Cosden Oil & Chemical Co. v. Karl O. Helm Aktiengesellschaft

• Decision Date: 23 July 1984
• Docket Number: No. 82-1528,82-1528
• Citation: 736 F.2d 1064
• Parties: 38 UCC Rep.Serv. 1645, 17 Fed. R. Evid. Serv. 611 COSDEN OIL & CHEMICAL COMPANY, Plaintiff-Appellant Cross-Appellee, v. KARL O. HELM AKTIENGESELLSCHAFT, Defendant-Appellee Cross-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1064

736 F.2d 1064

38 UCC Rep.Serv. 1645, 17 Fed. R. Evid. Serv. 611

COSDEN OIL & CHEMICAL COMPANY, Plaintiff-Appellant Cross-Appellee, v. KARL O. HELM AKTIENGESELLSCHAFT, Defendant-Appellee Cross-Appellant.

No. 82-1528.

United States Court of Appeals Fifth Circuit.

July 23, 1984.

Johnson & Swanson, Thomas A. Graves, Ernest E. Figari, Jr., Dallas, Tex., for plaintiff-appellant cross-appellee.

Coke & Coke, Thomas W. Craddock, Robert B. Krakow, J. Edwin Fleming, Dallas, Tex., James A. Lowe, Orlando, Fla., for defendant-appellee cross-appellant.

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

Before WISDOM, REAVLEY and TATE, Circuit Judges.

REAVLEY, Circuit Judge:

We must address one of the most difficult interpretive problems of the Uniform Commercial Code--the appropriate time to measure buyer's damages where the seller anticipatorily repudiates a contract and the buyer does not cover. The district court applied the Texas version of Article 2 ¹ and measured buyer's damages at a commercially reasonable time after seller's repudiation. We affirm, but remand for modification of damages on another point.

I. CASE HISTORY

This contractual dispute arose out of events and transactions occurring in the first three months of 1979, when the market in polystyrene, a petroleum derivative used to make molded products, was steadily rising. During this time Iran, a major petroleum producer, was undergoing political turmoil. Karl O. Helm Aktiengesellschaft (Helm or Helm Hamburg), an international trading company based in Hamburg, West Germany, anticipated a tightening in the world petrochemical supply and decided to purchase a large amount of polystyrene. Acting on orders from Helm Hamburg, Helm Houston, a wholly-owned subsidiary, initiated negotiations with Cosden Oil & Chemical Company (Cosden), a Texas-based producer of chemical products, including polystyrene.

Rudi Scholtyssek, general manager of Helm Houston, contacted Ken Smith, Cosden's national sales coordinator, to inquire about the possibility of purchasing quantities of polystyrene. Negotiating over the telephone and by telex, the parties agreed to the purchase and sale of 1250 metric tons ² of high impact polystyrene at $.2825 per pound and 250 metric tons of general purpose polystyrene at $.265 per pound. The parties also discussed options on each polystyrene type. On January 18, 1979, Scholtyssek met with Smith in Dallas, leaving behind two purchase confirmations. Purchase confirmation 04 contained the terms for high impact and 05 contained the terms for general purpose. Both confirmations contained the price and quantity terms listed above, and specified the same delivery and payment terms. The polystyrene was to be delivered during January and February in one or more lots, to be called for at Helm's instance. Confirmation 04 specified that Helm had an option for an additional 1000 metric tons of high impact, and confirmation 05 expressed a similar option for 500 metric tons of general purpose. The option amounts were subject to the same terms, except that delivery was to be during February and March. The options were to be declared, at the latest, by January 31, 1979.

On January 22, Helm called for the first shipment of high impact under order 04, to be delivered FAS at a New Jersey port to make a January 29 shipping date for a trans-Atlantic voyage. On January 23, Helm telexed Cosden to declare the options on purchase orders 04 and 05, designating the high impact option quantity as order 06 and the general purpose option quantity as order 07. After exercising the options, Helm sent purchase confirmations 06 and 07, which Cosden received on January 29. That same day Helm Houston received confirmations 04 and 05, which Smith had signed.

Cosden shipped 90,000 pounds of high impact polystyrene to Helm on or about January 26. Cosden then sent an invoice for that quantity to Helm Houston on or about January 31. The front of the invoice stated, "This order is subject to the terms and conditions shown on the reverse hereof." Among the "Conditions of Sale" listed on the back of the invoice was a force majeure provision. ³ Helm paid for the first shipment in accordance with the agreement.

