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decided: October 8, 1976.



Robert H. Malis, Malis, Tolson & Malis, Philadelphia, for appellants.

Gordon W. Gerber, Dechert, Price & Rhoads, Philadelphia, for appellees.

Jones, C. J., and Eagen, O'Brien, Roberts, Pomeroy and Manderino, JJ. Nix, J., did not participate in the consideration or decision of this case. Manderino, J., filed a dissenting opinion.

Author: Roberts

[ 472 Pa. Page 40]


This appeal arises from a contractual dispute between the Pennsylvania Liquor Control Board ("PLCB") and Rapistan, Inc. ("Rapistan"). The PLCB filed a complaint in the Commonwealth Court against Rapistan and Rapistan's surety, Federal Insurance Company ("Federal") alleging breach of contract. Rapistan and Federal filed preliminary objections. The Commonwealth Court sustained the preliminary objections and dismissed the complaint.*fn1 The PLCB appealed.*fn2 We reverse.

In 1970, the PLCB contracted with Rapistan for the construction and installation by Rapistan of an $875,300 conveyor system in the PLCB's Philadelphia warehouse. The contract provided that the conveyor system would be capable of handling 25,000 cases of alcoholic beverages in an eight hour period. Federal executed a $875,300 bond conditioned upon Rapistan's performance. Subsequently, the PLCB contracted with Holt Hauling and Warehousing Systems, Inc. ("Holt") for the operation of the warehouse. Holt allegedly relied on the conveyor system specifications in the Rapistan-PLCB contract in computing its offer to the PLCB.

In October 1970, Holt began operation of the conveyor system. A dispute arose soon thereafter because the system was unable to handle 25,000 cases per eight hour period. The PLCB refused to make payment of the final $95,000 due to Rapistan under their contract. It also entered into two agreements modifying its original contract with Holt. The PLCB agreed to reimburse Holt for additional costs incurred due to the faulty equipment and to increase the contract rates for handling the cases.

[ 472 Pa. Page 41]

Holt agreed to withdraw a claim it had filed against the PLCB before the Board of Arbitration of Claims. However, the parties stated that the modifications "shall not be deemed to constitute full satisfaction of [Holt's] claims on account of [the conveyor system] which may be asserted hereafter by [Holt] against Rapistan." The parties agreed to file joint or separate actions against Rapistan to determine Rapistan's liability and agreed upon a formula to divide any award.*fn3

On June 8, 1973, the PLCB filed this action on its own behalf and "to use of" Holt in the Commonwealth Court. The complaint sought damages for breach of contract on six counts: (1) costs for modifications to make the conveyor system capable of meeting the contract standards ($404,684.84); (2) recovery of money paid by the PLCB to Holt in the modification agreement ($1,405,764.59); (3) damages for breakage of the PLCB's product allegedly caused by defects in the conveyor system ($282,892.93); (4) the sum of the damages set forth in counts one, two and three ($2,093,342.36); (5) recovery from Federal of the face amount of the performance bond ($875,300); and (6) recovery of Holt's damages over and above the amount paid to Holt by the PLCB ($5,117,832.00).

[ 472 Pa. Page 42]

Rapistan and Federal raised preliminary objections to the PLCB's complaint, which included: (1) a demurrer to counts two and six because they concern transactions between the PLCB and Holt and create no rights, obligations or causes of action for or against Rapistan; and (2) an objection to the jurisdiction of the Commonwealth Court because the contract provides for arbitration of all disputes.*fn4 The Commonwealth Court sustained these objections and dismissed the PLCB's complaint.

Dismissal of Counts Two and Six

The Commonwealth Court dismissed counts two and six because it found that Holt was not a third partycreditor beneficiary of the contract between the PLCB and Rapistan and that the PLCB therefore could not sue on Holt's behalf.

To determine whether this preliminary objection was properly sustained, we must consider as true all "well-pleaded" material facts set forth in the PLCB's complaint and all reasonable inferences that may be drawn from those facts. Reardon v. Wilbur, 441 Pa. 551, 272 A.2d 888 (1971). Applying this test, it is clear the Commonwealth Court erred in dismissing count two.

[ 472 Pa. Page 43]

The PLCB, in its complaint, asserts that its liability to Holt was caused by Rapistan's breach of contract. The facts alleged support this claim. The conveyor system, according to the complaint, does not meet contract specifications, and, as a result, the cost of handling the cases is more than originally contemplated and the number of warehouse employees needed is greater. The PLCB was therefore forced to renegotiate its contract with Holt at considerable expense. The PLCB's losses are directly attributable to the breach of contract by Rapistan. It is therefore entitled to recover from Rapistan so long as the damages were "reasonably foreseeable" at the time of contracting and can be proved with reasonable certainty. Macchia v. Megow, 355 Pa. 565, 50 A.2d 314 (1947); 5 Corbin on Contracts ยง 1007 (1964).

Count six was properly dismissed, however. The PLCB has settled its liability with Holt, and Holt cannot now sue the PLCB for any additional damages. Thus, the PLCB's liability to Holt caused by Rapistan's breach is limited to the sum in count two. Because the PLCB has no further liability to Holt, it has no cause of action of its own for the amount stated in count six.

The PLCB argues that, although it is not the real party in interest in count six, it can assert its claim "to the use of Holt" because Holt is a third party beneficiary of the Rapistan-PLCB contract. Pennsylvania ...

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