Florida Power & Light Co. v. Westinghouse Elec. Corp.

• Decision Date: 30 June 1978
• Docket Number: No. 77-2448,77-2448
• Citation: 579 F.2d 856
• Parties: 24 UCC Rep.Serv. 486 FLORIDA POWER & LIGHT COMPANY, Appellee, v. WESTINGHOUSE ELECTRIC CORPORATION, Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 856

579 F.2d 856

24 UCC Rep.Serv. 486

FLORIDA POWER & LIGHT COMPANY, Appellee, v. WESTINGHOUSE ELECTRIC CORPORATION, Appellant.

No. 77-2448.

United States Court of Appeals, Fourth Circuit.

Argued Jan. 12, 1978.

Decided June 30, 1978.

John S. Battle, Jr., Richmond, Va. (McGuire, Woods & Battle, Richmond, Va., Robert F. Pugliese, Pittsburgh, Pa., William R. Jentes, Kirkland & Ellis, Chicago, Ill., Alan G. Greer, Sherryll Martens Dunaj, Frates, Floyd Pearson, Steward, Richman & Greer, Miami, Fla., on brief), for appellant.

Alvin B. Davis, Miami, Fla. (Dwight Sullivan, Paul J. Bonavia, Steel Hector & Davis, Miami, Fla., on brief) for appellee.

Before RUSSELL and WIDENER, Circuit Judges, and YOUNG, District Judge. ^*

DONALD RUSSELL, Circuit Judge:

In this action for breach of contract, defendant Westinghouse Electric Corporation (Westinghouse) appeals from an order of the District Court to strike certain of Westinghouse's defenses insofar as those defenses relate to § 2-615 of the Uniform Commercial Code (U.C.C.) (Fla.Stat. § 672.615). ¹

In 1966 the parties to this action entered into two contracts a Plant Equipment Contract and a Fuel Contract. The effective date of both contracts was stated as November 15, 1965. Under the equipment contract, Westinghouse agreed to furnish Florida Power and Light (FPL) with the capital equipment necessary to construct a nuclear power plant in Dade County, Florida; the fuel contract provided for the supply of nuclear fuel to this plant. The fuel contract also contained a provision whereby FPL was given "purchase options" concerning the fuel to be furnished to the first nuclear plant. Under this provision, FPL was given the option until "initial criticality" (stated to be no sooner than January, 1970) to select one of three proffered arrangements for the purchase of fuel. ² However, FPL was under a binding obligation to purchase fuel; it did not have the option of choosing none of the three alternative arrangements. FPL duly made its selection in August, 1972.

The equipment and fuel contracts also extended to FPL options, exercisable until July, 1967, to purchase equipment and nuclear fuel for a second plant at the same site as the first. ³ FPL exercised these options in February, 1967.

In June, 1965, prior to the formation of the first fuel contract, the Florida U.C.C. was enacted with the provision that it would become effective on January 1, 1967 subsequent to the formation of the first fuel contract but prior to FPL's election of a fuel service arrangement under that contract and prior to FPL's exercise of its option to enter into a second fuel contract.

In September, 1975, Westinghouse notified FPL that, because performance of the fuel contracts had become commercially impracticable, U.C.C. § 2-615 excused Westinghouse from complete performance of those contracts. Following FPL's rejection of its uranium allocation offer, Westinghouse declared the contracts terminated. FPL then brought the present diversity action against Westinghouse seeking, in essence, specific performance of the contracts or damages for their breach. ⁴ In answering the complaint, Westinghouse raised certain affirmative defenses based upon excuse by reason of failure of presupposed conditions (commercial impracticability), as provided in U.C.C. § 2-615.

The District Court subsequently granted Westinghouse's motion for permission to seek an interlocutory appeal pursuant to 28 U.S.C. § 1292(b), and in November, 1977, this Court granted Westinghouse's petition for permission to appeal.

The narrow question presented upon appeal is whether the District Court erred in holding the Florida U.C.C. inapplicable to the two fuel contracts involved in this action. We find the U.C.C. applicable to the second fuel contract and reverse the District Court on that point. With regard to the first fuel contract, we affirm the holding below that the U.C.C. is inapplicable.

The District Court erred in holding that "the common law of excuse in Florida," rather than the U.C.C., governs the fuel contract for the second plant. The Florida U.C.C., enacted in June, 1965, provides that "(t)his code shall become effective at 12:01 a. m. on January 1, 1967. It applies to transactions entered into and events occurring After that date." U.C.C. § 10-101 (Fla.Stat. § 680.101(1)). The 1966 fuel contract, while establishing a contractual obligation on the part of the respective parties to sell and to purchase fuel for the first power plant, merely granted to FPL an option, exercisable until July, 1967, to purchase fuel for a second plant. This option was not exercised by FPL until February, 1967, after the Florida Code's effective date. Nevertheless, the District Court, stressing that the Option "was binding upon Westinghouse as of the date of the 1966 contract," concluded that the Code did not apply to the fuel contract for the second plant because "the Code should not apply retroactively to contracts entered into before the effective date of the Code." What the Court failed to realize is that an option contract potentially involves Two contracts:

"The option agreement is a contract distinct from the contract to which the option relates, since it does not bind the optionee to perform or to enter into the contract under the terms specified in the option. In this sense, a binding option is a contract; and it is also an offer which, when accepted, will create another contract." 17 C.J.S. Contracts § 1(1)(f).

