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PHILADELPHIA ELECTRIC COMPANY v. BOROUGH LANSDALE (01/05/81)

filed: January 5, 1981.

PHILADELPHIA ELECTRIC COMPANY
v.
BOROUGH OF LANSDALE, APPELLANT. PHILADELPHIA ELECTRIC COMPANY, APPELLANT, V. BOROUGH OF LANSDALE



No. 1916 OCTOBER TERM 1978, No. 1918 OCTOBER TERM 1978 Appeal from the Order dated June 5, 1978 of the Court of Common Pleas of Montgomery County, Civil Division - in Equity at No. 74-9550.

COUNSEL

Stephen W. Miller, Philadelphia, for appellant (at No. 1916) and for appellee (at No. 1918).

John R. McConnell, Philadelphia, for appellant (at No. 1918) and for appellee (at No. 1916).

Cercone, President Judge, and Watkins and Hoffman, JJ.

Author: Watkins

[ 283 Pa. Super. Page 381]

This is an appeal from the order of the Court of Common Pleas of Montgomery County, Civil Division, sitting in equity whereby the court below reformed a contract entered between the parties hereto. Both parties have appealed the lower court's adjudication.

Philadelphia Electric Company, hereinafter referred to as Plaintiff, initiated this action in equity in the court below seeking the reformation of a contract entered into with The Borough of Lansdale, the defendant, by which the plaintiff agreed to supply the defendant with electrical power which the defendant would then resell to its customers. The plaintiff claimed that the written contract between the parties did not embody the correct intent of the parties to the agreement with respect to the rate schedule which was attached thereto, alleging that the rate schedule attached to the contract was included as a part thereof in error. The rate schedule in question was a "fixed rate schedule" by which the plaintiff agreed to supply 11,600 kilowatts to 29,000 kilowatts of power per month to the defendant at the rate of 8.6 mills per kilowatt hour. The plaintiff alleged that the true intent of the parties to the agreement was that the plaintiff would be permitted to seek rate increases from

[ 283 Pa. Super. Page 382]

    the Federal Power Commission*fn1 during the term of the contract. In support of its position the plaintiff introduced evidence at the equity trial to the effect that plaintiff's representatives had informed the Borough Council members of Lansdale Borough during negotiations for the contract of plaintiff's intention to apply for rate increases before the Federal Power Commission. Plaintiff also introduced testimony to the effect that defendant's representatives had consistently informed plaintiff that the Borough would oppose any such request. Plaintiff then argues that the contract eventually prepared by the plaintiff and executed by both parties was the product of a mutual mistake, and as such is subject to a decree reforming it so that it expressed the intent of both parties. On June 29, 1977, the court below found for the plaintiff, reformed the contract, and held that the evidence produced at the equity trial demonstrated that it was the parties' intent that the rates were to be increased to 9.2 mills per kilowatt hour. The court en banc dismissed all exceptions to its decree filed by both parties on June 5, 1978. Thereafter the plaintiff appealed the court's order claiming that it was correct in reforming the contract but that there was insufficient evidence produced at the equity trial to enable the court to find that the parties' intended a 9.2 mill per kilowatt hour rate. The defendant also appealed the order claiming that the court below did not have jurisdiction over the matter that the chancellor incorrectly found that the parties' intended anything other than what was provided by the written contract, and raising issues of res judicata, laches, and collateral estoppel.

The defendant, a municipal corporation, had owned and operated an electric system by which it had sold electricity

[ 283 Pa. Super. Page 383]

    to its residents. In 1964 the defendant entered into a written contract with the plaintiff by which the plaintiff undertook to supply the defendant with additional electricity up to a maximum of 8,000 kilowatts per month at the rate of 8.6 mills per kilowatt hour. Said contract, a fixed rate contract, was filed with the Federal Power Commission as required by law. See 16 U.S.C. ยง 824(c).

In October of 1969 the defendant solicited bids from both the plaintiff and the Pennsylvania Power and Light Company, another electricity supplier and a competitor of the plaintiff. The defendant had solicited proposals for the purchase of electrical energy for its total needs for a five year period from both companies as the defendant had decided to cease producing electricity entirely and to purchase all of its electricity which it would then continue to resell to its residents. Both plaintiff and the Pennsylvania Power and Light Company submitted proposals to the defendant. Although Pennsylvania Power and Light Company's proposals were somewhat lower than the plaintiff's the defendant decided to negotiate with the plaintiff because defendant's costs of renovating its equipment to receive plaintiff's electricity would be substantially less than would be its costs of renovating its equipment to receive Pennsylvania Power and Light Company's electricity. Throughout the negotiations conducted between plaintiff and defendant, the plaintiff made it clear that it intended to seek rate increases from the Federal Power Commission. The defendant made it just as clear to the plaintiff that it would oppose any such requests for rate increases. While negotiations between the parties commenced with Plaintiff's proposal to defendant, submitted in November of 1969, a written contract between the parties was not prepared until October 21, 1971 when plaintiff submitted a written contract to defendant. The defendant then executed the contract on November 12, 1971. (Plaintiff had executed the contract prior to submitting it to defendant). The said contract contained therein a "fixed rate schedule" which did not permit plaintiff to seek rate increases which contract was to be effective

[ 283 Pa. Super. Page 384]

    on July 27, 1972. Plaintiff then filed the contract with the Federal Power Commission. However, this filing was rejected by the Federal Power Commission as premature because more than 90 days would expire before it could be implemented. On April 13, 1972, the parties met at a breakfast meeting held at plaintiff's request. For the first time since the negotiations began plaintiff had legal counsel present at the meeting. The alleged purpose of the meeting was to discuss plaintiff's demand for increased rates. Once again defendant's representatives indicated their opposition to any proposed rate increase but did not cite the "Sierra-Mobile" doctrine nor any specific reason for their opposition to the rate hike proposal. On May 1, 1972, the plaintiff filed the November 12, 1971 contract with the Federal Power Commission and simultaneously requested a rate increase therefrom amounting to an increase of 34.8%.

On June 6, 1972, defendant filed an opposition to the rate increase requested by plaintiff and cited the November 12, 1971 contract's rate schedule as grounds for its opposition. In FPC v. Sierra Pacific Power Company, 350 U.S. 348, 76 S.Ct. 368, 100 L.Ed. 388 (1956) and United Gas Pipeline Co. v. Mobile Gas Service Corp., 350 U.S. 332, 76 S.Ct. 373, 100 L.Ed. 373 (1956), hereinafter referred to as the "Sierra-Mobile" Doctrine, the United States Supreme Court held that the Federal Power Commission could not grant unilateral filings for rate increases which were at variance with fixed rate contracts. On August 31, 1972, the Federal Power Commission rejected plaintiff's request for a rate increase. Plaintiff then appealed the matter to the United States Court of Appeals for the District of Columbia. After a hearing, the court held that the contract between the parties was a fixed rate contract which did not provide for unilateral filings for rate increases, ordered the contract to be filed, and provided that the ...


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