Judge Dillard and the Court of Appeals walked through contract analysis in a detailed manner to hold that the plain language of a contract allowed for the recovery of over $5 million to a former chief executive officer. SPI Holdco, LLC, et al v. Mookerji, A21A0922, A21A0923, 2021 WL 4785580 (Oct. 14, 2021).
It is well established that the construction of a contract is “a question of law for the court, involving three analytical steps.” Copeland v. Home Grown Music, Inc., 358 Ga. App. 743, 748 (1), 856 S.E.2d 325 (2021); accord Shields v. RDM, LLC, 355 Ga. App. 409, 413 (1), 844 S.E.2d 297 (2020).
The first step is to decide whether the language of the contract is clear and unambiguous. Id. If so, the contract is enforced according to its plain terms, and the contract alone is looked to for meaning. Id. Second, if the language of the contract is ambiguous in some respect, the rules of contract construction must be applied by the court to resolve the ambiguity. Id. And finally, if ambiguity remains after applying the rules of construction, the issue of what the ambiguous language means and what the parties intended must be resolved by a jury [or the trial court at a bench trial]. Id.
Significantly, the cardinal rule of contract construction is “to ascertain the intention of the parties, as set out in the language of the contract.” Id. And when the language of the agreement is ambiguous in some respect, the rules of contract construction must be applied by the court to resolve that ambiguity and ascertain the intent of the parties. See Yash Sols., LLC v. New York Glob. Consultants Corp., 352 Ga. App. 127, 140, 834 S.E.2d 126 (2019); Board of Comm'rs of Crisp Cty. v. City Comm'rs of City of Cordele, 315 Ga. App. 696, 699, 727 S.E.2d 524 (2012). Significantly, when the language of a contract is plain and unambiguous, “judicial construction is not only unnecessary but forbidden.” Fid. & Deposit Co. of Maryland v. Lafarge Bldg. Materials, Inc., 312 Ga. App. 821, 823, 720 S.E.2d 288 (2011); accord Abdulkadir v. State, 279 Ga. 122, 123 (2), 610 S.E.2d 50 (2005).
The dispute revolved around a former CEO's incentive compensation amount. Section 3.3 of the agreement between the company and the former CEO broadly provides that Mookerji was to receive an incentive payment of 0.5 percent of SPI Holdco's TEV (“total enterprise value”) determined at the time the company was sold, and the payment is earned for each year SPI Holdco meets or exceeds the projected Adjusted EBITDA number. SPI Holdco, LLC, et al v. Mookerji, 2021 WL 4785580 at *6. The appellants argued that the trial court erred in concluding that the methodology used to calculate “Adjusted EBITDA” for purposes of Section 3.3 of the employment agreement includes revenue attributable to acquisitions SPI Holdco made after that agreement was executed in May 2015. Id. at *2.
“Adjusted EBITDA” was defined as “at any date of determination, an amount equal to the consolidated net income or loss of [SPI Holdco] and its Subsidiaries plus the following to the extent deducted in calculating such consolidated net income or loss (without duplication): (a) all interest, premium payments, debt discount, fees, charges and related expenses in connection with borrowed money (including capitalized interest), in each case to the extent treated as interest in accordance with GAAP, (b) the provision for federal, state, local and foreign income taxes payable, and (c) depreciation and amortization expense, as adjusted consistent with the methodology used to calculate 'Adjusted EBITDA' in the management projections set forth in the Agent Presentation.” Id. at *4.
The parties stipulated that if revenue from businesses acquired is counted in calculating the Adjusted EBITDA then Mr. Mookerji's incentive compensation would have been met for 2015 and 2016. If the revenue from businesses acquired is not counted in calculating the Adjusted EBITDA, the threshold would not be met. Id.
The Court of Appeals decided that adopting the appellants reading of the contract that businesses acquired were not included would go beyond construing the contract and revising it. Id. at *6. If the language of a contract is plain and unambiguous, “judicial construction is not only unnecessary but it is forbidden.” Fid. & Deposit Co. of Maryland, 312 Ga. App. at 823, 720 S.E.2d 288; accord Abdulkadir, 279 Ga. at 123 (2), 610 S.E.2d 50; Six Flags Over Ga. v. Kull, 276 Ga. 210, 211, 576 S.E.2d 880 (2003); Bibler Masonry Contractors, Inc. v. J. T. Turner Constr. Co., Inc., 340 Ga. App. 490, 492, 798 S.E.2d 19 (2017). So, in the absence of “words of limitation, words in a [contract] should be given their ordinary and everyday meaning.” Kull, 276 Ga. at 211, 576 S.E.2d 880; accord Seals v. Hygrade Distribution & Delivery Sys., Inc., 249 Ga. App. 574, 576-77, 549 S.E.2d 412 (2001).
It is the function of this Court to “construe the contract as written and not to make a new contract for the parties.” Rec.Town, Inc. v. Sugarloaf Mills Ltd. P'ship of Ga., 301 Ga. App. 367, 370, 687 S.E.2d 640 (2009); Roquemore v. Burgess, 281 Ga. 593, 595, 642 S.E.2d 41 (2007).
As such, the Court of Appeals decided no term or provision was ambiguous because the entire section and the definition of Adjusted EBITDA did not specify that any revenue is excluded from the calculation. Id. Therefore, the Court cannot add exclusions into the calculation because had the parties intended to exclude certain revenue, they would have stated that in Section 3.3 or some other part of the agreement. Id. at *7.