Computer Systems of America, Inc. v. International Business Machines Corp., 85-1445

• Decision Date: 25 June 1986
• Docket Number: No. 85-1445,85-1445
• Citation: 795 F.2d 1086
• Parties: COMPUTER SYSTEMS OF AMERICA, INC., Plaintiff, Appellant, v. INTERNATIONAL BUSINESS MACHINES CORP., and St. Regis Paper Co., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 1086

795 F.2d 1086

COMPUTER SYSTEMS OF AMERICA, INC., Plaintiff, Appellant, v. INTERNATIONAL BUSINESS MACHINES CORP., and St. Regis Paper Co., Defendants, Appellees.

No. 85-1445.

United States Court of Appeals First Circuit.

Argued Oct. 10, 1985.

Decided June 25, 1986.

Henry F. Field with whom Douglas G. Moxham, Friedman & Koven and Hale and Dorr were on brief, for plaintiff, appellant.

Grant S. Lewis with whom Molly S. Boast, LeBoeuf, Lamb, Leiby & MacRae, Paul K. Connolly and John J. Blanchard were on brief, for defendants, appellees.

Before BREYER and TORRUELLA, Circuit Judges, and HILL, ^* District Judge.

IRVING HILL, Senior District Judge:

In the spring of 1979, Defendant St. Regis Paper Company ("St. Regis") urgently needed an IBM 3033 computer. That model was in great demand and in very short supply. IBM's factory had many backorders and was allocating future production by a lottery which established an estimated delivery date for each order. St. Regis preferred to buy a Model 3033 directly from IBM. It had placed an order, and IBM had assigned an expected delivery date of September, 1979. The September Executives of the two companies met in Dallas to discuss the lease and later, by telephone, agreed on a deal for such a lease. Their agreement included the four-year lease term, the monthly rental payment and the beginning date of the lease term. At CSA's request, St. Regis sent a letter dated April 23, 1979, confirming the agreement. That letter is reproduced in the margin. ¹ Counsel for both companies commenced work on a formal, long-form There is testimony from both sides that clearly shows that as of the date of the April 19 or 20, 1979 telephone conversation, and the April 23, 1979 letter, both parties intended to be contractually bound to the lease deal and considered themselves so bound.

date was unsatisfactory. St. Regis was just completing a large computer center in Dallas, Texas, and needed the machine earlier. Plaintiff, Computer Systems of America, Inc. ("CSA") is in the business of computer leasing, and CSA had a May allocation from IBM for a 3033 computer. St. Regis was willing and anxious to lease the 3033 from CSA, in lieu of buying one directly from IBM, to obtain the May delivery lease which both companies intended to sign after the machine was installed. In their oral discussions, the parties had agreed that CSA could claim the Investment Tax Credit--a key subject customarily covered in the long-term lease. Its other provisions were regarded as "boilerplate" and were expected to follow the forms customarily used in the leasing industry.

Within about a week after April 23, 1979, IBM told St. Regis that it could deliver a Model 3033 in June rather than September. However, by this time, pursuant to the oral agreement and letter, CSA had already modified its machine to meet St. Regis's particular needs, and had placed it in transit to Dallas. CSA had also taken steps at St. Regis's Dallas computer center to facilitate the installation of the machine there.

At or about the same time that IBM was offering an advanced delivery date if St. Regis would buy the machine from it, a dispute arose between St. Regis and CSA. The dispute involved whether or not, in the oral agreement, St. Regis had agreed to pay "precommencement" rent for the machine from the installation date, May 18, to the commencement date of the lease term, July 15. Both sides agreed that St. Regis could and would be using the machine during that time.

Seizing upon that dispute, St. Regis terminated its dealings with CSA and proceeded to buy the computer from IBM. This action resulted, in which CSA sued both St. Regis and IBM. It sued St. Regis for breach of an express contract and for breach of a contract arising by promissory estoppel. It sued IBM for interference with a contractual relationship and interference with a prospective business relationship.

Both Defendants moved in the trial court for summary judgment, which the court granted as to St. Regis and denied as to IBM. The trial court's opinion is published at 578 F.Supp. 558 (D.Mass.1983). IBM thereafter settled with CSA. CSA appeals to this court from the grant of summary judgment to St. Regis.

