Case Title: Frank B. Bozzo, Inc. v. Elec. Weld Div.

Citation: 345 Pa. Super. 423, 498 A.2d 895

Docket Number: 

State: pennsylvania

Court: Pennsylvania Supreme Court

Date: 1985-09-13T00:00:00Z

Document:
345 Pa. Superior Ct. 423 (1985) 498 A.2d 895 FRANK B. BOZZO, INC., a Corporation v. ELECTRIC WELD DIVISION OF the FORT PITT DIVISION OF SPANG INDUSTRIES, INC., a Corporation, Appellant. Supreme Court of Pennsylvania. Argued October 24, 1984. Filed September 13, 1985. *426 Beth A. Frailey, Pittsburgh, for appellant. Richard S. Dorfzaun, Pittsburgh, for appellee. Before SPAETH, President Judge, and BROSKY and OLSZEWSKI, JJ. SPAETH, President Judge: This is an appeal from a judgment entered in an action for breach of contract. The judgment includes an award of interest from the date of the breach. Appellant argues that the award is improper to the extent that it included interest on sums that were not fixed or ascertainable. We hold that with respect to such sums, compensation for delay in the nature of interest may nevertheless be awarded if in the circumstances of the case justice so requires. We therefore reverse and remand with instructions to the trial court to apply this standard, and to enter an award accordingly. The action arose on appellee's claim that appellant had breached a contract to deliver a particular sort of steel mesh for appellee to use in paving a road. After trial, in 1978, judgment was entered in appellee's favor. On appeal, we affirmed the judgment as to liability but reversed and remanded for a new trial on damages. Bozzo v. Electric Weld, 283 Pa.Super. 35, 423 A.2d 702 (1980), aff'd 495 Pa. 617, 435 A.2d 176 (1981). At the trial on damages the jury awarded appellee $96,646.10, of which $47,774.93 was for increased overhead and administrative costs, $25,592.23 for increased equipment costs, $15,657.37 for increased steel mesh costs, and $2,872.28 for increased material costs. The trial court then molded the verdict to add $43,049.19, representing 6% interest from the date on which the contract was breached. Appellant accepts the jury's award of damages but challenges the trial court's addition of interest. Appellant argues that in a breach of contract action, prejudgment *427 interest is recoverable only where the "damages . . . awarded were ascertainable at the time of the breach in accordance with the two prerequisites to the running of interest, i.e., a debt liquidated with some degree of certainty and a fixed duty to pay." Brief for Appellant at 20. Applying this proposition, appellant concludes that the only prejudgment interest to which appellee is entitled is interest on such amount as represents "the difference in cost between F mesh and J mesh . . . because these damages are ascertainable by mathematical computation from established market prices for mesh." Id. at 23. "The trial court", appellant states, "properly added interest on that amount." Id. Otherwise, in appellant's view, the court erred, for the other damages awarded by the jury were neither liquidated nor ascertainable. Id. at 24. The contract here in question represented a transaction in "goods" within the Uniform Commercial Code, 13 Pa.C.S. §§ 2101 et seq. Id. §§ 2102, 2105. Although the U.C.C. does not expressly provide whether interest may be awarded as compensation for delay, it does provide the damages available to a buyer for breach of contract. These damages include "incidental and consequential damages." See 13 Pa.C.S. § 2712 (buyer that has covered "may recover. . . any incidental or consequential damages. . . ."); id. § 2713 (measure of damages for nondelivery or repudiation is "difference between the market price . . . and the contract price, together with any incidental and consequential damages. . . ."); id. § 2714 (where buyer has accepted nonconforming goods, "[i]n a proper case any incidental and consequential damages . . . may also be recovered"). The U.C.C. defines a buyer's incidental and consequential damages as follows: Comment 1 to § 2715 states that subsection (a) We think that under § 2715(a)(3), appellee may recover prejudgment interest as an "[i]ncidental damage[] resulting from [appellant's] breach" if that interest represents a "reasonable expense incident to the delay or other breach." Id. Let us assume that because of appellant's delay or other breach, appellee had to spend money it would not otherwise have spent. That money could have been earning interest. Depending on the particular circumstances, the loss of that interest may have been a "reasonable expense incident to [appellant's] delay or other breach." *429 This conclusion is consistent with the general purpose of the U.C.C. In particular, the U.C.C. provides that "the remedies provided by this title shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special nor penal damages may be had except as specifically provided in this title or by other rule of law." 13 Pa.C.S. § 1106 (emphasis added). Here, the jury found, and appellant does not dispute, that appellant's breach caused appellee to spend $96,656.10 at various times during 1974 and 1975, and that appellant is obliged to reimburse appellee for these expenses. Whether those expenses are described as liquidated or ascertainable damages, or