Copeland Process Corp. v. Nalews, Inc.
312 A.2d 576, 1973 N.H. LEXIS 333, 113 N.H. 612 (1973)
Rule of Law:
When laypersons use the legal phrase 'without prejudice' in a cancellation agreement, the term is considered ambiguous, allowing the court to admit parol evidence to determine the parties' true intent regarding the release of liability.
Facts:
- In 1966, Copeland Process Corp. (Plaintiff) contracted with the Town of Lincoln to install pollution control equipment by November 1968.
- Plaintiff subcontracted with Nalews, Inc. (Defendant) to provide labor and materials for the system.
- By October 1968, the project was delayed, and both companies faced the threat of discharge and damage to their professional reputations.
- Plaintiff's president approached Defendant's president to negotiate a termination of their relationship to expedite the project, stating he did not wish to injure Defendant's standing.
- On October 2, 1968, the parties signed a document drafted on Plaintiff's stationery stating the subcontract was 'cancelled without prejudice by mutual agreement.'
- The agreement also provided for an accounting of costs and the purchase of inventory on site.
- The parties did not consult attorneys before drafting or signing the cancellation document.
Procedural Posture:
- Plaintiff sued Defendant in an action of assumpsit (contract) for damages in the Trial Court.
- The parties stipulated to submit the specific question of the effect of the October 2 cancellation document to the Trial Court.
- The Trial Court held a hearing on the merits, admitting evidence of the circumstances surrounding the agreement.
- The Trial Court ruled in favor of the Defendant, finding the parties intended to cancel all liability.
- Plaintiff excepted to the rulings and the admission of evidence.
- The case was reserved and transferred to the Supreme Court of New Hampshire.
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Issue:
Is a contract cancellation agreement containing the phrase 'cancelled without prejudice' sufficiently unambiguous to prevent a court from considering outside evidence regarding the parties' intent to extinguish all prior claims?
Opinions:
Majority - Duncan
No; the phrase 'without prejudice,' when used by laymen in a cancellation agreement, creates an ambiguity that permits the introduction of extrinsic evidence to prove the parties intended to release all liability. While 'without prejudice' typically preserves legal rights in a lawyer's strict vocabulary, a layman might not understand this technical definition. Consequently, the trial court properly admitted evidence showing the surrounding circumstances: the agreement was drafted in haste, the Plaintiff expressed a desire not to harm the Defendant, and the Plaintiff knew the Defendant understood the agreement to mean there would be no liability for past delays. Under contract law, if one party knows the other understands a term to mean X (no liability), and allows them to proceed on that understanding, they are bound by that meaning.
Analysis:
This case serves as a critical warning regarding the use of 'legalese' by non-lawyers. The court refused to strictly apply the technical definition of 'without prejudice' because the parties were laymen acting without legal advice. It illustrates that the 'Plain Meaning Rule' has exceptions when technical terms are used in non-technical contexts. The decision reinforces the principle that the mutual intent of the parties—proven by their conduct and knowledge at the time of signing—trumps the dictionary definition of specific legal phrases in informal contracts.
