Opinion ID: 714635
Heading Depth: 1
Heading Rank: 2

Heading: contract repudiation

Text: 18 Roye's contract repudiation claim essentially rests on two theories: (1) that Arkla repudiated its contract with Roye by materially breaching that contract before its purported cancellation; and/or (2) that Arkla repudiated the contract by wrongfully attempting to terminate the agreement. The district court rejected Roye's claims because it concluded that Arkla did not materially breach its agreement with Roye, and that Arkla properly terminated the agreement pursuant to its rights under the contract. We apply Oklahoma substantive law to this diversity contract action, Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938), and review the district court's conclusions of law de novo, Salve Regina College v. Russell, 499 U.S. 225, 231 (1991), and its findings of fact for clear error, id. at 233. In so doing, we affirm the court's judgment for Arkla. 19 Under Oklahoma law, 12 repudiation consists of an overt communication of intention or an action which renders performance impossible or demonstrates a clear determination not to continue with performance. 13 Okla. Stat. tit. 12A 2-610 (comment 1); see also Bankers' Mortgage Co. v. Schwab, 280 P. 819, 820 (1929) (where one party to a contract declared intention not to perform, other party could treat declaration as total breach and bring action for damages on the entire contract); Waggoner Refining Co. v. Bell Oil & Gas Co., 244 P. 756, 758 (Okla.1926) (where seller did not intend to perform material term of contract of sale, buyer was excused from its obligation to perform). Thus, Roye must establish that Arkla's purported failure to perform on the contract by failing to take gas or make deficiency payments, or Arkla's subsequent allegedly wrongful termination of the contract, constituted repudiation of the contract. We address each possibility in turn.
20 A breach of contract can constitute a repudiation of a contract if, in and of itself or in conjunction with other statements or actions, it is sufficiently substantial to signal a party's intent not to perform its remaining contractual obligations or to render such future performance impossible. Roye argues that Arkla committed such a breach, as established by its confession of judgment on Roye's breach of contract claim, and its expressed intention of never performing its contractual obligations. We disagree and affirm the district court's ruling that any breach that Arkla committed did not impair the value of the entire contract. 21 The take-or-pay contract at issue in the instant case is an installment contract. See Okla. Stat. tit. 12A 2-612(1) (An installment contract' is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause each delivery is a separate contract' or its equivalent.); Arkla Energy Resources v. Roye Realty & Developing, Inc., 9 F.3d 855, 860-61 (10th Cir.1993) (holding in an unrelated action between these same parties that gas contract calling for delivery in separate lots was an installment contract under Oklahoma law). A party's failure to fulfil some obligation under an installment contract does not constitute a repudiation unless it impairs the value of the entire contract. As Oklahoma's Uniform Commercial Code (UCC) provides, only where the default on one or multiple installments substantially impairs the value of the whole contract is there a breach of the whole. Okla. Stat. tit. 12A 2-612(3); see also id. (comment 6) (Subsection (3) is designed to further the continuance of the contract in the absence of an overt cancellation.). In the instant case, Roye has identified no such substantial breach by Arkla that impaired the value of the whole multiyear take-or-pay contract. 22 Roye argues that the collateral estoppel effect of Arkla's confession of judgment on Roye's breach of contract claim establishes that Arkla repudiated the contract. 14 However, even giving the Rule 68 settlement preclusive effect 15 would not establish that Arkla repudiated the contract. Through its settlement of Roye's breach of contract claim, Arkla admitted only that it breached its promise to take or pay for certain quantities of gas on the Epley well and was, therefore, liable for $200,000 in damages. 16 Thus, Arkla's breach only went to one of the two wells under contract, and related only to the single year that Roye was a party to the contract. As the district court found, [a] breach, if any, was relatively insubstantial and never went to the essence of the contract nor discharged Roye Realty from its obligations. Such a single and limited breach of contract, without more, neither impairs the value of the entire contract nor signals Arkla's intent not to perform in the future. See Kirkwood Agri-Trade v. Frosty Land Foods Int'l, Inc., 650 F.2d 602, 604 (5th Cir. Unit B July 1981) (explaining that default on single installment is not necessarily equivalent to a breach of the whole contract). 