Atlantic Track & Turnout Co. v. Perini Corp.
| Decision Date | 04 February 1993 |
| Docket Number | No. 92-1978,92-1978 |
| Citation | 989 F.2d 541 |
| Parties | 20 UCC Rep.Serv.2d 426 ATLANTIC TRACK & TURNOUT COMPANY, Plaintiff, Appellant, v. PERINI CORPORATION, Defendant, Appellee. . Heard |
| Court | U.S. Court of Appeals — First Circuit |
David J. Hopwood, with whom Heafitz & Hopwood, Newton, MA, was on brief, for appellant.
Charles E. Schaub, Jr., with whom Christopher J. Petrini, and Hinckley, Allen & Snyder, Boston, MA, were on brief, for appellee.
Before TORRUELLA, Circuit Judge, COFFIN, Senior Circuit Judge, and BOUDIN, Circuit Judge.
Appellant Atlantic Track & Turnout Company ("Atlantic") brought this breach of contract action pursuant to the Uniform Commercial Code ("Code"), Mass.Gen.L. ch. 106, § 2-101, et seq. (1992). Atlantic alleged that appellee Perini Corporation ("Perini") failed to perform under a contract for the purchase and sale of railroad materials.
The court deferred decision on cross motions for summary judgment and ordered a trial limited to two issues: (1) whether the contract was ambiguous; and (2) whether trade usage would supplement the contract terms to enable Atlantic to maintain its action. After Atlantic's proffer, the court entered a judgment on partial findings pursuant to Fed.R.Civ.P. 52(c) 1 in favor of Perini. We affirm that judgment.
On October 21, 1987, the Massachusetts Bay Transportation Authority ("MBTA") awarded Perini the Eastern Route Track Rehabilitation Project. The project required Perini to rehabilitate a thirteen mile section of double track. The rehabilitation included undercutting the track to replace the ballast, the track's stone foundation, and disposing of any contaminated ballast materials.
In the spring of 1988, a sub-contractor tested the ballast under the track and determined that it was all contaminated. Perini received the test results on June 21, 1988 and discussed them with the MBTA on July 17, 1988.
In early June, 1988, Perini solicited an offer from Atlantic to buy certain salvage from the project. Between June 28 and 30, 1988, Atlantic issued five purchase orders for "all available" materials. The orders On August 18, 1988, the MBTA directed Perini to suspend undercutting operations until further notice. On September 13, 1988, the MBTA permanently halted all undercutting due to fiscal constraints. As the elimination of the undercutting reduced the value of the contract by 52%, Perini stopped all work. By October 26, Perini had no physical presence on the project site.
also furnished an estimate of the amount of salvage that would become available.
On October 31, 1988, Perini proposed an equitable adjustment of the MBTA contract. The proposal entailed an increase in payment for completion of the remaining work under the contract. The MBTA rejected Perini's proposal. Perini and the MBTA thus agreed to terminate the contract.
Atlantic knew by August 22, 1988 that all undercutting was suspended and later asked Perini when the remainder of the materials would be available. Perini replied that the MBTA might terminate the project and that Perini had already shipped "all available" salvage in accordance with the purchase orders. 2 Atlantic sued Perini, claiming that the amount of materials shipped was well below the stated estimates.
Two reasonable interpretations of the contract's plain language exist. On one hand, "all available" implies that Perini satisfied its obligation under the contract by supplying the salvage material that became available; if no material became available to Perini, Perini faced no liability under the contract. 3 On the other hand, the estimates offered in the purchase orders suggest that Perini had to deliver a quantity nearing those estimates.
To convince the court that the latter interpretation represented the true agreement, Atlantic had to overcome two hurdles. First, as the plaintiff, Atlantic had the burden of proving its interpretation by a preponderance of the evidence. Second, any ambiguity in the contract should normally be interpreted against Atlantic, the drafter of the purchase orders. LFC Lessors, Inc. v. Pacific Sewer Maintenance, 739 F.2d 4, 7 (1st Cir.1984).
Atlantic offered two theories beyond the plain language of the contract supporting its interpretation of the terms. Specifically, Atlantic argued that: (1) trade usage of the term "all available" required Perini to deliver close to the estimated quantity of materials, and (2) § 2-306 of the Code expressly required Perini to provide a quantity approximating its stated estimate. In addition, Atlantic argued that Perini acted in bad faith. Atlantic revives these theories in this appeal, and we address them in turn.
