Wednesday, February 22, 2012

contracts - interest - dilatory conduct

Truserve Corp., et al., Aplt v. Morgan's Tool & Supply, No. 10 WAP 2010
Opinion By: Todd, Debra
Posted By: W.D. Prothonotary
Date Rendered: 2/21/2012
Date Posted: 2/21/2012
Opinion Type: Majority OpinionJ-76-2010mo.pdf

Date Rendered: 2/21/2012
Date Posted: 2/21/2012
Opinion Type: Concurring and Dissenting OpinionJ-76-2010codo.pdf

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 . . . 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.

Where a party to a contract reserves the right to the payment of interest, that interest is considered conventional or contractual interest. In cases where the contract expressly provides for the payment of interest, or the payment of interest is implied by the nature of the promise, the interest is said to become an integral part of the debt itself, and, therefore, is recoverable as of right under the terms of the contract. . . . If the parties have agreed on the payment of interest, it is payable not as damages but pursuant to a contract duty that is enforceable”)

Moreover, it is a well-established principle of contract law that, where the language of a contract is clear and unambiguous, a trial court is required to give effect to that language. . . .Indeed, this Court has cautioned that it is not the function of a court to rewrite agreements between parties, and a court must give effect to the clear terms to which the parties have agreed. . . . Thus, we have no hesitation in concluding that, where the terms of a contract provide for the payment of interest, a court’s award of such interest in favor of the prevailing party is not discretionary.

Perhaps recognizing that the award of contractual interest was not discretionary, the panel majority of the Superior Court, as noted above, affirmed the trial court’s decision on the basis that TruServ failed to take reasonable steps to mitigate its losses. A party who suffers a loss due to a breach of contract generally has a duty to make reasonable efforts to mitigate his losses. . . . . Moreover, the burden is on the breaching party to show how losses could have been avoided. . . . However, “an injured party . . . is not obligated to mitigate damages when both it and the liable party have an equal opportunity to reduce damages.”. . .

We recognize that, in situations involving a breach of contract for the payment of a sum certain, the breaching party could always reduce its obligation for losses incurred by the non-breaching party simply by paying the amount due and performing the contract. Nevertheless, we conclude that a party who breaches a contract containing an express promise to pay interest may not be permitted to reduce or escape entirely his contractual obligation by subsequently arguing that the nonbreaching party did not prosecute its breach of contract claim with dispatch.