Chelsea Industries, Inc. v. Accuray Leasing Corp., 82-1426

• Decision Date: 03 February 1983
• Docket Number: No. 82-1426,82-1426
• Citation: 699 F.2d 58
• Parties: CHELSEA INDUSTRIES, INC., Plaintiff, Appellant, v. ACCURAY LEASING CORPORATION, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

Page 58

699 F.2d 58

CHELSEA INDUSTRIES, INC., Plaintiff, Appellant, v. ACCURAY LEASING CORPORATION, Defendant, Appellee.

No. 82-1426.

United States Court of Appeals First Circuit.

Argued Jan. 6, 1983.

Decided Feb. 3, 1983.

Nathan T. Wolk, Boston, Mass., with whom Lane & Altman, Boston, Mass., was on brief, for plaintiff, appellant.

James C. Donnelly, Jr., Boston, Mass., with whom James D. St. Clair, and Hale & Dorr, Boston, Mass., were on brief, for defendant, appellee.

Before ALDRICH and CAMPBELL, Circuit Judges, and PETTINE, ^* Senior District Judge.

BAILEY ALDRICH, Senior Circuit Judge.

This is an action brought by Chelsea Industries, Inc. against AccuRay Leasing Corporation seeking a declaration that Chelsea had duly exercised an option to purchase a certain computer system that was under lease to it by the defendant, and for appendant relief. The basic question is the meaning and effect of defendant's December 30, 1974 "policy" letter delivered, the court found, in a "binder [which] included documents entitled Lease Agreement, Operating Results Evaluation [which was an amendment to the lease, and a] Service Maintenance Agreement...." Although defendant's negotiator testified that the binder content was referred to as a "package" by defendant's signing representative, defendant contends that the policy letter was not part of its total contractual obligation. The case was tried to the court which, after a detailed opinion, entered judgment for the defendant. The court found that the letter was not an option, but simply an expression of a possible basis for a future agreement, and that, even if it purported to be an option, it was improperly exercised. We reverse.

Plaintiff comes to this court making three contentions. The first is that it discovered shortly before trial that defendant had defrauded it by intending not to make the agreement plaintiff had understood had been made, and that the court erred in not permitting an amendment of the complaint by adding a count for fraud. The court denied the motion as untimely. The short answer to this is that, as will be developed, post, defendant was bound by the contract in the terms that plaintiff understood. Plaintiff, accordingly, was not defrauded.

Next, the first ground of the complaint as filed is that the policy letter, as an option, was an addendum to, and part of, the lease. The third is that even if not part of the lease, it was part of the total agreement. Since we agree with this last, the addendum issue is superfluous. We shall, however, deal with it, in part because the parties devoted so much time to it, both below and here, and in part because the question of the substantive meaning of the letter is the same in whichever posture it is considered. We begin with the meaning.

The body of the letter reads as follows.

Gentlemen:

Reference: Lease Agreement Number 74-1030

It is the policy of AccuRay Leasing Corporation to provide for the conversion of the leased equipment to a purchase at anytime during the lease agreement. These are converted at the fair market value of the leased equipment. The fair market value is based on the installed value, in the amount included in the lease agreement; but shall not exceed the percentages as indicated below on our eight (8) year lease agreement.

                End of Month  % of Installed Price ($793,630.00)
                ------------  ----------------------------------
                     12                       92
                     24                       84
                     36                       74
                     48                       63
                     60                       51
                     72                       37
                     84                       22
                     96                       10
                

It is our policy not to go below 10% of the installed price of the leased equipment. The above schedule is based on receiving full payments during the initial term of the lease agreement.

The installed price includes the equipment price, and the initial services (Installation Supervision, Correlation, Certification, and Initial Systems Engineering) and cable. If any up-dating of the leased equipment is done, the fair market value of the up-date will be added to the conversion price.

In its correspondence rejecting plaintiff's assertion of an option and attempt to exercise it defendant characterized this letter as a "policy ... to provide for the conversion of leased equipment to a purchase," a "guideline" letter of no legal consequence. In its brief defendant says the letter "merely describes a policy which is hospitable to conversion." The court called the letter a "conversion letter," but came to the same conclusion of emptiness. "The conversion letter ... was intended as a statement of policy, describing the conditions under which the parties could agree to a conversion to a purchase if such a purchase was advisable under the existing circumstances."

