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Truserv Corporation, Successor By Merger To Servistar Coast To Coast v. Morgan's Tool & Supply Co.

February 21, 2012


Appeal from the Order of the Superior Court entered July 1, 2009 at No. 1480 WDA 2008, affirming the Judgment of the Court of Common Pleas of Butler County entered August 5, 2008 at A.D. No. 99- 10665 and C.P. No. 08-21590.

The opinion of the court was delivered by: Madame Justice Todd


ARGUED: October 19, 2010


We granted allowance of appeal in the instant case to consider whether a trial court may refuse to award contractual interest to the prevailing party in a contract dispute based on a finding of dilatory conduct by the prevailing party. We hold, inter alia, that a trial court may not refuse to award interest to the prevailing party when the right to interest has been expressly reserved under the terms of the contract. Thus, we remand this matter to the trial court for recalculation of its award in favor of Appellant TruServ Corporation ("TruServ").*fn1

I. Background

TruServ is a hardware wholesale cooperative for retail hardware, lumber, and building supply dealers. Members of the cooperative, who are billed on a bi-monthly basis for the materials they purchase, are shareholders and part owners of the cooperative. On May 26, 1994, Morgan's Tool & Supply Co., Inc. ("MTS"), a Louisiana corporation owned and operated by John L. and Gail N. Morgan (the "Morgans"), executed a "Retailer's Application for Membership and Membership Agreement" ("Membership Agreement") with TruServ's predecessor, ServiStar Corporation ("ServiStar"). The application was approved, and, on June 30, 1994, MTS was accepted as a member in the cooperative. That same year, the Morgans executed an "Unlimited Guaranty of Credit" (hereinafter "Guarantee"), by which they agreed to guarantee the debts of MTS. The Guarantee further obligated the Morgans to pay any expenses, including counsel fees and legal expenses, incurred by ServiStar in an effort to collect amounts owed by MTS and to enforce the Guarantee.

In June 1997, ServiStar merged with TruServ. It is undisputed that, following the merger, a new document entitled "Retail Member Agreement" became the controlling contract between MTS and TruServ. Relevant to this appeal, the Retail Member Agreement provided that the member  in this case, MTS  agrees: [t]o pay on the date due all invoices on accounts receivable statements and any other financial obligations to the Company and subsidiaries, and to pay a one and one-half percent (1-1/2%) per month service charge,[*fn2] but not to exceed the maximum amount permitted by law, on past due balances of accounts. Upon either termination of this Agreement or Member's failure to pay on the date due all invoices on accounts receivable statements and any other financial obligations to the Company, to pay immediately all amounts due, including future dated invoices, from the Member to the Company and its subsidiaries.

Retail Member Agreement at 2 (R.R. at 1151a). The Retail Member Agreement, which was to "continue in force from year to year unless . . . terminated," further provided:

In the event that the Company initiates proceedings to recover amounts due it by Member or for any breach of this Agreement or to seek equitable or injunctive relief against the Member, the Company shall be entitled to the recovery of all associated costs, interest and reasonable attorney's fees.

Id. at 4-5 (R.R. at 1153-54a).

MTS ultimately became delinquent on the two accounts it had with TruServ, and, after the parties were unable to agree on a payment plan to bring the accounts current, TruServ advised MTS by letter dated June 3, 1999 that it was terminating its Retail Member Agreement with MTS. On July 19, 1999, TruServ filed a complaint against MTS and the Morgans (collectively and hereinafter "MTS"), alleging breach of contract and unjust enrichment. TruServ sought $78,826.93 in damages, which, according to TruServ's complaint, represented "goods and services ordered and received by Morgan's Tool, as well as service charges." Complaint at 3 (R.R. at 18a). In addition to that amount, TruServ sought "service charges as shall continue to accrue, prejudgment interest, post-judgment interest, costs, attorney's fees and any other relief" the court deems appropriate. Id. at 4 (R.R. at 19a).

MTS filed an answer on September 16, 1999, and, on December 27, 2000, filed a motion for production of documents and a motion to compel TruServ to answer interrogatories. On January 29, 2001, MTS filed a counterclaim, alleging breach of contract and breach of the duty of good faith and fair dealing. On May 21, 2001, a joint motion was filed to postpone the trial due to John Morgan's health issues. Approximately one year later, on May 13, 2002, TruServ's counsel withdrew from the case. On June 5, 2003, TruServ, represented by new counsel, filed a response to MTS' counterclaims, and MTS responded on July 1, 2003. No further activity between July 2003 and March 2007 is reflected on the docket, with the exception of two changes of counsel for TruServ on February 11, 2005 and March 14, 2007.

On April 21, 2008, the matter proceeded to a non-jury trial before the Honorable S. Michael Yeager of the Butler County Court of Common Pleas. The trial court concluded MTS had breached its Retail Member Agreement with TruServ by failing to pay for the merchandise it had ordered and received. The court awarded TruServ $78,826.93 in damages, plus $23,648.08 in costs and counsel fees.*fn3 The court, however, concluding "the decision of whether to award prejudgment interest is at the discretion of the court," Rule 1925(a) Opinion, 9/24/08, at 3-4, declined to award interest on the basis that TruServ was dilatory in prosecuting its claim: TruServ is "not entitled to recover interest on the amount due because there were times after suit was filed that [TruServ] allowed this case to linger in the system as opposed to aggressively pursuing timely resolution." Trial Court Opinion, 4/23/08, at 3 (R.R. at 417a).*fn4

Thereafter, TruServ appealed to the Superior Court, arguing the trial court erred in failing to award TruServ "contractual pre-judgment interest" when the Retail Member Agreement, which the trial court found controlling, expressly provided for such an award. Appellant's Superior Court Brief at 3 (R.R. at 520a). The Superior Court affirmed the trial court's order on the basis that TruServ had breached its duty to mitigate its losses. TruServ Corp. v. Morgan's Tool & Supply Co., Inc., 1480 WDA 2008, unpublished memorandum (Pa. Super. filed July 1, 2009). The Superior Court relied on its decision in Somerset Cmty. Hosp. v. Mitchell, 685 A.2d 141 (Pa. Super. 1996), wherein it held: a party who suffers a loss due to the breach of a contract has the duty to make reasonable efforts to mitigate his losses. The burden to prove this duty to mitigate is placed on the party who actually breaches the contract; the breaching party must show how further loss could have been avoided through the reasonable efforts of the injured party. An injured party, however, is not obligated to mitigate damages when both it and the liable party have an equal opportunity to reduce damages.

TruServ Corp. v. Morgan's Tool and Supply Co., Inc., 1480 WDA 2008, at 10 (quoting Somerset, 685 A.2d at 150).

With respect to the instant case, the Superior Court noted that, "[f]or almost four years, there was a substantial delay in resolution of this action. The record demonstrates that [TruServ] did not make reasonable efforts to mitigate its losses. Conversely, Morgan's Tools complied with its obligations with respect to the pleadings in a timely fashion." TruServ, 1480 WDA 2008 at 12. The court then concluded, "[u]nder the unique facts of this case . . . the trial court did not abuse its discretion in declining to award [TruServ] pre-judgment interest." Id.

Judge Colville filed a dissenting memorandum, wherein he noted the parties had agreed in the Retail Member Agreement to the payment of interest in the form of service charges, and, as a result, the award of such interest was a contractual obligation and not a matter of damages to be awarded at the trial court's discretion. Id. (Colville, J., dissenting). Judge Colville, therefore, would ...

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