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USCA1 Opinion

March 29, 1993

UNITED STATES COURT OF APPEALS


FOR THE FIRST CIRCUIT
____________________

No. 92-1978
ATLANTIC TRACK & TURNOUT COMPANY,
Plaintiff, Appellant,
v.
PERINI CORPORATION,
Defendant, Appellee.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Robert E. Keeton, U.S. District Judge]
___________________
____________________
Before
Torruella, Circuit Judge,
_____________
Coffin, Senior Circuit Judge,
____________________
and Boudin, Circuit Judge.
_____________
_____________________

David J. Hopwood, with whom Heafitz & Hopwood, was on brief


_________________
_________________
for appellant.
Charles E. Schaub, Jr., with whom Christopher J. Petrini,
_______________________
_______________________
and Hinckley, Allen & Snyder, were on brief for appellee.
________________________

____________________
March 29, 1993
____________________

TORRUELLA, Circuit Judge.


______________
Turnout

Company ("Atlantic")

action pursuant
Gen. L. ch.

to the

106,

Appellant Atlantic

brought

this

breach of

Uniform Commercial Code

2-101, et seq. (1992).


_______

appellee Perini Corporation ("Perini")

Track &

contract

("Code"), Mass.

Atlantic alleged that

failed to perform under a

contract for the purchase and sale of railroad materials.


The

court

deferred

decision

summary judgment and ordered a trial


whether the contract
would

supplement

the

on

motions

for

limited to two issues:

(1)

was ambiguous; and (2)


contract

terms

to

cross

whether trade usage


enable

Atlantic

to

maintain its action.


a

judgment on

After Atlantic's proffer, the court entered

partial

findings pursuant

52(c)1 in favor of Perini.

to

Fed. R.

Civ.

P.

We affirm that judgment.


BACKGROUND
BACKGROUND
__________

On

October

Transportation

21,

1987,

Authority ("MBTA")

awarded

Route Track Rehabilitation Project.


to rehabilitate a
rehabilitation
ballast,

the

thirteen mile

Massachusetts
Perini

the

Bay

Eastern

The project required Perini

section of double

included undercutting
track's stone

the

the

foundation,

track to
and

track.

The

replace the

disposing of

any

____________________
1

Rule 52(c) provides in relevant part:


If during a trial without a jury a party
has been fully heard with respect to an
issue and the court finds against the
party on that issue, the court may enter
judgment as a matter of law against that
party on any claim . . . that cannot
under controlling law be maintained or
defeated without a favorable finding on
that issue . . . .
-2-

contaminated ballast materials.


In

the spring

of

1988, a

sub-contractor tested

the

ballast

under

contaminated.

the

track

and

determined

that

it

was

all

Perini received the test results on June 21, 1988

and discussed them with the MBTA on July 17, 1988.


In

early June,

Atlantic to buy certain


28

1988, Perini

solicited an

salvage from the project.

and 30, 1988, Atlantic

available" materials.

issued five purchase

offer from

Between June

orders for "all

The orders also furnished

an estimate of

the amount of salvage that would become available.

On August 18, 1988, the MBTA directed Perini to suspend


undercutting operations
1988, the MBTA
constraints.
value

until further notice.

permanently halted all undercutting due to fiscal


As the elimination of the

of the

On September 13,

contract

by 52%,

undercutting reduced the

Perini

stopped all

work.

By

October 26, Perini had no physical presence on the project site.


On
adjustment

October
of

the MBTA

increase in payment
the contract.

31,

The

1988,

Perini proposed

contract.

The proposal

for completion of

an

equitable

entailed

the remaining work

MBTA rejected Perini's proposal.

an

under

Perini and

the MBTA thus agreed to terminate the contract.


