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HAWES OFFICE SYS. v. WANG LABS.

April 23, 1982

HAWES OFFICE SYSTEMS, INC., Plaintiff,
v.
WANG LABORATORIES, INC., Defendant



The opinion of the court was delivered by: NEAHER

MEMORANDUM AND ORDER

By memorandum and order dated October 19, 1981, Hawes Office Systems, Inc. v. Wang Laboratories, Inc., 524 F. Supp. 610 (E.D.N.Y.1981), the Court granted defendant's motion for partial summary judgment to the extent of dismissing plaintiff's allegations of "contractual rights subsequent to expiration of the 1979 Agreement on January 25, 1981, and the 1980 Agreement on January 1, 1981." Id. at 615. While the previous motion focused on abridgement of plaintiff's contractual rights subsequent to January 1981, the present motions concern the viability of the 1979 Agreement during the twelve month period commencing January 25, 1980. Contending that the parties impliedly renewed that agreement for a second term, plaintiff moves for summary judgment upon its claims that (1) Wang remained bound by the agreement until January 25, 1981, and (2) Hawes is entitled to a percentage of the commission on sales made in its territory through January 25, 1981, irrespective of its contribution. In response, defendant cross-moves for summary judgment dismissing the complaint insofar as it claims (1) the 1979 Agreement remained in force after January 25, 1980, (2) Hawes is entitled to payment for sales to which it made no contribution, and (3) Hawes is entitled to punitive damages on its contract claims. *fn1"

 The Court previously determined that the 1979 Agreement comprised an integration of the parties' agreement, interpretation of which is a matter of law. 524 F. Supp. at 613-14. "Interpreting the agreement in a manner consistent with ordinary understanding and the contractual scheme," we held that "plaintiff's contractual rights extinguished when defendant failed to provide written consent to renewal prior to the established expiration date." Id. at 614-15. The facts before the Court upon which the holding was premised indicated an utter absence of transaction between the parties, except in the context of litigation, subsequent to the second twelve month term authorized by the agreement. Absent continued performance of obligations under the agreement, reasoned construction required the conclusion that the lack of mutual written notification caused the agreement to expire. Since the instant motions concern a different factual context, viz., conduct apparently pursuant to the contract after expiration of the initial term, the previous holding is inapposite.

 The material undisputed facts follow. Hawes and Wang entered into the 1979 Agreement on January 25, 1979 and operated under its provisions with no apparent conflict through the initial term. By letter dated January 25, 1980, Hawes informed Wang that the $ 300,000 annual sales quota established by the 1979 Agreement had been met and requested Wang's acceptance of a $ 600,000 quota for "the next fiscal year period beginning May 1980." Pl.Exh.B. Although Wang did not respond, Hawes continued its sales efforts, and in the next five weeks Wang accepted nine new sales orders, totalling $ 105,557, from Hawes. By letter dated March 31, 1980, Wang advised Hawes that the latter had "violated the terms and conditions" of the 1979 Agreement and that the agreement "is hereby terminated as provided for by paragraph 7(b) of the 25 January 1979 agreement." Pl.Exh.F. On April 18, 1980, plaintiff commenced the instant litigation. By letter dated May 1, 1980, Wang "rescind(ed)" the March 31 notice of termination and "contend(ed)" that the agreement had expired by its own terms on January 24, 1980. Def. Notice of Cross-Motion, Exh.D. Between May and August 1980, the parties pursued negotiation of a new agreement, and Wang continued to accept sales orders from Hawes. Def. Notice of Cross-Motion, Doretti Affidavit.

 On the basis of the parties' course of conduct from January 25 to March 31, 1980, plaintiff argues that the agreement was impliedly renewed. Defendant counters with the argument that mutual written notification comprised the sole means of renewal, that the contract therefore expired by its terms on January 24, 1980, and that whether the parties' transactions subsequent to expiration gave rise to a new implied contract remains a disputed question of fact. Further, defendant asserts that notwithstanding the proviso in § 10 that the agreement "shall be governed by the laws of the Commonwealth of Massachusetts," the existence of an implied contract "would doubtless be controlled by New York law." Def. Mem. in Opp. at 10, n.14.

 Addressing the choice of law question first, the Court perceives no reason for departure from the parties' stipulated choice of law. Applying New York conflict of laws principles, Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941), absent fraud or violation of public policy, contractual selection of governing law is generally determinative so long as the State selected has sufficient contacts with the transaction. See, e.g., CBS, Inc. v. Tucker, 412 F. Supp. 1222, 1226, n.5 (S.D.N.Y.1976); Business Incentives Co. v. Sony Corp. of America, 397 F. Supp. 63 (S.D.N.Y.1975); 19 N.Y.Jur.2d, Conflict of Laws § 33 (1982). Massachusetts is the law of execution as well as defendant's incorporation; hence, strong connections exist. In the circumstances, Massachusetts law governs the primary inquiry: construction of the agreement to determine whether renewal was authorized by any means other than mutual written notification.

 The critical provision is found in § 1 of the agreement, *fn2" which establishes the "initial term" as twelve months, commencing January 25, 1979, and provides that the "Agreement can be renewed for an additional year if both parties notify the other ...." Pl.Exh.A. Examining the "plain meaning" of the language, see Geehan v. Trawler Arlington, Inc., 547 F.2d 132 (1st Cir. 1976); Save-Mor Supermarkets, Inc. v. Skelly Detective Service, Inc., 359 Mass. 221, 268 N.E.2d 666 (1971), in the absence of any adjective denoting exclusivity, § 1 unambiguously authorizes written notice as a permissible method of renewal without foreclosing alternative methods. Viewing the contract in its entirety, Sherman v. Employers' Liability Assurance Corp., 343 Mass. 354, 178 N.E.2d 864 (1961), an alternative method of renewal would be consistent with the contractual scheme so long as it involved manifestation of mutual assent and allowed for annual re-negotiation of the sales quota under § 4.