The court's further findings were, "The evidence adduced at trial shows that Futura [plaintiff's assignor] wanted an option to purchase, and that AccuRay accordingly provided the letter at the closing."

Viz., Futura wanted an option to purchase, and defendant "accordingly" gave it nothing.

"The conversion letter was the result of negotiations between competent and knowledgeable parties."

Ergo, plaintiff knew it was negotiating for nothing.

In reaching this seemingly anomalous conclusion the court possibly got off on the wrong foot by overlooking an answer by defendant's negotiator, Speedie, a needle in a veritable haystack of a deposition. Although Speedie's examination left it that defendant did not intend to give an enforceable option, there was no contradiction of his testimony of what plaintiff was intended to understand.

Q. Was there an intent on the part of AccuRay to convey to Chelsea and Futura the impression that they were getting a contractual right--by giving them the so-called policy letter?

A. In my judgment, yes.

Mr. Casty, plaintiff's representative, testified that this was what he, in fact, understood. In reporting back to the plant he called it "a side letter of buy out," an exceptionally accurate description. The concept that it was to be read in as an addendum to the lease appears to be plaintiff's counsel's. While the court made unfavorable remarks about Casty, there was no basis for finding him untruthful on this particular point--he could believe what he was intended to believe.

In deciding whether plaintiff received something of consequence, as it contends, or nothing, as defendant claims, there are a number of standard rules of construction. Since the lease states that Ohio law is to govern, we emphasize Ohio cases, but observe that we find no difference between Ohio and Massachusetts, the forum.

The first principle is that there is a normal assumption that a business transaction is not meaningless and that words have a purpose. See Cincinnati Enquirer, Inc. v. American Security & Trust Co., 1958, 107 Ohio App. 526, 160 N.E.2d 392, 398; National City Bank v. Citizens Building Co., Ohio Ct.App., 1947, 74 N.E.2d 273, 279; Bray v. Hickman, 1928, 263 Mass. 409, 412, 161 N.E. 612. The next, which needs no citation, is that a contract is what the parties reasonably understand. A corollary to this must be that if one party causes the other to have a particular understanding, that is the contract. "[O]ne is bound, not only by what he subjectively intends, but by what he leads others reasonably to think that he intends." Bach v. Friden Calculating Mach. Co., 6 Cir., 1946, 155 F.2d 361, 365. "Knowingly to lead a person reasonably to suppose that you offer and to offer are the same thing." Brauer v. Shaw, 1897 168 Mass. 198, 200, 46 N.E. 617, quoted in Timmins v. F.N. Joslin Co., 1939, 303 Mass. 540, 542, 22 N.E.2d 76. A third principle, not necessary here, but corroborative, is that in case of doubt, an instrument is to be taken against the party that drew it. Lytle v. Freedom Int'l Carriers, S.A., 6 Cir., 1975, 519 F.2d 129, 135; Opportunity Consultants, Inc. v. Tugrul, 1976, 1 Ohio App.2d 403, 354 N.E.2d 698, 699.

These principles would be violated by defendant's construction that the "letter ... merely describes a policy which is hospitable to conversion." Plaintiff knew from the outset that defendant preferred a sale to a lease; its future interest would be price. There was no need, nor point to "negotiate" for a price policy that defendant could change at will. It would be only natural for plaintiff to believe that an adjustable schedule, addressed to the entire term of the lease, had an affirmative meaning. Defendant's now seeking to label the schedule a discount table overlooks the fact that it was adjustable downward in case of a decline in fair market value. The presence of such detail precisely supported Speedie's concession of what defendant intended plaintiff to understand. At trial Speedie referred to it as a "comfort letter," apparently an accountant's term. A policy changeable at will would be cold comfort--the comfort would last only until plaintiff sought to avail itself of it. We consider plaintiff's understanding far too reasonable for defendant, who intended it, to contend otherwise.

With respect to the fact that defendant was the drafter, while defendant argues at length about the meaning of the word "policy," it cannot avoid the fact that the letter constituted a sufficient expression of its policy at the moment. If it was intended to be no more, it would have been simple to add the universally familiar caveat, "This policy is subject to change without notice." Under the circumstances, weight could be given to the absence of...