Aultman Hosp. Assn.v.Community Mut. Ins. Co.

Supreme Court of OhioOct 11, 1989
46 Ohio St. 3d 51 (Ohio 1989)
46 Ohio St. 3d 51544 N.E.2d 920

No. 88-1221

Submitted May 31, 1989 —

Decided October 11, 1989.

Contracts — Courts will not give an unambiguous contract a construction other than that which the plain language of the contract provides.

O.Jur 3d Contracts §§ 135, 141.

Where the parties following negotiation make mutual promises which thereafter are integrated into an unambiguous contract duly executed by them, courts will not give the contract a construction other than that which the plain language of the contract provides.

APPEAL from the Court of Appeals for Stark County, No. CA-7307.

In 1938 a group of Stark County-area hospitals entered into a contractual agreement with a predecessor of Community Mutual Insurance Company ("Blue Cross") to provide medical services to subscribers who were issued service contracts by Blue Cross. Under the terms of the contract between the hospitals and Blue Cross, the hospitals billed Blue Cross directly for the services rendered to Blue Cross subscribers. Because the hospitals were assured of payment by Blue Cross, the hospitals billed Blue Cross at a discounted rate for services to those subscribers.

The parties entered into a new agreement effective January 1, 1959, entitled "Stark County Inter-Hospital Agency Agreement." The definitions section of this agreement (Article I) provides, in part, as follows:

"4. The term `Subscriber' is defined to mean any person to whom or for whose benefit Blue Cross has or shall issued [ sic] a Service Contract. Provided, however, that in no case shall maternity benefits be paid by Blue Cross except for the contract holder or his spouse.

"* * *

"6. The term `Service Contract' is defined to mean any contract that Blue Cross is authorized, pursuant to any provision of this agreement, to issue to or for the benefit of subscribers for hospital service."

The 1959 agreement was amended in 1976. As a result, Article III of the 1959 agreement was amended to read as follows:

"* * * [Blue Cross], subject to the applicable provisions of Chapter 1739 of the Revised Code, may issue to subscribers from time to time service or indemnity contracts or amendments to existing contracts as the * * * [Blue Cross] Board of Trustees may authorize; provided, however, that no such contract or amendment shall require the hospital to provide services of a different or additional nature from those which it now provides. * * *"

The 1976 amendment contains the following additional language:

"The participating hospitals signing this agreement hereby agree to all of the foregoing deletions, changes and amendments to the agreement between * * * [Blue Cross], and the undersigned participating hospitals and agree that all the provisions of the agreement heretofore executed by * * * [Blue Cross], and the undersigned participating hospitals, as the same has been amended prior to this agreement and as hereby amended by this agreement, shall constitute the entire contract between * * * [Blue Cross] and the undersigned participating hospitals on and after the [1st] day of [July], 1976."

The present dispute concerns whether the 1959 agreement, as amended in 1976, limits Blue Cross to issue only "traditional" subscriber contracts, as contended by the plaintiff hospitals, or to issue "traditional" and "nontraditional" subscriber contracts, as contended by defendant Blue Cross.

Under the traditional plan, Blue Cross charges the subscribers a set premium and makes payments to the hospitals pursuant to a discounted billing system.

Under the nontraditional plan, Blue Cross issues a number of group service contracts, which allow members of the subscribing groups to receive the same services from the hospitals as other Blue Cross subscribers. However, Blue Cross is paid on a "cost plus" basis by the subscriber groups for services rendered by the hospitals to group members. The subscriber groups, unlike the traditional Blue Cross subscribers, pay no premium to Blue Cross for their coverage. Blue Cross makes payments to the hospitals pursuant to the same discounted billing system used in the traditional plan.

In 1984, the plaintiff hospitals, Aultman Hospital Association, Massillon Community Hospital and Timken Mercy Medical Center, filed a complaint for declaratory relief and an accounting in the Court of Common Pleas of Stark County, contending that the 1959 and 1976 agreements with Blue Cross do not provide for the issuance by Blue Cross of nontraditional service contracts. In subsequent pleadings and arguments, plaintiffs contended that Blue Cross exposed them to financial risk by not collecting premiums from the nontraditional subscriber groups and therefore Blue Cross should not have been billed at a discounted rate for services rendered to those subscriber groups. Plaintiffs further argued that the 1959 and 1976 contracts limit Blue Cross's authority to issue only traditional service contracts, under which the subscribers pay Blue Cross set premiums. Blue Cross, they alleged, unilaterally extended the terms of the contract in a way never intended or authorized and, under quantum meruit, must compensate them for the value of the unauthorized benefits (discounts) received.

