Crescent Oil and Shipping Services, Ltd. v. Phibro Energy, Inc.

• Decision Date: 28 February 1991
• Docket Number: D,No. 653,653
• Citation: 929 F.2d 49
• Parties: , 13 UCC Rep.Serv.2d 977 CRESCENT OIL AND SHIPPING SERVICES, LTD., Plaintiff-Appellant, v. PHIBRO ENERGY, INC., and Salomon Inc., Defendants-Appellees. ocket 90-7694.
• Court: U.S. Court of Appeals — Second Circuit

Page 49

929 F.2d 49

1991 A.M.C. 1224, 13 UCC Rep.Serv.2d 977

CRESCENT OIL AND SHIPPING SERVICES, LTD., Plaintiff-Appellant, v. PHIBRO ENERGY, INC., and Salomon Inc., Defendants-Appellees.

No. 653, Docket 90-7694.

United States Court of Appeals Second Circuit.

Argued Nov. 29, 1990.

Decided Feb. 28, 1991.

George F. Chandler, III, New York City (Hill, Rivkins, Loesberg, O'Brien, Mulroy & Hayden, New York City, Anthony J. Mavronicolas, of counsel), for plaintiff-appellant.

Laurence A. Silverman, New York City (Cahill Gordon & Reindel, New York City, Steven Lieberman and Christopher Nelson, of counsel), for defendants-appellees.

Before OAKES, Chief Judge, LUMBARD and CARDAMONE, Circuit Judges.

LUMBARD, Circuit Judge:

Plaintiff, Crescent Oil and Shipping Services, Ltd. appeals from the July 9, 1990 order of the Southern District of New York, Lowe, Judge, granting summary judgment to defendants, Phibro Energy, Inc., and its parent corporation, Salomon Inc., and denying Crescent's cross-motion for summary judgment. We affirm.

This case arises out of the interpretation of the pricing terms of a contract for the sale of oil. The material facts are undisputed. In November 1987, Crescent contacted First National Crude Oil Brokers to assist Crescent in the sale of Malongo crude oil from Angola. First National identified Phibro as a potential buyer, and began negotiations with Phibro's oil traders, on Crescent's behalf. These negotiations culminated in an agreement whereby Phibro agreed to purchase approximately 120,000 metric tons of oil to be delivered at Crescent's expense on a tanker, the Petrol de Oro, chartered by Crescent. On November 18, First National confirmed the terms of the contract by telex (Broker's Confirmation). ¹

The Broker's Confirmation provided that the price would be based upon the average price per barrel of oil futures trading on the New York Mercantile Exchange at the time of the tender of a Notice of Readiness ("NOR") by the Petrol de Oro 's master at the "discharge port." Specifically, the pricing term of the Broker's Confirmation states:

Delivered price per net U.S. barrel based on outturn quantity/quality ... in accordance with the average of the WTI ² settlement prices on the New York Mercantile Exchange for January ³ (or if in the unlikely event at the date of NOR, January is off the board, then other applicable front month), one day before NOR, NOR date, and one day after NOR at discharge port. ⁴

The Broker's Confirmation also contained a separate "Lighterage" ⁵ provision stating that Phibro would pay for any necessary lighterage.

In its November 24 telex, Phibro exercised its contractual right by notifying Crescent that Texas City, Texas would be the discharge port. On the same day, Crescent confirmed this designation in a telex to Phibro.

On December 8, Phibro telexed Crescent its request that the Petrol de Oro proceed to the Galveston Lighterage Area to off-load some of its oil. ⁶ The Lighterage Area is an open sea location in the Gulf of Mexico more than fifty miles off Galveston, Texas. On December 14, at 8:30 p.m., the Petrol de Oro arrived at the Galveston Lighterage Area and tendered an NOR. Because the tanker was not scheduled to arrive until December 16, lighterage operations were not commenced until that day; they were completed on December 17. ⁷ The Petrol de Oro reached Texas City, the discharge port, on the 17th, and its master tendered a second NOR at the request of Phibro.

Because the contract price of the oil was based on the date of tender of the NOR at discharge port and because the price of WTI dropped significantly between the 14th and 17th of December, the fact that there were two NORs tendered for this crude oil is significant. Claiming that the second NOR, tendered at Texas City, was the one contemplated by the contract, Phibro paid Crescent based on the price of WTI on the 16th, 17th and 18th of December 1987.

