Walther & Cie v. US Fidelity & Guaranty Company

• Decision Date: 19 June 1975
• Docket Number: Civ. No. 72-259.
• Citation: 397 F. Supp. 937
• Parties: WALTHER & CIE, Plaintiff, v. U. S. FIDELITY & GUARANTY COMPANY et al., Defendants.
• Court: U.S. District Court — Middle District of Pennsylvania

397 F. Supp. 937

WALTHER & CIE, Plaintiff, v. U. S. FIDELITY & GUARANTY COMPANY et al., Defendants.

Civ. No. 72-259.

United States District Court, M. D. Pennsylvania.

June 19, 1975.

COPYRIGHT MATERIAL OMITTED

Arthur R. Littleton, Morgan, Lewis & Bockius, Philadelphia, Pa., for plaintiff.

Robert J. Stewart, Liverant, Senft & Cohen, York, Pa., for defendant U. S. Fidelity & Guaranty Co.

Paul J. Donnelly, Philadelphia, Pa., for defendant Planet Ins. Co.

Donald H. Yost, Wogan, Elsesser, Yost & Bupp, York, Pa., for defendants R. S. Noonan, Inc. and International Noonan.

Lewis S. Kunkel, Jr., Pepper, Hamilton & Scheetz, Harrisburg, Pa., for defendants International Boiler Works Co. and International Environmental Systems, Inc. SHERIDAN, Chief Judge.

This case is before the court on plaintiff's motion for sanctions against the defendants for failure to carry out the terms of the settlement agreement entered into by the parties.

Plaintiff, Walther & Cie, entered into a contract with International Boiler Works Company to furnish material, primarily boilers and boiler tubing, for use in the Harrisburg Incinerator project, being constructed by International-Noonan, a joint venture consisting of International Boiler Works Company and R. S. Noonan, Inc. The purchase price agreed to in the contract was 1.280.140 Deutsche marks. U. S. Fidelity & Guaranty Company and Planet Insurance Company executed a payment bond in connection with the aforementioned project undertaken by the joint venturers. Plaintiff delivered the last substantial amount of material pursuant to the contractual terms in May of 1971. On September 20, 1971, Walther & Cie received partial payment of the purchase price in the amount of 100.000 Deutsche marks. No additional payments having been made to plaintiff, this suit was instituted upon the payment bond against U. S. Fidelity & Guaranty Company, Planet Insurance Company, International-Noonan, R. S. Noonan, Inc. and International Boiler Works Company. Plaintiff filed a motion for summary judgment which the court denied. Subsequently the case was listed for trial.

On the day fixed for trial, September 23, 1974, the parties settled under the following conditions: (1) plaintiff would receive $425,000.00, $50,000.00 to be paid immediately and the remainder to be secured by a promissory note signed by defendants R. S. Noonan, Inc. (hereinafter Noonan) and International Environmental Systems, Inc. (hereinafter IES), the successor to International Boiler Works Company (hereinafter IBW) in the amount of $375,000.00, without interest, payable December 31, 1974, at the Deutsche Bank in Cologne, Germany, said note to be delivered to plaintiff's counsel; (2) the fidelity company defendants — U. S. Fidelity & Guaranty Company (hereinafter U.S.F. & G.) and Planet Insurance Company (hereinafter Planet) — would guarantee the payment of said note unconditionally by letters directed to Walther & Cie (hereinafter plaintiff) in Germany, with copies to plaintiff's counsel in Philadelphia; and (3) if the aforementioned guarantees were not forthcoming, plaintiff would receive a letter of credit from one of Noonan's banks guaranteeing the promissory note. On October 7, 1974, the $50,000.00 payment was made to plaintiff. Due to internal disputes among the defendants, a promissory note with the appropriate guarantees was never delivered to the plaintiff. On December 20, 1974, plaintiff filed the motion for sanctions against the defendants for their failure to carry out the settlement terms. On December 27, 1974, Noonan presented a certified check in the amount of $375,000.00 to counsel for plaintiff, which check was stipulated before the court to be in full satisfaction of all claims except those arising from the delay in implementation of the aforementioned settlement.

In its motion for sanctions, plaintiff requests that it be awarded damages to pay the loss sustained due to the decline in the Deutsche mark/American dollar ratio on the international money market because of the failure of the defendants to deliver a negotiable promissory note with the appropriate guarantees by October 1, 1974, which plaintiff could have immediately discounted thereby avoiding the loss caused by the subsequent devaluation of the dollar vis-a-vis the mark. In opposing this request for damages defendants contend: (1) that the settlement agreement does not provide for a negotiable promissory note; (2) that there was no indication at the time of settlement that plaintiff desired to discount the note and that the settlement agreement does not call for a discountable note; (3) that the alleged damages caused by the fluctuation in the mark/dollar ratio in the international money market were not reasonably foreseeable nor within the contemplation of the parties at the time the settlement agreement was entered into on September 23, 1974, and hence such damages cannot be recovered by the plaintiff; and (4) damages for breach of a contract to deliver a promissory note are to be measured by the face value of the note and this amount has been paid in full by the defendants. Plaintiff also requests in its motion for sanctions an award of costs and counsel fees incurred in enforcing the settlement agreement and in obtaining damages for the breach thereof. Defendants contend that there is no basis whatsoever for the recovery of costs and attorneys' fees in this action. The court held a hearing on the motion for sanctions at which evidence was adduced with respect to the issues raised by the motion.