by any other adjective, the fact remains that because of appellant's failure to pay them, appellee may have incurred reasonable expense in the form of lost interest. If this is so, then, to be "put in as good a position as if [appellant] had fully performed", 13 Pa.C.S. § 1106, appellee's damages must include payment of the interest it was unable to earn because the money on which it could have earned the interest had to be spent to meet the expenses incident to appellant's breach of contract. Appellant insists, however, that "[t]here is no precedent to support a discretionary award of prejudgment interest in this case." Brief for Appellant at 28. We disagree with this statement. To the contrary, an examination of the precedents discloses that the common law of Pennsylvania is in accord with the provision of the U.C.C. that a buyer may recover as incidental damages "any . . . reasonable expense incident to the delay or other breach." 13 Pa.C.S. § 2715(a)(3). We may start by considering contract actions where the breach was a failure to pay either a fixed sum or a sum mathematically ascertainable, as, for example, by reference to market prices. In this type of case an award of prejudgment interest has been characterized as a right to which the plaintiff is entitled, see Palmgreen v. Palmers Garage, 383 Pa. 105, 108, 117 A.2d 721, 722 (1955), and this is true even *430 if there was a bona fide dispute as to the amount of the debt, id. See also Restatement Contracts § 337(a), adopted in Penneys v. Pennsylvania Railroad Co., 408 Pa. 276, 183 A.2d 544 (1962); Restatement Contracts Second § 354(1). The justification for an award of prejudgment interest is that because the defendant knew or at least could have learned the amount of his debt, he should have tendered that amount to the plaintiff. Since he did not, and by failing to do so caused the delay of litigation, he has deprived the plaintiff of the use of that amount from the date of the breach to the date of the satisfaction of the judgment. Or to state it conversely, the defendant has for that period had the use of money now known to have been the plaintiff's. See generally, 5 Corbin on Contracts, §§ 1047, 1048 (1964), Restatement Second Contracts § 354, Comment d. Where, however, the contract action is to recover an amount that is neither liquidated nor ascertainable, the defendant is unable to make a tender because he does not know what amount will satisfy his obligation. Because of this inability, some states have held that in such cases prejudgment interest may not be awarded. Corbin, supra, § 1048, note 3 (collecting cases). This rule has been criticized on the ground that "[i]n every case the plaintiff has suffered injury that ought to have been made good at once. If it had been made good, he would have had the use of all the money so paid him. . . . The principle of full compensation requires that he should receive the value of this use in the form of interest." Id., 408 Pa. at 288, 183 A.2d 544. To the same effect, the United States Supreme Court has stated: "It has been recognized that a distinction in this respect, simply as between cases of liquidated and unliquidated damages, is not a sound one. Whether the case is of one class or the other, the injured party has suffered a loss which may be regarded as not fully compensated if he is confined to the amount found to be reasonable as of the time of the breach and nothing is added for the delay in obtaining the award of damages." Funkhouser v. Preston, *431 290 U.S. 163, 168, 54 S. Ct. 134, 136, 78 L. Ed. 243 (1933) (footnote omitted). Similarly, both Restatements of Contracts state that in cases where the debt is neither liquidated nor ascertainable, interest may be allowed as "justice requires", "on the amount that would have been just compensation if it had been paid when performance was due." See Restatement Contracts § 337(b); Restatement Second Contracts § 354(2).[1] The common law in Pennsylvania is in accord with the Restatement view, although the cases express that view differently than do the Restatements. Thus, the cases draw a distinction between, on the one hand, interest as such, which is said to be recoverable only where the breach was a failure to pay a fixed sum or a sum mathematically ascertainable, and on the other hand, "compensation for delay", which is said to be "in the nature of interest" and is measured by the legal rate of interest. For example, in Richards v. Citizen's Natural Gas Company, 130 Pa. 37, 18 A. 600 (1889), it is said: And see Marrazzo v. Scranton Nehi Bottling Co., Inc., 438 Pa. 72, 76-77, 263 A.2d 336, 337 (1970) (collecting cases). Whether this distinction is a mere play on words[2] is not for us to say, and is of no importance. What is important is that even where the breach was not the failure to pay a fixed or ascertainable sum, still the buyer may be entitled to recover "compensation for delay." To be sure, recovery will not be "a matter of right," as it is with "interest." Marazzo v. Scranton Nehi Bottling Co., Inc., supra, 438 Pa. at 75, 263 A.2d at 337. Rather, it will be "an issue for the finder of fact, the resolution of which depends upon all the circumstances of the case". Id. In considering whether "the circumstances