Before ADAMS, GIBBONS, and MAX ROSENN, Circuit Judges.
MAX ROSENN, Circuit Judge.
This is an appeal in a diversity contract action from a judgment of the United States District Court for the Western District of Pennsylvania. After a long non-jury trial of 29 days, the trial judge entered judgment in favor of Aluminum Company of America (Alcoa) and against Cyprus Mines Corporation (Cyprus) for $1,261,520. Each party has appealed. All material facts in the case are stated in an exhaustive and thoughtful opinion, Emor, Inc. v. Cyprus Mines Corporation, 325 F. Supp. 931 (W.D.Pa.1970)*fn1 and do not require reiteration.
The genesis of this case is a Supreme Court decision, United States v. Aluminum Co. of America, 377 U.S. 271, 84 S. Ct. 1283, 12 L. Ed. 2d 314 (1964), which held that Alcoa was in violation of the Clayton Act and, as a result, had to divest itself of the assets and business acquired from Rome Cable Corporation (Old Rome). Old Rome had been acquired by Alcoa by negotiations initiated on January 21, 1959, and a closing transaction consummated on March 31, 1959. Pursuant to the directive of the Supreme Court, Alcoa began the process of divestiture of Rome. One of the suitors for acquisition of Rome was Cyprus. It entered into negotiations with Alcoa, and the purchase of Rome by Cyprus was arranged. Pursuant to the negotiations, on August 25, 1967, Cyprus prepared and transmitted to Alcoa executed copies of an agreement of sale. This agreement was executed on behalf of Alcoa on October 2, 1967. The Justice Department did not object to the sale, and on October 25, 1967, the District Court for the Northern District of New York, entered an order approving the sale.
The contracts of sale between Alcoa and Cyprus were executed in Pennsylvania. The closing and actual transfer of assets to Cyprus were concluded in Pittsburgh, Pennsylvania on October 31, 1967. Consonant with the principles we enunciated in Seneca Falls Machine Company v. McBeth, 368 F.2d 915 (3d Cir. 1966), the trial judge concluded that the laws of Pennsylvania applied to the interpretation and application of the agreements. The parties by stipulation agreed with this conclusion.
These appeals involve the determination of the purchase price to be paid by Cyprus to Alcoa for the assets of Rome. The issues raised on these appeals turn on the interpretation of the sales agreement between them. The first of the issues is a determination of what the parties meant by the reference in paragraph 2(a) of the agreement to "the consideration paid by Alcoa in 1959 to the former Rome Cable Corporation for its assets and business." The second issue is a determination of what the parties meant in paragraph 2(b) of the sales agreement as the price to be paid for the copper content in Rome's inventories on the date of closing.
I. INTERPRETATION OF PARAGRAPH 2(a).
The sales agreement of October 2, 1967, contained the following paragraph:
2. Purchase Price of Assets.
(a) Land, plant and equipment shall be valued at their adjusted book value on the Closing Date after allowance for depreciation and amortization, the book value thereof being subject to adjustment resulting from the allocation to said assets and the inclusion in "Adjusted Book Value" of the amount by which the consideration paid by Alcoa in 1959 to the former Rome Cable Corporation for its assets and business exceeded the book value of said assets, which excess has been and is being amortized at the rate of a million dollars a year. The valuation of land, plant and equipment on this basis on June 30, 1967, was $12,718,000. (emphasis supplied).
By the terms of this section of the agreement, Cyprus was to pay Alcoa an amount which reflected the excess consideration (as depreciated) paid by Alcoa for Old Rome's assets and business when they were initially purchased in 1959.
Under the 1959 purchase agreement, Alcoa had issued and delivered as payment 355,226 shares of its stock. On January 21, 1959, some three months prior to the completion of the merger between Old Rome and Alcoa, Alcoa wrote to Old Rome and offered to purchase all of its assets and business for 355,226 shares of the common stock of Alcoa. Old Rome's board of directors accepted Alcoa's offer on January 22, 1959, by countersigning Alcoa's offer of January 21. On February 17, 1959, Old Rome and Alcoa entered into a formal plan and agreement. On March 25, 1959, Old Rome's stockholders approved the sale. On March 31, 1959, the transaction was closed and the stock delivered.
The market value of Alcoa's stock on January 22, 1959, was $85.375 per share. On March 31, 1959, the value of a share of Alcoa stock was $80.375. The dates become critical in the determination of "the consideration paid by Alcoa in 1959 to the former Rome Cable Corp. for its assets and business [in excess] of the book value of said assets." (para. 2(a) of 1967 sales agreement quoted above).
Cyprus and Alcoa differed, before the district court, on which date - March 31, 1959, or January 22, 1959 - should be used to fix the value of the Alcoa stock delivered to Old Rome. Alcoa argued that its stock should be valued as of January 22, 1959; and Cyprus argued that the valuation should be as of the closing on March 31, 1959. The district court held that the parties, Alcoa and Cyprus, intended March 31, 1959, as the valuation date. We disagree and reverse on this issue.
