UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
______________________________
No. 96-21043
______________________________
MANUFACTURING MANAGEMENT SYSTEMS, INC.,
Plaintiff-Appellant,
versus
CAMSHAFT MACHINE CO.,
WOLVERINE GEAR & PARTS CO.,
CTG OPERATIONS, INC. and CRANE CAMS, INC.,
Defendants-Appellees.
_________________________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
(H-95-CV-5431)
_________________________________________________________________
August 25, 1997
Before WISDOM, DUHÉ, and BARKSDALE, Circuit Judges.
PER CURIAM:1
At issue is whether a contract for joint development of a new
version of a computer program implicitly, but unambiguously, allows
one of the parties to keep a copy of the newly developed program
for private use upon termination of the agreement. On cross-
motions for summary judgment, the district court granted judgment
1
Pursuant to 5TH CIR. R. 47.5, the Court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
for the defendants, finding that the contract so allowed. Because,
we conclude that the contract is ambiguous on this point, we
REVERSE and REMAND.
I.
Manufacturing Management Systems (MMS) developed a successful
computer program called the Capacity Management System (CMS). This
program was written for a specific computer. It could not run on
any others, including an IBM 38.
Camshaft Machine Co. had an IBM 38; again, a computer with
which the CMS was incompatible. Camshaft proposed in January 1984
that it and MMS jointly develop a version of the CMS that would run
on an IBM 38. The two agreed to a joint venture which covered both
the development and the marketing of the new computer program. The
agreement provides that Texas law controls. The other pertinent
provisions of the contract follow.
The purpose of the agreement was “to mutually benefit from the
development and sales of the new System 38 CMS, hereinafter
referred to as the ‘System’”. (Emphasis added.) MMS would manage
and direct development of the System, would provide the necessary
CMS documentation, and would write the System documentation.
Camshaft would provide time on its IBM 38 computer, technical
assistance, installation assistance at purchaser sites, and
enhancements and modifications of the System.
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Camshaft also agreed to assist in marketing the System; and in
the section relating to the compensation to be received by Camshaft
for its assistance, the contract listed a 5% commission for certain
types of sales, a 10% commission for others, and compensation of
$500 per day for assistance in on-site installations. This section
does not list a free copy of the System as part of Camshaft’s
compensation.
Section 4, entitled “Title to the System”, provides:
All System sales shall be exclusively between
MMS and the System purchaser. MMS shall
retain ownership and title to the System and
rights to software license fees paid by
purchasers.
The contract states that, upon its termination, MMS shall
continue to compensate Camshaft, according to the contract, insofar
as such compensation was earned prior to termination. The contract
does not provide for new compensation terms upon its termination,
and does not state that, upon termination, Camshaft could retain a
copy of the System.
Section 7 requires each party to retain the confidentiality of
information received from the other, “and to make not further use
of such information”. That section also requires Camshaft, upon
termination, to “return to MMS all CMS source codes, object codes,
program listings and technical documentation in the possession of
Camshaft”. The parties agreed not to assign any of the rights they
held under the agreement.
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In 1993, Camshaft requested MMS’ approval of an assignment of
Camshaft’s rights under the agreement to CTG Operations. MMS
refused and proposed a new agreement, which CTG rejected.
(Camshaft sold its assets to CTG in 1994.) MMS terminated the
agreement in 1995 and requested the return of all CMS materials,
including all System 38 CMS materials, along with a confirmation
that Camshaft had discontinued use of the System. Camshaft
returned nothing.
As of the filing of this action by MMS in 1995 for breach of
contract, conversion, fraud, and negligent misrepresentation,
Camshaft had been using the System internally for close to ten
years. The defendants (Camshaft, CTG, Crane Cams as parent company
of CTG, and Wolverine Gear & Parts Co.2) removed the action to
federal court. Both sides moved for summary judgment.