Atlantic knew by August
was

suspended and later asked

materials would be available.


terminate the project

22, 1988 that all undercutting

Perini when the

remainder of the

Perini replied that the MBTA might

and that Perini

-3-

had already shipped

"all

available"
Atlantic

salvage
sued

in

accordance with

Perini, claiming

that

the
the

purchase
amount of

orders.2

materials

shipped was well below the stated estimates.


LEGAL ANALYSIS
LEGAL ANALYSIS
______________
Two reasonable interpretations of the
language exist.
satisfied
salvage

On one hand, "all available" implies that Perini

its obligation
material that

available

to

contract.3

contract's plain

purchase orders

the contract

became available;

Perini,
On the

under

Perini

faced

other hand,

suggest that

the

no

by supplying

if no

material became

liability

under

estimates offered

Perini had

the

to deliver

the

in the

a quantity

nearing those estimates.


To
represented
hurdles.

the true

First,

proving its
Second,

convince the

any

court that the

agreement,

as the

Atlantic had

to overcome

plaintiff, Atlantic had

interpretation by
ambiguity

latter interpretation

in

a preponderance of
the

contract

the burden

two

of

the evidence.

should

normally

be

interpreted against Atlantic, the drafter of the purchase orders.


LFC Lessors, Inc.
_________________
(1st Cir. 1984).

v. Pacific Sewer Maintenance, 739


__________________________

F.2d 4,

Atlantic offered two theories beyond the plain language


of

the

contract supporting

Specifically,

its

interpretation

Atlantic argued that:

of the

terms.

(1) trade usage of the term

____________________
2 At this point, Perini had delivered approximately
materials estimated.

15% of the

3 Of course, the Code requires that Perini attempt to attain the


materials in good faith. Mass. Gen. L. ch. 106,
2-306.
-4-

"all available" required Perini to deliver close to the estimated


quantity

of materials,

required Perini
estimate.
faith.

and (2)

to provide

2-306

of the

Code expressly

a quantity approximating

its stated

In addition, Atlantic argued that Perini acted in bad


Atlantic revives these

theories in this

appeal, and we

address them in turn.


I.
I.

Trade Usage
Trade Usage

The district
proffer failed to prove

court ruled

that Atlantic's

by a preponderance of the

trade usage

evidence that

the contract terms embodied Atlantic's proposed meaning.


conclusion constitutes a factual finding,
1-205(2),

we review it only

As this

Mass. Gen. L. ch. 106,

for clear error,

Athas v. United
_____
______

States, 904 F.2d 79, 80 (1st Cir. 1990).


______
Trade
only when the

usage will

supplement the

terms of

parties know or should know of

Gen. L. ch. 106,

1-205(3).

provided no evidence

In

the

that Perini

a contract

that usage.

present

case,

knew or should

evidence that Perini engaged

Indeed,

one Atlantic

witness testified

competitor of Atlantic's.
-

Day

1, at

Atlantic's
witness
with

106.

trade

trade usage of

of

There was

trade as Atlantic.

that Perini

was not

Transcript, Non-Jury Trial Proceedings

Therefore,
practices.

testified that

a Perini

in the same

Atlantic

have known

Atlantic's interpretation of the term "all available."


no

Mass.

we cannot

assume

Furthermore,

he discussed

representative, but
"all available."

Id.
__

knowledge of

another

Atlantic

the terms of

the contract

never explained

the alleged

at 70.

Given

the lack of

-5-

evidence, we cannot find that the district court clearly erred in


finding

that

the

proposed trade

supplement the contract terms.


II.

Section 2-306

usage

of

the

term did

not

II.

Section 2-306

Both

parties

agree

constitutes an output contract

that

the

disputed

contract

governed by

2-306 of

the Code.

Section 2-306 of the Code provides in relevant part:


(1) A term which measures the quantity by
the output of the seller . . . means such
actual output . . . as may occur in good
faith,
except
that
no
quantity
unreasonably
disproportionate
to any
stated estimate . . . may be tendered or
demanded.
In the present case,
of

the expected

quantity.

output, and

Thus,

the contract provided an estimate


Perini tendered

Atlantic argues

that

only 15%

according to

of that

2-306,

Perini violated the contract.