The trial court essentially determined that the term "service contract[s]" as defined in the 1959 agreement actually meant "authorized service contracts" and that the nontraditional service contracts were not authorized by the parties' agreement. The court further determined that Blue Cross was unjustly enriched by the discount provided by the hospitals to Blue Cross for medical services to the nontraditional subscribers. It granted declaratory relief to the hospitals by limiting the contract to the issuance of traditional service contracts and ordered an accounting for the discounts received by Blue Cross pursuant to the nontraditional subscriber service contracts. The court concluded that the appropriate measure of damages was to be determined on a quantum meruit basis.

On appeal, a majority of the court of appeals affirmed, holding that the terms "subscriber" and "service contract" as used in the 1959 contract are circular and thus ambiguous, leading to the inference that there may be limitations on the type of service contracts Blue Cross may issue. It indicated that the trial court properly allowed extrinsic evidence to explain terms of the contract.

The court also essentially held that the nontraditional subscriber agreements were beyond the reach of the discount agreement between the parties and that the parties' written contract did not contemplate nontraditional service agreements. Thus, the court held that Blue Cross breached the agreement with the hospitals when it paid the discounted rate to the hospitals for services provided to the nontraditional subscribers. The hospitals, it held, are entitled to recover in quasi-contract under the doctrine of quantum meruit. Like the trial court, it indicated that the discount rate offered to Blue Cross by the hospitals was only applicable to traditional subscribers and that Blue Cross was unjustly enriched by the difference between the nondiscount rate which it should have paid for services to the nontraditional subscribers and the amount it paid under the discount rate formula. Ostensibly relying on the decision in Aluminum Co. of America v. Essex Group, Inc. (W.D. Pa. 1980), 499 F. Supp. 53, reforming a long-term service contract due to impracticality, the court indicated that due to the "unforeseen market forces of deregulation and increased competition," the hospitals stand to lose significant amounts of money in the absence of judicial intervention.

The cause is now before this court pursuant to the allowance of a motion to certify the record.

Verner, Liipfert, Bernhard, McPherson Hand, Chartered and Douglas J. Colton, pro hac vice, for appellees.

Taft, Stettinius Hollister, W. Stuart Dornette and James E. Britain, Thomas B. Bassler, Vorys, Sater, Seymour Pease, Michael J. Canter and James C. Becker, for appellant.

Porter, Wright, Morris Arthur, James E. Pohlman and Daniel W. Costello, urging reversal for amicus curiae Blue Cross and Blue Shield Association.


The principal question presented by this case is whether the contract between Blue Cross and the hospitals allows Blue Cross to issue nontraditional subscriber contracts.

In construing any written instrument, the primary and paramount objective is to ascertain the intent of the parties. The general rule is that contracts should be construed so as to give effect to the intention of the parties. Employers' Liability Assurance Corp. v. Roehm (1919), 99 Ohio St. 343, 124 N.E. 223, 7 A.L.R. 182, syllabus; Skivolocki v. East Ohio Gas Co. (1974), 38 Ohio St.2d 244, 67 O.O. 2d 321, 313 N.E.2d 374, paragraph one of the syllabus. Where the parties, following negotiations, make mutual promises which thereafter are integrated into an unambiguous written contract, duly signed by them, courts will give effect to the parties' expressed intentions. Henderson-Achert Lithographic Co. v. John Shillito Co. (1901), 64 Ohio St. 236, 252, 60 N.E. 295, 298. See, also, Charles A. Burton, Inc. v. Durkee (1952), 158 Ohio St. 313, 49 O.O. 174, 109 N.E.2d 265. Intentions not expressed in the writing are deemed to have no existence and may not be shown by parol evidence. See Charles A. Burton, Inc., supra, at paragraph two of the syllabus; Steel Sanitary Co. v. Pangborn Corp. (1930), 38 Ohio App. 65, 70, 9 Ohio Law Abs. 6, 8, 175 N.E. 615, 616-617. There can be no implied covenant in a contract in relation to any matter that is specifically covered by the written terms of the contract. Kachelmacher v. Laird (1915), 92 Ohio St. 324, 110 N.E. 933, paragraph one of the syllabus.

