Indiana-American Water Co., Inc. v. Town of Seelyville

• Decision Date: 11 September 1998
• Docket Number: INDIANA-AMERICAN,No. 84A01-9801-CV-32,84A01-9801-CV-32
• Parties: WATER COMPANY, INC., Appellant-Plaintiff, v. TOWN OF SEELYVILLE, Appellee-Defendant.
• Court: Indiana Appellate Court

Page 1255

698 N.E.2d 1255

INDIANA-AMERICAN WATER COMPANY, INC., Appellant-Plaintiff, v. TOWN OF SEELYVILLE, Appellee-Defendant.

No. 84A01-9801-CV-32.

Court of Appeals of Indiana.

Sept. 11, 1998.

Daniel W. McGill, Nicholas K. Kile, Barnes & Thornburg, Indianapolis, Carroll D. Smeltzer, Cox, Zwerner, Gambill & Sullivan, Terre Haute, for Appellant-Plaintiff.

Timothy E. Fears, Wright, Shafley & Lowery, Terre Haute, Michael A. Wukmer, Robert A. Anderson, Ice Miller Donadio & Ryan, Indianapolis, for Appellee-Defendant.

OPINION

BAILEY, Judge.

Case Summary

Appellant-Plaintiff Indiana-American Water Company, Inc. ("Water Company") appeals the trial court's determination that Appellee-Defendant Town of Seelyville, Indiana ("Town") would not be in breach of the contract between Water Company and Town by developing its own water supply to reduce its need to purchase water from Water Company. We affirm.

Issues

Water Company raises one compound issue which we restate and expand into the following two issues:

I. Whether the contract is an unenforceable, illusory "indefinite quantities" contract or an enforceable "exclusive requirements" contract.

II. Whether the Town will breach the contract by developing its own water supply to reduce (or perhaps eliminate) its need to purchase water from Water Company.

Facts

The evidence is undisputed. In 1983, Water Company and Town entered into a contract which provides in pertinent part as follows:

Company agrees to sell to the Town, and Town agrees to purchase from Company, at the rates hereinafter mentioned, such quantities of water as the Town may hereafter from time to time need (subject to all limitations contained in this Agreement)....

(R. 13, 16). The term of the contract is twenty-five years and will expire in the year 2008. (R. 22-23). The contract limits the quantity of water the Town may purchase to one million gallons of water per day. (R. 20). The contract contains other limitations and provides that "in no event shall the Company be obligated to supply water in excess of the limitations on usage as provided for expressly in this Agreement...." (R. 21).

In 1967 (many years before the present contract was executed), Town acquired land which could be used as a wellfield to supply water. (R. 38). In 1997, Town announced its plan to sell bonds to finance the construction of the improvements necessary to obtain water from the wellfield. (R. 10).

Water Company initiated the present lawsuit seeking a declaratory judgment that Town's plan to develop its own supply of water would constitute a breach of the contract which, Water Company contends, requires Town to purchase all the water it needs from Water Company. After a hearing, the trial court entered findings and a judgment order which reads in pertinent part as follows:

"WHEREFORE, IT IS HEREBY ORDERED, ADJUDGED AND DECREED that the Agreement is valid and binding, that it permits the Town to purchase its water need from [Water Company] but does not require it to purchase all of its water from [Water Company] and that the Town's development and utilization of its own source of water diminishes its need and does not violate the Agreement."

(R. 142). This appeal followed.

Discussion and Decision

We begin our analysis by noting that our supreme court has expressed its commitment to advancing the public policy in favor of enforcing contracts. See Fresh Cut, Inc. v. Fazli, 650 N.E.2d 1126, 1129 (Ind.1995). Indiana courts recognize that it is in the best interest of the public not to unnecessarily restrict persons' freedom to contract. Id. Thus, as a general rule, the law allows persons of full age and competent understanding the utmost liberty in contracting; and their contracts, when entered into freely and voluntarily, will be enforced by the courts. Pigman v. Ameritech Publishing Inc., 641 N.E.2d 1026, 1029 (Ind.Ct.App.1994). Indiana has long adhered to the rule that contracting parties may enter into any agreement they desire so long as it is not illegal or contrary to public policy. Id. at 1030.

