Tri-State Petroleum Corporation v. Saber Energy, Inc. D/B/A Saber Refining Co.
Docket: 87-2705
Court: Court of Appeals for the Fifth Circuit; May 24, 1988; Federal Appellate Court
Tri-State Petroleum Corporation appealed a decision regarding a contract with Saber Energy, Inc. for gasoline purchases. Tri-State claimed it incorporated a cancellation clause allowing it to terminate the agreement if Texaco canceled its contract with Tri-State. The magistrate ruled that this clause did not become part of the contract. Tri-State also challenged the magistrate's calculation of damages due to its breach and the denial of attorneys' fees. The court upheld the magistrate's findings on liability and damages but reversed the denial of attorneys' fees, remanding for their calculation.
In 1981, Tri-State needed to secure gasoline delivery into the Colonial Pipeline and engaged independent broker Lawrence Dorr to negotiate terms with Saber. Following negotiations, Dorr sent telex messages confirming the agreement’s details, including a monthly delivery of 110,000 barrels from July to December 1981. The formal contract included these terms but stated that Tri-State could not cancel without Saber’s written consent. After receiving the contract, Tri-State's general manager added a cancellation clause based on an alleged oral agreement with Saber. However, the district court found that only one employee, James Peyton, negotiated with Saber, and no testimony from him was provided. Although Dorr forwarded the modified contract to Saber, he did not include a cover letter explaining the cancellation clause. Saber did not object to the clause initially.
The gasoline purchase for July 1981 went unchallenged, but in August, Tri-State informed Saber of Texaco's cancellation and claimed the right to terminate the contract. Saber objected and counterclaimed for damages related to Tri-State’s breach of the gasoline contract.
Tri-State initially disputed Saber’s naming as a defendant but later conceded liability on an unrelated contract, leading the district court to grant Tri-State partial summary judgment. The parties agreed to have Saber's counterclaim heard by a magistrate, who determined that a cancellation clause was never part of the contract, ruling that Tri-State breached the agreement by attempting to cancel. The magistrate awarded Saber damages as a 'lost volume seller' and 'jobber,' along with attorneys' fees, while denying Tri-State's request for attorneys' fees related to the partial summary judgment.
Tri-State contends that the magistrate erred in determining the cancellation clause's absence from the contract, arguing that Saber had orally agreed to its inclusion. Tri-State asserts that its action of inserting the cancellation clause constituted a written confirmation of the oral agreement, thereby invoking section 2.201(b) of the Texas UCC, which addresses written confirmations between merchants. According to Tri-State, since Saber did not object within ten days of receiving the cancellation term, it should have become part of the contract.
The magistrate found that section 2.207 governs the dispute, stating that Saber's sending of the contract to Tri-State was an offer and that Tri-State's return of the signed contract, which included the cancellation clause, did not incorporate that term because all conditions of subsection (b) were met: Saber limited acceptance to its express terms, the cancellation clause materially altered the contract, and Saber had notified Tri-State of its objection to this additional term. The magistrate concluded that section 2.201 does not apply as the parties are not contesting the validity of any oral contract under the statute of frauds, maintaining that the failure to object did not impact proving an oral contract was made prior to the written confirmation.
In Hurricane Steel Industries v. Maurice Pincoffs Co., the court addressed the implications of a buyer's failure to object to a seller's written confirmation letter regarding contract terms. The court ruled that such failure does not bind the buyer to the letter's language; it merely satisfies the statute of frauds requirements. The case highlighted Tri-State's inability to prove that Saber orally agreed to a cancellation clause, as the magistrate found the beliefs of Tri-State executives, Book and Coyne, regarding Saber’s agreement to be ambiguous and unreliable. No credible evidence indicated that Saber consented to the clause since the key negotiator, Peyton, did not testify. Tri-State contested the magistrate's determination of the testimony's credibility, but the court emphasized that factual findings, particularly those related to witness credibility, are given deference under Rule 52(a). Additionally, Tri-State's argument that Saber bore the burden to obtain an affirmative finding regarding the non-existence of an agreement lacked supporting authority and contradicted federal procedural norms. The magistrate's findings were deemed sufficient for understanding the decision's basis. Lastly, Tri-State challenged the award of lost profits to Saber, claiming Saber was not a 'lost volume seller' and that the magistrate neglected to account for costs Saber avoided due to Tri-State's breach.
The measure of damages for a seller due to a buyer's breach is outlined in UCC Sec. 2.708(a), which allows recovery of the difference between the market price at the time of tender and the unpaid contract price. If this measure is inadequate to restore the seller to the position they would have been in had the contract been performed, subsection (b) permits the recovery of lost profits. This applies if the seller could have successfully resold the goods and fulfilled the additional contract. The rationale is that a "lost volume seller" would have earned two profits from the transactions. Similarly, a "jobber," who fails to obtain goods due to the breach, is also entitled to lost profit damages.
In this case, the magistrate determined that Saber was a lost volume seller for gasoline purchased prior to Tri-State's breach and also classified Saber as a jobber for gasoline not procured due to the breach. Tri-State contested these findings, arguing that a seller's market for gasoline existed, making it less likely that Saber could obtain sufficient product for both Tri-State and other buyers. However, Tri-State did not present evidence to support this claim, and the magistrate credited testimony indicating Saber could have sourced enough gasoline.
Tri-State further argued that it should be credited with costs Saber avoided due to the breach, specifically a broker's commission of $9,900 for unfulfilled purchases. The magistrate found this argument unconvincing, noting that Tri-State did not object to the damages calculation or introduce evidence to counter Saber’s claims. Consequently, the magistrate's decision to award damages based on Saber's evidence was justified, as Tri-State failed to demonstrate any expenses it claimed were saved as a result of the breach.
Tri-State argues that the magistrate incorrectly denied its request for attorneys' fees after successfully prosecuting its principal claim, despite a contract provision entitling the prevailing party to such fees. The district court had previously issued a partial summary judgment in favor of Tri-State, while later awarding Saber judgment and attorneys' fees for its counterclaim. Although the magistrate acknowledged that Tri-State incurred reasonable fees of $14,737.50, the final judgment awarded to Saber did not account for these fees. Saber contends that Tri-State was not the "prevailing party" due to the net judgment against it and that the contract allowed for set-off rights. However, the appellate court disagrees with Saber’s interpretation of the standard of review, asserting that contract interpretation is a legal question not bound by the clearly erroneous standard unless extrinsic evidence is needed. The court finds that no extrinsic evidence is necessary and concludes that both parties are entitled to attorneys' fees for prevailing on their respective claims. It expresses concern regarding the reasonableness of Tri-State's claimed fees and notes a lack of explanation for the awarded amount. Consequently, the court affirms the magistrate’s decision except for the denial of Tri-State's attorneys' fees and remands the case for a reassessment of the fee amount based on established factors for determining reasonable attorneys' fees.
