Opinion ID: 1479677
Heading Depth: 1
Heading Rank: 11

Heading: (a). INFERENCES AS TO CONTRACTUAL INTENT WHICH MAY BE DRAWN FROM THE CONDUCT OF THE PARTIES

Text: The dissenting opinion of Judge Hester in Superior Court notes a number of matters which, in the dissent's view, constitute conduct indicating an intent to be contractually bound. Two of these items are worthy of comment: 9. In its financial plan of July, 1973, Litton acknowledged the outstanding option as follows: It should be noted that Bethlehem has an option for construction of up to five (5) new vessels. That option will not expire until December 31, 1973. The terms of the option, if exercised by Bethlehem, would result in substantial losses by Litton. 14. In a letter of March, 1970, from Litton to Bethlehem, Litton stated as follows: Bethlehem already has an option agreement covering the next five vessels of the L.S.C. [Litton Super Carrier] type. We assume that you continually weigh the escalating cost of exercising these options against the projected going rate, your own fleet cost, the cost and benefits of postponing the decision further, and other investment opportunities in Bethlehem. Slip Op. at 40, 41. Item # 9 overtly acknowledges that Bethlehem has an option, and item # 14 similarly states, Bethlehem already has an option agreement covering the next five vessels. . . . Such language clearly indicates that at least some Litton people believed there was an option contract, and if there were nothing more, would constitute conduct of a party indicative of an intent to be contractually bound. On the other hand, other items listed by the dissent in Superior Court as indicative of contractual intent, are not so indicative: 7. In its internal Financial Forecast of February, 1973, Litton calculated certain escalated contract prices, for the estimated cost of ore vessels and concluded the contract value, based upon the Bethlehem letter of December, 1968 does not support persuing [sic] this business. 12. In 1971, Litton attempted to sell its shipyard on the Great Lakes to American Shipbuilding; and, in a draft acquisition agreement, Litton listed its obligations in and pursuant to that certain agreement between Erie Marine Inc., and Bethlehem Steel Corporation set forth in letters dated April 25, 1968, May 8, 1968, November 29, 1968, and December 31, 1968. Slip Op. at 39, 40. As to item # 7, the fact that Litton calculated certain escalated contract prices for the ore vessels does not mean that Litton believed it had a contractual obligation. In fact, the last sentence of # 7 indicates the opposite: it states that the contract value does not support pursuing the business, implying the existence of a choice  not an obligation  as to whether the business should be pursued. Concerning item # 12, the fact that Litton told a potential buyer of its Erie shipyard that there was a certain agreement between Litton and Bethlehem which was contained in various letters was merely a recognition that this potential purchaser had a right under the draft acquisition agreement to know of potential liabilities. Litton may or may not have thought there was a contractual obligation between the parties, but it had a contractual obligation to inform American Shipbuilding of the possibility that if it purchased the Erie yard, it might be buying a lawsuit. In all, the dissent below lists a total of sixteen items which allegedly illustrate conduct of the parties indicative of an intent to be contractually bound. Some of these items, in fact, support that inference; others do not. The importance of this observation is only that if there is a case to be made supporting the inference of Litton's intent to be contractually bound derived from Litton's conduct, the case is not so strong as the dissent would have it. Concerning Bethlehem's conduct, it is self-evident that the letter of August 21, 1973 from A.K. Smith, Bethlehem's Purchasing Agent, indicating that Bethlehem intended to exercise its options, constituted conduct consistent with an intent to be contractually bound. Further, it cannot be said that Bethlehem's failure to bargain earlier as to the open terms of the option necessarily is conduct which is inconsistent with an intent to be contractually bound. However, even in the August 21, 1973 letter, Bethlehem's Purchasing Agent stated: Several aspects of the referenced agreement are subject to the mutual agreement of the parties and we request an early meeting with you to resolve these matters. Please let us have your early reply. Thus, the very letter in which Bethlehem announces its intent to exercise its purported option specifically acknowledges that the agreement has open terms which must be mutually agreed to as a condition precedent to the effectiveness of the agreement. Additionally, Bethlehem's Purchasing Agent admitted at trial: We indicated on August 21, we intended to exercise our options and there were things that had to be resolved before we actually could have a commitment. This same witness also testified, as follows: Q. Why didn't you make the downpayment at the time you sent the letter [purporting to exercise Bethlehem's option]? A. Because, we didn't have an agreement with you. There were clauses that we agreed  there were clauses that we agreed would have to be mutually agreed to.       Q. Is it your testimony that the only reason you didn't make a downpayment was because no invoice was submitted? A. No. There wasn't a contract signed at that point in time. Why should we pay the ten percent? Repr.Rec. 2736a, 2739a-40a. It would be fair to say that such conduct, as explained by this witness, a key Bethlehem employee, was inconsistent with a belief that the parties were contractually bound. Rather, it was consistent with a desire to become contractually bound. The record literally bulges with letters, conversations and explanations on the part of both parties  all of which might generally be classified as conduct and explanations of conduct  which indicate both that the parties did and also that they did not intend to be contractually bound. When there is important conduct and explanatory testimony on the part of the parties that both supports and negates the inference of intent to be contractually bound, as there is in this case, an inference of contractual intent may not be drawn, and plaintiff has not met its burden of proof by a preponderance of evidence. Thus, there was competent evidence of record indicating that the conduct of the parties was inconsistent with an intent to be contractually bound, and the trial court's adjudication could be supported on this alone, for 13 Pa.C.S.A. § 2204 requires that in order for a contract to be formed, there must be both contractual intent and a reasonably certain basis for awarding a remedy. When one of these necessary elements is missing, there is no contractual intent and any purported agreement is not enforceable as a contract. [5]