Judges： Colins, Doyle, Friedman, McGinley, Newman, Pellegrini, Smith
Filed Date： 12/5/1994
Status： Precedential
Modified Date： 10/26/2024
Erika Drummond and numerous other Philadelphia school students, through their parents, various labor unions, civic groups and others (collectively, Objectors) appeal the order of the Court of Common Pleas of Philadelphia County (trial court) denying their petition for injunction and specific performance of ordinances and of agreements between the City of Philadelphia
The general question in this appeal is the number of scholarships to be provided by the University to students of Philadelphia schools under agreements entered into by the City and the University in 1977. Those agreements were the result of a series of agreements and ordinances between the parties beginning in the last century. The agreements had their origin when city council, on January 24, 1882, authorized the City, by ordinance, to convey land to the University subject to various conditions, including that:
Trustees of the said University of Pennsylvania shall establish and forever maintain at least fifty (50) free scholarships, of an annual value of not less than seven thousand five hundred (7,500) dollars per an-num, to be awarded under such conditions as may from time to time be deemed suitable to worthy and deserving students of the Public Schools of Philadelphia....
The ordinance also contained a condition that the University could not alienate the tracts without the consent of the City.
In a June 15, 1910 ordinance, city council approved the conveyance of additional tracts of land to the University, required an additional 75 free scholarships and made the scholarships available to all students in the City, not just to those in the public schools. In relevant part, it provided:
Trustees of the University of Pennsylvania shall establish and forever maintain seventy-five (75) free scholarships in any of the Departments of the University, to be awarded by the Mayor of the City to deserving students of all the schools of Philadelphia. ...
The 1910 ordinance similarly provided that the University could not alienate the tracts without the consent of the City.
This was the status of the agreements until 1977 when the University sought to mortgage the property conveyed to it by the City under the previous agreements. Because the bar to alienation made it impossible to mortgage the property, the University needed a change in the agreements. In response, on August 1, 1977, city council enacted Bill No. 832 (Ordinance) authorizing agreements to be entered into with the University to allow the University to mortgage the property. The Ordinance recited provisions contained in the 1882 and 1910 ordinances and stated in the preamble, in pertinent part, that:
WHEREAS, in consideration of the consent by the City of Philadelphia to the execution and delivery by the University of the aforesaid mortgage ... the University has agreed to increase the annual value of*575 the scholarships awarded pursuant to the ordinances approved January 24, 1882 and June 15, 1910 by providing that a total of one hundred twenty-five (125) full tuition scholarships will be awarded by the Mayor of the City of Philadelphia to deserving students from all of the schools of Philadelphia.
More specifically, Section 2 of the Ordinance states as follows:
[The City’s] consent is contingent upon the said Trustees’ entering into an agreement with the City (i) to establish and forever maintain at least one hundred twenty-five, four-year, full tuition scholarships, or their equivalent, in any of the Departments of the University, to be awarded annually by the Mayor of the City of Philadelphia to deserving students from all of the schools of the City, which obligation shall be assumed by the Trustees in lieu of the obligation to establish and maintain at least fifty free scholarships ... imposed by Ordinance approved January 24, 1882, and in lieu of the obligation to establish and maintain seventy-five free scholarships ... imposed by an Ordinance approved June 15, 1910_ (Emphasis added.)
Section 5 authorizes the commissioner of public property to enter into an agreement with the University whereby the University shall “establish and forever maintain at least one hundred twenty-five, four-year, fall tuition scholarships, or their equivalent, in any of the Departments of the University, to be awarded annually by the Mayor of the City of Philadelphia to deserving students from all of the schools of the City....” (Emphasis added.)
On the same day, city council enacted another ordinance, Bill No. 834 (collectively, the 1977 ordinances) authorizing the commissioner to execute and deliver a deed of release to certain premises in West Philadelphia bound by Spruce Street, Woodland Avenue, Pine and Thirty-sixth Streets, provided that the University shall have entered into the agreement authorized by the Ordinance and which set forth the University’s obligation exactly as stated in the Ordinance.
