The opinion of the court was delivered by: TROUTMAN
The critical facts in this contract action are not in dispute. In mid-March 1980, plaintiff, Eastern Milk Producers Cooperative Association, Inc., (Eastern) entered into a contract with defendant, Lehigh Valley Cooperative Farmers (Lehigh Valley). The duration of this agreement was limited to one year. It commenced on April 1, 1980, and terminated on March 31, 1981. Eastern, under the terms of the contract, agreed to sell specified quantities of milk to Lehigh Valley. The contract contained an automatic renewal clause which required either party to give written notice of termination at least sixty days before the March 31, 1981, expiration date. Absent such a written notice to terminate, the contract would automatically renew itself for another year.
API is organized as a federated agricultural corporation and has tax-exempt status with the Internal Revenue Service. In order to maintain this tax status, a certain percentage of the milk which API markets must be member-produced. Several unsuccessful efforts were made to persuade Eastern to join API.
On January 28, 1981, during the course of these negotiations, API's vice-president wrote to Eastern that
We will continue to honor our contracts; however, I am under pressure to resolve this matter as soon as possible; and since two of our major contracts expire on April 1, I think we should set a deadline to get this accomplished no later than that date.
On March 12, 1981, only three weeks before the original contract expired, API instructed Eastern to reduce its milk production to the six million pound level by April 6, 1981. Six days later Eastern responded. Eastern told API that it, API, had failed to send a timely written notice of cancellation and that Eastern intended to hold API to its obligation to purchase Eastern-produced milk. Shortly thereafter, on March 31, 1981, API notified Eastern that, effective immediately, API would refuse to accept any milk from Eastern.
Eastern, moving for summary judgment as to liability, argues that API, as successor to Lehigh Valley's contract rights, never communicated an effective notice to terminate the contract within the sixty-day period. Hence, Eastern argues that the contract was automatically renewed for one year and that API's refusal to accept milk after March 31, 1981, is a breach.
Defendants, cross-moving for summary judgment, argue that API's letter of January 28, 1981, informed Eastern that the contract would not be renewed. They accordingly argue that API's refusal to accept Eastern's milk after March 31, 1981, was permissible. Alternatively, defendants assert that timely oral representations which they made to Eastern satisfied their contractual obligation to give sixty days' notice. We consider these contentions against the backdrop of Pennsylvania law. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938).
Maloney v. Madrid Motor Corp., 385 Pa. 224, 228, 122 A.2d 694 (1956), held that notice to terminate a contract must be "clear and unambiguous". Ambiguous conduct and language intended to signal contract termination "will be deemed not to have terminated the contract". Applying this "general rule", id., Maloney concluded that an effective notice to terminate was unambiguously given by an employer who advised that "we do not wish to continue this agreement, in the future, when it expires next September". The notice to terminate in Maloney also extended an offer of future employment and concluded that the letter was being sent "merely [as] a notice as called for [in] the agreement . . . we do not wish to renew it". Maloney v. Madrid Motor Corp., 385 Pa. at 226.
Eastern places primary reliance upon Maloney and argues that API's January 28 letter, quoted above, was neither a clear nor an unambiguous expression of a notice to terminate. Specifically, Eastern focuses upon the first clause of the referenced paragraph which states that API "will continue to honor its contracts . . .". Presumably, this commitment by API to honor its contracts affirmed its existing obligation to give a proper and timely notice of termination.
Defendants, on the other hand, place emphasis upon the remainder of the quoted paragraph which evidences that API is "under pressure" and that an April 1, 1981, target deadline should be established to "resolve this matter". Defendants believe that these portions of the January 28 letter demonstrate that, as in Maloney, API was dissatisfied with the contract and sought to negotiate a new one. We disagree.
The notice to terminate in Maloney stated without ambiguity that the terminating party did "not wish to continue this agreement". 385 Pa. at 226. Here, by contrast, API stated that "we will continue to honor our contracts". True, as in Maloney, API sought to adjust the terms of the contract; however, unlike Maloney, API never gave "notice as called for under the agreement".