Gulf Oil Corporation v. American Louisiana Pipe Line Co.

• Decision Date: 15 September 1960
• Docket Number: No. 14140.,14140.
• Citation: 282 F.2d 401
• Parties: GULF OIL CORPORATION, Defendant-Appellant, v. AMERICAN LOUISIANA PIPE LINE COMPANY, Plaintiff-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

282 F.2d 401 (1960)

GULF OIL CORPORATION, Defendant-Appellant, v. AMERICAN LOUISIANA PIPE LINE COMPANY, Plaintiff-Appellee.

No. 14140.

United States Court of Appeals Sixth Circuit.

September 15, 1960.

Jesse P. Luton, Jr., Houston, Tex., Laurence M. Sprague, Fischer, Sprague, Franklin & Ford, Detroit, Mich., Charles E. McGee, Washington, D. C., on brief, for appellant.

Charles V. Shannon, Washington, D. C., A. D. Ruegsegger, Detroit, Mich., and Arthur R. Seder, Jr., Chicago, Ill., on brief; Dyer, Meek, Ruegsegger & Bullard, Detroit, Mich., May, Shannon & Morley, Washington, D. C., Sidley, Austin, Burgess & Smith, Chicago, Ill., of counsel for appellee.

Before MILLER and WEICK, Circuit Judges, and HOLLAND, Senior District Judge.

WEICK, Circuit Judge.

This case involves a contract for the sale of natural gas by Gulf Oil Corporation to the American Louisiana Pipe Line Co. Gulf cancelled the contract. It asserted the right to do so by virtue of certain provisions thereof which will be later discussed. American Louisiana disputed Gulf's right to cancel the contract. It brought this action in the District Court against Gulf seeking a declaratory judgment, 28 U.S.C. § 2201, that Gulf's cancellation was unlawful.

The case was tried by the District Judge without a jury. He rendered judgment for American Louisiana declaring that the cancellation of the contract was unlawful. American Louisiana Pipe Line Co. v. Gulf Oil Corp., D.C.E.D. Mich.1959, 180 F.Supp. 155. Gulf has appealed from that decision.

Chief Judge Levin, who tried the case, wrote an opinion which was complete and well-reasoned. His thorough analysis of the problems involved, and this Court's agreement with his conclusions, renders unnecessary a detailed restatement of the case. Accordingly, we shall recite only such facts as are essential to an understanding of the issues of this appeal.

Gulf owned a large deposit of natural gas in Louisiana, known as the Krotz Springs Field. American Louisiana owns and operates an interstate natural gas pipe line extending from southern Louisiana to Detroit, Michigan. After several conferences, and as the result of considerable negotiation, the parties consummated a contract for the sale of the Krotz Springs gas to American Louisiana.

American Louisiana was limited by an order of the Federal Power Commission as to the amount of natural gas which it was legally allowed to transmit, this amount being known as certificated capacity. In order to take and transport the gas in the amounts called for in the contract, American Louisiana had to apply to the Federal Power Commission for an increase in its certificated capacity. It was also necessary for American Louisiana to secure the Federal Power Commission's approval of the physical changes in its transmission system necessitated by the increased load proposed to be carried.

It was likewise necessary that Gulf obtain the Federal Power Commission's approval of the proposed sale. This regulation of producers by the Federal Power Commission was the result of the decision of the Supreme Court in Phillips Petroleum Co. v. State of Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035. Gulf had anticipated that it would become exempt from regulation by the Federal Power Commission upon the passage of the Harris Bill (H.R. 6645). The Harris Bill, however, was vetoed by the President and it remained necessary for Gulf to obtain the Federal Power Commission's approval of this interstate sale.

Gulf and American Louisiana filed their respective applications for Certificates of Public Convenience and Necessity on May 14, 1956.

Article V, Sec. 5 of the contract conditioned the obligations of Gulf upon American Louisiana's obtaining from the Federal Power Commission

"Such authority as may be necessary to enable it to expand the certificated capacity of its line to accept and transport the quantities of gas to be purchased. * * *"

Article V, Sec. 6 gave Gulf the right to cancel the contract if American Louisiana

"failed to obtain requisite authority within six months after making application therefor."

On August 8, 1956 American Louisiana was granted a temporary Certificate of Public Convenience and Necessity under Sec. 717f(c) of the Natural Gas Act. 15 U.S.C.A. § 717f(c). This increased American Louisiana's certificated purchase capacity to a degree which would enable it to fulfill its contract requirements and authorized the construction of the additional facilities. By November 14, 1956 American Louisiana had not been granted a permanent Certificate of Public Convenience and Necessity and Gulf thereupon cancelled the contract. It attempted to withdraw its application to the Federal Power Commission for a Certificate of Public Convenience and Necessity. Action on the attempted withdrawal has been deferred by the Federal Power Commission pending judicial determination of the rights of the parties.

This factual background frames the basic issue whether the granting of the temporary certificate to American Louisiana was "requisite authority" to transport the gas within the meaning of Section 6 of the contract, so as to preclude Gulf from cancelling.

The District Judge heard the testimony of the witnesses concerning the negotiations and surrounding facts and circumstances leading to the consummation of the contract. He had before him the completed document as well as the preliminary drafts and revisions.

It is noteworthy that Section 3 of the contract required Gulf to file with the Federal Power Commission "an application for a Certificate of Public Convenience and Necessity." Section 5 of the contract which related to American Louisiana is materially different. American Louisiana was required to file "an application for such authority as may be necessary to enable it to expand the certificated capacity of its line. * * *" Gulf would have the Court construe the language of Sections 3 and 5 of the contract to require the same thing, namely, a permanent Certificate of Public Convenience and Necessity. The term Certificate of Public Convenience and Necessity has a well-known meaning. It is used in the Natural Gas Act. 15 U.S.C.A. § 717 et seq. We cannot believe that the difference in language in the two sections of the contract was inadvertent, particularly in view of the extended negotiations of the parties who were...