While many

courts and commentators have

meaning of the "unreasonably


as applied

to requirements

discussed the

disproportionate" clause of
contracts, little, if

2-306

anything, has

been written on the clause's application to output contracts.

We

review the former analysis, however, because it provides valuable


instruction

due to

the

similarity between

these two

types of

contracts.
With
on

the

respect to requirements

meaning of

the "unreasonably

Some

courts find that "even

good

faith,

the

section

contracts, courts differ

disproportionate" clause.

where one party


limits
-6-

the

other

acts with complete


party's

risk

in

accordance

with the

Orange Rockland
_______________
Most
buyer

v. Amerada Hess,
____________

expectations

demands more

than

which the buyer

the stated

parties."

819 (1977).

cases in which the

estimate differently

demands less.

See, e.g.,
___ ____

than

Empire Gas
__________

v. American Bakeries Co., 840 F.2d 1333, 1337-38 (7th Cir.


_____________________

1988); Angelica Uniform Group, Inc. v.


_____________________________
636 F.2d 232,

(D.C. Cir. 1978).

hold

that

while
of goods

estimate,

R.A. Weaver and


_______________

v. Asphalt Construction, Inc., 587


___________________________

1322

quantity

Ponderosa Systems, Inc.,


_______________________

232 (8th Cir. 1980) (per curiam);

Associates, Inc.
________________

stated

of the

397 N.Y.S.2d 814,

courts and commentators, however, treat

cases in
Corp.
_____

reasonable

F.2d 1315,

The courts that employ separate analyses

2-306 precludes
that

is unreasonably

it permits

highly disproportionate."

buyers

"good

demanding

disproportionate to

faith

from

reductions that
__________

are

R.A. Weaver and Associates, Inc., 587


_________________________________

F.2d at 1315 (emphasis added).4

The Seventh Circuit explained the argument well, Empire


______
Gas Corp.,
__________

840 F.2d

Essentially, the

at 1338-40,

argument is

and

we adopt

the following.

its reasoning.

The "unreasonably

disproportionate" clause

is somewhat

good faith requirement in that section.

redundant in light

of the

The clause therefore was

____________________

4 The comments to the Code shed little light on the issue as


they, too, are ambiguous. Empire Gas Corp. v. American Bakeries
________________
_________________
Co., 840 F.2d at 1338.
Comment 3 to
2-306, for example,
___
provides that an "agreed estimate is to be regarded as a center
around which the parties
intend the variation to occur,"
suggesting that the two situations should be treated similarly.
Comment 2 to
2-306, on the other hand supports the view that
the two situations should receive different treatment as it
provides that "good faith variations from prior requirements are
permitted even when the variation may be such as to result in
discontinuance."
-7-

likely provided to

explain the good faith term.

requirement with respect to disproportionately


needed

explanation

as certain

forms

of

constitute bad faith.

the

subject goods rises

price, a buyer

in a

increased demands

exploitation in

situation do not clearly


market price of the

The good faith

For

that

example, if

above the contract

requirements contract might

be tempted

to

demand more goods than it truly needs in order to resell them for
the better market price.
On

the

concern

other hand,
if a

The clause eliminates that opportunity.

exploitation, beyond

buyer demands

less than

bad

faith, is

a stated estimate.

not a

The

seller

has the

opportunity to

sell any

excess of

the subject

goods on the market.


Moreover, an obligation

to buy approximately

a stated

estimate of goods would pose a significant burden on buyers as it

would force them to make inefficient business judgments, when the

point of entering a requirements contract was to engage suppliers


without

binding themselves

Essentially,

allocation.
buyer's
buyer

to buy

requirements

"The seller

more

contract

assumes the

circumstances."
The
cases such as

the

risk

of

less

they need.

represents

risk of

business that makes continuation


assumes

goods than

a change

. . .

risk

in the

costly, but the

urgent

change

in

[]

Id. at 1340.
__
same

rationale

supports

different

the present one, in which the

treatment of

seller in an output

contract tenders less than a stated estimate, from cases in which


the seller

tenders more.