Asserting diversity jurisdiction, ⁸ Crescent brought suit against Phibro contending that the first NOR was effective, and that Phibro was obligated to pay the price of WTI on the 11th, 14th and 15th of December, which was $1,400,000 more than the price of WTI calculated on the basis of the second NOR. Upon cross-motions for summary judgment, the district court held that the date of the second NOR determined the price, and granted Phibro's motion for summary judgment. The district court found the contract to be "clear and unambiguous" on its face, and did not consider extrinsic evidence of the course of dealing and usage of trade submitted by Crescent in its motion for summary judgment. We affirm the judgment of the district court on the ground that the extrinsic evidence proffered by Crescent, which we believe should have been considered, failed to establish that the parties intended that an NOR tendered at lighterage would determine the price of the Malongo shipment.

I.

Because this court is sitting in diversity jurisdiction and the lawsuit was brought in the Southern District of New York, New York choice of law principles govern. See Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). New York courts, in construing contracts, would apply the law of the jurisdiction having the greatest interest in the litigation. ⁹ See J. Zeevi & Sons, Ltd. v. Grindlays Bank (Uganda), Ltd., 37 N.Y.2d 220, 371 N.Y.S.2d 892, 333 N.E.2d 168 (1975); Intercontinental Planning, Ltd. v. Daystrom, Inc., 24 N.Y.2d 372, 300 N.Y.S.2d 817, 248 N.E.2d 576 (1969). Having considered the interests at stake, we conclude that Connecticut law should apply. Phibro's principal place of business, and that of its trader and broker and First National, Crescent's broker, are in Connecticut. The deal was negotiated in Connecticut by the parties' brokers. Despite the fact that the contract was to be performed by Crescent's delivery of the oil in Texas, Connecticut's concern in the transaction is paramount because of its interest in regulating business conducted there.

II.

The district court held that the maritime custom and usage evidence explaining "discharge port" submitted by Crescent supporting its motion for summary judgment was irrelevant because the contractual language was "clear and unambiguous". We disagree. The meaning of "discharge port" is not so clear as to preclude consideration of explanatory evidence.

The oil contract is governed by the Uniform Commercial Code because it is an agreement for the sale of goods. See Conn.Gen.Stat.Ann. Sec. 42a-2-102 (West 1960). Although extrinsic evidence may not be used to vary or contradict the express terms of a writing embodying the parties' final agreement, ¹⁰ evidence of the course of dealing and performance and usage of trade may be employed to explain or supplement provisions of the contract. See Conn.Gen.Stat.Ann. Sec. 42a-2-202 (West 1964); Fairfield Lease Corp. v. Eastern Sportswear Co., 6 Conn.Cir. 347, 273 A.2d 300 (1970) (parol testimony may be received in connection with a written contract to enable the court to understand meaning of words parties have used, but not to vary or contradict them). The commentary to Sec. 42a-2-202 rejects "(t)he premise that the language used has the meaning attributable to such language by rules of construction existing in the law rather than the meaning which arises out of the commercial context in which it is used." Comment 1(b). Crescent submitted course of performance and usage of trade evidence in an attempt to show that "discharge port" included the lightering area associated with that port. Thus, Crescent was not trying to contravene the plain meaning of the contract, rather it was trying to explain a phrase which is rationally susceptible to differing interpretations. ¹¹ As a result, the district court should have considered this parol evidence in its Fed.R.Civ.P. 56 disposition of this case.

Nevertheless, the parol evidence proffered by Crescent does not support its contention that the NOR given at the lighterage area was the relevant NOR under the pricing provision. To survive Phibro's motion for summary judgment, Crescent had the burden of producing evidence of usage of trade or course of performance between the two parties that would show an intent by the parties to give effect to the NOR tendered at the Galveston Lighterage Area. See e.g. Conn.Gen.Stat.Ann.Law Sec. 42a-1-205(2) ("The existence and scope of such [a usage of trade] are to be proved as facts."). However, the evidence submitted by Crescent does not raise a genuine issue of fact as to whether the parties intended "discharge port" to include the Galveston Lighterage Area.

Crescent first claims that Phibro's December 7 telex, which designated Texas City as the discharge port, "extended" the port to the Galveston Lighterage Area. However, Phibro's telex merely directed the Petrol de Oro to lighter at Galveston before discharging the remainder of the Malongo cargo in Texas City. This telex cannot be construed as a manifestation of intent by Phibro to include the Lighterage Area as part of the discharge port.

Crescent also asserts that, according to the deposition of two Crescent employees, Phibro assured Crescent that it would be a one-port discharge. This evidence is inapposite to the issue of what the parties intended by "discharge port". Further, the testimony of Crescent's employees regarding the assurances of Phibro does not constitute course of dealing or performance evidence, nor does it involve usage of trade as required by Sec. 42a-2-202(a). The testimony is simply parol evidence subject to the more stringent mandate of Sec. 42a-2-202(b), which permits supplemental evidence of consistent terms only if the court does not find that the writing was integrated. In this case, the confirmation telex by Crescent expressly stated that the telex contained the entire agreement of the parties. As the contract was integrated, extrinsic evidence other than evidence of the...