811 F.2d 1265 (9th Cir. 1987), 84-6480, Northrop Corp. v. Triad Intern. Marketing S.A.

Docket Nº:84-6480.
Citation:811 F.2d 1265
Party Name:NORTHROP CORPORATION, Petitioner-Respondent/Appellee, v. TRIAD INTERNATIONAL MARKETING S.A., and Triad Financial Establishment, Respondent-Petitioner/Appellant.
Case Date:March 03, 1987
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 1265

811 F.2d 1265 (9th Cir. 1987)

NORTHROP CORPORATION, Petitioner-Respondent/Appellee,



Establishment, Respondent-Petitioner/Appellant.

No. 84-6480.

United States Court of Appeals, Ninth Circuit

March 3, 1987

Argued Oct. 8, 1985.

Submitted May 5, 1986.

As Amended May 27, 1987.

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John R. McDonough, Los Angeles, Cal., for respondent-petitioner/appellant.

Ronald L. Olson, Los Angeles, Cal., for petitioner-respondent/appellee.

Appeal from the United States District Court for the Central District of California.

Before BROWNING, Chief Judge, KENNEDY and HUG, Circuit Judges.



In October, 1970 Northrop and Triad entered into a "Marketing Agreement," under which Triad became Northrop's exclusive marketing representative to solicit contracts for aircraft and related maintenance, training, and support services for the Saudi Air Force, in return for commissions on sales. Northrop made substantial sales to Saudi Arabia and paid Triad a substantial part of the commissions due under the Marketing Agreement.

On September 17, 1975, the Council of Ministers of Saudi Arabia issued Decree No. 1275, prohibiting the payment of commissions in connection with armaments contracts. 1 Northrop ceased paying commissions

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to Triad. Triad protested, and demanded payment of the commissions remaining due under the Agreement. The dispute was submitted to arbitration. The arbitrators sustained Triad's claim in part, denied it in part, and entered an award in Triad's favor.

Triad filed an action to confirm the arbitrators' award, and Northrop filed suit to vacate it. The district court vacated the award in some respects. 593 F.Supp. 928, 942 (C.D.Cal.1984). Triad appealed. 2 We reverse.


The arbitrators noted that the essence of Northrop's defense was that Saudi Arabia's Decree No. 1275 applied to the Marketing Agreement, and made illegal any commission payment to Triad under the Agreement. "This contention," the arbitrators said, "necessitates a consideration of the meaning and effect of paragraph 13 of the Marketing Agreement." First Arbitrators' Decision at 19.

Paragraph 13 of the Marketing Agreement provided: "[T]he validity and construction of this Agreement shall be governed by the laws of the State of California." It further provided: "Any controversy or claim between the parties hereto arising out of or in connection with this Agreement ... shall be settled by arbitration," and "[t]he award of a majority of the arbitrators ... shall be final and binding upon the parties." 3

The arbitrators noted that Northrop had proposed inclusion of paragraph 13 in the Marketing Agreement to make it

unnecessary for Northrop to make an in-depth study of the law of countries such as Saudi Arabia, Iran, etc., to know what its rights and obligations would be. Instead of having varying and even inconsistent results under the same contractual provisions as a result of applying different laws, depending on where the marketing was to occur, this clause resulted in uniformity of interpretation and application of the contract. Northrop was familiar with the law of California and knew what to expect from it.

Id. at 19-20. Accordingly, the arbitrators interpreted paragraph 13 as requiring that the local law of California determine the effect of Saudi Arabia Decree No. 1275 on Northrop's obligation to pay commissions to Triad pursuant to the Marketing Agreement. 4 Northrop does not disagree with this determination.

Northrop argued the Marketing Agreement was invalid under California Civil Code Sec. 1511. This statute provides "performance of an obligation ... is excused ... [w]hen such performance ... is prevented ... by the operation of law...."

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Cal.Civ.Code Sec. 1511(1). Northrop reasoned Saudi Decree No. 1275 rendered the Marketing Agreement unlawful under California Civil Code Sec. 1511 because the Decree "prevented" payment of commissions to Triad and thus "excused" Northrop's performance of its obligations under the Agreement.

The arbitrators pointed out that the decisions interpreting California Civil Code Sec. 1511 principally relied upon by Northrop, including Baird v. Wendt Enterprises, Inc., 248 Cal.App.2d 52, 56 Cal.Rptr. 118 (1967), and Johnson v. Atkins, 53 Cal.App.2d 430, 127 P.2d 1027 (1942), did not look to the law of the foreign jurisdiction to determine whether performance of the contract was unlawful, but instead examined the legal action the foreign jurisdiction had taken to determine whether in fact it prevented performance of the contract. In Baird, the court concluded that a foreign jurisdiction's adoption of a building code precluding issuance of a permit to construct a building "prevented" performance of the contract within the meaning of section 1511. In Atkins, the court held a foreign jurisdiction's cancellation of entry permits for copra "prevented" performance of a contract to sell copra for delivery in the foreign jurisdiction.

The arbitrators concluded there "was no comparable governmental action in this case." The building in Baird could not be built without a building permit; the copra in Atkins could not be delivered without an entry permit; but in this case despite the issuance of Decree No. 1275, Northrop could still pay Triad the commissions the Marketing Agreement called for, and Triad could still give advice, translate documents, make local arrangements, and perform the other services the Agreement required. Moreover, as Triad points out, before Decree No. 1275 issued, Triad had successfully solicited the sales contracts Northrop sought and thus had...

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