With that authorization, on August 11, 1977, the City, through the commissioner and the University, entered into an agreement referencing the Ordinance and embodying the University’s commitment. The agreement states that to fulfill its part of the contract, the University will:
establish and forever maintain at least one hundred twenty-five, four-year, full tuition scholarships, or their equivalent, in any of the Departments of the University, to be awarded annually by the Mayor of the City of Philadelphia to deserving students from all of the schools of the City.
On January 26, 1978, the City and the University entered into another agreement referencing the 1977 ordinances and restating the same language quoted above. It is the interpretation of those agreements that is the subject of this litigation.
After the 1977 agreement, the University calculated its annual commitment by multiplying current tuition by the number of scholarships required. Then scholarships were awarded in varying amounts to students depending on their need. Some students received less than the tuition amount in the form of a scholarship but were awarded financial aid in the form of loans and work study. Other students received more than the tuition amount in order to cover additional costs such as books, room and board. The University at times underfunded its obligation to provide full-time scholarships.
Objectors sued as representatives of a class of Philadelphia school children from poor and working families seeking a declaration that the actions of the University and the City violated the 1977 ordinances and requesting the court to permanently enjoin the University and the City from violating the 1977 ordinances by annually awarding less than 125 four-year, full tuition scholarships and failing to award the scholarships to only deserving students. Objectors also requested that the University be ordered to recompense the school children of Philadelphia and members of the class for the University’s failure to comply with the 1977 ordinances and the agreements.
At trial, Objectors presented the testimony of parents of students of the City’s public schools and/or the organization leaders.
Objectors also presented minutes of the city council rules committee hearing on July 29, 1977, where discussion occurred regarding the City’s gain by virtue of the increase in scholarships, and that the 125 scholarships for the following year would be slightly in excess of $500,000.
The University presented, among other things, a letter dated February 5, 1992, from Judith E. Harris, city solicitor, to John F. Street, city council president. Harris reasoned that because the 1882 ordinance limited the value of the 50 scholarships to $7,500 and the value of those scholarships could be increased significantly by eliminating the cap and making each a “full tuition” scholarship, and because the Ordinance and agreements substitute the term “free scholarships” with the term “full tuition,” the current language “when properly interpreted to give effect to the intent of the parties” supports the University’s position that it is only obligated to provide 125 scholarships or their equivalent at any time.
Although the trial court determined that Objectors did not have standing to bring this aetion either as taxpayers or third party benefieiaries, it relied upon the interpretation of the provisions provided by Harris and determined that because the University and the City never intended the University’s obligation to be greater than that stated by Harris, the Ordinance and agreements require 125, four-year, full tuition scholarships or their equivalent so that at any given point in time there would be 125 mayor’s scholarships or their equivalent.
On appeal to this court, Objectors argue that the trial court erred when it determined that they did not have standing; did not properly construe the Ordinance in terms of the Statutory Construction Act of 1972, 1 Pa.C.S. §§ 1501-1991, and ignored the clear language of the Ordinance; and erred by not granting class certification to Objectors. The University maintains that Objectors do not have standing and that the court applied the correct principles of statutory construction and properly interpreted the substantive provisions of the Ordinance, but argues that the court overlooked the language “or their equivalent” when it stated that there has been an underfunding of scholarships. The City joins in the brief of the University.
The issues presented in these consolidated appeals are whether the trial court erred in
I.