Accord, 1 Williston on Contracts, § 61A, at 198-99 (3rd ed. 1957). This basic hornbook law is recognized by Florida courts. South Investment Corp. v. Norton (Fla.1952) 57 So.2d 1, 2; Frissell v. Nichols (1927), 94 Fla. 403, 114 So. 431, 433; Goodman v. Goodman (Fla.1st Dist.1973) 290 So.2d 552, 555.

In the instant case, the option contract, entered into prior to the Code's effective date, was indeed governed by the Code. However, once that option was exercised, the option contract ceased to exist; out of it arose the contract to supply fuel for the second FPL power plant. As this latter contract did not come into existence until after the effective date of the U.C.C., it is governed by the Code. See Shavers v. Duvall County (Fla.1954) 73 So.2d 684, 689.

The District Court also held that the U.C.C. is inapplicable to the fuel service contract for the first plant, reasoning that since the contract itself was executed prior to the effective date of the Florida Code, Florida pre-Code law should control any contractual disputes. Westinghouse, on the other hand, relying upon the effective date provision of the Florida Code (§ 680.101(1)) (U.C.C. § 10-101) argues that the Code is applicable not merely to "transactions entered into" after the Code's effective date, but also to "events occurring after" the effective date. Thus, reasons Westinghouse, the Code applies even to transactions entered into prior to its effective date where "events" relevant to a contractual dispute arise thereafter. Here, Westinghouse alleges the occurrence of several such subsequent "events," among them the election by FPL of its fuel service option in 1972 (determining under which of three alternative arrangements fuel service would be provided by Westinghouse to FPL) and the alleged failure of presupposed conditions in 1974-75 (I. e., failure of the uranium market to remain stable in price or quantities available).

In construing "events" as that term is used in § 680.101(1), one must also look to the accompanying subsection (680.101(2)) (U.C.C. § 10-102(2)), which states:

"Transactions validly entered into before the effective date specified in this section and the rights, duties and interests flowing from them remain valid thereafter and may be terminated, completed, consummated or enforced as required or permitted by any statute or other law amended or repealed by this code as though such repeal or amendment had not occurred."

The problem is to reconcile the term "event" in U.C.C. § 10-101 with the transitional language of U.C.C. § 10-102(2). There is scarce legislative history to aid in the resolution of this conflict, ⁵ and the Florida courts have not yet directly addressed the matter. ^5a We turn, therefore, to the decisional law outside of Florida.

Many courts have relied upon the language of U.C.C. § 10-102(2) to hold the Code inapplicable to post-Code disputes involving pre-Code transactions. In Empire Life Insurance Co. of America v. Valdak Corporation (5th Cir. 1972) 468 F.2d 330, the question was whether the U.C.C. applied to a post-Code foreclosure sale arising out of a security agreement entered into prior to the Code's effective date. The Court, after citing U.C.C. § 10-102(2), stated:

"In the overwhelming majority of cases where retroactivity of the Code has been in issue, it has been found that when a transaction was entered into prior to the effective date of the Code, the transaction would thereafter be governed for all purposes by the law in effect when the transaction was entered into. E. g., In re Kokomo Times Publishing and Printing Corp., D.Ind.1968, 301 F.Supp. 529; Phoenix v. Kovacevich, 246 Cal.App.2d 774, 55 Cal.Rptr. 135 (1966); Leiter v. Arnold, 114 Ga.App. 323, 151 S.E.2d 175 (1966); Wellbro Building Co. v. McConnico, 421 P.2d 837 (Okl.1966); McCormack v. E. E. McCormack Co., 239 Or. 264, 397 P.2d 198 (1964); and Lack's Stores, Inc. v. Waisath (464 S.W.2d 220 (Tex.Civ.App.1971), rev'd on other grounds, 474 S.W.2d 444 (Tex.Sup.Ct.)). Contra, United Sec. Corp. v. Bruton, 213 A.2d 892 (D.C.App.1965). The conclusion is therefore inescapable that this security agreement, entered into ten months before the effective date of the Code in both Texas and North Dakota, is governed by the prior law, even as to those aspects of the transaction, including the foreclosure, that took place after the effective date of the Code." 468 F.2d at 333 (footnote omitted) (emphasis supplied).

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