The district court ruled that Atlantic's trade usage proffer failed to prove by a preponderance of the evidence that the contract terms embodied Atlantic's proposed meaning. As this conclusion constitutes a factual finding, Mass.Gen.L. ch. 106, § 1-205(2), we review it only for clear error, Athas v. United States, 904 F.2d 79, 80 (1st Cir.1990).
Both parties agree that the disputed contract constitutes an output contract governed by § 2-306 of the Code. Section 2-306 of the Code provides in relevant part:
(1) A term which measures the quantity by the output of the seller ... means such actual output ... as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate ... may be tendered or demanded.
In the present case, the contract provided an estimate of the expected output, and Perini tendered only 15% of that quantity. Thus, Atlantic argues that according to § 2-306, Perini violated the contract.
While many courts and commentators have discussed the meaning of the "unreasonably disproportionate" clause of § 2-306 as applied to requirements contracts, little has been written on the clause's application to output contracts. We review the former analysis, however, because it provides valuable instruction due to the similarity between these two types of contracts.
With respect to requirements contracts, courts differ on the meaning of the "unreasonably disproportionate" clause. Some courts find that "even where one party acts with complete good faith, the section limits the other party's risk in accordance with the reasonable expectations of the parties." Orange Rockland v. Amerada Hess, 59 A.D.2d 110, 397 N.Y.S.2d 814, 819 (1977). Most courts and commentators, however, treat cases in which the buyer demands more than the stated estimate differently than cases in which the buyer demands less. See, e.g., Empire Gas Corp. v. American Bakeries Co., 840 F.2d 1333, 1337-38 (7th Cir.1988); Angelica Uniform Group, Inc. v. Ponderosa Systems, Inc., 636 F.2d 232, 232 (8th Cir.1980) (per curiam); R.A. Weaver and Associates, Inc. v. Asphalt Construction, Inc., 587 F.2d 1315, 1322 (D.C.Cir.1978). The courts that employ separate analyses hold that while § 2-306 precludes buyers from demanding a quantity of goods that is unreasonably disproportionate to a stated estimate, it permits "good faith reductions that are highly disproportionate." R.A. Weaver and Associates, Inc., 587 F.2d at 1315 (emphasis added). 4
The Seventh Circuit explained the argument well, Empire Gas Corp., 840 F.2d at 1338-40, and we adopt its reasoning. Essentially, the argument is the following. The "unreasonably disproportionate" clause is somewhat redundant in light of the good faith requirement in that section. The clause therefore was likely provided to explain the good faith term. The good faith requirement with respect to disproportionately increased demands needed explanation as certain forms of exploitation in that situation do not clearly constitute bad faith. For example, if the market price of the subject goods rises above the contract price, a buyer in a requirements contract might be tempted to demand more goods than it truly needs in order to resell them for the better market price. The clause eliminates that opportunity. On the other hand, exploitation, beyond bad faith, is not a concern if a buyer demands...
To continue reading
Request your trial
-
Morales Feliciano v. Rullan
...at any time that it can appropriately make a dispositive finding of fact on the evidence."); see also Atl. Track & Turnout Co. v. Perini Corp., 989 F.2d 541 (1st Cir.1993). The fact that the inmate class had the burden of proof did not place Rule 52(c) off limits. A judgment under Rule 52(c......
-
Rgj Associates, Inc. v. Stainsafe, Inc.
...reductions in a seller's requirements for legitimate business reasons are entirely permissible. Atlantic Track & Turnout Company v. Perini Corporation, 989 F.2d 541, 545-546 (1st Cir.1993) (adopting Empire Gas rationale and noting, "Atlantic offered no evidence that Perini did not agree to ......
-
Lenape Resources Corp. v. Tennessee Gas Pipeline Co.
...whether a requirements buyer or output seller, should be held to only a good faith standard. See, e.g., Atlantic Track & Turnout Co. v. Perini Corp., 989 F.2d 541, 544-45 (1st Cir.1993); Empire Gas, 840 F.2d at 1337-38; Angelica Uniform Group, Inc. v. Ponderosa Sys., Inc., 636 F.2d 232, 232......
-
Am. Paper Recycling Corp.. v. Ihc Corp..
...Variations under the UCC, 1973 Duke L.J. 599,] 639 n. 96. We see no reason for a change in that rationale.Atl. Track & Turnout Co. v. Perini Corp. 989 F.2d 541, 545 (1st Cir.1993). Despite the absence of any required output provision, APR contends that Ivy's decision to sell its business wi......