Camshaft and the other defendants contended, inter alia, that
the contract stated that, upon termination, Camshaft (or its
successor) was only required to return to MMS the CMS source codes,
program listings and technical documentation; and that MMS had
already received the consideration for which it had bargained — the
2
MMS states that the defendants other than Camshaft “are
in the case only because of a corporate acquisition”. And,
although the district court noted that “[MMS’] Original Complaint
does not raise allegations against Defendant Wolverine Gear & Parts
Company ... and that [MMS’] response in Opposition to Defendants’
joint Motion for Summary Judgment raises no allegations against
Wolverine”, it did not dispose of any of MMS’ claims on that basis.
The liability vel non on the part of each defendant is for the
district court on remand.
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development of the System. In its cross-motion, MMS contended that
the requirement to return the CMS materials included the System
materials, in that the System was just one version, a subset, of
the CMS.
The district court granted summary judgment for the
defendants, concluded that the return-CMS-materials requirement did
not include the System.
II.
MMS appeals both the summary judgment awarded defendants and
the denial of its similar motion. It requests that we find breach
of contract and conversion and remand for ancillary matters, such
as damages. It does not appeal the dismissal of its fraud and
negligent misrepresentation claims; it has abandoned those claims.
On remand, only the breach of contract and conversion claims
remain.
Pursuant to our de novo review of a summary judgment, e.g.,
Vera v. Tue, 73 F.3d 604, 607 (5th Cir. 1996), we apply the same
standard as the district court. As the parties agreed, Texas law
applies.
The primary question for review of a summary judgment on a
contract claim is whether the contract’s terms are unambiguous; we
can determine whether a party is entitled to summary judgment only
if they are. Coker v. Coker, 650 S.W. 2d 391, 393 (Tex. 1983)
(“When a contract contains an ambiguity, the granting of a motion
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for summary judgment is improper because the interpretation of the
instrument becomes a fact issue”).
Appellees’ contention that we are barred from finding the
contract ambiguous because both sides contended in district court
that the contract unambiguously supported their positions
misunderstands our role in reviewing a contract-based summary
judgment. It is true that a “disagreement regarding the meaning of
a clause in a contract does not render the clause ambiguous”.
First City Nat’l Bank of Midland v. Concord Oil Co., 808 S.W. 2d
133, 136 (Tex. App.--El Paso 1991, no writ). But, we review each
of the motions anew. Based on the contract, we may refuse summary
judgment, despite the parties’ contending, as they do here, that
the contract is unambiguous. In other words, we can conclude that
it is ambiguous.
A contract is unambiguous if it can be given a certain or
definite legal meaning or interpretation; conversely, it is
ambiguous when its meaning is uncertain and doubtful, or it is
reasonably susceptible to more than one meaning. Coker, 650 S.W.
2d at 393; see also Purvis Oil Corp. v. Hillin, 890 S.W. 2d 931
(Tex. App.--El Paso 1994, no writ) (ambiguity determination to be
made in the light of the circumstances at the time of the contract
formation). Of course, although we look to the intent of the
parties to determine the meaning of a contract, that intent must be
such as is expressed in the terms of the agreement. Cap Rock Elec.
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Coop., Inc. v. Texas Utilities Electric Company, 874 S.W. 2d 92, 98
(Tex. App.--El Paso 1994, no writ). And, we may apply many of the
usual rules of construction before declaring a contract ambiguous.
City of Pinehurst v. Spooner Addition Water Co. 432 S.W. 2d 515,
519 (Tex. 1968); see also Austin Hardwoods, Inc. v. Vanden Berghe,
917 S.W. 2d 320, 323 (Tex. App.--El Paso 1995, writ denied) (the
court will attempt to determine objective intent of parties through
harmonization of all provisions so no provision rendered
meaningless).
Turning to the contract at issue, with this standard for its
interpretation in mind, we note preliminarily that the instrument
does not expressly grant Camshaft the right to keep a copy of the
System for its use. Not only does this omission require us to find
a new term of the contract “unambiguously” by negative inference
from the rest of the contract’s terms, it also requires us to
consider whether, as posited by MMS, the contract instead
unambiguously precludes Camshaft’s retention of a copy.
