ITT Corp. v. LTX Corp.

• Decision Date: 10 September 1990
• Docket Number: No. 90-1357,90-1357
• Citation: 926 F.2d 1258
• Parties: 14 UCC Rep.Serv.2d 87 ITT CORPORATION, Plaintiff, Appellant, v. LTX CORPORATION, Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1258

926 F.2d 1258

14 UCC Rep.Serv.2d 87

ITT CORPORATION, Plaintiff, Appellant, v. LTX CORPORATION, Defendant, Appellee.

No. 90-1357.

United States Court of Appeals First Circuit.

Heard Sept. 10, 1990.

Decided March 4, 1991.

Michael J. Liston with whom Daryl J. Lapp and Palmer & Dodge were on brief, Boston, Mass., for plaintiff, appellant.

Joseph L. Kociubes with whom David L. Smith and Bingham, Dana & Gould were on brief, Boston, Mass., for defendant, appellee.

Before CAMPBELL, Circuit Judge, COFFIN, Senior Circuit Judge, and CYR, Circuit Judge.

CAMPBELL, Circuit Judge.

Plaintiff-appellant ITT Corporation ("ITT") appeals from a judgment of the district court dismissing, after a bench trial, its contract action against LTX Corporation ("LTX"). 732 F.Supp. 1225. This is a diversity case applying Massachusetts contract law.

I.

The alleged contract on which the present action was brought was made on May 6, 1987, in settlement of a prior lawsuit. That lawsuit resulted from LTX's refusal to pay for certain specialized electrical equipment called "cable assemblies" ordered by LTX from ITT Cannon, a division of ITT. The cable assemblies--each consisting of six-foot cables containing more than 155 parallel small insulated wires, with associated connectors, backshells, and strain relief clamps--were meant for use in LTX semiconductor testing equipment. As produced by ITT, the cable assemblies proved to be commercially unusable due to the fact that some of the wires within a cable would break (especially near the connectors) when the cable assembly was subjected to the considerable bending and flexing in commercial use by LTX's customers. When ITT still had on hand some 479 of the expensive assemblies which it had manufactured specially for LTX, the latter refused to accept further delivery of them, complaining of their lack of functionality, and blaming ITT. Insisting that the products had been built to LTX's order utilizing Gore cable specified by LTX, and that ITT bore no responsibility for whatever design deficiencies were causing the wires in the cable assembly to fracture when the cable was repeatedly flexed in commercial use, ITT sued LTX, seeking to force LTX to take delivery of, and pay ITT for, its remaining inventory of cable assemblies. That litigation was eventually dismissed by stipulation pursuant to the parties' letter agreement dated May 6 1987. Thereafter, the present dispute arose as to whether that letter agreement required LTX to accept ITT's remaining inventory of cable assemblies. It is uncontested that design changes specified therein were, or would be, made by ITT ("Revision A" changes), but these did not cure the wire-breakage problem. The present dispute, based on the interpretation of the settlement agreement, carries on the parties' original disagreement over who should bear responsibility for the continuing failure to solve the breakage problem.

II.

We need not repeat for present purposes the detailed findings of the district court based upon the parties' stipulations and upon documentary evidence and testimony from the parties' officers and employees. The disputed settlement agreement of May 6, 1987, is reproduced at the end of this opinion. It was written by ITT's general counsel at the behest of Mr. Sekeres, an ITT executive, who on the previous day had talked to Mr. Boltrus, a top official of LTX. Both men were trying to resolve ITT's previous lawsuit against LTX. Both testified that at the conference they, in effect, maintained their conflicting positions, which were, respectively, that ITT denied any responsibility for the malfunctioning of the cable assemblies, while LTX said it would not accept them unless usable. While Sekeres could remember no discussion of testing, Boltrus testified that they had discussed testing the cable assemblies after they were altered to meet the so-called Revision A criteria. No one claims, however, that any specific test procedures were then determined.