The district court, believing the language of paragraph 2(a) sufficiently clear, rested its decision upon the words of that section alone. The district court stated:
In order to determine what the parties intended, it is necessary to look to the contract language. In our opinion, in using March 31, 1959, as the valuation date, Cyprus has correctly interpreted the contract. It is clear from paragraph 2(a) that 'the consideration paid by Alcoa in 1959 to the former Rome Cable Company [Old Rome]' means the actual amount, i.e. $28,551,290, paid by way of a stock transfer which took place on March 31, 1959. Therefore, March 31, 1959 is the date for the valuation of the stock.... Emor, Inc., supra, 325 F. Supp. at 947. (emphasis supplied).
This brief paragraph forms the whole of the district court's reasoning concerning the proper valuation date.
Cyprus argues that the district court explored the circumstances surrounding the formulation of paragraph 2(a). However, where the district court felt it necessary to examine the surrounding circumstances, due to ambiguity in the contract language, it did not hesitate to probe the incidents leading to the sales agreement. For example, on the issue of copper content discussed below, the district court devoted some twelve pages to surrounding circumstances. Additionally, although Cyprus points to several segments of the district court's opinion as indicative of the court's examination of surrounding circumstances, these segments contain discussions made by the district court in reference to other issues before it.*fn2
Since the district court rested its interpretation of paragraph 2(a) not on any demeanor evidence, but on the literal words of the paragraph, we are not bound by the clearly erroneous standard. As Judge Learned Hand noted: "... appellate courts have untrammelled power to interpret written documents." Eddy et al. v. Prudence Bonds Corp., 165 F.2d 157, 163 (2d Cir. 1947), cert. denied sub nom, Prudence Realization Corp. v. Eddy et al., 333 U.S. 845, 68 S. Ct. 664, 92 L. Ed. 1128 (1948). See also: S. S. Silberblatt, Inc. v. Seaboard Surety Co., 417 F.2d 1043 (8th Cir. 1969); Wooddale, Inc. v. Fidelity and Deposit Co. of Maryland, 378 F.2d 627 (8th Cir. 1967). Moreover, we emphasize that we have no essential difference with the facts as found by the district court. Additionally, we note that the parties themselves differ little as to the essential facts. In these circumstances, this court is free to draw its own inferences as to the significance of the facts as they relate to the construction of paragraph 2(a). Dingman v. United States, 429 F.2d 70, 72 (8th Cir. 1970), and cases cited therein. See also: Glassman Construction Co. v. United States for Use and Benefit of Clark-Fontana Paint Co., 421 F.2d 212 (4th Cir. 1970); United States v. Winthrop, 417 F.2d 905 (5th Cir. 1969); American National Bank of Austin v. United States, 421 F.2d 442 (5th Cir. 1970).*fn3
The district court's interpretation rested on the phrase "the consideration paid by Alcoa in 1959 to the former Rome Cable Company...." (emphasis supplied). It believed this language so strongly fixed March 31, 1959, as the valuation date that the remainder of the paragraph could be disregarded. Apparently, the court felt that "consideration paid" had a direct reference to the date of the physical transfer of the Alcoa stock in payment for the 1959 acquisition of Old Rome. An admission requested by Cyprus, admitted by the court under F.R.Civ.P. 36, and perhaps considered critical by it, was that: "Said consideration was paid to Rome on March 31, 1959." (emphasis supplied).
We do not believe that the mere phrase "consideration paid" may in and of itself be construed as a direct reference to the date and act of physically transferring the Alcoa stock to Old Rome. "PAY is a general term, usu. lacking particular connotation...." Webster's Third New International Dictionary, Unabridged, 1659 (1966). Indeed, courts faced with construing the meaning of "paid" have resorted to surrounding circumstances or other terms in the contract. United States v. Cowden Mfg. Co., 312 U.S. 34, 37, 61 S. Ct. 411, 85 L. Ed. 497 (1941); State Mut. Life Assur. Co. v. Schultz, 111 F.2d 1009, 1013 (9th Cir. 1940).
Although standing alone from the rest of paragraph 2(a) "consideration paid" is ambiguous, when read in the total context of paragraph 2(a) the ambiguity is shed. The language of paragraph 2(a), quoted below, defines "excess consideration" in at least three ways:
... which excess has been and is being amortized at the rate of a million dollars per year. The valuation of land, plant and equipment on this basis on June 30, 1967 was $12,718,000. (emphasis supplied).
First, it is that excess which "has been amortized." An analysis of the facts reveals that the only excess consideration ever amortized is the figure for excess consideration reached by using the January 22nd date: $30,327,420.*fn4
Second, it is that excess consideration which, at the time of the contract, "is being amortized at the rate of $1 million per year." Alcoa had initially started to amortize the excess consideration using January 21, 1959, as the date for valuation purposes. While there was some question as to whether it continued to amortize after November 20, 1959 when it changed its accounting treatment of the transaction to a "pooling of interest" principle, Alcoa's Vice President Hickman testified during the anti-trust action that they were charging off the 13 million dollar excess payment at the rate of one million dollars per year, and "we are still doing it." In any event, the language may be readily interpreted to mean that it is being amortized at the rate of one million per year for the purpose of computation in the contract between Alcoa and Cyprus.
Third, it is that "excess consideration" which produced a valuation of "land, plant and equipment on June 30, 1967, [of] $12,718,000." As the district court properly found, "the figure $12,718,000 contained in the last sentence of paragraph 2(a)... is based on the January 22nd valuation ...