Standing is the requirement that the person bringing an action be adversely affected by the matter they seek to challenge to assure that they are an appropriate party to bring the matter to a judicial resolution. Pennsylvania Game Commission v. Department of Environmental Resources, 521 Pa. 121, 555 A.2d 812 (1989). Initially, Objectors contended that the matter sought to be challenged were the 1977 ordinances and the number of scholarships to be awarded under those provisions. As such, they contended that they have standing to challenge actions under the ordinance because they have a distinct interest in schooling at the University because, as students in Philadelphia schools, they fit within the group to which the scholarships should be given. Because they believe they have rights under the Ordinance, they rely on William Penn Parking Garage, Inc. v. City of Pittsburgh, 464 Pa. 168, 346 A.2d 269 (1975), and its progeny, specifically, Application of Biester, 487 Pa. 438, 409 A.2d 848 (1979), to bring this challenge.
The Biester exception recognizes that the prevention of waste of tax revenue is insufficient to allow standing but then allows “taxpayer standing” where otherwise the action would go unchallenged.
[S]pecial cases will grant a taxpayer standing even when his or her interest may not be substantial, direct, and immediate. Such cases arise when governmental action will go unchallenged unless the taxpayer has the ability to intervene by judicial process. In particular, these cases will most often occur where ‘those directly and immediately affected by the complained of conduct were beneficially affected as opposed to adversely affected,’ thus making it improbable that a party will challenge the governmental action before the agency or on appeal. A taxpayer may in the appropriate case therefore have standing to challenge the action pursuant to his or her common interest as a citizen to ensure the legality or propriety of the acts of government. (Citations omitted).
The taxpayer standing analysis in William Penn and Biester is inapplicable. That type of standing may exist only when a taxpayer is challenging obligations placed on the general public or emoluments given through the exercise of governmental power
What is at issue here is not a challenge to the general governmental power but a challenge to an interpretation of agreements entered into by the City and the University. Only the language in the August 11, 1977 agreement for a mortgage and the January 26, 1978 Deed of Release, which were signed by both parties, bind those parties. (Plaintiffs’ Exhibits 3 and 4 in the Original Record). At oral argument, Objectors conceded that their standing now rests on their position that they are third-party beneficiaries to the agreements.
The general principle for when a party is a third-party beneficiary of a contract was set forth in the seminal case Spires v. Hanover Fire Insurance Company, 364 Pa. 52, 56-57, 70 A.2d 828, 830-31 (1950) (plurality opinion):
To be a third party beneficiary entitled to recover on a contract it is not enough that it be intended by one of the parties to the contract and the third person that the latter should be a beneficiary, but both parties to the contract must so intend and must indicate that intention in the contract; in other words, a promisor cannot be held liable to an alleged beneficiary of a contract unless the latter was within his contemplation at the time the contract was entered into and such liability was intentionally assumed by him in his undertaking- (Emphasis and footnote omitted).
But in Guy v. Liederbach, 501 Pa. 47, 459 A.2d 744 (1983), the Supreme Court carved out an exception to the Spires rule by adopting Section 302 of the Restatement (Second) of Contracts:
(1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intentions of the parties and either
(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or
(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.
See Guy, 501 Pa. at 60, 459 A.2d at 751. Whether third-party beneficiaries status is appropriate to carry out the intention of the parties is left to the trial court’s discretion. Scarpitti v. Weborg, 530 Pa. 366, 609 A.2d 147 (1992). In Scarpitti, the Supreme Court made clear that a party is a third-party beneficiary only where both parties to the contract express an intention to benefit the third party in the contract itself unless the exception in Section 302 of the Restatement (Second) of Contracts applies. Id. at 372-73, 609 A.2d at 150.
However, the exception to the general principle does not apply where, as here, the contract at issue is one with a governmental body. When a governmental contract is at issue, the test for whether a member of the public is a third-party beneficiary must be strictly applied. See Clifton v. Suburban Cable TV Company, Inc., 434 Pa.Superior Ct. 139, 642 A.2d 512 (1994). See also Section 313 of the Restatement (Second) of Contracts. Generally, a promisor who contracts with a government is not subject to contractual liability to a member of the public because individual members of the public are merely incidental beneficiaries unless a different intention is manifested within the contract. Nguyen v. United States Catholic Conference, 548 F.Supp. 1333 (W.D.Pa.1982), affirmed, 719 F.2d 52 (3d Cir.1983); Townsend v. City of Pittsburgh, 383 Pa. 453, 119 A.2d 227 (1956).
