R/S Associates et al.,
Appellants,
v.
New York Job Development
Authority,
Respondent.
2002 NY Int. 48
At issue here is the interpretation of the term "effective cost of funds" in a loan agreement between R/S Associates and the New York Job Development Authority. Because the term is not ambiguous as used in this agreement, we affirm.
The New York Job Development Authority (JDA) is a
public benefit corporation created by constitutional amendment in
1961 (L 1961, ch 443, § 2). Its purpose is to "assist, promote,
encourage, develop and advance the general prosperity and
Unlike a typical commercial lender, the JDA operates as a conduit funding organization. It finances loans through the sale of either taxable or tax-exempt long-term bonds, guaranteed by the State (see Public Authorities Law § 1813). The JDA is self-supporting; all of its operating and administrative expenses -- including any loan defaults-- are funded through payments made by borrowers.
R/S Associates, a real estate holding company, and
Ittco Sales Co., Inc., a manufacturer and distributor of
automotive accessories (together "R/S"), have common ownership.
With Ittco Sales Co. as guarantor, R/S Associates sought and
obtained a commercial loan from the JDA to purchase land and
construct a facility in Ronkonkoma, New York. In 1986, the JDA
approved a $332,500 loan to R/S Associates, which closed two
years later. The loan was funded, along with other loans to
other borrowers, through the issuance of a variable rate, tax-
exempt bond in the principal amount of $24,610,000. The loan
agreement provided that "the rate to be charged by the JDA may be
After making regular payments on the loan for over a decade, R/S filed a putative class action complaint alleging breach of contract and fraud. R/S claimed that the JDA, in its calculation of the "effective cost of funds" under the loan agreement, improperly included the cost of defaults by other borrowers. In its view, that term includes only the interest rate on the bond sold to finance the loan and the direct costs of issuing that bond, such as the cost of bond counsel, underwriters and letters of credit. R/S sought class certification; the JDA cross-moved for summary judgment dismissing the complaint. R/S then countered with its own motion for partial summary judgment on the issue of liability.
Supreme Court dismissed the complaint. The court held that the JDA properly recovers its operating costs through the interest it charges to borrowers, and that the term "effective cost of funds" includes the interest rate on the bond, the cost of issuance and the cost of defaults by other borrowers. The Appellate Division affirmed, noting only that because the term "effective cost of funds" in this agreement is unambiguous "the rules governing the construction of ambiguous contracts were not triggered" (281 2 608). We agree.
We have long adhered to the "sound rule in the
construction of contracts, that where the language is clear,
In this loan agreement, the contract term "effective
cost of funds" is unambiguous. Under its ordinary usage, the
"effective" cost of the funds means the "actual" cost of securing
such funds for a specific loan (see e.g. Oxford English
Dictionary, Vol V at 80 [2d ed 1989] [defining "effective" as
"actual" or "existing in fact"]). Regardless of borrower
defaults, the JDA's funding mechanism required it to repay the
underlying bond when due. Thus, the "actual" or "effective" cost
of the funds loaned by the JDA necessarily included the interest
it had to pay to bondholders, the cost of issuing the bond and
the cost of defaults by the borrowers who received loans from
bond proceeds. Any other interpretation of this agreement would
ignore the import of "effective" in modifying "cost of funds."
The "[l]oss engendered by defaulting borrowers is a readily
perceivable risk for any lender, which [the JDA] was entitled to
consider in calculating the interest rate charged to [R/S]" (B &
R Children's Overalls Co. v New York Job Development Authority,
Because the contract term is unambiguous in this context we need not address R/S' remaining arguments, based on offers of extrinsic evidence. Unless the court finds ambiguity, the rules governing the interpretation of ambiguous contracts do not come into play (see Wallace v 600 Partners Co., , 86 NY2d 543, 548 [1995]; Breed v Insurance Co. of North Am., , 46 NY2d 351, 355 [1978]). Thus, when interpreting an unambiguous contract term "[e]vidence outside the four corners of the document * * * is generally inadmissible to add to or vary the writing" (W.W.W. Assocs. Inc., 77 NY2d at 162). "'[E]xtrinsic and parol evidence is not admissible to create an ambiguity in a written agreement which is complete and clear and unambiguous upon its face" (id. [quoting Intercontinental Planning v Daystrom, Inc., , 24 NY2d 372, 379 [1969]; see Reiss, 97 NY2d at 199).
Accordingly, the order of the Appellate Division should be affirmed, with costs.