1996 figure, 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 position that the parties agreed that she could purchase the
house at the 1996 valuation upon the emancipation of her youngest son. Again,
she explained 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.
At the plenary hearing, various drafts of the PSA were received into evidence.
See footnote 4
James’ attorney prepared the first draft. It provided that the marital residence would
be sold upon the first happening of either the death of Ginger or
the emancipation of the youngest son. Under that version, Ginger also had the
first option to purchase the interest of James at the “best price attainable,”
an apparent reference to the current market value at the time of the
triggering event.
Ginger’s attorney prepared the second draft. That draft also contemplated Ginger’s continued residence
in the marital home. It read:
Husband agrees to convey to the wife by way of quantum deed all
right, title, claim and interest he may have in and to the property.
At that time the wife shall give to the husband a mortgage in
the amount of one-half of the equity at the time of the divorce.
In other words, that draft provided that James would transfer the house to
Ginger at the time of divorce subject to a mortgage securing his one-half
interest in the house. In addition, on the emancipation of their youngest child,
Ginger was entitled to “purchase the interest of [James].” If she chose not
to do so, the house was to be sold. Ginger argued that under
that version, James’ interest was frozen at the 1996 value.
Because the parties apparently could not agree, James’ lawyer drafted a third version.
That draft was the basis for the final PSA, but was subject to
further negotiation, as reflected in the numerous handwritten interlineations present in the final
draft. It included the provision in the final PSA that is at issue
here.
After the plenary hearing, the trial judge concluded 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. He also
held “that plaintiff is to buy out defendant’s interest in the marital residence
for one-half of $167,000, less the mortgage balance on May 27, 2003.”
See footnote 5
In
ruling, the judge made no findings regarding 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. James filed a petition for certification that we granted.
188 N.J. 576
(2006).
I.
James argues that the trial judge correctly supplied the valuation date in his
initial judgment; that the Appellate Division erred in concluding the PSA was ambiguous;
that even if the PSA was ambiguous, the Appellate Division required the trial
judge to apply an entirely incorrect interpretative rationale; and that, at the very
least, the case should be remanded for necessary credibility findings. Ginger counters that
the evidence supported the 1996 valuation date and that the Appellate Division’s decision
to interpret the ambiguity against James, the drafter, was correct.
II.
The basic contractual nature of matrimonial agreements has long been recognized. Harrington v.
Harrington,
281 N.J. Super. 39, 46 (App. Div. 1995)(citing Peterson v. Peterson,
85 N.J. 638, 642 (1981); Massar v. Massar,
279 N.J. Super. 89, 93 (App.
Div. 1995)), certif. denied,
142 N.J. 455 (1995). At the same time, “the
law grants particular leniency to agreements made in the domestic arena,” thus allowing
“judges greater discretion when interpreting such agreements.” Guglielmo v. Guglielmo,
253 N.J. Super. 531, 542 (App. Div. 1992).
As a general rule, courts should enforce contracts as the parties intended. Henchy
v. City of Absecon, 148 F. Supp.2d 435, 439 (D.N.J. 2001); Kampf
v. Franklin Life Ins. Co.,
33 N.J. 36, 43 (1960). Similarly, it is
a basic rule of contractual interpretation that a court must discern and implement
the common intention of the parties. Tessmar v. Grosner,
23 N.J. 193, 201
(1957). The court’s role is to consider what is written in the context
of the circumstances at the time of drafting and to apply a rational
meaning in keeping with the “expressed general purpose.” Northern Airlines, Inc. v. Schwimmer,
12 N.J. 293, 302 (1953); accord Dontzin v. Myer,
301 N.J. Super. 501,
507 (App. Div. 1997). That is the backdrop for our inquiry.
III.
James argues that the trial judge was initially correct in supplying the 2003
valuation date, which James characterizes as a “missing” term. However, this is not
a missing term case. Indeed, the Restatement Second of Contracts § 204 provides “[w]hen
the parties to a bargain sufficiently defined to be a contract have not
agreed with respect to a term which is essential to a determination of
their rights and duties, a term which is reasonable in the circumstances is
supplied by the court.” Restatement (Second) of Contracts § 204 (1981)(emphasis added). As that
section and its commentary reveal, it is intended to be applied in cases
in which the parties failed to agree regarding an issue, generally because they
did not anticipate that it would arise or merely overlooked it. Id. § 204
cmts. (1981).
In the present case, neither party argues that no agreement existed regarding the
valuation date when the PSA was executed. On the contrary, both contend that,
when they signed the agreement, there was a clear understanding between them regarding
the buy-out value to be ascribed to the house. The problem is that
they disagree, in retrospect, over what that understanding was. It thus fell to
the trial judge to discern the parties’ intent at the time of the
divorce by probing their positions at an evidentiary hearing.
We understand the judge’s initial inclination to rule that the 2003 value would
apply in light of the fact that nothing in the PSA suggested otherwise.
Had no conflicting certifications been filed, and had the parties been willing to
stand or fall on the agreement itself, that might have been a fair
approach. However, Ginger certified that the parties fully intended the 1996 value to
be operative, that she made concessions to obtain that value, that a prior
draft included that value and that, in effect, its absence was a scrivener’s
error.
