Taylor-Edwards Warehouse & Transfer Co., of Spokane, Inc. v. Burlington Northern, Inc.

• Decision Date: 12 September 1983
• Docket Number: No. 82-3428,TAYLOR-EDWARDS,82-3428
• Citation: 715 F.2d 1330
• Parties: WAREHOUSE & TRANSFER CO., OF SPOKANE, INC., a Washington corporation, Plaintiffs-Appellants, v. BURLINGTON NORTHERN, INC., a foreign corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1330

715 F.2d 1330

TAYLOR-EDWARDS WAREHOUSE & TRANSFER CO., OF SPOKANE, INC., a Washington corporation, Plaintiffs-Appellants, v. BURLINGTON NORTHERN, INC., a foreign corporation, Defendant-Appellee.

No. 82-3428.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 6, 1983.

Decided Sept. 12, 1983.

William H. Robertson, Seattle, Wash., for plaintiffs-appellants.

Lawrence D. Silvernale, Seattle, Wash., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of Washington.

Before ANDERSON and FLETCHER, Circuit Judges, and JAMESON, ^* District Judge.

FLETCHER, Circuit Judge:

This case concerns the interpretation to be given a provision in a lease that obligates Burlington Northern, the lessor, to "maintain, operate, and make available for use" by Taylor-Edwards, the lessee, a section of spur track adjoining the warehouse leased by Taylor-Edwards from Burlington Northern. The district court ruled that the lease does not require Burlington Northern to maintain access by rail from a main line to the warehouse, since maintaining access would require the railroad to reconstruct a bridge that has fallen into disrepair. We conclude that the lease requires Burlington Northern to provide rail access to the warehouse spur, and that Burlington Northern has presented no valid defense to the obligation. Accordingly, we reverse.

I FACTS

On February 29, 1956, Taylor-Edwards Warehouse & Transfer Co. of Spokane (Taylor-Edwards) agreed to lease a building owned by Great Northern Railway, Burlington Northern's predecessor, ¹ for use as a warehouse. The lease covered a period of 20 years, and Taylor-Edwards was given an option to extend the lease for another 20 years. Drafted by the railroad, the lease agreement imposed numerous obligations and restrictions on Taylor-Edwards as lessee. The monthly rental was fixed at $200.

The leased warehouse, formerly used by railroad companies as a car barn and as a machine shop, was situated next to a major Great Northern rail line. The warehouse was served by a siding connected to the line by a spur track. One paragraph of the lease dealt with the siding:

Lessor hereby grants Lessee license and permission to use in common with Lessor and such other parties as Lessor may permit the [siding area] for access to said demised premises, and for loading and unloading thereon; and Lessor does further grant Lessee license and permission to use in common with Lessor and such other parties as Lessor may permit such of Lessor's lands as Lessor may from time to time select, not exceeding a width of 25 feet, as an access road to said demised premises from Trent Avenue in the City of Spokane ... and Lessor agrees to maintain, operate and make available for use by Lessee the trackage [of the siding].

Taylor-Edwards paid its rent in timely fashion and complied with all of its other lease obligations. In 1976, Taylor-Edwards exercised its option and extended the lease through 1996.

Since 1956, the nature of rail traffic in the Spokane area has changed dramatically. When the lease was created, the main Great Northern line crossed the Spokane River just east and west of the warehouse via railroad bridges. In 1971, Great Northern Railway merged with Burlington Northern, and as a result, the Great Northern mainline running past the warehouse was no longer needed for through traffic. Burlington Northern removed the bridge and track to the east of the warehouse, but continued to provide rail access to the warehouse and other nearby industries via the bridge to the west, Bridge C-1.3. The other industries served by the rail spur subsequently ceased their rail operations. By 1981, Taylor-Edwards was the sole remaining customer served by the rail line extending across Bridge C-1.3.

Bridge C-1.3 was built in the early part of this century and was reconstructed in 1946. Since then, its condition has steadily deteriorated. By the late 1970's, the wooden pilings supporting the bridge were seriously weakened, and in 1981, the bridge was declared unfit for rail traffic. The cost of restoring the bridge to service was estimated at $275,000. Burlington Northern officials decided this expense was unwarranted in light of the fact that Taylor-Edwards was the only remaining customer served by the spur track across the bridge from the present main line. Burlington Northern first offered to remove the lease restrictions on use of the warehouse building in exchange for release by Taylor-Edwards of any obligation to maintain rail service. After Taylor-Edwards declined this offer, Burlington Northern elected to abandon the bridge. On July 17, 1981, Burlington Northern advised Taylor-Edwards that Bridge C-1.3 would be permanently removed from service, and that rail access to the warehouse siding would be discontinued.

