Chaparral Resources, Inc. v. Monsanto Co.

• Decision Date: 14 June 1988
• Docket Number: 85-2335,Nos. 85-2290,s. 85-2290
• Citation: 849 F.2d 1286
• Parties: CHAPARRAL RESOURCES, INC., a Colorado corporation, Plaintiff-Appellant and Cross-Appellee, v. MONSANTO COMPANY, a Delaware corporation, and BHP Petroleum Company, Inc., Defendants-Appellees and Cross-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1286

849 F.2d 1286

CHAPARRAL RESOURCES, INC., a Colorado corporation, Plaintiff-Appellant and Cross-Appellee, v. MONSANTO COMPANY, a Delaware corporation, and BHP Petroleum

Company, Inc., Defendants-Appellees and Cross-Appellants.

Nos. 85-2290, 85-2335.

United States Court of Appeals, Tenth Circuit.

June 14, 1988.

Ralph B. Rhodes (Charles G. Thomas, with him on the brief), Denver, Colo., for plaintiff-appellant and cross-appellee.

Sheryl L. Howe (Thomas C. McKee, with her on the brief), of Clanahan, Tanner, Downing & Knowlton, Denver, Colo., for defendants-appellees and cross-appellants.

Before LOGAN, SEYMOUR and BALDOCK, Circuit Judges.

BALDOCK, Circuit Judge.

This diversity action concerns a contractual agreement whereby Geophysical Systems Corporation (Geo) would provide seismic survey data to defendants-appellees and cross-appellants Monsanto Company and BHP Petroleum Company Inc. (collectively Monsanto). Plaintiff-appellant and cross-appellee Chaparral Resources, Inc. (Chaparral), Geo's assignee, brought this action to recover damages for Monsanto's alleged breach of the contract. Following a bench trial, the district court entered judgment in favor of Chaparral and awarded as damages the cost of the survey data received by Monsanto prior to its repudiation of the contract. As reflected in the court's amended judgment, the damages totalled $252,375, including prejudgment interest at the statutory rate of 8% per annum. The court also awarded as costs expert witness fees totalling $7,677.

Chaparral appeals, arguing that it should recover the full price of the contract as modified and that it should be awarded a higher rate of prejudgment interest. In its cross-appeal, Monsanto contends that the district court erred in finding that the contract had not been rescinded and that Geo did not materially breach the time provisions in the agreement. Monsanto also contends that under federal law, expert witness fees are not fully taxable as costs. We affirm in part and reverse in part.

In May 1981, Geo, Chaparral and Adams Exploration Company entered into an agreement calling for Geo to conduct a geophysical survey in the "Owl Creek Thrust" area of central Wyoming. The parties contemplated that the resultant seismic interpretations would be purchased by oil companies to select promising areas in which to drill. Geo then obtained commitment agreements from six companies, including Monsanto. On June 26, 1981, Monsanto contracted with Geo to purchase data obtained from 237 miles of the seismic survey, at a rate of $1,800 per mile. According to their agreement, delivery of the survey data was to be completed by January 1, 1982.

Geo did not meet the anticipated delivery date. During the fall of 1981, it sent several status reports to Monsanto explaining the reasons for the forthcoming delay. Monsanto received its first shipment of survey data on April 18, 1982, and by mid-May had received 110 miles of data. Via a letter dated June 7, Monsanto informed Geo that it considered both the quality of the data and the dates of delivery not to be in conformance with the parties' contract. The letter stated that because the problems constituted material breaches of the contract, Monsanto deemed the contract void and would make no payments. Monsanto returned the data that it had received.

Responding with a letter dated July 8, Geo disagreed with Monsanto's characterization and requested an opportunity to review the data with Monsanto. Geo's letter also included a conditional offer to rescind the contract, stating that if, after a review of the data, Monsanto still was not satisfied that the information was of the highest quality available, Geo, despite its opinion that it had not materially breached the contract, would be willing to rescind the agreement provided both parties agreed to waive any consequential or other damages.

Representatives of all the companies participating in the survey, including Monsanto, attended a meeting on July 12. They mutually agreed that Geo would cancel a portion of the survey program, thereby reducing to 198.5 the total number of data miles owed to Monsanto. On July 23, representatives of Geo and Monsanto met to discuss the data previously delivered by Geo. Upon his request to see certain field monitor information, Monsanto's representative was told that the information was in Pasadena, California, but he did not go there to review the data. On August 31, Monsanto advised Geo that its position was to accept Geo's offer of rescission. While the remaining 88.5 survey miles due to Monsanto were apparently available for delivery in August and September, Geo did not ship the data.