Something more than mere intent to benefit some third party must be shown for the third party to have actionable rights under the contract. Pennsylvania v. National*579 Ass’n of Flood Insurers, 378 F.Supp. [1339] at 1347-1348 [M.D.Pa.1974], There must be language evincing an intent that the party contracting with the government will be held liable to third parties in the event of nonperformance. Id. See also Schell v. National Flood Insurers Ass’n, 520 F.Supp. 150, 157 (D.Colo.1981). Otherwise, the third parties are merely incidental beneficiaries having no actionable rights under the contract. The fact that third parties will benefit more directly from performance of the contract than members of the public at large does not alter their status as incidental beneficiaries. Id.
Nguyen at 1348. (Emphasis added.)
Likewise, under Section 313 of the Restatement (Second) of Contracts dealing with governmental contracts, adopts a similar requirement that there be express language that a party is intended to be a third-party beneficiary:
In particular, a promisor who contracts with a government or governmental agency to do an act for or render service to the public is not subject to contractual liability to a member of the public for consequential damages resulting from performance or failure to perform unless
(a) the terms of the promise provide for such liability;8
In this case, there is nothing within the contract to reveal an intention by both the City and the University at the time the agreements were signed that the University would be liable to members of the public for nonperformance or if they disagree with the interpretation of the agreements. In fact, the August 11, 1977 agreement specifically states that “in the event of a default by The Trustees of the University of Pennsylvania hereunder, the City of Philadelphia’s sole remedy and recourse shall be an action against The Trustees of the University of Pennsylvania for violation of the terms of this Agreement”; the agreement establishes that if the University defaults, it can only be hable to the City in an action based on the contract. (Plaintiffs Exhibit 3, Original Record). Just because certain students, assuming they were found in the mayor’s discretion to be “deserving” students, may receive or have received mayor scholarships if the agreements were interpreted to require the award of 125 each year, does not alter their status as incidental beneficiaries. Nguyen. See also Sims v. Silver Springs-Martin Luther School, 155 Pa.Commonwealth Ct. 619, 629-30, 625 A.2d 1297, 1303 (1993).
Even if the exception in Restatement Section 302 applies, a recognition of a right to performance in Objectors under the exception in Section 302 of the Restatement is not appropriate to effectuate the intention of the parties. As stated in Clifton, government contracts are for the benefit of every member of the public but it is not necessary for each person, or even those who are directly benefited, to have an independent right to enforce a contract which the governmental body is able to enforce. The trial court found that standing was inappropriate because, among other things, the mayor was elected by all citizens and has the authority to enforce contracts and ordinances under the Philadelphia Home Rule Charter. Elected officials are charged with interpreting governmental contracts, not incidental third-parties.
Accordingly, we affirm the decision of the trial court that Objectors do not have standing to bring this challenge to the interpretation of agreements between the City and the University. However, even if Objectors did have standing, we believe the language of the contract is ambiguous on this issue.
Assuming Objectors did have standing as to the interpretation of the agreement language, the initial question is a legal one—whether the language is ambiguous. If it is clear, it is a question of law. If it is ambiguous, however, what the agreement means is determined by the surrounding facts and circumstances and that is a decision for the trier of fact. Hutchison v. Sunbeam Coal Corp., 513 Pa. 192, 519 A.2d 385 (1986).