 Alternatively, if the language of § 1 is perceived as ambiguous, to construe its intended meaning we look to the parties' conduct. For it is established law in Massachusetts that "(t)he interpretation placed upon the contract by the parties as evidenced by their conduct is entitled to great weight." Atwood v. City of Boston, 310 Mass. 70, 37 N.E.2d 131, 134 (1941); Wit v. Commercial Hotel Co., 253 Mass. 564, 149 N.E. 609 (1925). Here the undisputed facts show that the parties continued dealing with each other subsequent to expiration of the initial term with no apparent hesitation or distinction, despite the absence of written notice. Indeed, during this period of continued performance, Wang acquiesced to benefits under the contract in the face of Hawes' unequivocal offer to renew its sales commitment. Therefore, the parties' course of conduct demonstrates their practical interpretation of § 1 to authorize renewal by mutual assent without written notice. This perception is confirmed by Wang's subsequent termination letter. An expired contract can neither be violated nor terminated. Moreover, Wang's acceptance of orders between May and August 1980, after it had announced its position on expiration of the agreement, is not inconsistent with the parties' practical interpretation of the agreement, because conduct during litigation is wholly irrelevant to prior contractual intent.

 The question remains whether renewal in fact occurred. *fn3" Before reaching the propriety of summary judgment on this issue, we turn to a discussion of the law on permissible inferences from the parties' continued performance. At common law, courts may infer agreement to renew an express contract from continued performance after expiration of a set term. 1 Corbin on Contracts § 18, at 43 (1963). Massachusetts permits the inference at least in employment contexts, see, e.g., Mahoney v. Hildreth & Rogers Co., 332 Mass. 496, 125 N.E.2d 788 (1955); Allen v. Chicago Pneumatic Tool Co., 205 Mass. 569, 91 N.E. 887 (1910), and common sense supports the implication in services and agency contexts as well. Cinefot Int'l Corp. v. Hudson Photographic Industries, 13 N.Y.2d 249, 196 N.E.2d 54, 246 N.Y.S.2d 395 (1963). Accord, Spencer v. General Electric Co., 243 F.2d 934, 938 (8th Cir. 1957) (applying Missouri law); cf., Otten v. San Francisco Hotel Owners Ass'n., 74 Cal.App.2d 341, 168 P.2d 739 (1946) (presumption applies exclusively to master-servant relationship). Though never compelled, the inference is eminently reasonable and just, and often rises to the level of presumption. See, e.g., Steranko v. Inforex, Inc., 5 Mass.App. 253, 362 N.E.2d 222 (1977) (applying New York law).

 Defendant relies on a line of cases stemming from the purported holding in New York Telephone Co. v. Jamestown Telephone Corp., 282 N.Y. 365, 26 N.E.2d 295 (1940), for the proposition that the conduct of the parties may at most imply a new contract, not a renewal of the original. New York Telephone concerned a contract between a state-wide and a local telephone company which fixed the joint obligations of the parties regarding their interconnecting long distance wires and services. The contract provided that either party could terminate the agreement by written notice, and it was undisputed that both parties continued to perform and receive the services after defendant had given such notice. Plaintiff sought to recover under the express contract for services rendered subsequent to termination, but the trial court dismissed the complaint. The Appellate Division affirmed, concluding that the contract was "fully at an end" upon the effective date of defendant's notice. 256 App.Div. 1, 5, 8 N.Y.S.2d 948, 952 (4th Dept.1939). The issue before the Court of Appeals was whether the notice of termination was "withdrawn or rendered ineffective by the subsequent acts of the defendant." 282 N.Y. at 371, 26 N.E.2d at 297. In obiter dictum the Court of Appeals expounded the theory of implied contract upon which Wang relies so heavily. The holding was that defendant's liability for services rendered subsequent to the notice of termination cannot be measured by the terms of the express contract, because "(n)othing occurred ... which dictates or, indeed, permits an inference that the defendant intended to withdraw its notice." 282 N.Y. at 372, 26 N.E.2d at 297.

 The holding in New York Telephone is wholly inapposite to the instant question whether continued dealings after expiration of an initial term can imply renewal. A fundamental of the decision was the effective notice of termination which ended the contract. Noting that the parties' continuation of joint services for the public was required by law, the court found such continuation consistent with defendant's express repudiation of the private agreement. If New York Telephone is to apply at all to the issue at hand, it must be for the recognition of common law principles that intent to contract, as well as the terms of an implied agreement can be inferred from conduct, and that even express notice of termination may be negated by inconsistent acts. As always, the key concept is application of the relevant legal principles to the particular facts before the court.

 As movant for summary judgment, Hawes has the burden "to demonstrate the absence of any material factual issue genuinely in dispute." Heyman v. Commerce & Industry Ins. Co., 524 F.2d 1317, 1320 (2d Cir. 1975). As explained by the Court of Appeals in Schwabenbauer v. Board of Education, 667 F.2d 305, 314 (2d Cir. 1981), the cross-motion by defendant for summary judgment on the same issues does not modify plaintiff's burden:

 
"Rather, the court must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration."

 Examining plaintiff's submissions on its motion, only one reasonable inference can be drawn: the parties mutually assented to renewal of the 1979 Agreement for an additional ...


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