Opinion ID: 1479677
Heading Depth: 1
Heading Rank: 12

Heading: (b). INFERENCES OF CONTRACTUAL INTENT WHICH MAY BE DRAWN FROM THE OPEN TERMS

Text: It will be recalled that under the provisions of § 2204, the existence of open terms in a writing will not necessarily defeat the enforceability of a contract so long as there is a contractual intent. However, the number of open terms may have a bearing on a determination of contractual intent, and whether there is a reasonably certain basis for fashioning a remedy will determine whether the contract will fail for indefiniteness. Although we have already seen that there is an adequate basis in the record for determining that the parties did not intend to contract, if we assume arguendo that they did, we must then look at the open terms in the parties' writings, which are: (1) the indexes to be used for the escalation of labor and material; (2) the apportionment of this escalation on a quarterly basis; (3) other terms mutually agreed to terms and conditions As to (1), the indexes which provide for escalation of labor and material costs in line with inflation, the evidence of record established, and the trial court found, that there are no standard escalation indexes. The record indicates that during the years relevant to this case, there were thousands of published independent indexes which could be used to formulate escalation clauses, Repr.Rec. 5810a; that even if one considered only a single index, for example the NAVships material index for iron and steel, approximately 125 individual indexes are aggregated to form the composite index for iron and steel; and that in the same NAVships index, 140 separate commodity indexes comprise the general purpose machinery and equipment index. Repr.Rec. 5847a-5851a. The importance of this information is that since there is no standard index to use, and since an individual index may be constructed by using one or many individual indexes (weighted, for example, for the commodities used in the project being contracted for, and even for the geographical location of the project), there is no reasonably certain way to know which of the thousands of possibilities for constructing an index the parties would have agreed upon. Item (2) concerns the apportionment schedule. Once an escalation index is agreed upon and that is applied to the base price (here $20,400,000.00), then the parties must agree upon the amount to be escalated during each quarter of the contract. The reason for this is that if an apportionment schedule is constructed which requires the buyer to pay a larger percentage of the apportionment at the end of the contract period, when prices and costs have gone up because of inflation, the buyer will pay significantly more escalation dollars than if he had paid early in the contract period. Thus, it is in the shipbuilder's interest to delay the apportionment schedule until the end of the contract period, but it is in the buyer's interest to pay as much of the apportionment as possible in the early quarters. In one hypothetical calculation of delivered price based on 93% of the escalation amount being paid in the last quarter, the shipbuilder's price, using this variable alone to calculate the delivered price of one ship, was $5,493,000 more than the buyer's calculated price as indicated in one of the buyer's exhibits. Repr.Rec. 6037a. Since the writing in question concerned five ships, by varying the apportionment term in the shipbuilder's favor, the contract price for five ships would increase more than $25,000,000. Thus, the record not only supports the trial court's finding that there is no standard or typical apportionment of escalatable costs, but it demonstrates as well that the apportionment schedule alone, forgetting all of the other variables represented by the open terms, may make a difference of millions of dollars on the delivered price of even a single boat. Item (3), concerns other mutually agreed to terms which may be added by the parties. The trial court found and the record supports the finding that in September of 1973 Bethlehem submitted to Litton a draft construction contract which contained 12 additional terms beyond those contained in the sample contract which was referred to in Bethlehem's letter of December 31, 1968. These additional terms included various warranties, a provision for liquidated damages, a revision of the payment schedule, retainage of an amount of the contract price after delivery, a buy-American clause, a drydocking-repair provision, and a clause that would prevent Erie from merging or consolidating with any other corporation without Bethlehem's consent. It is self-evident that some if not all of these matters are significant and might well be the subject of disagreement between the parties. Taking only one item as an illustration, a Bethlehem official was questioned as follows about the buy-American clause: Q. And the buy-American provision was inserted in the Defendants' Exhibit 12 [a draft ship construction contract submitted by Bethlehem to Litton at a meeting of September 24, 1973] in Paragraph 16.4. Is that correct? A. Yes, sir. Q. There was no buy-American provision in Plaintiff's Exhibit 2 [sample ship construction contract exchanged between the parties when Litton's April 25, 1968 letter was delivered] was there? A. No, sir. Q. And the buy-American provision was a matter of serious concern to you? Wasn't it? A. Yes, sir. Q. And that was something that you told Litton and Erie? Wasn't it?       A. Yes, sir, yes, it was. Q. And you told them that in accordance with the policy of Bethlehem Steel Corporation that you, as a representative of Bethlehem Steel Corporation, wanted a buy-American provision in the contract or any contract for additional vessels? Isn't that correct? A. That we would want such a clause included, a buy-American clause included in the contract, yes, sir. Q. And there were other clauses such as liquidated damages and guarantees and others, and I'm not going to compare D-12 with P-2, . . . But there were other clauses that were included in D-12that were placed in D-12 that were not in Plaintiff's Exhibit 2? Isn't that right? A. That's right. Q. Now, on or prior to December 31, 1973, did anyone from Bethlehem tell anyone from Litton and Erie that with respect to acquiring additional vessels from Erie, that Bethlehem was agreeable to signing a contract with the terms contained in P-2 sample form of contract without any additional terms? A. I don't recall any such statement that included without any additional terms. . . Repr.Rec. 3070a-3072a. Without going into a protracted discussion of each of Bethlehem's proposed additional terms, it suffices, for purposes of determining contractual intent, to note that there were twelve such terms, that at least one of them was described by a Bethlehem official as a matter of serious concern, and that Bethlehem apparently made no offer to enter into an agreement without such additional terms. Under these conditions, the parties can hardly be said to have agreed on what additional terms, if any, would be included in a contract. Moreover, and this is the final point, all of these open terms are interrelated. It may have been that if Bethlehem would agree to omit some or all of its additional terms, Litton would agree to an escalation index proposed by Bethlehem, or that Litton would agree to the index if an additional concession were made by Bethlehem that the quarterly apportionment of escalation amounts would be weighted toward the end of the contract period. The point is that far from leaving open terms which could be easily filled by a court, the parties left open what amounted to gaping holes in a multi-million dollar contract that no one but the parties themselves could fill. There is no reasonably certain basis upon which any court could fill the gaps, and thus the trial court's findings as to the open terms are supported by competent evidence of record. In sum, a review of the record indicates that there is more than ample evidence to support the trial court's findings that there was no contractual intent and that the open terms could not be filled by the court. The writings themselves are ambiguous as to what the parties intended. Moreover, the conduct of the parties offers no more certain guidance than the writings as to intent, and the nature of the open terms argues against contractual intent. But even if contractual intent were assumed, the contract would fall for indefiniteness because the open terms may not be filled by the court on the required reasonably certain basis, or in fact, on any basis at all short of sheer speculation. HUTCHINSON, J., joins this Opinion in Support of Affirmance and files an Opinion in Support of Affirmance.