Copeland Process Corp. v. Nalews, Inc.

Brief Fact Summary. The parties were involved in a contractor / subcontractor relationship.  The parties agreed to grant one another mutual releases from their responsibilities under an agreement.  At issue was the scope of these releases.

Synopsis of Rule of Law. The scope of an agreement to mutually rescind a contract can only be determined after "interpretation of the terms of the agreement of rescission (or cancellation), and in the light of the circumstances that surrounded its making."

Facts. In 1966, the Plaintiff, Copeland Process Corp. (the "Plaintiff"), contracted with Franconia Paper Corporation ("Franconia") to "furnish a chemical recovery system" for one of their plants.  The Plaintiff was also under contract with the town of Lincoln to "install pollution control equipment" at the same Franconia plant.  This action stems from a dispute between the Plaintiff and the Defendant, Nalews Inc. (the "Defendant").  The Defendant was a subcontractor of the Plaintiff for the pollution project with the town of Lincoln.  The Defendant agreed to "furnish labor, material and services" on the project.  On October 2, 1968, the Plaintiff and the Defendant entered into a written agreement that had the effect of canceling their agreement "without prejudice by mutual agreement."  Additionally, according to the agreement, the parties were obligated to make an accounting and settlement and the Plaintiff was obligated to purchase all the materials left on site by the Defendant that the Plaintiff had not paid for yet.  The trial court sided with the Defendant and the Plaintiff appealed.

Issue. Is parol evidence admissible when determining the scope of an agreement to mutually rescind a contract?

Held. Yes.  The scope can only be determined after "interpretation of the terms of the agreement of rescission (or cancellation), and in the light of the circumstances that surrounded its making."  The court stressed the importance of establishing the parties' intention, but indicated that based on the facts before the court that was very difficult.  The parties' use of the term "without prejudice" complicates the situation because it "served to heighten the ambiguity".  As such, the circumstances surrounding the agreement had to be analyzed.  The court agreed with the lower court's finding that based on the circumstances the Defendant was not liable for the cost of completing the project, because of the Plaintiff's hesitance to hurt the Defendant's standing in the business world.

Discussion. This case provides an interesting discussion of the issues surrounding parties' agreements to release one another from contractual obligations.