The following is the complete settlement agreement entered into and put on the record by the parties:

"THE COURT: Counsel have informed me that this case has been settled and I will ask Mr. Littleton.

MR. LITTLETON: It is stipulated and agreed by counsel for all parties that the case is settled, together with the case of Walther & Cie versus the International Boiler Works, civil action 72-630, pending in this district by the payment of $50,000 now to the plaintiff and the —

THE COURT: Who will pay the money?

MR. LITTLETON: R. S. Noonan, Inc., will pay $50,000 to Walther & Cie and will give counsel for Walther & Cie a promissory note due December 31, 1974, in the amount of $375,000, without interest, executed by R. S. Noonan, Inc., and International Boiler Works.

MR. KUNKEL: It is now called International Environmental Systems, Inc., which is the successor to International Boiler Company.

MR. LITTLETON: This note will be guaranteed by the surety defendants, United States Fidelity & Guaranty Company, the insurance company or a letter of credit from the — from a bank based on the credit of R. S. Noonan, Inc., to Walther & Cie in the amount of $375,000, payable December 31, 1974, in the Dresden bank in Germany.

(Whereupon that concludes the stipulation.)"

Thus the present litigation arises out of the meaning to be given this ambiguous contract.

A contract is to be enforced so as to give effect to the reasonable expectations created by the parties in entering into the bargain. Johnson v. Fenestra, Inc., 3 Cir. 1962, 305 F.2d 179. The court must determine the mutual intention of the parties. Wilson v. Homestead Valve Manufacturing Co., 3 Cir. 1954, 217 F.2d 792. If the court is convinced that the parties gave substantially different meanings to the words of the agreement, and it is not convinced that either one of them knew or had reason to know what the other meant or understood by the words, then there is no reason for choosing one interpretation rather than the other and there is no contract. 3 Corbin § 538, pp. 64-65. If, however, the court, after a careful consideration of the words of the agreement, and of all the tentative rules of interpretation based upon the experience of the courts and linguists, arrives at a definite meaning actually given by one party as the other parties had reason to know, it will not disregard this plain and definite meaning. 3 Corbin § 535, pp. 19-21.

When the terms of an agreement have been embodied in a writing to which both parties have assented as the definite and complete statement thereof, parol evidence of antecedent agreements, negotiations, and understandings is not admissible for the purpose of varying or contradicting the contract so embodied. Lefkowitz v. Hummel Furniture Co., 1956, 385 Pa. 244, 122 A.2d 802. However, the parol evidence rule does not bar consideration of extrinsic evidence to resolve ambiguities in an agreement. Bakery and Confectionary Workers International Union of America v. Great Atlantic and Pacific Tea Company, Inc., W.D.Pa.1973, 357 F.Supp. 1322. Where a contract is ambiguous, evidence of extrinsic circumstances may be received to show that the parties themselves adopted a permissible method of applying its terms to the subject matter. Lamar v. Granger, W.D.Pa.1951, 99 F.Supp. 17, 35. A contract is ambiguous if it is reasonably or fairly susceptible of different constructions. Lamar v. Granger, W.D.Pa.1951, 99 F.Supp. at 35. An ambiguity is said to exist when from a consideration of the entire instrument the meaning of the agreement is capable of more than one interpretation. See United Packinghouse Workers v. Maurer-Neuer, Inc., 10 Cir. 1959, 272 F.2d 647, 649. Thus consideration by the court of extrinsic evidence to resolve the ambiguities in the settlement agreement is proper. As stated by the court in Gerhart v. Henry Hisston and Sons, Inc., 3 Cir. 1961, 290 F.2d 778, 784:

"It is beyond dispute that Pennsylvania law governs the contract here and in Pennsylvania as elsewhere it is established that where a written instrument is ambiguous, either party may introduce oral evidence to resolve the ambiguity. Morgan v. Phillips, 1956, 385 Pa. 9, 122 A.2d 73 and cases cited therein; Zehnder v. Michaud, 8 Cir., 1944, 145 F.2d 713; Buchanan v. Swift, 7 Cir., 1942, 130 F.2d 483; Shipley v. Pittsburgh & L. E. R. Co., D.C.W.D.Pa.1949, 83 F.Supp. 722.

"In determining whether or not there is an

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