Another HMY Contract Win of Over $455,000

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Unambiguous Contracts Must Be Interpreted As A Matter Of Law

Recently, Lane T. Maxson, Esq., Managing Partner of HMY, successfully moved for summary judgment on behalf of Baumann & Sons Buses, Inc. (“Baumann”) against First Student Inc. (“First Student”), in a contract interpretation case that resulted in a decision and order in favor of Baumann of over $455,000, with accrued interest, plus attorneys’ fees.

The case involved the interpretation of two agreements. On September 13, 2018, Baumann and First Student entered into a Fleet Asset Purchase Agreement (the “FAPA”), whereby Baumann agreed to sell to First Student sixty-four (64) brand new school buses.

Both Baumann and First Student were school transportation contractors providing bus service for students across Long Island and beyond. Baumann had been selected as the student transportation contractor to supply bus service to the William Floyd Union Free School District (the “District”) for the contract term September 1, 2018 through July 31, 2023, and the 64 new buses were purchased by Baumann in anticipation of that award, through financing with two lenders, Daimler Chrysler (“Daimler”) and Santander Bank (“Santander”).

However, after the contract award and the purchase of the 64 Buses, Baumann chose not to accept the transportation contract with the District, and First Student was selected as the replacement transportation contractor. First Student agreed to purchase all 64 buses from Baumann.  In order for First Student to take immediate possession of the 64 buses and start transporting students for the District, simultaneously with the FAPA, the parties entered into a Vehicle Lease Agreement (“VLA”). Under the VLA, Baumann immediately delivered and First Student accepted complete possession and control of all 64 buses, and First Student began using those buses to transport students in the District. The VLA was necessary because First Student had yet to pay Baumann for the buses in order to take ownership in its own name.

Baumann commenced the action claiming that First Student breached both agreements by failing to pay the balance of the $6M purchase price under the FAPA, and the daily rental for the buses under the VLA. First Student claimed it was not responsible for those claims because Baumann had breached the integrated agreements by failing to get Santander to assign its financing of some of the buses, and counterclaimed for its attorneys’ fees under the “prevailing party” attorneys’ fees clause.

Citing the Court of Appeals, the Court recognized that “[i]n New York, agreements negotiated at arm’s length by sophisticated, counseled parties are generally enforced according to their plain language pursuant to our strong public policy favoring freedom of contract.  A contractual provision may be found to be unenforceable where the public policy of freedom of contract is overridden by another weighty and countervailing public policy. Because freedom of contract is itself a strong public policy interest in New York, a court may void an agreement only after balancing the public interests favoring invalidation of a term chosen by the parties against those served by enforcement of the clause, and concluding that the interest favoring invalidation are stronger.”

It heeded the Court of Appeals advice that that courts “may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting a writing,” and “evidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing. The purpose of the rule is to impart ‘stability to commercial transactions by safeguarding against fraudulent claims, perjury, death of witnesses . . . infirmity of memory . . . and the fear that the jury will improperly evaluate extrinsic evidence.’”

Relying upon this precedents, the Court addressed First Student’s position. “In this case, defendant seeks to raise a material question of fact by asserting that plaintiff is guilty of material breaches of the VAPA and VLA, in that they misrepresented that they had full corporate authority to undertake the transaction, and contend that Ronald Baumann misrepresented that he had advised them that both lenders, Daimler and Santander, were ready willing and able to facilitate the assumption by [First Student] of the Baumann obligations, and that the failure to assume the Santander obligations within 20 days of the Effective Date of the VAPA, with the resultant daily rental increasing from a daily rate of $1.00 per bus to $50.00 per bus, and the requirement that Baumann pay monthly financing charges to Santander was not due solely to the fault of [First Student].”

It found: “The VAPA and VLA contain no representation by Baumann that Daimler or Santander were in agreement to the assumption of Baumann’s obligations, and relieving Baumann from any further obligations under the existing loan agreements between them. Defendant’s effort to cast partial responsibility of the failure to complete the transaction within 20 days of the Effective Date on Baumann for failure to assign the Santander loan agreement is without merit. Plaintiff had no ability or obligation to “assign” their obligations to Santander and effect without the latter’s agreement to accept [First Student] as the obligor, in place of Baumann.” “Under the terms of the FAPA, [First Student] assumed the responsibility of obtaining consent of Daimler and Santander within 15 days of the Effective Date, and if not, to reimburse Baumann for their “out-of-pocket expenses” of $402,744.49, pay the full purchase price within 5 days thereafter, and, if not fully paid, to pay daily rental of $50.00 per bus until paid in full.”

The Court concluded: “Plaintiff’s motion for summary judgment is granted. Defendant had the option to obtain its own financing in order to pay for the buses. While the impact of the delay to the end of December, 2018 results in payment of substantial rental costs, and reimbursement of monthly payments made by Baumann to Santander during the pendency of the request for assignment, the provisions of the Agreements between the parties are unambiguous, and there is no public policy which weighs against enforcement.”

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