St. Regis sought summary judgment below on three alternative grounds. First, St. Regis claimed that there was no contract between the parties which could be enforced because there was no agreement on all essential terms. The trial court rejected that ground, and did not base the summary judgment upon it. Second, St. Regis contended that even if there was an agreement covering all essential terms, the agreement was expressly conditioned upon the execution of a written lease document, and such a document was never executed. It was on this ground, primarily, that the trial court granted summary judgment. Finally, St. Regis argued that any contract which did exist was unenforceable under the statute of frauds. The trial court adopted this contention as a secondary and alternative ground for the summary judgment.

"In determining whether a trial court's grant of a summary judgment motion was appropriate, an appellate court must look at the record in the light which is most favorable to the party opposing the motion. The court also must indulge all inferences favorable to that party." King v. Williams Industries, Inc., 724 F.2d 240, 241 (1st Cir.1984).

A summary judgment is inappropriate where the respondent shows the existence of a bona fide dispute as to a material fact issue so that a jury or judge must "resolve the parties' differing versions of the truth at trial." Hahn v. Sargent, 523 F.2d 461, 464 (1st Cir.1975).

The trial court held that Texas law governs this case in all relevant respects. That holding is attacked, in part, by CSA, who contends that Massachusetts, rather than Texas law, should govern the statute of frauds aspect of the case. As will be

seen, we concur with, and adopt, the trial court's conclusion that Texas law governs in all respects. Utilizing Texas law, we have determined that the grant of summary judgment cannot be supported on either of the alternative grounds. We therefore conclude that the judgment should be reversed and the action remanded to the trial court for trial.

DISCUSSION

ISSUE I: DID AN ENFORCEABLE CONTRACT EXIST

The trial court decided that as a matter of law no binding obligation, no enforceable contract, existed between the parties. The trial judge rested this critical conclusion solely and entirely upon the second sentence of the April 23, 1979 letter, which reads: "This lease is dependent upon satisfactory contractual arrangements."

The trial judge undertook to construe and interpret that sentence by itself, without reference to its context in the letter and without reference to the testimony of its author and addressee as to what the letter meant. Observing that the sentence in question had a "plain meaning", the trial judge determined that it could have only one possible meaning, i.e., that it was the intention of the parties not to be contractually bound unless and until a written long-form lease was executed. The trial judge apparently held that, as a matter of law, the sentence created a condition precedent. As the trial judge put it, "any agreement was made expressly contingent on a written lease which was never executed."

In our view, the trial court's holding in this respect constituted error. We begin by noting that "whether a clause contitutes a condition precedent ... must be determined from the contract as a whole and the surrounding circumstances; conditions are not favored, and a clause will be construed as a covenant only if it is reasonably subject to that interpretation." Hanson Southwest Corp. v. Dal-Mac Construction Co., 554 S.W.2d 712, 720 (Tex.Civ.App.1977), writ ref'd n.r.e. (citing Hohenberg Bros. Co. v. George E. Gibbons & Co., 537 S.W.2d 1, 3 (Tex.1976)). The sentence, in our view, has neither a plain meaning nor only one possible meaning. It is ambiguous in and of itself, and that ambiguity is enhanced when the sentence is viewed in the context of the entire letter. Under Texas law, an instrument must be viewed in its entirety and "no single portion, sentence, or clause when considered alone will control." Myers v. Gulf Coast Minerals Management Corp., 361 S.W.2d 193, 196 (Tex.1962) (emphasis in original); See also Mayfield v. de Benavides, 693 S.W.2d 500, 503 (Tex.App. 4 Dist.1985).

The ambiguity is further emphasized and underscored in light of the testimony of the people who negotiated the deal for the parties, including both the author and addressee of the letter. "It is well settled that extrinsic evidence is admissible for the purpose of applying the contract to its subject matter even though the contract is unambiguous." Texas Utilities Fuel Co. v. First National Bank, 615 S.W.2d 309, 312 (Tex.Civ.App.1981) (citing Murphy v. Dilworth, 137 Tex. 32, 151 S.W.2d 1004, 1005 (1941)). "If the meaning of the language becomes uncertain when applied to the subject matter ... parol evidence may be resorted to in aid of applying the language to the subject matter." Id.

If only the bare words of the sentence are examined, a meaning other than the one ascribed to them by the trial judge emerges as a possibility. On its face and by itself, the sentence could be construed to mean that the parties have now agreed to all of the essential terms of a lease deal, which is presently binding upon them. But that agreement will be followed by the later execution of a lengthy formal leasing contract which the attorneys will be working on in the meantime and which will contain other terms, many of them "boilerplate", as are customary in the leasing industry. Under this construction, both sides are stating that they intend to be presently bound, and further bind themselves to proceed in good time and good faith to the execution of the formal detailed lease document.

If the sentence is viewed in...