Philadelphia Corp. v. Niagara Mohawk Power Corp.

• Citation: 207 A.D.2d 176,621 N.Y.S.2d 237
• Parties: PHILADELPHIA CORPORATION et al., Respondents-Appellants, v. NIAGARA MOHAWK POWER CORPORATION, Appellant-Respondent.
• Decision Date: 19 January 1995
• Court: New York Supreme Court — Appellate Division

Page 237

621 N.Y.S.2d 237

207 A.D.2d 176

PHILADELPHIA CORPORATION et al., Respondents-Appellants, v. NIAGARA MOHAWK POWER CORPORATION, Appellant-Respondent.

Supreme Court, Appellate Division,

Third Department.

Jan. 19, 1995.

Hiscock & Barclay (Timothy Sheehan, of counsel), Albany, Brian K. Billinson, Syracuse, for appellant-respondent.

Dewey Ballantine (Wayne A. Cross, and Laura K. Brecker, of counsel), New York City, and Couch, White, Brenner, Howard & Feigenbaum (Paul A. Feigenbaum and Leonard H. Singer, of counsel), Albany, for respondents-appellants.

Before CARDONA, P.J., and MERCURE, WHITE, CASEY and PETERS, JJ.

CARDONA, Presiding Justice.

Cross appeals from an order of the Supreme Court (Dier, J.), entered August 19, 1993 in Warren County, which denied defendant's motion to, inter alia, dismiss the complaint and plaintiffs' cross motion for summary judgment.

Plaintiffs are the owners of hydroelectric generating facilities which sell their electricity to defendant, a public utility, pursuant to contract and the requirements of the Federal Public Utility Regulatory Policies Act (16 U.S.C. § 824a-3) and Public Service Law § 66-c. At issue are 20 output contracts, 17 of which define the electricity to be sold in terms of approximate capacity and approximate annual production. ¹

In 1992, defendant sought to clarify the maximum amount of electricity it was bound to purchase under the contracts and informed plaintiffs of its interpretation of its contractual obligations and what it would pay for plaintiffs' excess electricity. Plaintiffs, taking the position that defendant was contractually obligated to purchase their entire output, commenced this action for breach of contract and for a declaratory ruling on the contract terms. Defendant moved to dismiss on grounds not subject to this appeal, and plaintiffs cross-moved for summary judgment. In reply defendant requested, inter alia, that the court treat its motion to dismiss as one for summary judgment pursuant to CPLR 3211(c). Supreme Court denied all motions. Defendant appeals and plaintiffs cross-appeal.

Obligations arising under an output contract are subject to good faith and commercial standards of fair dealing (see, UCC 2-306; Feld v. Levy & Sons, 37 N.Y.2d 466, 469-470, 373 N.Y.S.2d 102, 335 N.E.2d 320; Wigand v. Bachmann-Bechtel Brewing Co., 222 N.Y. 272, 277, 118 N.E. 618; see also, Gestetner Corp. v. Case Equip. Co., 815 F.2d 806, 811), as the seller's discretion in controlling output also controls the purchaser's obligation to buy. Here, the output seller's commercial good faith must be subjected to particular scrutiny because defendant's obligation to enter into the contracts was not voluntarily assumed but imposed by law (see, Matter of Xiox Corp. v. Public Serv. Commn., 190 A.D.2d 350, 598 N.Y.S.2d 821, appeal dismissed, lv. denied 82 N.Y.2d 790, 604 N.Y.S.2d 551, 624 N.E.2d 688; see also, Snow Mtn. Pine Co. v. Maudlin, 84 Or.App. 590, 734 P.2d 1366, review denied 303 Or. 591, 739 P.2d 571).

Within this context, the contracts are unambiguous and may be interpreted by the court (see, Hartford Acc. & Ind. Co. v. Wesolowski, 33 N.Y.2d 169, 172, 350 N.Y.S.2d 895, 305 N.E.2d 907). For the 17 contracts with stated estimates, defendant is obligated to purchase and plaintiffs are obligated to sell electricity in such quantities which are not unreasonably disproportionate to the stated estimates within the contracts (see, Restatement [Second] of Contracts § 77, at 197; see also, UCC 2-306[1]. While the estimates are not absolute maximum quantities beyond which the contracts do not apply, as defendant contends, neither may plaintiffs modify their outputs beyond the normal range commercially consistent with the capacity estimates used in the contracts, as they contend (see, Matter of Indeck-Yerkes Energy Servs. v. Public Serv. Commn., 164 A.D.2d 618, 564 N.Y.S.2d 841). Plaintiffs may not under the contracts increase their electrical output beyond the reasonable expectations of the parties as quantified by the stated estimates ² (see, Orange & Rockland Utils. v. Amerada Hess Corp., 59 A.D.2d 110, 116, 397 N.Y.S.2d 814). Plaintiffs and defendant are entitled to this extent to partial summary judgment declaring this interpretation of the 17 contracts.

Both plaintiffs and defendant represent to the court that the approximate capacity and annual production figures for the hydroelectric plants can be accurately computed and it is standard practice within the industry to use such figures. However, the normal range of variance for the respective generating facilities have not been set forth in the record. Similarly, plaintiffs' production figures and their relationship to the range of variance, which is naturally implied by the use of production estimates, have not been addressed, nor has the parties' past practices under the agreements been detailed (see, Sinkwich v. E.F. Drew & Co., 9 A.D.2d 42, 46, 189 N.Y.S.2d 630). The issue of plaintiffs' good faith relative to their excess production remains unexplored. The record fails to identify which facilities are actually impacted by the series of letters sent by defendant and the specific nature of this impact. Accordingly, issues of fact remain unresolvable on this record as to the parties' conduct regarding each of the 17 contracts.

While defendant's correspondence is admittedly inapplicable to the three remaining contracts, the...