TruServ Corp. v. Morgan's Tool & Supply Co.
39 A.3d 253
| Pa. | 2012Background
- TruServ, successor by merger to ServiStar, and MTS entered a 1994 Retail Member Agreement; Morgans guaranteed MTS debts.
- Merger in 1997 made the Retail Member Agreement controlling, and it provided a 1.5% monthly service charge on past-due balances and immediate payment upon termination.
- MTS became delinquent; TruServ terminated the agreement on June 3, 1999 and filed suit July 19, 1999 for breach and unjust enrichment seeking 78,826.93 plus interest and costs.
- Trial court awarded 78,826.93 and 23,648.08 in costs and fees, but refused prejudgment interest based on TruServ’s alleged dilatory conduct.
- Superior Court affirmed the denial, citing mitigation; Judge Colville dissented, saying interest was contractual and mandatory under the contract.
- Supreme Court granted allowance to decide if a trial court may refuse contractual interest based on dilatory conduct of the prevailing party.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| May a trial court refuse contractual interest when the contract expressly provides it? | TruServ argues interest is mandatory under contract. | MTS contends discretion exists to deny interest due to delay. | No; contract requires interest; court cannot withhold it. |
| Is the 1.5% service charge the same as interest and subject to 18% rate? | Service charge should be treated as interest at 18%. | Service charge is distinct from interest; rate should be 6%. | Service charge is functionally interest; 18% contractual rate applies. |
| Does mitigation apply to contractual interest when a breach is clear? | Mitigation should not reduce contractual interest; it’s a contractual duty. | Mitigation can reduce damages including interest. | Mitigation does not reduce contractual interest; no reduction for delay. |
| Is prejudgment interest under Restatement §354 available and at what rate? | §354(1) mandate; interest on sum certain at statutory rate. | Interest may be discretionary under §354(2) or offset by mitigation. | Yes; prejudgment interest available on sum certain; rate allocation to be decided (contractual vs prejudgment). |
Key Cases Cited
- Fernandez v. Levin, 519 Pa. 375 (Pa. 1988) (adopted Restatement §354 for interest as damages)
- Penneys v. Pennsylvania R.R. Co., 408 Pa. 276 (Pa. 1962) (interest under former Restatement §337(a) for liquidated sums)
- Somerset Cmty. Hosp. v. Mitchell, 685 A.2d 141 (Pa. Super. 1996) (duty to mitigate damages; offset for interest rules)
- Palmgreen v. Palmer's Garage, Inc., 383 Pa. 105 (Pa. 1955) (right to interest begins when payment due; doctrine of default)
- Dox Planks of Northeastern Pa. v. Ohio Farmers Ins. Co., 423 Pa. Super. 311 (Pa. Super. 1993) (mitigation and interest interplay in contract breaches)