The first question, then, is whether it would have been
natural for the parties to have included such compensation
(retention of the System) in the agreement had they intended it to
be a term of the agreement. The contract contains a detailed list
of all of the types of compensation to be received by Camshaft for
the donation of its computer time and technical advice. The
contract lists commissions on sales for which Camshaft is partially
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responsible; it also provides that Camshaft will be compensated for
assisting in the installation of such programs at the purchasers’
places of business. Despite this extensive explanation of what
rewards will be received for what performances, there is no mention
of a free copy of the System. In the light of the fact that, while
the other types of compensation are mere possibilities in terms of
when they would be received by Camshaft (they would all be
dependent on System sales), and yet the compensation in the form of
a free copy of the System would be a certainty (depending only on
the successful conversion of the CMS), it would seem that the
parties would naturally list such compensation, a free copy,
somewhere in the contract, most likely in the section labeled
“Compensation”. They did not.
Furthermore, while the declarations at the beginning of the
contract list the parties’ intentions and desires, including
selling copies of the System, this list does not include Camshaft’s
desire to use the System to manage its own operations. Again, the
parties saw fit to include some fairly finer aspects of the
agreement, such as exactly what Camshaft was willing to offer to
the deal, including exactly to which type of computer MMS was
allowed access in order to complete the conversion, and yet we are
asked to conclude that the parties simply omitted their intention
for a copy of the System to be given Camshaft upon termination.
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Needless to say, if the parties had intended such a provision, they
certainly could, and should, have included it.
On the other hand, this is not to say that the contract
unambiguously supports MMS’ position. Perhaps the parties did
agree implicitly to such compensation; the language of the contract
explaining the rights and obligations of the parties upon
termination of the agreement might allow for such a reading.
Moreover, the fact that, under the contract, Camshaft had the use
of a copy of the System, throughout the life of the agreement could
militates in favor of such a reading.
The contract grants to MMS all title to the System. This
section, quoted above in full, consists of only two sentences and
falls under the heading “Title to the System”. Although one of the
two sentences in this section deals with sales of the System to
third parties, the other, final, sentence states in general terms
that “MMS shall retain ownership and title to the System”. This
would appear to grant, unambiguously, full title not to Camshaft,
but rather to MMS. Camshaft attempts to counter this provision by
contending that the apparently general language of title must be
read in the light of the preceding language/sentence dealing only
with System sales, and that we must therefore conclude that the
parties were only talking about title with respect to sales, while,
on the other hand, Camshaft retained title with respect to its use
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of one copy of the program. There are two problems with this
contention, both insurmountable.
First, while the first/preceding sentence may speak of sales,
the heading of the section deals with title generally, without
limitation. While it is plausible that the first/preceding
sentence might color our reading of the sentence that follows, that
coloring must give way to such an explicit statement in the section
heading. In other words, the express intent of a section heading
cannot be implicitly limited merely by including a sentence in that
section limited to only one aspect of the issue at hand. The
general language in the second sentence retains its generality;
and, under that umbrella, MMS would retain title to the System.
See, e.g., Vail v. Henry S. Miller Co., 592 S.W. 2d 410, 411-12
(Tex. App.--Dallas, 1979 writ denied) (using section headings of
contract to interpret provisions of that contract); Canadian River
Municipal Water Authority v. City of Amarillo, 517 S.W. 2d 572, 582
(Tex. App.--Amarillo, 1974 writ denied) (same).
Second, the canon of construction on which Camshaft and the
other appellees rely in contending that the first/preceding
sentence should limit our reading of the sentence at issue is the
rule of ejusdem generis: if words of a specific meaning are
followed by general words, the general words are interpreted to
mean only the class or category framed by the specific words. This
canon, however, applies only when the contract has already been
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found to be ambiguous. Hussong v. Schwan’s Sales Enterprises,
Inc., 896 S.W. 2d 320, 325 (Tex. App.--Houston (1 Dist.) 1995, no
writ); Corpus Christi v. Bayfront Assoc. Ltd., 814 S.W. 2d 98, 104
(Tex. App.--Corpus Christi 1991, writ denied). In other words, by
contending that assessing the meaning of the first/prior sentence
is required to fully understand the meaning of the second/final
sentence granting title to MMS, Camshaft has implicitly admitted
that the section is ambiguous absent such a construction. We
agree. The section is ambiguous with respect to the scope of
applicability of the sentence retaining System title in MMS.