The two men apparently believed they had reached an agreement, because the next day Sekeres submitted the now disputed letter agreement to Boltrus, who signed it for LTX. ¹ The letter provided, in essence, that LTX would immediately buy back a certain large stock of Gore cable which ITT had purchased for the project, ² and that, later, within the next eight to ten months, on specified dates, LTX would take delivery of the existing 479 cable assemblies and would pay ITT for them at prices stated in the letter. It was also agreed that ITT would modify the cable assemblies to conform to so-called Revision A specifications. These consisted of two changes to the existing cable assemblies proposed by LTX in hopes they would cure the wire-breakage problem: to wit, (1) replacement of the Gore cable outer jacket with a new elastic jacket and (2) addition of a rubber boot extending beyond a certain strain relief mechanism, already used, so as to increase the cable's bending radius. ITT promised in the letter agreement to make these modifications for $124 per unit, payable by LTX, or else, if LTX desired, LTX could make any modification at its own expense. However, the agreement stated flatly: "Regardless of the alternative selected, LTX shall accept delivery of the cable assemblies and pay for them in accordance with the schedule above." It was agreed that the pending litigation would be dismissed. See footnote 2, supra.

The letter agreement also provided for three "acceptance test criteria" to which, at the time of shipment, the cable assemblies would have to conform. The third criterion (hereinafter "criterion three") is the basis of the present dispute. It provides:

At the time of shipment the cable assemblies will conform to the following acceptance test criteria:

* * * * * *

100% of cable assemblies will be tested for continuity while subjected to flexing stress. The cable is exercised in a circular pattern while observing 156 indicator lights on a special test fixture. This test insures that no wires are broken and that there are no intermittent conditions.

The parties dispute whether criterion three provides for a test of commercial durability designed to ensure that each cable assembly will withstand the rigors of future commercial use (LTX's position), or, alternatively, simply a test of electrical continuity designed to ensure that the myriad wires within each cable assembly were unbroken when the cable assembly was shipped (ITT's position). ³

The district court, after determining first that criterion three was ambiguous, concluded in light of the evidence of previous dealing and negotiation between the parties, that the reasonable interpretation of this provision was that it was intended to ensure that the cable assemblies performed under the flexing stress which both parties knew would occur in use. On that reading, the court upheld the right of LTX under the letter agreement to refuse to accept delivery of, and pay for, the revised cable assemblies. It was undisputed that following execution of the compromise, LTX had received from ITT, and had tested, ten prototype cable assemblies, revised to meet the Revision A specifications, using a test of LTX's own devising that flexed the assemblies until the wires broke. The test data revealed that the wires in the assemblies would continue to break in commercial use--a finding ITT does not contest. On appeal, ITT challenges both the court's finding that criterion three is ambiguous and its construction that criterion three calls for something more than a simple test of a cable assembly's soundness upon delivery.

We do not agree with the district court that criterion three is ambiguous. For the reasons given below, we believe the court erred in finding that criterion three was capable of being read to provide for a durability test such as the court subsequently found. Rather, we hold that the clear language of criterion three calls for a continuity test, as ITT maintains. Since criterion three was not ambiguous, the contract was binding on both signatories according to its written terms.

We also reject the district court's finding that the contract contained an implied warranty of fitness.

We therefore reverse and remand for further proceedings.

III. No Ambiguity

The determination of whether a contract provision is ambiguous is a question of law subject to plenary review. Fashion House, Inc. v. K Mart Corp., 892 F.2d 1076, 1083 (1st Cir.1989); RCI Northeast Services Division v. Boston Edison Co., 822 F.2d 199, 202 (1st Cir.1987). Under Massachusetts law, parol evidence may not be admitted to contradict the clear terms of an agreement, or to create ambiguity where none otherwise exists. Governor Apartments Inc., v. Carney, 342 Mass. 351, 354, 173 N.E.2d 287, 289 (1961); Tupper v. Hancock, 319 Mass. 105, 108, 64 N.E.2d 441 (1946); Farber v. Mutual Life Ins. Co. of New York, 250 Mass. 250, 253, 145 N.E. 535 (1924). See also In re Navigation Technology, 880 F.2d 1491, 1495 (1st Cir.1989) ("Contractual language is considered ambiguous where the contracting parties reasonably differ as to its meaning."); Fashion House, 892 F.2d at 1083 ("Contract language is usually considered ambiguous where an agreement's terms are inconsistent on their face or where the phraseology can support reasonable difference of opinion as to the meaning of the words employed and obligations undertaken.").

ITT argues that criterion three is unambiguous in that it simply requires a test of electrical continuity, i.e., a test to establish that none of the 156 wires within the cable assembly were broken at the time of shipment. ITT submits that the record clearly shows, and the district court found, that it drafted criterion three to describe such a minimal continuity test, one which it had, in fact, regularly conducted for several years on the items in issue. ITT argues that the "flexing stress" contemplated was only that necessary to separate already broken...