We recognize at the outset that the parties, by an express integration provision, limited their agreement to the written contract. The trial court and the court of appeals determined that the terms "subscriber" and "subscriber contracts," as provided in the 1959 agreement, are ambiguous and, relying on extrinsic evidence, held that the parties did not intend to include nontraditional subscribers within the context of the contract. In Alexander v. Buckeye Pipe Line Co. (1978), 53 Ohio St.2d 241, 7 O.O. 3d 403, 374 N.E.2d 146, paragraph two of the syllabus, we set a test for determining whether a term or terms contained in a contract are ambiguous: "Common words appearing in a written instrument will be given their ordinary meaning unless manifest absurdity results, or unless some other meaning is clearly evidenced from the face or overall contents of the instrument."

According to the terms of the agreement at issue, a subscriber is any person to whom Blue Cross issues a contract for hospital services. We noted earlier that the terms "subscriber" and "service contracts" were defined in Article I of the agreement by mutual consent of the parties.

The only limitation on Blue Cross' ability to issue service contracts is expressly provided in the agreement between the parties. The restrictive language provides:

"* * * [N]o such contract * * * shall require the hospital[s] to provide services of a different or additional nature from those which it now provides. * * *"

This restriction does not confine Blue Cross to the issuance of contracts for which the subscriber pays a premium. It states only that the hospitals cannot be required to provide services different or additional to those currently provided by the hospitals. Where the parties expressly provide the only limitation on the issuance of service contracts, it is error for the trial court to admit extrinsic evidence providing for additional limitations, Henderson-Achert Lithographic Co., supra, at 254, 60 N.E. at 298, where the meaning is clearly evidenced from the overall contents of the instrument. Prior or contemporaneous evidence tending to vary the clear and unambiguous terms of the written contract is inadmissible. Charles A. Burton, Inc., supra.

The hospitals contend that Blue Cross is only allowed to issue traditional subscriber contracts. The contract construction urged by the hospitals would not be a construction at all but would amount to the making of a new contract for the parties which is not the function of the court. Ullman v. May (1947), 147 Ohio St. 468, 475, 34 O.O. 384, 387, 72 N.E.2d 63, 67. In the absence of fraud or mistake, the hospitals' unexpressed intention cannot be implied in the contract. The language of the written contract which was signed by the parties is clear and does not forbid Blue Cross from issuing service contracts to groups of subscribers who compensate Blue Cross in a different manner than by the payment of premiums. Blue Cross's issuance of nontraditional service contracts is therefore not a breach of the agreement with the hospitals.

The court of appeals indicated that due to "unforeseen market forces of deregulation and increased competition," the hospitals stand to lose significant amounts of money in the absence of judicial intervention. It is not the responsibility or function of this court to rewrite the parties' contract to provide for such circumstances. Where a contract is plain and unambiguous as herein, it does not become ambiguous by reason of the fact that in its operation it may work a hardship upon one of the parties. Ohio Crane Co. v. Hicks (1924), 110 Ohio St. 168, 172, 143 N.E. 388, 389; Ullman, supra, at paragraph one of the syllabus.

For the foregoing reasons, we hold that where, as here, the parties following negotiations make mutual promises which thereafter are integrated into an unambiguous contract duly executed by them, courts will not give the contract a construction other than that which the plain language of the contract provides. See Henderson-Achert Lithographic Co., supra.

Having determined that the disputed contract is an express integration of mutually accepted terms and conditions and that no breach occurred, we must decide whether recovery in quantum meruit was proper.

Quantum meruit is generally awarded when one party confers some benefit upon another without receiving just compensation for the reasonable value of services rendered. See Fox Associates Co., L.P.A. v. Purdon (1989), 44 Ohio St.3d 69, 541 N.E.2d 448; Rice v. Wheeling Dollar Savings Trust Co. (1951), 155 Ohio St. 391, 44 O.O. 374, 99 N.E.2d 301. The contract here describes the nature of services to be rendered and the compensation to be paid. The record does not reveal that Blue Cross received unjust enrichment outside the parameters of the express contract. In the absence of fraud, illegality or bad faith, the hospitals are entitled to compensation only in accordance with the terms of the written agreement. Ullman, supra, at paragraph three of the syllabus.

For the foregoing reasons, the judgment of the court of appeals is reversed and final judgment is entered for appellant.

Judgment reversed.

SWEENEY, HOLMES, DOUGLAS, WRIGHT, H. BROWN and RESNICK, JJ., concur.