of the case" warrant an award of "compensation for delay", the Supreme Court has said that "one important element" will be whether the fault for nonpayment rests with the defendant or the plaintiff. Marrazzo v. Scranton Nehi Bottling Co., Inc., supra, 438 Pa. at 75, 263 A.2d at 338. If, for example, the delay occurred because the defendant was obliged to resist an excessive demand by the plaintiff, it may well be that no damages for delay are warranted. Id. Stated generally, the inquiry must be whether in the circumstances *433 of the cases "the plaintiff will not be fully compensated unless he receive" compensation for delay. Richards v. Citizen Natural Gas Company, supra 130 Pa. at 40, 18 A. at 600. Professor Dobbs, in his treatise on remedies, sets forth an analysis essentially the same as the Supreme Court's. Although he does not distinguish between interest as such and compensation for delay, he emphasizes that compensation is the most important consideration and that whether the plaintiff has been fully compensated will depend upon the circumstances of the case. Thus he states: We therefore conclude that under both the U.C.C. and the common law of Pennsylvania, in an action for breach of contract the factfinder may in a proper case award damages for delay. Where the breach was the *435 failure to pay a fixed or ascertainable sum, the damages will be awarded in the form of "interest as such" and as "a matter of right." Marrazzo v. Scranton Nehi Bottling Co., Inc., supra, and cases there collected. Otherwise, the damages will be awarded as necessary to ensure that in the particular circumstances of the case, the plaintiff has been fully compensated. Id. Such damages are designated not "interest as such" but rather "compensation for delay" "in the nature of interest", and are measured by the legal rate of interest. Id. The test for determining whether the plaintiff has been fully compensated has been variously stated, by the cases ("depends upon all the circumstances of the case"), the U.C.C. ("reasonable expense incident to the delay or other breach"), and the Restatements ("as justice requires"). The differences in these statements, however, are in our judgment stylistic only, not substantive. In the present case, after the jury had returned its verdict, the parties agreed that the trial court should determine whether appellee was entitled to damages for delay. The court then awarded, as we have mentioned, $43,049.19, representing 6% interest on the verdict from the date on which the contract was breached. In its opinion in support of this award the trial court properly rejected appellant's argument that the award should have been limited to interest on only so much of the verdict as represented damages for appellant's failure to pay a fixed or ascertainable sum. Slip op. of tr. ct. at 21-26. The court did not, however, explain by what reasoning it had determined that the interest it awarded should be from the date on which the contract was breached. Rather, the court's discussion is limited to an examination of the law regarding when damages for delay may be granted, with no application of that law to the particular facts of this case. A similar situation arose in Marrazzo v. Scranton Nehi Bottling Co., Inc., supra. There too the trial judge merely stated that interest was to be paid from a certain date. The court en banc expressed the opinion that the record did not support such an award, and that "in fairness to all parties", a later date was "more appropriate." Id. 438 Pa. at 76, 263 *436 A.2d at 338. The Supreme Court held that the court en banc had erred, for nothing on the record demonstrated either that the trial judge had "employed the proper legal standard or what circumstances he considered in arriving at his decision." Id. Pointing out that "[a]ll circumstances relevant to the delay must be developed and analyzed," the Court vacated the judgment as to interest and remanded "so that the trial court can make findings of fact and conclusions of law as to the delay and determine whether compensation for that delay should be part of the final award." Id., 438 Pa. at 77, 263 A.2d at 338. On the record before us, the same order is required.[3] The judgment as to interest is vacated and the case is remanded for further proceedings consistent with this opinion. Jurisdiction is relinquished. [1] Comment as to Restatement Second Contracts § 354 states that that "[s]ection does not deal with the injured party's right to interest to compensate him for expenditures occasioned by the breach." The comment then refers to § 347, which provides, as do 13 Pa.C.S. § 2712-2715, that an injured party has a right to damages which include "any other loss, including incidental and consequential loss, caused by the breach. . . ." [2] Judge, now Chief Judge, ALDISERT of the Court of Appeals for the Third Circuit has described it as "a charming legal fiction in the true ancient Roman fictio, fictiones sense . . ." American Enka Co. v. Wicaco Machine Corporation, 686 F.2d 1050, 1056 (3d Cir. 1982). [3] Appellant also argues that the trial court erred in not admitting certain testimony into evidence. We do not discuss this argument, for the trial court's opinion adequately disposes of it.