Central States Power & Light Corp. v. United States Zinc Co.

COTTERAL, Circuit Judge. The Central States Power & Light Corporation brought this action to recover damages of the United States Zinc Company for breach of a contract between S. M. Williams, Jr., and the defendant, dated June 30, 1927, whereby the zinc company was to take and pay him for gas to be used in operation of its smelter at Henryetta, Okl., from October 25, 1927 to October 25, 1930. The contract was in terms binding on the assigns and successors of the parties. The plaintiff acquired the rights of Williams. The issues were framed upon an amended petition, answer, and reply, the cause was tried to a jury, and a verdiet was returned for the defendant. It is assigned as error that the court overruled motions to strike portions of the answer which set up as defenses the oral understanding defendant claimed to have had with Williams that the contract was not to obligate defendant if it discontinued the smelter; that the court treating the contract as ambiguous allowed evidence in support of that defense; that the court charged the jury to consider that evidence and denied plaintiff’s request for a peremptory instruction. The controversy is whether that defense was permissible under the terms of the contract. It designated Williams as vendor and the defendant as vendee. By section 1, the vendor agreed to sell, furnish, and deliver gas to vendee, at 7% cents per thousand cubic feet, to the limit of vendor’s capacity, but not more than a minimum later specified. Section 2 is as follows: “Vendee agrees to receive, purchase and pay for said gas at said price and on the basis above stated, and to take during the first year of the contract at least two million cubic feet of gas per day, and during the 'second and third years of the contract at least three million cubic feet of gas per day; provided, that, if the total requirements of vendee for gas fuel does not equal or exceed the two or three million per day that vendee shall be required to take only the amount of its total requirements.” Section 5 required the vendor to install and maintain on vendee’s premises during the life of the contract all necessary meters, regulators, and equipment. Section 6 provided — 833 — the eontraet %vas to remain in full force and effect for three years from the time the gas was first furnished. By section 7 the vendor was not to be responsible for failure to furnish gas occasioned by breaks in the pipe line, strikes, acts of God, or other unavoidable casualty; and it was understood vendor was to construct a pipe lino for transporting the gas to the smelter, that the defendant required a continuous gas supply, and, if vendor’s supply should not be delivered continually and for that reason vendee could not operate the • smelter continuously and should he compelled to make arrangement for other gas for any part of the minimum, except for reasons stated in paragraph 7, then vendee should not be obligated to take the minimum, as specified in paragraph 2, but might take such amount which, taken with its other supply, should he necessary to operate the smelter. It was shown at the trial the smelter of defendant was operated since 1916, and that defendant took and paid for the gas under the contract with plaintiff only up to June 1, 1928, when it dismantled and discontinued operation of its plant, and refused to take gas from the plaintiff. There was evidence of other related facts, such as an effort to obtain a reduced rate of the gas, notice discontinuing the purchase of gas, the unprofitable operation of the smelter, etc. The plaintiff showed its outlays made to obtain the gas and to install a pipe line to transmit and furnish tho gas and its offer to supply the gas according to the contract. These matters were not questioned. Certain testimony was received over objection by the plaintiff. F. P. Lannon, defendant’s manager, testified to conversations with Williams prior to tho execution of the contract. He told Williams the defendant would not sign a contract requiring it to take tho gas if the plant should bo cur tailed, or in case of strike, war, interruption of railroads, etc. Lannon stated that at Williams’ request ho furnished a letter that he would sign the contract. Williams prepared and presented the contract. Lannon said he told Williams he had written him defendant would not pay for any gas if lire plant was curtailed or closed down. Williams said he had taken eaxe of that, read the proviso of section 2 to Lannon, and added, “if you take less than the two or three million you will only pay for what you take and if you closedown and don’t take any gas you don’t pay for any”; that was distinctly understood; and Lannon said, “All right,” and approved the contract and recommended it. The contract was then furnished to tho companies for execution. In another prior conversation Lannon told Williams he did not know any reason for shutting down the plant, and, in substance, it might occur and had occurred, and he felt reasonably sure of operation but would not guarantee it. Further testimony given by Lannon and Newhouse, vice president of the defendant, was to the effect that in May, 1928, a conversation took place with Poe, plaintiff’s division manager, in which Newhouse asked a release of the defendant as its plant would be closed in June or the last of May, and Poe replied that, if defendant stopped using gas, the contract would he automatically canceled. Counsel for appellant first invoke the rule which is firmly settled by authority, that parol evidence is inadmissible to contradict or modify a written contract, and it is conclusively presumed the whole engagement of the parties is expressed therein. Green v. Chicago & N. W. Railway Company (C. C. A.) 92 F. 873; McMaster v. New York Life Insurance Co. (C. C. A.) 99 F. 856; Potomac Steam-Boat Co. v. Upper Potomac Steam-Boat Co., 109 U. S. 672, 3 S. Ct. 445, 27 L. Ed. 1070. Section 5035, Comp. Okl. Stat. 1921, provides that the execution of a contract in writing supersedes all the oral negotiations or stipulations concerning its matter which preceded, or accompanied the execution of tho instrument. This section applies to the contract in question, as its obligations were to be performed in Oklahoma. Brown v. Ford Motor Company (C. C. A. 10) 48 F.