Pennsy Supply, Inc. v. American Ash Recycling Corp. of Pennsylvania

1 Pennsy Supply, Inc. v. American Ash Recycling Corp. of Pennsylvania, 895 A.2d 595 (2006). Pennsylvania Superior Court Plaintiff/Appellant: Subcontractor for the project by Labor, general contractor for the school Defendant/Appellee: Contracted by Pennsy Procedural History: Pennsy appeals from the grant of preliminary objections in the nature of a demurrer in favor of Appellee, American Ash. Cause of Action: Breach of K, Breach of implied warranty of merchantability, breach of express warranty of merchantability, breach of warranty of fitness for a particular purpose, and promissory estoppel. Relief Sought: Cost of removals ($251,940.20 to perform and $133,777.48 to dispose) Basis for Dispute: Facts: - Construction project for Northern York High School District entered a construction k for the project with a general contractor, Labor, Inc. Labor subcontracted the paving driveways and a parking lot to Pennsy. The contract between Labor and the District had project specifications for paving work which required Labor, through Pennsy, to use certain base aggregates. Pennsy contracted American Ash and informed American Ash that it would require 11,000 tons of AggRite for the Project. Pennsy completed the work in December 2001. In February of 2002, the pavement developed extensive cracking in and the district notified Labor of the cracks and Labor notified Pennsy. Pennsy performed the remedial work in the summer of 2003 at no cost to the district. The remedial work included the removal and appropriate disposal of the Aggrite (a hazardous waste material). Pennsy requested that American Ash do the work and they said no. Pennsy provided notice to American Ash of its intention to recover costs. Plaintiff’s Argument: Defendant’s Argument: Question(s): Whether Pennsy’s relief of American Ash’s legal obligation to dispose of a material classified as hazardous waste, such that American Ash avoided costs of disposed thereof at a hazardous waste site, is sufficient consideration to ground k and warranty claims? Issue1: Was there a breach of K? Rule: A cause of action for breach of k must be established by pleading: (1) The existence of a k, including its essential terms (2) A breach of a duty imposed by the k, and (3) Resultant damages. 2 *While not every term of a k must be stated in complete detail, every element must be specifically pleaded. Clarity is particularly important where an oral k is alleged. Trial Courts Ruling: Dismissed this claim for two reasons: (1) The allegations of the complaint established that Pennsy had received a conditional gift from American Ash (2) There were no allegations in the Complaint to show that American Ash’s avoidance of disposal costs was part of any bargaining process between the parties Issue1.2: Is there a K? Rule: A K is formed when the parties to it: (1) Reach a mutual understanding, (2) Exchange consideration, and (3) Delineate the terms of their bargain with sufficient clarity *Consideration consists of a benefit to the promisor or a detriment to the promisee Issue1.3: Is there sufficient consideration to support the k? Rule: The classic formula for consideration is that the promise must induce the detriment and the detriment must induce the promise. Application: - American Ash’s promise to supply AggRite free of charge induced Pennsy to assume the detriment of collecting and taking title to the material, and critically, that it was this very detriment, whether assumed by Pennsy or some other successful bidder to the paving subcontract, which induced American Ash to make the promise to provide free AggRite for the project. Mini-Conclusion: We disagree with the trial court that the allegations of the complaint show only that American Ash made a conditional gift of AggRite to Pennsy. Issue2: Is consideration lacking because Pennsy did not allege that American Ash’s avoidance of disposal costs was part of any bargaining process between the parties? Rule: The bargain theory of consideration does not actually require that the parties bargain over the terms of the agreement. What is required for consideration to exist is that the promise and the consideration be in “the relation of reciprocal conventional inducement, each for the other.” Restatement 2 nd §71 – defining “bargained for” in terms of the Holmesian formula. Application: The complaint shows that the promised induced the detriment and the detriment induced the promise. This would be consideration. Mini-Conclusion: We reverse the dismissal of Count I. Court’s Disposition: We reverse the trial court’s order granting the demurrers and dismissing the Complaint and remand for further proceedings. Jurisdiction relinquished. 3 Notes - - - - - - It’s weird that the arrangement between Pennsy and American Ash was that American Ash would be relieved of any disposal costs. However, Pennsy planned on using the AggRite in paving work, which should not have involved any disposal expenses. The only reason Pennsy incurred these costs was that the AggRite was defective. Pennsy did agree to take the AggRite “off American Ash’s hands,” but it did not agree to dispose of the AggRite in a way that would have required it to pay the expenses of disposal. If the court had accepted American Ash’s contention that it made only a conditional gift to Pennsy, then Pennsy would have been unable to recover on these warranty theories. The court stated the presence of consideration is a question of law for the court to decide; courts in other jurisdictions might treat such a case differently, leaving it up to the jury to decide whether a k is present, based on the court’s instructions about the requirements for k formation. Williston’s overcoat for a tramp hypothetical = a homeless person The court holds that consideration requires a benefit to the promisor or a detriment to the promise, but one that is bargained for. The court says that the requirement that consideration be bargained for does not require actual bargaining between parties. The court uses the Holmesian test of “reciprocal conventional inducement, each for the other.” Thus, each party’s promise & resulting performance induced the corresponding promise and performance for the other party. Restatement 2nd. §71 agrees with Pennsy that actual negotiation is not required. Simply states “a performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. Comment b to Rest. 2nd §71 – adopts Holmesian formula test for “a reciprocal relation of motive or inducement.” Legal Realism o Most real-world cases won’t have the question of consideration because the ordinary commercial k will pass both tests w/ flying colors. Even if both parties do no more than exchange promises of future performance, the law regards the making of a promise of his own under the benefit/detriment test for consideration. Functions of Legal Formality. Places where this is important: marriage ceremony, execution of a will. Although clearly out of fashion today, the seal in its heyday did offer a clearly defined method by which persons seeking to create a legally enforceable promise could do so without confidence in its effectiveness. Functions that legal formality serve: o Evidentiary Function Providing evidence of the existence and purport of the k, in case of controversy. The need for evidentiary security may be satisfied in a variety of ways: by requiring a writing, or attestation, or the certification of a notary… o Cautionary Function Acting as a check against inconsideration action. The seal did this well. o Channeling Function The seal acts as a satisfactory memorial of the promise and induces deliberation in the making of it. It serves also to make or signalize the enforceable promise; it furnishes a simple and external test of enforceability. This function of form is the facilitation of judicial diagnosis. o Interrelations of the 3 Functions 4 Whatever tends to accomplish one of these purposes will also accomplish the other two. - The doctrine of consideration can and often does serve one or all of the above functions that the seal used to serve. The seal may have served such functions well, but consideration doctrine does so poorly that the absence of consideration should not be conclusive argument against enforcement of promises.