Island Creek Coal Co. v. Lake Shore, Inc.

• Decision Date: 27 October 1987
• Docket Number: No. 86-1172,86-1172
• Citation: 832 F.2d 274
• Parties: , 4 UCC Rep.Serv.2d 1067 ISLAND CREEK COAL COMPANY; Garden Creek Pocahontas Company, Plaintiffs-Appellants, v. LAKE SHORE, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 274

832 F.2d 274

9 Fed.R.Serv.3d 624, 4 UCC Rep.Serv.2d 1067

ISLAND CREEK COAL COMPANY; Garden Creek Pocahontas Company, Plaintiffs-Appellants, v. LAKE SHORE, INC., Defendant-Appellee.

No. 86-1172.

United States Court of Appeals, Fourth Circuit.

Argued Jan. 8, 1987.

Decided Oct. 27, 1987.

Richard Cullen, John Martin Oakey, Jr. (Mary M.H. Priddy, McGuire, Woods & Battle, Ernest C. Vaughan, Jr., John K. Messersmith, IV, Randolph, Boyd, Cherry and Vaughan, Richmond, Va., on brief), for plaintiffs-appellants.

Michael Francis Urbanski, John L. Walker, Jr. (Woods, Rogers & Hazelgrove, Roanoke, Va., Larry B. Kirksey, Woodward, Miles & Flannagan, Bristol, Va., on brief), for defendant-appellee.

Before RUSSELL and WILKINSON, Circuit Judges, and HAYNSWORTH, Senior Circuit Judge.

DONALD RUSSELL, Circuit Judge.

In this diversity action, the plaintiffs, operators of coal mines, have sued the defendant, a manufacturer of mining machinery, to recover direct property damages, and consequential damages resulting from the breakdown of machinery purchased by the plaintiffs of the defendant. They ground their action on breach of warranty and on negligence. In its answer to the plaintiffs' complaint, the defendant pled, among other defenses, immunity from liability for consequential damages under an express exclusion of such recovery. On April 23, 1986, about a month before trial of the action was scheduled, the defendant moved for a partial summary judgment declaring valid and enforceable the contract provision denying the right to recover consequential damages in the action. This motion was premised on the last sentence in Paragraph 10 of the "Terms and Conditions" which was a part of the defendant's "Quotation" on the basis of which plaintiffs had made their purchases of the machinery which is the subject of this action. This paragraph is one of ten paragraphs included in such "Terms and Conditions." The full paragraph is as follows:

The rights and obligations of the Seller and Buyer under any order placed pursuant hereto shall be governed by the laws of the State of Michigan. This quotation is subject to change without notice and expires thirty (30) days from its date unless otherwise indicated or renewed. No waiver, modification or addition to any of the provisions on the face or reverse side hereof shall be binding unless made in writing by Seller. In no event shall any claim for consequential or special damages be made by either party. (Emphasis added)

It is undisputed that this Paragraph was a part of the contract of the parties. It was also agreed by the parties that, under Paragraph 10 of the "Terms and Conditions," the law of Michigan was controlling in the construction of this contract, and that, under Michigan law, the parties to a contract "may limit or exclude consequential damages." ¹ The defendant's motion for a partial summary judgment against the recovery herein of consequential damages sought a judicial determination that under the paragraph thus quoted any right to recover such damages was precluded. The district court granted the motion for summary judgment on June 16, 1986 in a carefully developed opinion.

In the meantime the plaintiffs, in November, 1985, had moved to amend their complaint to allege a separate negligence claim against the defendant for after-sale negligence by failure to warn plaintiffs of a defect in the machinery discovered by the defendant after sale and to assert a claim for punitive damages. The defendant resisted the motion as "untimely and is contrary to the interests of justice." The district court, in an order dated January 29, 1986, denied plaintiffs' motion to amend.

After the district court granted the defendant's motion for a partial summary judgment eliminating plaintiffs' right to recover consequential damages and the denial of plaintiffs' motion to amend, 636 F.Supp. 285, the only issue left for resolution was the claim of plaintiffs for direct property damages. In this posture of the case the parties entered into a compromise settlement disposing of plaintiffs' claim for direct property damages but reserving the right of the plaintiffs to appeal the grant by the district court of the partial summary judgment and the denial of plaintiffs' motion to amend the complaint. The plaintiffs have appealed both the grant of partial summary judgment and the denial of its motion to amend. These rulings of the district judge present the issues on appeal. We affirm the grant of partial summary judgment but reverse the denial of plaintiffs' motion to amend.

I.