(2d) 732. The defendant’s. contention was and is that there was ambiguity in the contract, due to the proviso in section 2, and for that reason it was competent to plead and prove the oral understanding of the parties to the effect that in ease the smelter should he discontinued, the defendant’s requirement of gas and its liability therefor were at an end. We are unable to agree with this view of tho contract. It contained an absolute provision it was to be in full force and effect for three years, and the quantity of gas to he taken and the price to be paid therefor were specified. The proviso in section 2 merely conformed defendant’s obligation to its total requirements. In that respect it seems to us this language is unambiguous. It certainly cannot be consli tied, as defendant claims, tí) mean that, if the smelter should be closed or discontinued, there would he no further lia — 834 — bility on the contract. The language used v^as therefore equivalent to an ordinary agreement to purchase a commodity required in a given business. In the interpretation of a contract, the cardinal rule is that the intention of the parties is to be ascertained. But when a contract is explicit in terms, it' furnishes a complete guide for ascertaining that intention. Continental Oil Co. v. Fisher Oil Company (C. C. A. 10) 55 F.(2d) 14. The contract was entirely valid because of the mutual considerations of the parties. It bound the plaintiff to furnish the gas at a stipulated price for a definite period, and it bound the defendant to' take and pay for the gas up to' the requirements of the smelter as an operating plant. The authorities are uniform in holding such a contract to be mutual and binding, as the consideration to be rendered by the defendant is certain or reducible to certainty. The defendant owning an established business had the implied obligation to continue it in the usual manner, and accept during the time fixed the gas required to so conduct it. Wells v. Alexandre, 130 N. Y. 642, 29 N. E. 142, 15 L. R. A. 218; Cold Blast Transportation Co. v. Kansas City Bolt & Nut Company (C. C. A.) 114 F. 77, 57 L. R. A. 696; Burgess Sulphite Fibre Co. v. Broomfield, 180 Mass. 283, 62 N. E. 367; Hickey v. O’Brien, 123 Mich. 611, 82 N. W. 241, 49 L. R. A. 594, 81 Am. St. Rep. 227; Loudenback Fertilizer Company v. Tennessee Phosphate Company (C. C. A.) 121 F. 298, 61 L. R. A. 402; Lima Locomotive & Machine Company v. National Steel Castings Co. (C. C. A.) 155 F. 77, 11 L. R. A. (N. S.) 713; E. I. DuPont de Nemours Powder Company v. Schlottman (C. C. A.) 218 F. 353; Great Lakes & St. Lawrence Transp. Company v. Scranton Coal Company (C. C. A.) 239 F. 603; Texas Company v. Pensacola Maritime Corporation (C. C. A.) 279 F. 19, 24 A. L. R. 1336; Kamm v. Pritchard (C. C. A.) 296 F. 871; Diamond Alkali Company v. P. C. Tomson & Company (C. C. A.) 35 F.(2d) 117; Griffin v. Oklahoma Natural Gas Corporation (C. C. A.). 37 F.(2d) 545. It is true, as counsel for the defendant claims, that the circumstances under which parties enter into a contract may be considered as well as the language used in order that the court may view the subject-matter from the standpoint of the parties. Great Lakes & St. Lawrence Transp. Company v. Scranton Coal Company (C. C. A.) 239 F. 603; Newport News Ship Building & Dry Dock Company v. United States (C. C. A.) 34 F.(2d) 100. But this furnishes no aid to the defendant. Its contentions come to this: That it was agreed defendant might quit operating the smelter and end liability; in other words, the plaintiff was to go to great expense in preparation to deliver the gas, but the defendant was not obligated to take it for any definite time, with the result that, if defendant could be rid of the obligation at the end of the period of operation, it could likewise avoid it in one month or one day. Surely this would be a most unreasonable interpretation of the contract. And it overlooked the stipulation to take the gas for a certain period; also the expression in the contract of “requirements” instead of desire or will on the part of the defendant. The case differs from the usual instance of an agreement where the vendor is to furnish all of a commodity required by vendee. There were certain limitations on both sides. The plaintiff was not to furnish more than two or three million cubic feet of gas per day, and the defendant was not bound to take beyond its requirements. But the elements of certainty furnish the test of the mutual consideration. Limiting the obligation definitely on each side does not render it insufficient. An undertaking is valid where it is to take all the needs of a business within quantities stated. Texas Company v. Pensacola Maritime Corporation (C. C. A.) 279 F. 19, 24 A. L. R. 1336; Mexican Petroleum Corporation v. North German Lloyd (D. C.) 17 F.(2d) 113. The rule as announced in this circuit is that a contract to furnish an ascertainable quantity of gas is valid. Griffin v. Oklahoma Natural Gas Corporation (C. C. A.) 37 F.(2d) 545. The District Court committed manifest error, therefore, in not striking those parts of the answer referred to which pleaded asi defensive matter the oral understanding and conversations which preceded or followed the execution of the contract'and in not excluding them at the trial. It was error also to charge the jury, as was done in this ease, it might consider such defensive matters in ascertaining the terms on which the parties agreed in framing the contract, and if they were found .as defendant claims a verdict was justified in its favor, and not to charge the jury the plaintiff was entitled to recover its damages for breach of the contract by the defendant. The judgment is therefore reversed, and the ease is remanded to the District Court, with direction to vacate the orders overruling plaintiff’s motions to strike said defensive averments in the answer and to sustain those — 835 — motions, to grant a new trial of the cause, and otherwise proceed consistently with the views expressed in thia opinion. Reversed.