Winchester Packaging, Inc. v. Mobil Chemical Co.

• Citation: 14 F.3d 316
• Decision Date: 18 January 1994
• Docket Number: No. 91-3911,91-3911
• Parties: 38 Fed. R. Evid. Serv. 1016 WINCHESTER PACKAGING, INCORPORATED, Plaintiff-Appellee, v. MOBIL CHEMICAL COMPANY, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 316

14 F.3d 316

38 Fed. R. Evid. Serv. 1016

WINCHESTER PACKAGING, INCORPORATED, Plaintiff-Appellee, v. MOBIL CHEMICAL COMPANY, Defendant-Appellant.

No. 91-3911.

United States Court of Appeals,

Seventh Circuit.

Argued Dec. 8, 1993.

Decided Jan. 18, 1994.

Gomer W. Walters (argued), John W. Hofeldt, J. Ray Wood, Wood, Phillips, Mason, Recktenwald & Vansanten, Chicago, IL, Robert C. Walbaum, Springfield, IL, for Winchester Packaging, Inc.

Forrest G. Keaton, Rammelkamp, Bradney, Dahman, Kuster, Keaton & Fritsche, Jacksonville, IL (argued), for Mobil Chemical Co.

Before POSNER, Chief Judge, KANNE, Circuit Judge, and REINHARD, District Judge. ^*

POSNER, Chief Judge.

Mobil Chemical Company, the defendant in a diversity breach of contract suit brought by Winchester Packaging, Inc., appeals from a judgment for the plaintiff of more than half a million dollars, arguing that it was entitled to judgment notwithstanding the verdict, or alternatively to a new trial.

Mobil owned a business that manufactured a plastic wrapping "paper" for gifts. The last stage in producing "gift wrap" is called "rewinding," and consists of transferring the gift wrap from the very large rolls on which it is initially wound to the much smaller rolls on which it is sold to the consumer. Mobil contracted out the rewinding stage to Winchester, a small manufacturer of plastic bags. Winchester had done no rewinding previously but was experienced in working with plastic. In order to do the work called for by the contract, Winchester had to purchase a "winding line," which it did with the aid of a $300,000 loan from a local bank. According to testimony that the jury was entitled to believe, Mobil assured both Winchester and the bank that if Mobil got out of the gift wrap business it would buy back the equipment that Winchester had purchased with the loan. This was in 1987. By 1989, Winchester had borrowed a total of $800,000 with which to buy equipment for rewinding gift wrap for Mobil.

In March 1989 Mobil entered into a three-year contract with Winchester for the continued purchase of rewinding services. The contract authorized Mobil to terminate the contract before the three years were up but in the event of early termination Mobil was to reimburse Winchester "for any inventory acquired or contractual commitments made for the purpose of performing Rewinding services on behalf of [Mobil], to the extent that such termination makes them no longer reasonably necessary in [Winchester's] performance of its remaining operations," and to pay Winchester a termination fee of $175,000, which the parties agreed the following month to raise to $250,000.

Five months after signing this contract Mobil sold its gift-wrap business because of disappointing sales and terminated the contract. But it made no payments to Winchester, which in January 1990 wrote in some exasperation to Mobil that it had not been able to replace the lost Mobil business (later it did obtain some replacement business, but not enough to utilize all the winding lines that it had bought to service the contract with Mobil) and warning that "in view of our current position, and since there appears to be a reluctance on Mobil's part to get on with the settlement of the details of stopping production and the terms of the contract, I have engaged the services of John Hofeldt and Gomer Walters of Haight & Hofeldt, Attorneys at Law, in Chicago, Illinois. I would prefer to get this resolved, as I am sure you would, without getting the lawyers involved." Mobil replied that it had been waiting for Winchester to submit a settlement statement, that is, a bill. Winchester responded in a long letter that ended by saying: "our losses are great enough that I don't want to incur any additional legal costs. I hope that we will be able to come up with a settlement that the attorneys can put their stamp of approval [on]." This was followed up by a memo entitled "Contract Settlement" that listed "the points that need agreement in order to close out our contract." The sum total of the "points" came to only $302,000 even though one of the items was the $250,000 agreed termination fee, yet at trial the largest item of damages sought was for the unpaid balance (almost $800,000) of the bank loans that Winchester had taken out to buy winding lines.

In support of the claim to the unpaid balance of the loans, Winchester argued that its promises (embodied in promissory notes made out to the bank) to repay the loans were comprehended by the contractual term "contractual commitments made for the purpose of performing Rewinding services on [Mobil's] behalf." Ruling that the contract was ambiguous on this question, the judge allowed oral testimony to be presented. Mobil's man on the contract, Karr, testifying about the content of telephone conversations between himself and Winchester's principal, Franseen, said that the $250,000 termination fee had been intended to cover Winchester's major losses from any sudden cessation of the business and that "contractual commitments" was merely a reference to a commitment Winchester had made to buy "shrink film" for packaging the rewound gift wrap. Mobil argues that the jury should have accepted Karr's testimony because it was unrebutted and because it would be absurd to suppose that Mobil had issued Winchester a blank check to buy equipment on credit at Mobil's expense and keep the equipment after the contract was terminated. Mobil further argues that the judge should have allowed into evidence the correspondence (from which we quoted earlier) between Franseen and Karr, because nowhere in it had Franseen demanded that Mobil pay Winchester's promissory notes to the bank. The judge excluded this correspondence under Fed.R.Evid. 408, which renders evidence regarding settlement offers and settlement negotiations inadmissible, save for special purposes not involved here.

We are baffled by Mobil's repeated references to the "unrebutted testimony" of Karr. It is true that Franseen did not testify to a positive recollection contrary to Karr's of every detail of their conversations to which Karr testified. But Franseen denied the most important details, in particular that the term "contractual commitments" had been intended to cover only the shrink film; and Franseen's denials were corroborated by the testimony, self-serving but not on that account unworthy of belief as a matter of law, of the bank's president. Mobil is asking us in effect to rule that Karr was a more credible witness, but we have no power to resolve issues of credibility unless a witness's testimony is "seriously inconsistent internally, or contrary to established laws of nature or otherwise fantastic, or irreconcilably in conflict with indubitable documentary or physical evidence, stipulations of fact, admissions, or evidence of equivalent certainty." Bullard v. Sercon Corp., 846 F.2d 463, 466 (7th Cir.1988). See also Ondato v....