An ambiguity exists if the language is subject to two or more reasonable interpretations. New Castle County v. Hartford Accident & Indemnity Co., 970 F.2d 1267 (3d Cir.1992), cert. denied, — U.S. -, 113 S.Ct. 1846, 123 L.Ed.2d 470 (1993). If the court determines that the language is ambig uous, then it is for the trier of fact to determine what the parties intended by resolving conflicts in the relevant parol evidence. Hutchison. Initially, the court must ascertain whether the intent of the parties only as manifested by the language of the contract is clear. Standard Venetian Blind Co. v. American Empire Insurance Co., 503 Pa. 300, 469 A.2d 563 (1983).
Recognizing that if found to be ambiguous, the trial court’s interpretation is controlling if supported by the evidence, Objectors contend that the pertinent language in the agreements is free from ambiguity, and that it is clear that the University and the City intended to award 125 scholarships each and every year. The University and City contend that while the language is ambiguous, the intention of the parties was that there be 125 scholarships, or the equivalent, maintained at any one time. Again, the words in the agreements between the City and the University state that the University will “establish and forever maintain at least one hundred twenty-five, four-year, full tuition scholarships, or their equivalent, in any of the Departments of the University, to be awarded annually by the Mayor of the City of Philadelphia to deserving students from all of the schools of the City.”
The language of the agreements is ambiguous because the phrase “to be awarded annually by the Mayor ...” refers back to the scholarships established by the University. The entire phrase is “at least one hundred twenty-five, four-year, full tuition scholarships” and the word “annually” could mean that annually, 125 scholarships must be awarded or that the mayor will annually award some scholarships. The latter interpretation combined with the phrase requiring the University to “establish and maintain” the scholarships could be interpreted to mean each year some scholarships will be awarded in whatever number is required to maintain 125 total.
The ambiguity here is much more apparent than in other cases where the court has found an ambiguity to exist. For example, in Hutchison, a mine lease agreement stated “[T]his lease shall continue for a period of 3 years from the effective date hereof or until all the coal which the Coal Operator determines can be mined, removed and sold with economy and profit has been removed or so long as minimum advance royalties are being tendered by the Coal Operator.” The Coal Operator argued that so long as he continued to pay royalties, even though no mining has occurred, the lease continues beyond the three year period. The Supreme Court held that the provision was ambiguous because it was reasonably susceptible to two interpretations concerning the duration of the lease.
Also, where the term “positive shielding” in a bridge reconstruction contract was not defined in the contract and various forms of positive shielding exist in bridge demolition, and several parties disagreed as to the correct definition, we held that the term was ambiguous. Department of Transportation v. IA Construction Corporation, 138 Pa.Commonwealth Ct. 587, 593-94, 588 A.2d 1327, 1330 (1991). We stated that a term is ambiguous if it is reasonably susceptible to different constructions, is obscure in meaning through indefiniteness of expression or has a double meaning. Id. at 593, 588 A.2d at 1330.
Where the language of an agreement is subject to at least two reasonable interpretations, the ambiguous language must be interpreted in light of the evidence of the parties’ intentions. Because we agree
• the parties’ interpretation of the agreements;
• the main objective of the agreements was to allow the University to secure a loan because of its financial trouble;
• the parties’ practice was to distribute the total number of scholarships to be awarded over the four classes at the University;
• there was no public statement of a large increase in the number of scholarships;
• the preamble of the ordinance stated that the purpose of the new agreement was to increase the annual value of the scholarships; and,
• the opinions of the city solicitors and the City’s acceptance of the number of scholarships provided since 1977.
The trial court considered the evidence of the parties’ intentions and resolved the conflicting evidence in favor of the interpretation that the intention of the parties was that some scholarships would be awarded annually in whatever number necessary for 125 total scholarships to be maintained at any given time.
ORDER
AND NOW, this 5th day of December, 1994, the orders of the Court of Common Pleas of Philadelphia County entered February 28, 1993, April 21, 1993, and May 26, 1993, No. 3785 October Term 1991, are affirmed.
