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CONRAIL v. DELAWARE & HUDSON RY. CO.

August 8, 1983

CONSOLIDATED RAIL CORPORATION
v.
DELAWARE AND HUDSON RAILWAY COMPANY



The opinion of the court was delivered by: BRODERICK

 BRODERICK, J.

 This is a diversity action, brought pursuant to 28 U.S.C. § 1332. Plaintiff, Consolidated Rail Corporation (Conrail), has filed a motion for partial summary judgment in the amount of $4,450,533. (plus interest at 6% since December 31, 1982) against defendant Delaware and Hudson Railway Company (D&H). Conrail seeks summary judgment on the ground that D&H failed to make timely payments as required by a Settlement Agreement (Agreement) between the parties and that D&H failed to "cure" the breach within the thirty-day grace period set forth in the Agreement. For the reasons hereinafter set forth, Conrail's motion will be granted.

 To be entitled to summary judgment, the moving party must demonstrate that there is no genuine issue of material fact. F.R.C.P. 56(c). Any reasonable inferences from the facts must be resolved in favor of the non-moving party. Betz Laboratories, Inc. v. Hines, 647 F.2d 402, 404 (3d Cir. 1981). There appear to be no genuine issues of material fact in this case. The Court, after resolving all reasonable inferences in favor of D&H, has determined that the material facts as to which there are no genuine issues are as follows:

 Conrail and D&H executed a written contract entitled "the Settlement Agreement" on September 8, 1980, as amended September 30, 1981, in which each party acknowledged liabilities to the other arising out of transactions between them as connecting railroads. The parties agreed that D&H owed Conrail certain sums of money, known as the June 30, 1979 Net Amount, the June 30, 1980 Net Amount, and Current Amounts. D&H agreed to make quarterly payments in accordance with the Agreement. D&H failed, however, to make the second and third quarterly payments for 1981 when due. The amount due for each of these two quarters exceeded $100,000. Section X.F of the Agreement provides:

 
Upon any breach by D&H of any of the provisions of this Agreement involving an amount in excess of $100,000, CONRAIL, at its option, may provide written notice of such breach to D&H and if D&H has failed to cure said breach within thirty (30) days of receipt of said notice, CONRAIL may declare the aggregate amount of the June 30, 1979 Net Amount, plus interest thereon, and the June 30, 1980 Net Amount, plus interest thereon, as of the date of such breach immediately due and payable in full to CONRAIL.

 By letter dated October 28, 1981 (October 28 notice), Conrail notified D&H that it was in breach of the Agreement by reason of D&H's failure to make the second and third quarterly payments for 1981. On November 13, 1981, Mr. Evanoff, Treasurer of D&H, telephoned Mr. Wadden, Vice President and Controller of Conrail. As shown by the Evanoff Affidavit, Mr. Wadden was "sympathetic but insisted that D&H comply with its obligations under the Settlement Agreement." He suggested that D&H formulate a plan for payment of the overdue liabilities and present the plan to Conrail for its consideration. By letter dated November 18, 1981 (November 18 tender), D&H tendered as payment for both of the overdue installments an offset of Conrail's liability to D&H for interline freight and car hire. By D&H's calculations, the amounts due to D&H by Conrail would exceed both of the quarterly installments due to Conrail. Based on D&H's calculations, the amount due for November 1981 was $214,000., an amount sufficient to cover the second quarterly payment owed by D&H to Conrail. In addition D&H proposed, "the interline freight and car hire payable in December 1981 should produce enough excess to cover the (third quarterly) installment of $217,696.17."

 On December 8, 1981, several days after the expiration of the grace period, Conrail informed D&H that the November 18 tender was accepted as curing D&H's breach of the Agreement with respect to the second quarterly payment but that D&H's tender of a projected offset for the month of December was not acceptable as a "cure" for D&H's breach with regard to the third quarterly payment.

 The amount which D&H owed Conrail thirty days after its receipt of the October 28 notice exceeded $100,000. Accordingly, Conrail exercised its right under § X.F of the Agreement and declared the 1979 and 1980 Net Amounts (plus interest) immediately due and payable in full. On December 22, 1981, D&H paid the third quarterly installment in cash. By letter dated January 11, 1982, Conrail acknowledged receipt of the payment and credited that amount against the accelerated total. However, Conrail in its letter specifically stated that: "[the December 22, 1981] payment by D&H . . . does not cure the D&H default under the Settlement Agreement, and [the June 30, 1979 and June 30, 1980 Net Amounts plus interest], less amounts subsequently paid, remain immediately due and payable in full to Conrail." D&H made timely payment of all quarterly installments subsequently coming due under the Agreement. Conrail accepted D&H's payments throughout 1982 and 1983.

 Furthermore, there is no genuine issue concerning the fact that in the event Conrail is entitled to partial summary judgment, the amount of that partial summary judgment is $4,450,533. plus interest at 6% from December 31, 1982.

 The cure of a breach must remedy the breach. The breach in this case was D&H's failure to make the second and third quarterly payments for 1981. Cure of that breach required payment in full to Conrail of the amounts due for the second and third quarters or by Conrail accepting the offset of existing amounts presently due and owing to D&H by Conrail within the thirty-day grace period set forth in the Agreement. The November 18 tender failed to cure D&H's breach with respect to the amount due Conrail for the third quarter of 1981. Conrail declined to accept the offset tendered because that payment would not be due and owing until December 1981.

 D&H contends that it was justified in anticipating from the November 13 phone conversation between Mr. Evanoff and Mr. Wadden that Conrail would entertain and respond to D&H's payment proposal before accelerating maturity of the entire debt under § X.F of the Agreement. D&H maintains that Conrail, by waiting until after the expiration of the cure period to reject its November 18 tender, effectively precluded D&H from curing its breach by alternative means within thirty days of the October 28 notice and was therefore estopped from accelerating payment.

 Under Pennsylvania law, which the parties agree is applicable:

 
(an) "estoppel arises when one by his acts, representations, or admissions, or by his silence when he ought to speak out, intentionally or through culpable negligence induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be ...

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