Air Products and Chemicals, Inc. v. Louisiana Land and Exploration Co.

• Decision Date: 31 December 1986
• Docket Number: Nos. 85-3999,86-3018,s. 85-3999
• Citation: 806 F.2d 1524
• Parties: AIR PRODUCTS AND CHEMICALS, INC., Plaintiff-Appellee, v. The LOUISIANA LAND AND EXPLORATION COMPANY, Defendant-Appellant. The LOUISIANA LAND AND EXPLORATION COMPANY, Plaintiff-Appellant, v. AIR PRODUCTS AND CHEMICALS, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1524

806 F.2d 1524

AIR PRODUCTS AND CHEMICALS, INC., Plaintiff-Appellee, v. The LOUISIANA LAND AND EXPLORATION COMPANY, Defendant-Appellant.

The LOUISIANA LAND AND EXPLORATION COMPANY, Plaintiff-Appellant, v. AIR PRODUCTS AND CHEMICALS, INC., Defendant-Appellee.

Nos. 85-3999, 86-3018.

United States Court of Appeals Eleventh Circuit.

Dec. 31, 1986.

Peter J. Winders, Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A., Tampa, Fla., for defendant-appellant.

Robert P. Gaines, Beggs & Lane, Pensacola, Fla., for defendant-appellee.

Appeals from the United States District Court for the Northern District of Florida.

Before RONEY, Chief Judge, GODBOLD, Circuit Judge, and ATKINS ^*, Senior District Judge.

ATKINS, Senior District Judge:

The Louisiana Land and Exploration Company ("LL & E") appeals from an order granting Air Products and Chemicals, Inc.'s ("Air Products") motion for summary judgment in a declaratory judgment action involving consolidated cases. This court must resolve two issues on appeal. First, we must determine whether LL & E can apply the substitute fuel index retroactively, pursuant to the terms of the contract with Air Products, to the first period of 1980, and the first and second periods of 1981. Second, we must review the district After carefully reviewing the record, the briefs, and having considered counsels' oral arguments, we find that the district court properly interpreted the contract to permit retroactive application of the substitute index; however, the district court incorrectly construed the "pendency period" described in the contract. Further, we find that the trial court erred in holding that the parties had entered into an accord and satisfaction. Finally, we remand the case to the district court for consideration of the affirmative defenses of waiver and estoppel.

court's finding that Air Product's payment constituted an accord and satisfaction of the disputed claim.

I STATEMENT OF FACTS

On June 1, 1974, LL & E entered into a contract with Air Products under which Air Products agreed to buy certain ethane gas produced by LL & E. The parties agreed that the price for the ethane would be determined for each six month period beginning with the second period of 1976 ¹ according to the formula identified in section 5.9 of the contract ² which required Air Products to pay the higher of the base price, or an inflation escalation price, or a fuel index price which was to be established with reference to posted prices for a certain grade of fuel oil in Platt's Oilgram, a trade publication. Furthermore, in section 5.3 of the contract, the parties agreed that if Platt's Oilgram discontinued its postings, a substitute method of computing the fuel index would be determined in accordance with section 5.12. ³ This section provides that the old price remains in effect during the determination of a substitute index. However, once this substitute is determined, the price is increased retroactively.

In 1975, Platt's Oilgram ceased to publish prices of the particular grade fuel oil used in calculating the fuel index. Therefore, Air Products wrote LL & E early in 1976 regarding the selection of a substitute, but the parties did not reach an agreement. This problem, however, was largely ignored by both parties until it became apparent the fuel index price was the highest.

Until 1980, economic conditions were such that the inflation formula always provided the highest price. As conditions changed, Air Products' management realized that a fuel index price would control, and set up a reserve fund for the projected increased costs. In April, 1980, Air Products personnel prepared an internal memorandum which recognized that LL & E had apparently made an oversight regarding the selection of a substitute fuel index and noted the potential retroactive application of the substitute fuel index. ⁴

On December 29, 1981 Air Products personnel noted that a substitute fuel index had not yet been selected by the parties. Moreover, they estimated that the application of a substitute fuel index to the second price period of 1981 would increase Air Products' costs by almost one million dollars. On that same day, LL & E wrote to Air Products and requested that the parties meet to discuss the selection of a substitute fuel index to replace the postings previously published in Platt's Oilgram. Air Products received this letter January 4, 1982, and circulated it with a memorandum acknowledging that LL & E's realization would dramatically increase the cost of ethane.