As Helm had expected, polystyrene prices began to rise in late January, and continued upward during February and March. Cosden also experienced problems at two of its plants in late January. Normally, Cosden supplied its Calumet City, Illinois, production plant with styrene monomer, the "feed stock" or main ingredient of polystyrene, ⁴ by barges that traveled from Louisiana up the Mississippi and Illinois Rivers to a canal that extended to Cosden's plant. Due to the extremely cold winter of 1978-79, however, the Illinois River and the canal froze, suspending barge traffic for a few weeks. A different problem beset Cosden's Windsor, New Jersey, production plant. A new reactor, used in the polystyrene manufacturing process, had recently been installed at the Windsor plant. A manufacturing defect soon became apparent, however, and Cosden returned the reactor to the manufacturer for repair, which took several weeks. At the time of the reactor breakdown, Cosden was manufacturing only general purpose at the Windsor plant. Cosden had planned on supplying Helm's high impact orders from the Calumet City plant.

Late in January Cosden notified Helm that it was experiencing problems at its production facilities and that the delivery under 04 might be delayed. On February 6, Smith telephoned Scholtyssek and informed him that Cosden was cancelling orders 05, 06, and 07 because two plants were "down" and it did not have sufficient product to fill the orders. Cosden, however, would continue to honor order 04. Smith confirmed the cancellation in a letter dated February 8, which Scholtyssek received on or about February 12. After Helm Hamburg learned of Cosden's cancellation, Wolfgang Gordian, a member of Helm's executive board, sent an internal memorandum to Helm Houston outlining a strategy. Helm would urge that Cosden continue to perform under 04 and, after receiving the high impact polystyrene, would offset amounts owing under 04 against Helm's damages for nondelivery of the balance of polystyrene. Gordian also instructed Helm Houston to send a telex to Cosden. Following instructions, Scholtyssek then requested from Cosden "the relevant force majeure certificate" to pass on to Helm Hamburg. Helm also urged Cosden to deliver immediately several hundred metric tons of high impact to meet two February shipping dates for which Helm had booked shipping space.

In mid-February Cosden shipped approximately 1,260,000 pounds of high impact to Helm under order 04. This shipment's invoice, which also included the force majeure provision on the reverse side, specified that Helm owed $355,950, due by March 15 or 16. After this delivery Helm requested that Cosden deliver the balance under order 04 for shipment on a vessel departing March 16. Cosden informed Helm that a March 16 delivery was not possible. On March 15, citing production problems with the 04 balance, Cosden offered to sell 1000 metric tons of styrene monomer at $.41 per pound. Although Cosden later lowered the price on the styrene monomer, Helm refused the offer, insisting on delivery of the balance of 04 polystyrene by March 31 at the latest. Around the end of March, Cosden informed Scholtyssek by telephone that it was cancelling the balance of order 04.

Cosden sued Helm, seeking damages for Helm's failure to pay for delivered polystyrene. Helm counterclaimed for Cosden's failure to deliver polystyrene as agreed. The jury found on special verdict that Cosden had agreed to sell polystyrene to Helm under all four orders. The jury also found that Cosden anticipatorily repudiated orders 05, 06, and 07 and that Cosden cancelled order 04 before Helm's failure to pay for the second 04 delivery constituted a repudiation. The jury fixed the per pound market prices for polystyrene under each of the four orders at three different times: when Helm learned of the cancellation, at a commercially reasonable time thereafter, and at the time for delivery.

The district court, viewing the four orders as representing one agreement, determined that Helm was entitled to recover $628,676 in damages representing the difference between the contract price and the market price at a commercially reasonable time after Cosden repudiated its polystyrene delivery obligations and that Cosden was entitled to an offset of $355,950 against those damages for polystyrene delivered, but not paid for, under order 04.

II. TIME FOR MEASURING BUYER'S DAMAGES

Both parties find fault with the time at which the district court measured Helm's damages for Cosden's anticipatory repudiation of orders 05, 06, and 07. ⁵ Cosden argues that damages should be measured when Helm learned of the repudiation. Helm contends that market price as of the last day for delivery--or the time of performance--should be used to compute its damages under the contract-market differential. We reject both views, and hold that the district court correctly measured damages at a commercially reasonable point after Cosden informed Helm that it was cancelling the three orders.

Article 2 of the Code has generally been hailed as a success for its comprehensiveness, its deference to mercantile reality, and its clarity. Nevertheless, certain aspects of the Code's overall scheme have proved troublesome in application. The interplay among sections 2.610, 2.711, 2.712, 2.713, and 2.723, Tex.Bus. & Com.Code Ann. (Vernon 1968), represents one of those areas, and has been described as "an impossible legal thicket." J. White & R. Summers, Uniform Commercial Code Sec. 6-7 at 242 (2d ed. 1980). The aggrieved buyer seeking damages for seller's anticipatory repudiation presents the most difficult interpretive problem. ⁶ Section 2.713 describes the buyer's damages remedy:

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