At long last, we arrive at the primary basis for Camshaft’s
contention that the contract grants it a copy of the System. Upon
termination, Camshaft is directed in section 7 to “return to MMS
all CMS source codes, object codes, program listings and technical
documentation in the possession of Camshaft”. Camshaft contends
that, because the System is distinct from the CMS, the foregoing
CMS return requirement implicitly allows keeping one copy of the
System for Camshaft’s continued use. Perhaps, but not necessarily.
Part of the foundation for this contention, that the System is
treated as distinct from the CMS by the rest of the contract, is
dubious. The declarations at the beginning of the contract
describe the System as “the new System 38 CMS”. This would appear
to mean that the System is in fact a CMS, and the requirement of
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the return of all of the CMS materials would therefore naturally
include the System.
Furthermore, the contract states that, upon termination,
Camshaft shall make no further use of the technical documentation
of the System and no use of any of the confidential information
received from MMS. It is difficult, at best, to read this
provision in harmony with an implied provision allowing Camshaft to
retain and utilize a copy of the System. See Purvis, 890 S.W. 2d
at 935 (court must attempt to “harmonize all provisions” of
contract in its interpretation). Discontinuing use, in a natural
language interpretation of the contract, must mean exactly that;
Camshaft may no longer use the information, including use on
Camshaft’s computer to manage its operations.
Camshaft offers nothing to contradict this, and we are left
with the conclusion that inferring otherwise would contradict the
requirement to discontinue use of the System technical
documentation and the other confidential MMS information. On
remand, perhaps, Camshaft can adduce evidence that the program
might be used without reference to the technical documentation or
to other confidential information; but, on this record, this point
involves a genuine issue of material fact -- the dreaded death
knell of summary judgment.
As stated, we must read a contract to “harmonize and give
effect to all the provisions of the contract so that none will be
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rendered meaningless”. Coker, 650 S.W. 2d at 393. A reading of
this contract which allows Camshaft to retain a copy of the System
certainly puts several other provisions in obsolescence. In
particular, the terms requiring Camshaft to retain the
confidentiality of all information acquired from MMS, and the
provision retaining title to the System in MMS would be under
threat in the light of the rest of the contract.
It is safe to assume that MMS already has its own copies of
both the CMS generally and the System in particular. Camshaft’s
return of the CMS materials, then, could not be for the purpose of
getting a copy into MMS’ hands. Furthermore, Camshaft is expressly
forbidden to sell either the System or the CMS to anyone after the
contract is terminated. It is also not allowed to divulge for free
any of the information it has received. Return of the CMS
materials therefore cannot be for the purpose of retaining the
confidentiality of those materials — that has been taken care of in
other provisions. Thus when read in the context of the rest of the
contract, the only way for the section requiring the return of the
CMS materials to have effect on the parties’ positions upon
termination of the agreement is if the section intends to get the
materials out of Camshaft’s hands altogether, in order to prevent
use by Camshaft.
If this is so, then the return of only the original CMS
program, and not the System, is meaningless, because Camshaft does
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not need the old CMS; its IBM 38 computer cannot use that version.
It would need to keep a copy of “the new System 38 CMS”, the only
version of use to it. Therefore, for the return language of the
contract to have meaning, it must include the System. Holding
otherwise would render that section meaningless to the parties, and
such a reading must give way to a reading which gives the provision
effect.
Perhaps on remand, Camshaft and the other defendants can
adduce evidence that use of one copy of the System to manage their
operations would not interfere with an effective return of all CMS
material, perhaps including the System 38 CMS material.
III.
For the foregoing reasons, the summary judgment awarded
Camshaft Machine Co. and the other defendants is REVERSED; the
denial of summary judgment to Manufacturing Management Systems,
Inc., is AFFIRMED; and the case is REMANDED for further
proceedings.
AFFIRMED IN PART; REVERSED IN PART; and REMANDED
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