We first address the plaintiffs' objections to the grant of partial summary judgment sustaining defendant's claim that Paragraph 10 of the applicable "Terms and Conditions" bars any right of plaintiffs to recover consequential damages in this case. The controversy between the parties relates to the construction to be given the last sentence of such Paragraph: "In no event shall any claim for consequential or special damages be made by either party."

Under the law of Michigan, courts do not write contracts but construe a contract in the light of the language of the parties. Only if the language of the contract is ambiguous is there room for construction by the courts, under the Michigan rule. DeVries v. Brydges, 57 Mich.App. 36, 225 N.W.2d 195, 198 (1974). The plaintiffs contend that, despite the clarity of its language, the contractual provision barring recovery of consequential damages in Paragraph 10 is ambiguous and is subject to construction. Following this line of reasoning, the plaintiffs urge that Paragraph 10 of the "Terms and Conditions" must be read along with the other paragraphs in these "Terms and Conditions" and should be construed in conformity with what they declare to be the evident purpose of the "Terms and Conditions" taken as a whole. This purpose, in their view, is that all the "Terms and Conditions" relate solely to "price and delivery terms" and that the simple, clear-cut language in Paragraph 10, though stated in absolute terms, is to be restricted in its application to "price and delivery terms." Specifically, it contends Paragraph 10 does not cover claims for breach of warranty or negligence. And, they reason that Paragraph 2 of the "Terms and Conditions," which does expressly proscribe recovery of consequential damages for breach of "price and delivery terms" in the contract and which must be read in construing the language of Paragraph 10, demonstrates that the words "[i]n any event" in Paragraph 10 had reference only to claims arising out of breach of "prices and delivery terms" and could not have applied to claims for liability for breach of warranty or for negligence. In essence, the plaintiffs' argument would give no effect whatsoever to the language in Paragraph 10 proscribing the recovery of consequential damages and would find the language unnecessary and nugatory. We are unable to follow this argument.

The argument of the plaintiffs is contrary to that universal rule of contract law that, in construing language in a contract, "an interpretation that gives a reasonable meaning to all parts of the contract will be preferred to one that leaves portions of the contract meaningless...." United States v. Johnson Controls, Inc., 713 F.2d 1541, 1555 (Fed.Cir.1983); Union Inv. Co. v. Fidelity & Deposit Co. of Ind., 549 F.2d 1107, 1110 (6th Cir.1977). In Union Investment, the court, citing in support the Michigan case of Vary v. Shea, 36 Mich. 388, 398 (1877), stated the rule thus: "A contract will not be construed so as to reject any words as surplusage if they can reasaonably be given meaning." The same idea was recently phrased in a Michigan case in these words: "Furthermore, contractual provisions must be reasonably construed so as to make none nugatory and the promises contained therein illusory." International Union (UAW) v. Roblin Industries, 561 F.Supp. 288, 298 (W.D.Mich.1983). In keeping with this rule of construction, the court in Cordovan Associates, Inc. v. Dayton Rubber Company, 290 F.2d 858, 861 (6th Cir.1961), put it that, "Where a contract is susceptible to different interpretations, the court will adopt the one which will give it validity, if it is reasonable, rather than one which renders it illusory." The argument of the plaintiffs would stand this rule of contractual construction on its head. They would take language which is as clear as words can make it, find it is ambiguous, and then completely emasculate that language of any meaning whatsoever.

In our opinion, Paragraphs 2 and 10 are not contradictory or inconsistent, both can be readily harmonized and may and should be given a reasonable construction under which neither will be rendered meaningless. Paragraph 2, as we have said, relates throughout the record, strictly to damages resulting from "delay in delivery or manufacture," whereas Paragraph 10 was intended to bar the right to recover "consequential or special damages" under any other circumstances, whatever those circumstances might be. The phraseology of Paragraph 10 seems to us to make this interpretation not merely reasonable but conclusive. We adopt this construction of Paragraph 10 and affirm the application of this construction of the paragraph by the district court in its order granting summary judgment.

The plaintiffs posited, even admitting arguendo, that Paragraph 10 might be held to bar recovery of consequential damages for breach of warranty or contract claims it could not be construed to bar claims of negligence. There is no reason, however, why the parties cannot limit the recovery of consequential or special damages in negligence claims as well as in warranty claims and we have been cited to no Michigan state authority in favor of a distinction between warranty claims and claims in negligence in this regard. The Court in U.S. Fibres, Inc. v. Proctor & Schwartz, Inc., 358 F.Supp. 449, 465 (E.D.Mich.1972), aff'd., 509 F.2d 1043 (6th...