Transcontinental Petroleum Co. v. Interocean Oil Co.

• Decision Date: 12 December 1919
• Docket Number: 5339.
• Citation: 262 F. 278
• Parties: TRANSCONTINENTAL PETROLEUM CO. v. INTEROCEAN OIL CO.
• Court: U.S. Court of Appeals — Eighth Circuit

262 F. 278

TRANSCONTINENTAL PETROLEUM CO. v. INTEROCEAN OIL CO.

No. 5339.

United States Court of Appeals, Eighth Circuit.

December 12, 1919

Rehearing Denied February 21, 1920.

Philip W. Russell, of New York City (Horner, Martens & Goldsmith, of Pierre, S.D., and Wing & Russell, of New York City, on the brief), for plaintiff in error.

A. K Gardner, of Huron, S.D. (Colby & Brown, of New York City, on the brief), for defendant in error.

Before HOOK and STONE, Circuit Judges, and AMIDON, District Judge.

HOOK Circuit Judge.

This was an action by the Transcontinental Petroleum Company of the Republic of Mexico against the Interocean Oil Company of South Dakota for breach of a written contract of sale and purchase of crude oil produced in the Panuco oil fields, near Tampico, Mexico. The plaintiff was the seller, and defendant the purchaser. The breach claimed was in the failure of the latter and its assignee to take a large part of the quantity of oil contracted for. At the conclusion of plaintiff's evidence the trial court directed a verdict for the defendant and judgment followed accordingly.

At the threshold of the case is defendant's contention that the contract is void for want of mutuality of obligation. This involves a construction of the first three paragraphs of the contract. By the first paragraph plaintiff agreed to sell and deliver to defendant 1,200,000 barrels of Mexican crude petroleum oil upon terms and conditions specified 'provided, however, that deliveries in said quantity or in any quantity are limited to the actual production of the oil wells owned by the vendor and the production of other wells which may be from time to time controlled by the vendor. ' The second paragraph provides for deliveries by plaintiff at the rate of not less than 50,000 barrels per month from January 1, 1914, to December 31, 1915, in cargo lots into defendant's vessels of stated capacities, failure of the latter to take the specified quantity in any month to be made up the next. The defendant was given the right to require plaintiff, by notice, to commence the monthly deliveries before January 1, 1914. By the third paragraph defendant agreed 'to take said oil as above provided, and pay for the same at the rate' specified.

The argument of defendant is that the proviso of the first paragraph limiting plaintiff's undertaking to the production of wells owned or controlled by it made it entirely optional with plaintiff to deliver any oil at all. There is no merit in the argument. In effect, the contract bound the plaintiff to deliver the entire output of its wells, up to the quantities specified. No such personal choice or option was given to withhold or refuse deliveries of oil produced by its wells as is sometimes held to destroy the requisite mutuality of contract obligations. The limitation is a physical one, of a kind common in business affairs. When the quantity of a commodity to be delivered or received under a contract of sale rests in the uncontrolled will or desire of one of the parties, mutuality is lacking. It is otherwise when the quantity is measured by the output or requirements of an established plant or business during a limited time. Cold Blast Transp. Co. v. Kansas City Bolt & Nut Co., 52 C.C.A. 25, 114 F. 77, 57 L.R.A. 696. This latter rule is an adjustment of legal principles to necessary and reasonable business usages. It appears plaintiff owned and controlled about 20 oil wells in the Panuco field, with extensive structural equipment, and though the life of any particular well might not be forecast with certainty, it is idle to say plaintiff did not have an established plant, the actual product of which it could bind itself to sell and deliver in whole or in part during the time limited. The plaintiff could not, without violating its contract, have capped its wells or choked their production to escape deliveries. In that respect a correlative duty on its part would be implied.

The plaintiff contended at the trial that the proviso above discussed was for its sole benefit, and therefore it was not required to prove as part of its case that it was able and willing to make the deliveries of oil produced by its wells. The court properly ruled otherwise. In effect the plaintiff's contention was that its right to make deliveries was not limited to the product of its wells, but that defendant's right to require deliveries was so limited. If that were the contract, it would be unilateral. In most of the cases cited for the contention, the provisions held to be for the benefit of one, but not both, of the parties, related to incidental matters, not, as here, going to the very root of the contract and vital to its mutuality.

Plaintiff introduced evidence tending to show the following: Defendant gave notice under the contract advancing the beginning of the two-year delivery period to November, 1913. For the first five months defendant sent vessels, and received and paid for an aggregate amount of oil less by 78,256.09 barrels than the minimum quantity it was required to take in that time. It refused to receive or pay for any oil thereafter. In April, 1914, it assigned the contract to one Von Reitzenstein under a clause that it might do so 'and remain as simple guarantor for its fulfillment by its assignees. ' The assignee failed to take or pay for any oil. James Dickson, a witness for plaintiff, with 23 years' experience in the oil business in Mexico, testified that he had been superintendent of plaintiff's export department ever since its plant was built in 1911, and had under him in 1913 and 1914 about 200 employes, including assistant superintendents and foremen. He described the extensive plant of the plaintiff in the Panuco oil field and at the station where vessels were loaded. He said that during the contract period, 1913-1915, and before and since that time, the plaintiff possessed and controlled about 20 flowing oil wells in the Panuco field. Panuco is about 64 miles up the river from Tampico. The office of the witness was at Las Matillas, about 3 miles from Tampico. The oil flowed from the wells through pipes into flow tanks, thence by pipe lines about 2...