James countered that Ginger did not make any concessions that would have justified
the 1996 value and alleged that a sale at market value upon a
triggering event was what was agreed upon. Under the circumstances, the judge had
no alternative but to conduct an evidentiary hearing at which the parties’ credibility
could be assessed and their intentions gleaned. The Appellate Division was thus correct
in ordering that hearing. We part company from the Appellate panel in connection
with its concomitant instructions to the trial judge regarding the remand.
We turn first to the panel’s direction that the trial judge apply the doctrine of contra proferentem. When a contract term is ambiguous, that rule of contract interpretation requires a court to adopt the meaning that is most favorable to the non-drafting party. See 5 Corbin on Contracts § 24.27 (Perillo ed., rev. ed. 1998). The doctrine may be utilized after a court has examined the terms of the contract, in light of the common usage and custom, and considered the circumstances surrounding its execution. If, at that time, the court is unable to determine the meaning of the term, contra proferentem may be employed as a doctrine of last resort. See ibid. The rationale behind that method of interpretation is that “[w]here one party chooses the term of a contract, he is likely to provide more carefully for the protection of his own interests than for those of the other party. He is also more likely than the other party to have reason to know of uncertainties of meaning.” Ibid. Importantly, contra proferentem is only available in situations where the parties have unequal bargaining power. Ibid. If both parties are equally “worldly-wise” and sophisticated, contra proferentem is inappropriate. See RCI Northeast Servs. Div. v. Boston Edison Co., 822 F.2d 199, 203 n.3 (1st Cir. 1987).
With those principles in mind, we conclude that the Appellate Division erred in several ways in directing the trial judge to apply the doctrine. First, the panel oversimplified the matrimonial settlement process by concluding that James’ lawyer “drafted” the PSA. To be sure, James’ lawyer drafted the first version. However, Ginger’s lawyer drafted the second. Thereafter, James’ lawyer drafted the third. The fourth and final draft was essentially the third draft with handwritten interlineations that reflected Ginger’s changes. That is the way property settlement agreements are developed. 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 is inapposite because a prerequisite to its application –- unequal bargaining power –- did not exist.
In short, the doctrine should not have been applied. That mistake caused the trial judge to elide the critical process of evaluating the parties’ actual intentions and credibility, and in effect, to conclude that Ginger prevailed as a matter of law. That conclusion was erroneous. We thus reverse and remand the matter to the trial judge to evaluate the evidence that was previously adduced at the hearing, this time, under the standards to which we have made reference. As we have said that does not include the doctrine of contra proferentem. Accordingly, all inferences need not be drawn in Ginger’s favor.
Moreover, in conducting the proceedings, the 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. The burden is allocated that way, not only because Ginger has invoked the jurisdiction of the court. Rather, where the sale of a marital asset is to abide a future event, for example the coming of age of a child, and no alternative is provided, current market value as of the time of the triggering event is presumed. Although overcoming a presumption only requires that a party satisfy the burden of going forward, Ahn v. Kim, 145 N.J. 423, 439 (1996), Ginger should bear the ultimate burden of proof as well because, in effect, she is attempting to exclude $137,000 worth of joint marital property from distribution. Clearly, the burden of establishing immunity from distribution of a particular marital asset or portion of an asset rests upon the spouse who asserts it. Landwehr v. Landwehr, 111 N.J. 491, 504 (1988); Painter v. Painter, 65 N.J. 196, 214 (1974). Obviously, parties are free to exclude marital property from distribution by agreement. However, where there is no agreement or the existence of an agreement is challenged, the burden is as we have declared it to be.
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 regarding their intentions at the time of the drafting of the PSA will be a pivotal factor on remand, and a close, textual analysis of the various drafts should aid in that determination.
It goes without saying that precise draftsmanship should be the polestar in every matrimonial settlement agreement. Otherwise, as here, the parties will continue to struggle over the underlying grievances of the marriage, long after the ink on the judgment of divorce has dried.
The judgment of the Appellate Division is reversed. 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 JUSTICE LONG’s opinion.
SUPREME COURT OF NEW JERSEY
NO. A-61 SEPTEMBER TERM 2006
ON CERTIFICATION TO Appellate Division, Superior Court
GINGER PACIFICO,
Plaintiff-Respondent,
v.
JAMES PAUL PACIFICO,
Defendant-Appellant.
DECIDED April 18, 2007
Chief Justice Zazzali PRESIDING
OPINION BY Justice Long
CONCURRING/DISSENTING OPINIONS BY
DISSENTING OPINION BY
CHECKLIST
Footnote: 1 Although not stated, it appears that the parties agreed that the proceeds would
be equally divided. No other option has been suggested by any party, and
no contention to the contrary was advanced during the proceedings that led up
to this appeal.
Footnote: 2
The property was valued at $304,000 at the time of the motion,
July 2003.
Footnote: 3
The market valuation provided that:
Its purpose is to estimate the market value of the subject property as
defined within the report. The function is to assist the client in valuation
knowledge for possible disposition of real estate.
Footnote: 4
There were many changes from draft to draft including the alimony and child
support figures. Although only the details of the equitable distribution provisions regarding the
matrimonial premises are recounted here, it is clear that the PSA was a
fully negotiated work in progress with input from both sides.
Footnote: 5
No provision for interest was included.