Standard of Review

In the present case, a motion for specific findings was filed pursuant to Ind. Trial Rule 52(A). The purpose of making special findings is to provide the parties and reviewing courts with the theory upon which the judge decided the case so that the right of review might be preserved effectively. In re Marriage of Stetler, 657 N.E.2d 395, 398 (Ind.Ct.App.1995), trans. denied. On appeal of a bench decision, the appellate court will not set aside the judgment unless it is clearly erroneous. Ind. Trial Rule 52(A). In reviewing a judgment where a motion for specific findings has been filed, we must first determine whether the evidence supports the findings and second, whether the findings support the judgment. Breeden v. Breeden, 678 N.E.2d 423, 425 (Ind.Ct.App.1997). The judgment is clearly erroneous only when the judgment is unsupported by the findings of fact and conclusions entered on the findings. Id. Findings of fact are clearly erroneous only when the record lacks any evidence to support them. Id. In reviewing the findings and judgment entered by the trial court, we consider only the evidence favorable to the judgment and all reasonable inferences flowing therefrom, and we will not reweigh the evidence or assess witness credibility. Id.

Nevertheless, where trial court findings on one legal theory are adequate, findings on another legal theory amount to mere surplusage and, even if erroneous, cannot constitute the basis for reversal. Williams v. Rogier, 611 N.E.2d 189, 196 (Ind.Ct.App.1993), trans. denied; Donavan v. Ivy Knoll Apartments Partnership, 537 N.E.2d 47, 52 (Ind.Ct.App.1989). Moreover, we may affirm the judgment on any legal theory supported by the findings even where a motion for specific findings has been filed. Mitchell v. Mitchell, 695 N.E.2d 920, 923 (Ind.1998). However, before affirming on a legal theory supported by the findings but not espoused by the trial court, the appellate court should be confident that its affirmance is consistent with all of the trial court's findings of fact and the inferences reasonably drawn from the findings. Id. at 924.

The party asserting a breach of contract bears the burden of proof. JKL Components Corporation v. Insul-Reps, Inc., 596 N.E.2d 945, 954 (Ind.Ct.App.1992), trans. denied. As will be discussed under Issue II, the precise issue in this case is whether Town exercised good faith in reducing the amount of water it required from Water Company. The burden of proving the buyer's bad faith in reducing its orders under a requirements contract is on the seller who would benefit from a showing of bad faith. Tigg Corporation v. Dow Corning Corporation, 962 F.2d 1119, 1123-24 (3rd Cir.1992), cert. dismissed, 506 U.S. 1042, 113 S.Ct. 834, 122 L.Ed.2d 111; J. White and R. Summers, Uniform Commercial Code, p. 127 (1980).

As Water Company had the burden of proof in this action, it is appealing from a negative judgment. When reviewing an appeal from a negative judgment, the cause will be reversed only if the judgment is contrary to law; that is, the evidence is without conflict and leads to but one conclusion which is contrary to that reached by the trial court. Matter of Adoption of Topel, 571 N.E.2d 1295, 1298-99 (Ind.Ct.App.1991).

Contract Interpretation

Construction of the terms of a written contract is a pure question of law for the court; thus, our standard of review is de novo. George S. May International Co. v. King, 629 N.E.2d 257, 260 (Ind.Ct.App.1994), trans. denied. The primary and overriding purpose of contract law is to ascertain and give effect to the intentions of the parties. Smart Corporation v. Grider, 650 N.E.2d 80, 83 (Ind.Ct.App.1995), trans. denied. In interpreting a written contract, the court should attempt to determine the intent of the parties at the time the contract was made as discovered by the language used to express their rights and duties. Bicknell Minerals, Inc. v. Tilly, 570 N.E.2d 1307, 1313 (Ind.App.1991), trans. denied. The meaning of a contract is to be determined from an examination of all of its provisions, not from a consideration of individual words, phrases or paragraphs read alone. Smart, 650 N.E.2d at 83. The court will make all attempts to construe the language in a contract so as not to render any words, phrases, or terms ineffective or meaningless. Bicknell, 570 N.E.2d at 1316. Where possible, courts will construe contracts as being valid, rather than void. Smart, 650 N.E.2d at 83.

I. Indefinite Quantities or Exclusive Requirements Contract

Output and requirement contracts are governed by the Uniform Commercial Code ("UCC") as adopted in Indiana under IND.CODE § 26-1-2-306(1) as follows:

A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.

As discussed above, Water Company contends that the contract requires Town to purchase all its water from Water Company and, in effect, prohibits Town from developing its own water supply. Water Company asserts that any other interpretation of the contract renders it unenforceable for lack of mutuality or indefiniteness because, although Water Company is required to supply all the water Town needs (within the limitations provided in the contract), Town is not required to purchase any minimum amount of water from Water Company. Thus, Water Company raises the implied threat that, if Town does not purchase all of its water from Water Company, Water Company is not bound by the contract and is free to leave the Town "high and dry" unless the Town capitulates to its demands.

A requirements contract is one in which the purchaser agrees to buy all of...