Taylor-Edwards commenced this diversity action in district court, seeking damages for breach of the lease agreement. The parties filed cross-motions for summary judgment. The district court granted Burlington Northern's motion for summary judgment and denied Taylor-Edwards's motion. ²

II DISCUSSION

A. Burlington Northern's Obligation Under the Lease Agreement.

The critical contract language to be interpreted in this case is the clause that states that "Lessor agrees to maintain, operate and make available for use by Lessee the trackage" in the siding area next to the warehouse. The district court, without relying on extrinsic evidence, ruled that this language does not require Burlington Northern to maintain rail access to the siding. This ruling is a freely reviewable conclusion of law. ³ Culinary & Service Employees Union, Local 555 v. Hawaii Employee Benefit Administration, Inc., 688 F.2d 1228, 1230 (9th Cir.1982). Even if the proper interpretation of the meaning of the words of the contract depends upon the surrounding circumstances, the interpretation of the words in light of those circumstances is a question of law that we must resolve on a de novo basis. See Martin v. United States, 649 F.2d 701, 703 (9th Cir.1981).

We have not discovered any reported case dealing with a lease provision similar to the one involved here. Taylor-Edwards cites United States Fire Insurance Co. v. Northern Pacific Railway Co., 30 Wash.2d 722, 732, 193 P.2d 868, 874 (1948), to support its position that the term requiring Burlington Northern to "operate" the warehouse siding requires the railroad to maintain access to the main line. Burlington Northern relies upon Fuller Market Basket, Inc. v. Gillingham & Jones, Inc., 14 Wash.App. 128, 133, 539 P.2d 868, 871 (1975), to show that a lease covenant such as the one at issue cannot be construed to affect the activities of a landlord away from the leased premises. Examination of these cases, however, reveals that neither is helpful. ⁴ We must turn to general principles of contract interpretation to determine the proper construction of the warehouse lease.

Under Washington law, the role of the court in a contract action "is to ascertain the parties' intentions and give effect to their intentions." Jones v. Hollingsworth, 88 Wash.2d 322, 326, 560 P.2d 348, 350-51 (1977). This court in interpreting contracts has also focused upon the intentions and expectations of the parties at the time of contracting. See, e.g., Union Pacific Railroad Co. v. Chicago, Milwaukee, St. Paul & Pacific Railroad Co., 549 F.2d 114, 116-17 (9th Cir.1976). The controlling intent of the parties must be ascertained from reading the contract as a whole, and where the language used is unambiguous, no ambiguity will be read into the contract. Black Mountain Ranch v. Black Mountain Development Co., 29 Wash.App. 212, 215, 627 P.2d 1006, 1009 (1981). If the contract language is ambiguous, it must be strictly construed against the railroad, as the drafter of the governing instrument. United States v. N.A. Degerstrom, Inc., 408 F.2d 1130, 1134 (9th Cir.1969); Jacoby v. Grays Harbor Chair & Manufacturing Co., 77 Wash.2d 911, 918, 468 P.2d 666, 671 (1970).

We have been presented with two contrasting hypotheses as to the meaning of the lease statement that the railroad would "maintain, operate, and make available for use by Lessee" the siding next to the warehouse. One, urged by Taylor-Edwards, is that the railroad lessor must maintain usable rail access to the siding. The other, advanced by Burlington Northern, is that the lease requires no more than that the railroad maintain in functional condition the track actually located on the warehouse premises, regardless of whether that track is connected to other tracks so that it can be served by trains. We conclude that the language of the contract better supports the first construction. The railroad covenanted to make the siding "available for use by Lessee" and to "operate" the siding track, not merely to "maintain" the track. A rail siding is hardly "available for use," nor can it be "operated," unless connected to a main line so that trains can pass on to and off of the siding.

Other relevant considerations bolster this interpretation of the parties' intentions. The premises were leased by Taylor-Edwards in order to carry on its warehousing business, a use for which rail access to a main line was essential. Not only did both parties know that Taylor-Edwards was entering the lease for the purpose of operating a warehouse, the lease itself expressly restricted the permissible use of the building by Taylor-Edwards to warehousing. The circumstances surrounding formation of the contract thus demonstrate that the parties envisioned that the warehouse would remain linked to a rail network, and not just that Taylor-Edwards would remain assured of the existence on its property of a useless patch of track, maintained in good condition. Construing the contract to require access to a rail system better effectuates the purposes of the lease, and consequently better reflects the likely intent of the contracting p...