Opinion ID: 689123
Heading Depth: 2
Heading Rank: 2

Heading: Proof in Instant Case

Text: 27 Sure-Trip declared through its witnesses' testimony that its only increased costs would have been for labor, materials, and packaging, and that the company would have been capable of tripling production without any additional expenditures for administration, insurance, or machine repair, and only a minor increase in utility expense. Conceding that it would have been necessary to add at least one additional production shift to meet the increased demand, Sure-Trip insists it would have incurred no additional costs for payroll administration, overtime, or hiring and training new employees. The district court properly rejected this testimony as incredible. It found plaintiff had failed to meet its burden of accounting for and deducting increased expenses that would have been incurred in performance of the contract. 28 Given Sure-Trip's failure to meet its burden of proof, the district court would have been justified in awarding no damages. Instead, it turned to plaintiff's 1988 income tax return as the best available source of information regarding plaintiff's actual profit margin. Unlike the witnesses' testimony, the tax return reflected deductions for those items such as office supplies, utilities and machine repair that the company considered variable expenses. Pennsylvania law permits the court to make a just and reasonable estimate of the damage based on relevant data. Id. Such evidence need not be complete or mathematically certain, so long as it provides a reasonable basis for calculation. Id. 464 A.2d at 1257-58. 29 Although the district court was entitled to rely on information included in plaintiff's tax return, it remains to be seen whether it incorrectly equated taxable income with profit. Sure-Trip maintains the trial court's approach conflated fixed and variable expenses because both are allowed as deductions from taxable income. In arriving at taxable income, Sure-Trip was permitted to deduct business expenses--such as rent and depreciation--that were part of its overhead, even though such expenses are not typically deducted in arriving at damages for lost profits, see SHV Coal, Inc., 545 A.2d at 923-24; see also Labar v. Labar, 434 Pa.Super. 612, 644 A.2d 777, 780-81 (1994) (discussing relation between depreciation and net profit). Sure-Trip goes on to say that to arrive at its estimated profits, its taxable income ought to have been increased by the amount of those deductions it took for fixed business expenses. 30 A cursory examination of Sure-Trip's tax return reveals the difficulties involved in recasting the tax return into a profit and loss statement. To separate the deductions representing only fixed costs would necessarily lead to a significant degree of speculation. The deduction for rent is perhaps one clear example of an expense that would not have been likely to increase due to contract performance. Other deductions, such as those for advertising, travel, patent expense and depreciation, might fall into the same category. But items such as office supplies, bank charges, insurance and legal expenses are more problematic. A finder of fact might conjecture that such costs would have increased. Yet, assaying by what degree, without more evidence than was presented here, would be completely speculative. 31 For example, some of the most substantial deductions represent disguised compensation to Sure-Trip's principals, Fitts and Penniston: these include subcontractor fees of over $100,000, and a $15,000 engineering consultation fee, which was revealed at trial to be a personal expense of Penniston's. No evidence was introduced as to whether any of these costs represented compensation for services that might have increased due to contract performance, other than the unsubstantiated assertions of these two witnesses. 32 In short, Sure-Trip, having failed to meet its own burden as to proof of damages, proposes shifting that burden onto the trial court, and would have us impose a requirement that the trial judge undertake an independent inquiry into such facts as it can unearth. The indefinite nature of this inquiry obviously is attributable in large part to Sure-Trip's failure to present reasonably reliable proof of its damages, transforming the difficulties of calculation, absent adequate proof, into an exercise of the finder of fact's imagination. 33 Also in the realm of fantasy was the rapacious damage figure that Sure-Trip's principals estimated at nearly $600,000. That outrageous figure was correctly set aside. Rather, the district court having nothing else before it used plaintiff's taxable income, which could be measured, instead of its lost profits, which could not. Any upward departure from taxable income based on setting aside those deductions held to represent fixed expenses would, as we have seen, be speculative. But plaintiff's taxable income does provide a useful floor: the court could reasonably conclude that Sure-Trip's per-unit lost profits were no lower than its 1988 per-unit taxable income. Sure-Trip, having failed to meet its burden of proof, cannot now be heard to complain. Accordingly, were the size of the damage award the only issue before us, we would be inclined to affirm the judgment. But there is another issue--that of contract liability--to which we now turn. II Summary Judgment A. Review of Its Grant 34 Westinghouse cross-appeals the summary judgment granted in favor of Sure-Trip on the issue of Westinghouse's breach of the contract. We review an award of summary judgment de novo and, resolving all ambiguities against the moving party, attempt to discover if there are any genuine issues of material fact left to be tried. Gallo v. Prudential Residential Services, Ltd. Partnership, 22 F.3d 1219, 1223-24 (2d Cir.1994). Summary judgment is proper only when reasonable minds could not differ as to the import of the evidence. See Bryant v. Maffucci, 923 F.2d 979, 982 (2d Cir.), cert. denied, 502 U.S. 849, 112 S.Ct. 152, 116 L.Ed.2d 117 (1991). 35 Under Pennsylvania law, construing the language of a contract is a question of law. See Meeting House Lane, Ltd. v. Melso, 427 Pa.Super. 118, 628 A.2d 854, 857 (1993), appeal denied, 537 Pa. 633, 642 A.2d 486 (1994). The object of interpreting a contract is to ascertain and effectuate the intent of the parties as manifested by the language they chose to use. See American States Ins. Co. v. Maryland Casualty Co., 427 Pa.Super. 