If

seller saw

an opportunity

to

-8-

increase his
output

to the

profits by

buying

buyer, this

additional goods

exploitation might

to resell

as

not conclusively

establish bad faith.

The proviso would forbid such conduct.

id.
__

the

at

1338.

On

approximately
inefficient
intend

other

hand,

the stated estimate


business decisions

when

he

bargained

an

may force the

that the

to

obligation

keep

sell

seller to make

seller did

the

to

See
___

not likely

contract's

quantity

provision open.
Like the risk allocation

in the requirements contract,

the output contract allocates to the


in the
the

seller's business
seller

assumes

circumstances.
output

Indeed,

that makes continuation

the

risk

would

be

of

contemplated

governed

by

change

that

the

in

held that
level

judgment.

N.E.2d 865, 868

of

See
___

(Mass.

We see no reason for a change in that rationale.


Adopting this interpretation of

only

urgent

business

Neofotistos v. Harvard Brewing Co., 171


___________
____________________
1961).

less

change

costly, while

pre-Code Massachusetts courts

contracts necessarily

production

buyer the risk of a

2-306, our next, and

inquiry under this section, is whether Perini acted in good

faith.
III.
III.

Good faith
Good faith

The district court determined that Perini acted in good


faith.

This was a factual determination that we review only

clear error.

for

Athas, 904 F.2d at 80.


_____

Atlantic offers two indications of bad faith by Perini.


First,

Atlantic argues that Perini acted in bad faith by failing

-9-

to

notify

Atlantic

Atlantic
offered no

of the

June

21

evidence that

test

results.

the additional

However,

contaminated

ballast signified to Perini that the contract would end.


the record

indicates that the additional

news to Perini because the

contamination was good

more contamination that existed,

more money Perini stood to earn under the contract.


not notify
18

Indeed,

the

The MBTA did

Perini of its desire to end the contract until August

when it suspended

the undercutting; Atlantic

suspension just four days later.


err in finding

learned of the

Thus, the court did not clearly

that Perini acted in

good faith with

respect to

notification.
Second, Atlantic argues that
by

failing to

project

make a

when the

MBTA

Perini acted in bad faith

reasonable attempt
eliminated the

to complete

the MBTA

undercutting.

Atlantic

contends that

in its negotiations for an equitable adjustment of

the contract,

Perini requested

contract price.

an unreasonable increase

Thus, Atlantic argues that Perini's

in the

attempt to

complete the project was in bad faith.

Based on the evidence presented, however, this argument

fails.

For

adjustment

one thing,

to

eliminated.

the

contractor

the contract

when a

may

large

seek an

equitable

quantity of

work is

See Peter Kiewit Sons' Co. v. United States, 109 Ct.


___ ______________________
_____________

Cl. 517, 522-23 (1947).


not make

Atlantic failed to show that Perini

reasonable attempts to

negotiate an adjustment.

did

That

MBTA and Perini failed to reach an acceptable agreement does

not show that the attempted negotiations were in bad faith.


-10-

Moreover,
output

contract for

faith.

party

who ceases

performance

independent business

Neofotistos, 171
___________

evidence that Perini did

reasons acts

N.E.2d at 868.

district court did not

in good

MBTA contract due

Indeed, Atlantic offered

no evidence of any reason why Perini agreed to


Thus, the

an

Atlantic offered no

not agree to end the

to a valid independent business reason.

under

end the contract.

clearly err in

its good faith

determination.
CONCLUSION
CONCLUSION
__________
Based

on

the evidence

presented, the

district court

properly granted summary judgment in favor of Perini.


Affirmed.
________

-11-