Following Air Products' receipt of LL & E's letter of December 29, 1981, the parties began to negotiate the selection of a substitute fuel index. At about the same time, LL & E sent out its invoices for the last six months of 1981. The invoices sent to Air Products contained a new notation--"Corrected invoice will be sent pending agreement on an appropriate pricing index." Mr. Notary of Air Products was notified of the new language, so he consulted his legal department. As a result, a letter was sent to LL & E along with the payment for the invoices. The letter indicated that the fuel price adjustment could not be applied retroactively and stated that the enclosed check "fully and completely fulfills Air Products payment obligations under the contract for the period July 1981 through December 1981."

II THE MOTIONS FOR SUMMARY JUDGMENT

Prior to filing their motions for summary judgment, the parties stipulated that only seven of the six month pricing periods under the contract would be affected by the application of the substitute fuel index, and agreed to the amount involved for each period. The pricing periods included the first six months of 1980, the first six months of 1981, the second six months of 1981, and each period after January 1982.

The district court determined that the contract did not provide for retroactive application to the first six months of 1980 or the first six months of 1981, but that it did apply to the second six months of 1981 because LL & E wrote Air Products regarding the substitute fuel index on December

                29, 1981.  The district court did not address the affirmative defenses of waiver or estoppel, but commented on the delay in negotiations observing that "the most elementary understanding of the free enterprise system leads to the logical assumption that a corporation for profit will act in its own best interest.  LL & E acted inconsistently with that assumption, to its detriment."    Therefore the court held that there was no duty on Air Products' part to bring the matter to LL & E's attention, and that the retroactivity provisions of the contract extended "back only to the period in which [LL & E] notified [Air Products] that a new index needed to be determined, that is, the six-month pricing period from July to December, 1981."    The court then requested additional argument on the accord and satisfaction defense, which was applicable only to the July--December 1981 pricing period.  After additional briefing and argument, the district court determined that the parties had entered into an accord and satisfaction which barred LL & E's recovery for the second six months of 1981
                

III DISCUSSION

A. Retroactive Application of the Substitute Fuel Index

The parties acknowledge that the last agreed upon price prevails pending the determination of a substitute index. They disagree, however, on the retroactive application of the substitute index. The resolution of this conflict depends upon the proper interpretation of the "pendency period found in section 5.12 of the contract."

Florida follows many of the traditional rules of contract interpretation. ⁵ First, the court should adopt the plain meaning of the language used. Ashland Oil & Refining Co. v. The State Road Department of Florida, 343 So.2d 878 (Fla.Dist.Ct.App.1977); Florida Boca Raton Housing Assn. v. Marqusee Associates of Florida, 177 So.2d 370 (Fla.Dist.Ct.App.1965). When the court reviews a contract, it must consider the objects to be accomplished by the parties when they entered into the contract. See Wright & Seaton, Inc. v. Prescott, 420 So.2d 623, 629 (Fla.Dist.Ct.App.1982). If confronted with ambiguous language susceptible of two constructions, the court should adopt that construction which conforms with logic and reason. See id. In this manner, the court best effectuates the intent of the parties.

The district court's construction of the contract appears to serve as a punishment for LL & E's poor business practice. Yet, when the parties drafted the contract, they agreed that the price "shall be" the higher of the three formulas. The price was not to be established at LL & E's option using the most profitable formula. Instead, under the express terms of the contract, the pricing system was mandatory. Moreover, section 5.12 provides that "pending determination of the substitute index" the price remains the same, but "[u]pon determination of a substitute index or indices, such index or indices shall be retroactively used to determine what price would have been paid throughout the pendency period...." Thus, contrary to the district...