170, 628 A.2d 880, 886 (1993); O'Brien Energy Systems, Inc. v. American Employers' Ins. Co., 427 Pa.Super. 456, 629 A.2d 957, 960 (1993). Summary judgment is appropriate only if the contract language unambiguously conveys the intent of the parties. Cf. Hershey Foods Corp. v. General Electric Service Co., 422 Pa.Super. 143, 619 A.2d 285, 288, appeal denied, 536 Pa. 643, 639 A.2d 29 (1993). B. Summary Judgment in this Case 36 The district court found the contract plainly committed Westinghouse to a purchase of at least 1200 retrofit kits. In making this finding it focused on the first sentence in Paragraph I.a.: [Westinghouse] agrees to purchase a minimum of 100 kits per month [in 1988]. Standing alone, the quoted terminology does have the unambiguous meaning the district court ascribed to it. Nonetheless, the intention of the parties is not derived from sentences or clauses read in isolation, but from the instrument as a whole. See O'Brien Energy Systems, Inc., 629 A.2d at 960. Not only should the entire contract be considered, but its parts must be reconciled, if possible. See Flatley v. Penman, 429 Pa.Super. 517, 632 A.2d 1342, 1344 (1993), appeal denied, 537 Pa. 620, 641 A.2d 586 (1994). One part of a contract should not be read so as to render another part meaningless. See Meeting House Lane, Ltd., 628 A.2d at 858. 37 It follows therefore that the meaning of Paragraph I.a. cannot be determined from its first sentence alone. Also to be considered and given effect is its third sentence: 38 If in any three-month period [Westinghouse] does not meet this volume commitment, then Sure-Trip will invoice the difference ... between the 1987 list price of $889 and the contract price specified below. 39 Westinghouse contends this sentence plainly provides for an alternate method of contract performance, that is, it is obligated either to buy at least 300 units per quarter at a discount or to pay the regular list price for however many units it purchases. This reflects a standard pricing arrangement, and is not an unreasonable interpretation of the contract. Upon this view, Westinghouse has not breached the contract; it simply owes Sure-Trip the difference between the list price and contract price for the 75 kits it did purchase. The district court's reading of the first sentence of Paragraph I.a. as imposing an absolute commitment on Westinghouse's part to purchase 1200 units unfortunately foreclosed this reading. 40 Another view of the same clause is that it represents a liquidated damages provision, according to which Westinghouse agrees to pay the full contract price as a penalty in the event of a breach. Sure-Trip rejects this view because a valid liquidated damages clause would prevent its recovery of a greater amount under a lost profits theory. See 13 Pa.Cons.Stat.Ann. Sec. 2719 (1984). The district court found as a factual matter that neither party contemplated such a provision, and so it correctly rejected the liquidated damages interpretation. 41 The only remaining undiscussed alternative is Sure-Trip's argument that the clause gave it quarterly cash flow protection during the contract period. The clause, Sure-Trip maintains, guarantees it the list price-contract price differential for 300 units per quarter. But plaintiff concedes that such a reading of the clause is inherently ambiguous because the clause does not specify the number of units by which the price differential is to be multiplied. In addition, the impossibility of calculating the amount due under this reading of the clause is increased because the list price varies according to which unit is purchased; it cannot be determined with respect to units not purchased. For purposes of trial the parties stipulated that the differential was $133, but this amount cannot be substantiated from the face of the agreement. 42 Thus, in turning to lost profits as an alternate measure of recovery, the district court essentially side-stepped the preliminary problem of resolving contract ambiguities. Taking the first sentence of Paragraph I.a. as an absolute commitment renders the third sentence either meaningless or hopelessly ambiguous. Although a written agreement must be construed against its drafter, see Reilly Assocs. v. Duryea Borough Sewer Auth., 428 Pa.Super. 460, 631 A.2d 621, 623 (1993), this canon of construction will not be applied so as to deprive a contract of meaning. The problem remains of assigning some meaning and effect to the third sentence. When the language of an agreement is ambiguous, extrinsic evidence, including the circumstances surrounding the execution of the agreement and the parties' subsequent conduct, may be looked at to discover the intent of the parties. See Department of Transp. v. IA Constr. Corp., 138 Pa.Cmwlth. 587, 588 A.2d 1327, 1330 (1991). 43 Extrinsic evidence of this kind was presented at trial. For instance, all the witnesses testified that the concept of cash flow protection was not discussed during contract negotiations, but that a volume discount was. Further, Sure-Trip did not attempt to collect the money allegedly owing it under its own interpretation of the agreement. At the end of the first quarter of 1988 Westinghouse had purchased only 28 kits, so Sure-Trip supposedly understood that it was entitled to recover the $133 differential times 300 kits, or $39,900, or at least the $133 differential times the 272 kits not purchased, or $36,176. But the invoice sent in May 1988 (including 1987 purchases) only amounted to $12,655. 44 If Sure-Trip's understanding was that it was entitled to invoice 300 times the pricing differential, it was rather surprising that it failed to bill Westinghouse for an amount that totaled about 330 percent of the company's entire annual income. In demanding only the price differential for the units actually purchased, Sure-Trip's May 1988 invoice appears to concede that Sure-Trip understood the agreement in exactly the same way as Westinghouse now urges. 45 In sum, it is not our task on appeal to determine the credibility of the different parties, or to weigh the probability of facts in the absence of a finding by the district court. We think the contract between Sure-Trip and Westinghouse was ambiguous as a matter of law, and therefore that unresolved issues of fact rendered a grant of summary judgment with respect to contractual liability improper.