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decided: February 15, 1983.


Appeal from the Order of the Court of Common Pleas of Westmoreland County in the case of Youngstown Borough Municipal Authority v. Latrobe Municipal Authority, No. 10070 of 1979.


George M. Lynch, for appellant.

Joseph Friedman, with him James H. Webster, Springer & Perry, for appellee.

Judges Rogers, Blatt and Craig, sitting as a panel of three. Opinion by Judge Rogers. Dissenting Opinion by Judge Blatt.

Author: Rogers

[ 72 Pa. Commw. Page 85]

The Youngstown Borough Municipal Authority (Youngstown) instituted a suit in equity against Latrobe Municipal Authority (Latrobe) seeking specific performance of a written contract dated 1959 for the supply of water by Latrobe to Youngstown for resale by Youngstown to its 600 customers. The occasion for the contract was Youngtown's need of, and request for, water from Latrobe because part of Youngstown's supply was subject to pollution.

From the inception of service by Latrobe to Youngstown, the latter's use of water was measured by meter at the point of delivery. The rates charged Youngstown were the same rates as that charged Latrobe's other customers whose consumption was measured by single meters installed at the points of delivery. These classes were Schedule C -- Latrobe Division; Schedule E -- Bradenville Division; Schedule ML (for multiple occupancy, two or more units on one meter) -- Latrobe Division; and Schedule MB (also multiple occupancy) -- Bradenville Division. The charges effective September, 1977 were $.63 per thousand gallons for the first 50,000 gallons used per month, $.38 per thousand gallons for the second 50,000 gallons, and so on, in descending price scale, the minimum charge being $.21 per thousand gallons consumed for all over 1,000,000 gallons per month. Youngstown seems to have been considered to be in

[ 72 Pa. Commw. Page 86]

    the Schedule C -- Latrobe Division described as a class including all domestic, commercial and industrial uses of water.

During the first five years or so after the 1959 agreement went into effect, Youngstown's demands on Latrobe's supply were low; but then it increased until lately Youngstown has been taking as much as 7,000,000 gallons a month. Under the rates just described, Youngstown was charged only $.21 per thousand gallons for 6,000,000 of the gallons it consumes; and at this price was able to charge its residential customers lower rates than Latrobe charged its own direct meter residential customers. This circumstance, together with the receipt of an inquiry by another municipality considering the purchase of water, caused Latrobe to make a study of the rates charged Youngstown and in the spring of 1979 Latrobe concluded that Youngstown should be placed in a new classification to be called Schedule R-Resale and be charged the flat rate of $.50, later reduced to $.45, per thousand gallons for all water supplied. Coincident with the change in Youngstown's status, Latrobe increased its rates to its other metered customers by about twenty percent across the board. The effect of its reclassification and the new rate on Youngstown was to require it to pay about $3,500 a month for the 7,000,000 gallons it obtained from Latrobe, instead of about $1,800 a month which it would have been charged under the 1979 rates had it continued to be charged as a Schedule C -- Latrobe Division customer.

Youngstown refused to pay the new rates; Latrobe threatened to refuse delivery; and this litigation was commenced by Youngstown's complaint in equity seeking principally an order requiring Latrobe to perform the 1959 contract as it, Youngstown, interpreted it; that is as requiring Latrobe to supply water to

[ 72 Pa. Commw. Page 87]

Youngstown at the same rate charged its other metered customers and this in perpetuity.

The hearing judge decided that the 1959 contract contained what he termed a latent ambiguity*fn1 and admitted the testimony of the lawyer who represented Youngstown when the 1959 contract was negotiated and of Youngstown's present engineer who in 1959 was engaged as an engineering consultant to both Youngstown and Latrobe. This testimony was to the effect that the parties' understanding when the agreement was made was as Youngstown contended -- that Latrobe would be obliged to supply water to Youngstown at the same rate it charged its other metered customers. The hearing judge held that the contract meant what the witnesses said it did and enjoined Latrobe from charging Youngstown "a greater rate than it charges its other customers;" enjoined Latrobe from placing Youngstown in the new R-Resale classification; ordered Latrobe ...

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