Powel v. Burke

• Decision Date: 17 July 1979
• Citation: 423 A.2d 97,178 Conn. 384
• Court: Connecticut Supreme Court
• Parties: John POWEL v. Thomas G. BURKE et al.

Page 97

423 A.2d 97

178 Conn. 384

John POWEL v. Thomas G. BURKE et al.

Supreme Court of Connecticut.

Argued May 3, 1979.

Decided July 17, 1979.

David S. Maclay, Bridgeport, for appellants (defendants).

Samuel J. Henderson, Hartford, with whom, on the brief, was Mark S. Shipman, Hartford, for appellee (plaintiff).

Before COTTER, C. J., and BOGDANSKI, LONGO, PETERS and PARSKEY, JJ.

PETERS, Associate Justice.

This case concerns the sale of an accounting business. This suit by the plaintiff seller sought recovery from the defendants, the purchasers of the business, of amounts allegedly due under the contract of sale. After a trial before a state referee, the court found all disputed issues for the plaintiff and rendered judgment in his favor for $23,254. The defendants have appealed, assigning error to several aspects of the court's interpretation of the contract for sale between the parties, and to the court's denial of the defendants' motion to amend their answer.

All parties to this action are certified public accountants. The plaintiff, John Powel, prior to June 1963, owned and operated an accounting business in Bridgeport; the defendants, Thomas G. Burke, Alfred Hollis and B. James Burke, doing business as Thomas G. Burke & Company, conducted an accounting business in New York City with an office in Westport. In June, 1963, the plaintiff took a job in New York and offered to sell his accounting practice to the defendants. The defendants agreed and the parties entered into an informal oral agreement for the sale whereby the defendants took over the operation of the plaintiff's practice on July 1, 1963. Approximately one year later, the parties attempted to reduce their agreement to writing. The basic terms of the agreement were contained in a proposal written on the back of a check. Thereafter, following further discussion and modification, the parties executed a two-page, handwritten agreement dated July 7, 1964.

The agreement is in two parts. Part one provides for certain lump sum payments for furniture and good will and is undisputed in this appeal. Part two, entitled "Sale of Practice," calls for payments to the plaintiff, based on financial results, over a five-year "buy-out" period from June 30, 1963, to June 30, 1968. The plaintiff was to be paid either (1) 15 percent of gross collections during the five-year contract period, or (2) 50 percent of the profit on accounts collected, whichever was less. It is undisputed that, in fact, the second alternative formula, under any interpretation, would yield the lower figure. Thus, the dispute between the parties centers on the calculation of "50 percent of profit on accounts collected" under the second formula.

The contract defined "profit" as gross collections, less staff payroll cost, ¹ less $10 per hour for partners' time, less 30 percent of staff payroll cost as a charge for overhead. If actual overhead cost was less than 30 percent of staff payroll cost, the actual figure was to be used. Despite substantial agreement about the underlying raw data, the parties differ about the method of computation required as a matter of interpretation of several of the provisions of the contract.

At the outset, the defendants contend that the court's interpretation of the contract as a whole is unreasonable because it produces paper profits when in fact the business lost money. According to the defendants, the parties intended that the plaintiff would be paid only if the business proved profitable, and the formula set out in the contract for determining "profit" was intended merely to simplify computations, not to distort reality. The defendants have gone to elaborate lengths to attempt to prove that the plaintiff's business, under so-called "generally accepted accounting principles," experienced a net loss during the five-year buy-out period. Such calculations are, however, wholly irrelevant to the interpretation of the parties' agreement in this case.

It is the general rule that a contract is to be interpreted according to the intent expressed therein, and not by an intent the court may believe existed in the minds of the parties. Robinson v. Weitz, 171 Conn. 545, 551, 370 A.2d 1066 (1976). " 'The question is not what intention existed in the minds of the parties but what intention is expressed in the language used.' " White Oak Corporation v. State, 170 Conn. 434, 439, 365 A.2d 1162, 1165 (1976). Had the parties wished to define profit according to generally accepted accounting principles, they could easily have done so. They chose instead a definition of profit as gross collections less certain stipulated deductions for partners' time, staff payroll, and overhead. Whether or not application of this definition produces a profit that would not have resulted under another definition, it is still the parties' agreement, rather than some alternate "real world" figure, that must control. The defendants "cannot now be heard to claim, for (their) own benefit, that the actual undertaking of the parties was other than that which appears in their written agreement." Osborne v. Locke Steel Chain Co., 153 Conn. 527, 531, 218 A.2d 526, 529 (1966).

The defendants next claim that the court erred in computing staff payroll cost for employees who worked more than 1800 hours in a year. The contract provides for an employee's hourly rate to be computed by dividing his or her annual base salary by 1800 hours. The court, however, by accepting the plaintiff's calculations on all disputed issues, read an implied exception into this contract language for employees who actually worked more than 1800 hours. For those employees, the payroll cost chargeable to the plaintiff was limited to their actual salary, because if their actual hours worked had been multiplied by the hourly rate called for by the agreement, the plaintiff would have been charged for more payroll cost than was actually incurred. This approach, although logical, finds no support in the contract language. The contract provides a clear and unambiguous formula for the calculation of staff payroll cost; an implied exception cannot be read into the contract by the interpretation of the court. Collins v. Sears, Roebuck & Co., 164 Conn. 369, 374, 321 A.2d 444 (1973); Bria v. St. Joseph's Hospital, 153 Conn. 626, 632, 220 A.2d 29 (1966). There was thus error in the calculation of staff payroll cost for employees working more than 1800 hours. It is undisputed that the difference between the parties' respective calculations of this amount, including 30 percent for overhead, is $2607 gross and $1304 net.

The composition of the "staff" for the purpose of staff payroll calculations constitutes the defendants' next claim of error. They challenge the court's finding that staff payroll includes accounting staff only, to the exclusion of clerical or "hybrid" employees, and contend that the payroll cost of one employee from the Bridgeport office and four from Westport, none of whom was an accountant, should have been included in staff payroll cost. ² Although the contract did not specifically outline who was to be included as "staff," the evidence printed in the plaintiff's appendix, including testimony from one of the defendants' witnesses, amply supports the court's finding that only accountants were to be included in the term.

The defendants have challenged the court's use of Bridgeport office payroll rates for work done on the plaintiff's accounts in the defendants' Westport office. It should be noted that in August 1965, during the contract period, the plaintiff's original lease for the Bridgeport office expired and the entire business was moved to the defendants' Westport office, where it was nevertheless operated as a separate entity with separate books. The contract, by amendment, provided that work done by the defendants' New York office would be charged to the plaintiff at separate, higher rates. The defendants' contention that these higher rates should also be used for work done in Westport finds no...