As assignee of Geo's rights under the contract, Chaparral filed a complaint in state court seeking damages reflecting the agreed price per mile of 198.5 miles of survey data. Upon Monsanto's petition, the case was removed to federal court. Ruling in favor of Chaparral, the district court found that there had been no rescission and that Monsanto's repudiation constituted a breach of the contract. Rec. vol. I at 106-07. The court, however, limited Chaparral's recovery to the contract price of the 110 miles of data initially delivered to Monsanto, stating that Geo was not justified in sending additional data after Monsanto's repudiation. ¹ Id. at 107.

I.

Monsanto poses several arguments addressing the issues of whether the district court erred in finding that there was no rescission and that Geo did not materially breach the time and quality provisions of the contract. Our conclusion that the record evidence provides ample support for the district court's findings obviates the need to address the sundry arguments posed by Monsanto.

In a contract action, our review of findings regarding a breach of the contract is controlled by the clearly erroneous standard. Fed.R.Civ.P. 52(a); Davis Cattle Co., Inc. v. Great Western Sugar Co., 544 F.2d 436, 439 (10th Cir.1976), cert. denied, 429 U.S. 1094, 97 S.Ct. 1109, 51 L.Ed.2d 541 (1977). Additionally, when extrinsic evidence is introduced to ascertain the meaning of contract terms, as in the instant case in which Monsanto attempted to establish certain industry standards, the trial court's interpretation of the contract terms is factual and cannot be set aside unless clearly erroneous. See Cavic v. Pioneer Astro Industries, Inc., 825 F.2d 1421, 1424 (10th Cir.1987).

Upon addressing Monsanto's defense that the agreement had been rescinded by the parties' letters of July 8 and August 31, the district court determined that Monsanto had failed to establish an agreement to rescind the contract. Rec. vol. I at 106. The court found that Geo's letter was "at most" a conditional offer to rescind, the contingency being an opportunity to review the data with Monsanto's representatives, and that Monsanto did not make a reasonable effort to meet Geo's condition. Id. In regard to Monsanto's claim that Geo had breached the contract, the court found that the contract contained neither a "time is of the essence" provision nor a provision guaranteeing the quality of the data, and that Monsanto had not presented sufficient evidence proving that such conditions were implied by industry standards and usage. Id. at 106-07; see rec. vol. VI at 71, 92. The district court's specific and detailed findings are amply supported by the record and are not clearly erroneous.

II.

Chaparral argues that it should recover damages in the amount of $357,300, which represents the contract price of the 198.5 miles of survey data which Geo was obligated to provide to Monsanto under the contract as modified. The crux of Chaparral's argument is that despite Monsanto's apparent repudiation of the contract, Geo was compelled to complete performance because of its commitments to the other participants in the survey. While continuing to maintain that the district court erred in finding that it had breached the contract by wrongful repudiation, Monsanto asserts in the alternative that Chaparral failed to prove any damages incurred after the repudiation and therefore is not entitled to recover for the 88.5 miles of survey data subsequently completed by Geo.

Our review of a trial court's determination of the amount of damages resulting from a breach of contract is governed by the clearly erroneous standard. Fed.R.Civ.P. 52(a); Paramount Pictures Corp. v. Thompson Theatres, Inc., 621 F.2d 1088, 1091 (10th Cir.1980). We are not constrained by the clearly erroneous standard, however, when the trial court's computation of damages is predicated on a misconception of the governing rule of law. Bose Corp. v. Consumers Union of United States, Inc., 466 U.S. 485, 501, 104 S.Ct. 1949, 1959-60, 80 L.Ed.2d 502 (1984); Pavlides v. Galveston Yacht Basin, Inc., 727 F.2d 330, 339 n. 16 (5th Cir.1984).

Both sides have extensively argued the issue of damages, discussing various theories regarding remedies for a breach of contract. Those arguments notwithstanding, we agree with Chaparral's assessment of this action as a straightforward case involving its expectation interest under the modified contract. When a contract has been breached, "[d]amages are awarded in order to make the non-breaching party whole." Great Western Sugar Co. v. Pennant Products, Inc., 748 P.2d 1359, 1361 (Colo.Ct.App.1987). The general measure of damages is the amount which places the parties in the same financial position they would have occupied had the contract terms been fulfilled. Republic Nat'l Life Ins. Co. v. Red Lion Homes, Inc., 704 F.2d 484, 488 (10th Cir.1983); Great Western Sugar Co. v. Pennant Products, Inc., 748 P.2d at 1361. That amount may be reduced by any costs or other losses that the injured party could have avoided. General Ins. Co. of America v. City of Colorado Springs, 638 P.2d 752, 759 (Colo.1981).

Chaparral has not been placed in the same financial position it would have occupied had the terms of the modified contract been...