. The additional defendants in this action are Edward M. Rendell in his capacity as the Mayor of the City, Andrez Perez in his capacity as the Commissioner of Public Property, the mayor's scholarship committee, and David L. Cohen, Herbert DeBeary Sr., Chaka Fattah, Thomas Forkin and Amy Podolski in their capacities as the members of the mayor's scholarship committee (collectively, City).
. On October 27, 1992, the City and the University entered into an agreement referencing a proposed bill before city council that would “clarify” the language of the agreements and reaffirmed their mutual understanding with respect to the University's legal obligation as to the number of scholarships to be provided pursuant to the 1977 ordinances; set forth new procedures regarding implementation of the mayor’s scholarship program; and provided that no party other than the City and the University have standing to enforce the agreement. The trial court found that this agreement was not valid, and neither the University nor the City has challenged this finding in their appeals.
. This court's scope of review of a final decree in equity is limited to a determination of whether the trial court committed an error of law or abuse of discretion. Moser v. DeSetta, 527 Pa. 157, 589 A.2d 679 (1991). A decree will not be disturbed unless it is not supported by the evidence or demonstrably capricious. Tredyffrin-Easttown School District v. Valley Forge Music Fair, Inc., 156 Pa.Commonwealth Ct. 178, 186 n. 4, 627 A.2d 814, 818 n. 4 (1993).
. One who seeks to challenge governmental action such as the validity of a statute or ordinance must show a direct and substantial interest and must show a sufficiently close causal connection between the challenged action and the injury. William Penn. Just paying a tax is insufficient unless the plaintiffs establish an individual interest beyond the interest of all citizens. William Penn.
. Standing under the exception in Biester has been denied in several cases, for example, in Biester. In that case, the Supreme Court denied taxpayer standing for a challenge to the summoning of a grand jury because those subject to the grand jury could be expected to challenge the action and would be expected to raise precisely the same constitutional challenge as brought by the plaintiff. In Upper Bucks County Vocational-Technical School Education Association v. Upper Bucks County Vocational-Technical School Joint Committee, 504 Pa. 418, 474 A.2d 1120, 1122 (1984), the Supreme Court denied taxpayer standing under Biester because the teachers lacked a direct interest, that is, a causal connection between the action and the harm to their interests. The teachers brought the action against the school for failure to schedule at least 180 school days which would result in a pro rata loss in state subsidy, but the Supreme Court held that there was no allegation of a harm to their individual taxpayer interest caused by the school’s action and some degree of causal connection must be present to meet the requirements for taxpayer standing exception under Biester.
. Even if the taxpayer standing analysis in William Penn and Biester applied, the exception under Biester would not allow standing in this case because the City is better situated to assert any claim.
. Before it was settled in Scarpitti, there was considerable disagreement in the lower courts as to the application of Guy. See Linde Enterprises, Inc. v. Hazelton City Authority, 412 Pa.Superior Ct. 67, 602 A.2d 897 (1992), petition for allowance of appeal denied, 533 Pa. 601, 617 A.2d 1275 (1992).
. There is no allegation that subsection (2)(b) of Section 313 of the Restatement of Contracts (Second) applies. That provision would impose liability against the promisor only if the government party is subject to liability to a member of the public for the damages and a direct action against the promisor is consistent with the terms of the contract prescribing remedies for its breach.
. Additionally, allowing the Objectors standing would give them the ability to impose a different contractual liability on the University than that asserted by the parties to the contract. This runs counter to the rule that when the parties have attached the same meaning to an agreement, it should be interpreted in accordance with that meaning. Section 201 of the Restatement (Second) of Contracts.
. In regard to the University’s and City’s appeals of the trial court’s conclusions that they underfunded their obligation, were required to give full-tuition to each scholarship student rather than awarding the equivalent of 125 full-tuition scholarships, and that prior students should be reimbursed, Objectors do not substantially address these issues, only arguing that loans and work study cannot be counted as part of the scholarship amount. Because of our decision that Objectors lack standing, these issues are not central to the case and the trial court's findings or statements on the matter are now dicta.