23 The Oklahoma Supreme Court's decision in Roye Realty & Developing, Inc. v. Arkla, Inc., 863 P.2d 1150 (Okla.1993), which Roye cites, is not to the contrary. In that case, the Oklahoma Supreme Court stated that 24 [b]ecause there is a second alternative available for Arkla to perform, failure to take and pay for gas merely constitutes a decision not to perform the first alternative obligation and is not a repudiation of the contract. Repudiation of the contract does not occur until Arkla also refuses to make the required deficiency payments. 25 Id. at 1157 (emphasis in original). The quoted language can be read to provide that the mere breach of a take-or-pay contract--that is, failing to take and pay and then also refusing to make a deficiency payment--constitutes a repudiation. However, such a reading takes the quoted language out of context. The court in that case explicitly did not address what constitutes a repudiation, or whether Arkla repudiated the contract, but merely answered the certified question of what the appropriate measure of damages would be in the event of an anticipatory repudiation. Id. at 1153. In the quoted passage, the court explained that the pay prong of the take-or-pay contract should not be viewed as a liquidated damages provision, but as an alternative means of performance. Given that context, we read the court as providing that if Arkla repudiated the contract by nonperformance, the repudiation could only have occurred after it failed to make deficiency payments and not by its failure to purchase gas alone, because the latter failure would not even constitute a breach. Moreover, as the district court emphasized, the quoted passage states that Arkla must have refused to make the required deficiency payments. Roye argues that refuse is synonymous with fail and could even encompass a single unintentional breach. However, such a reading would alter the well established concept of repudiation as involving a knowing and overt rejection of contractual obligations. Accordingly, we do not read the Oklahoma Supreme Court's decision as establishing that the mere breach of a single installment of a take-or-pay contract by itself necessarily constitutes a repudiation. 26 Roye maintains, nevertheless, that Arkla manifested its intent not to perform through other statements it made beyond the mere breach established by the Rule 68 judgment, and that Arkla's overall conduct still amounted to a repudiation of the contract. For example, Roye emphasizes that Arkla officials testified that Arkla did not intend to make any deficiency payments to Roye, as Roye alleges were required by the contract, and never even calculated whether or to what extent Arkla owed any deficiencies. However, Arkla explains that it did not make any such payments on the Epley well because it believed that it had satisfied its minimum obligations given the number of days the wells were prepared to deliver, not because it intended to reject its contractual obligations. 17 Arkla further explains that it continued to nominate gas for delivery from both wells after the end of the contract year on the Epley well, thereby demonstrating an intent to continue performance despite its $200,000 breach. Accordingly, notwithstanding Roye's allegations, the record before us contains no objective evidence indicating that Arkla did not intend to perform its future contractual obligations even if it did wrongfully refuse to make a deficiency payment in a particular year on the Epley well. 18 27 As such, Roye has failed to show that Arkla's admitted breach, either by itself or coupled with other statements or actions, evinced the kind of overt communication of an intent not to perform its future contractual obligations that is required to establish repudiation. 19 As such, Roye must rely on its claim that Arkla wrongfully terminated the agreement to establish repudiation. We now turn to that claim.
28 Even if Arkla's prior failure to perform its contractual obligations did not constitute a repudiation of the contract, Roye argues that Arkla repudiated the contract when it attempted wrongfully to terminate the agreement. In particular, Roye claims that (1) Arkla did not have a right to terminate under the contract; and (2) even if the contract provided for termination, Arkla lost whatever contractual rights it might have had because it (a) was in breach; (b) waived those rights; or (c) acted in bad faith. If Arkla's attempted termination was wrongful, it would constitute an anticipatory repudiation of the contract. See Osborn v. Commanche Cattle Indus., Inc., 545 P.2d 827, 830 (Okla.Ct.App.1975) (holding that wrongful termination in contravention of contractual terms gave rise to a cause of action for total breach); see also REA Express, Inc. v. Interway Corp., 538 F.2d 953, 955 (2d Cir.1976) ([I]nsistence upon terms which are not contained in a contract constitutes an anticipatory repudiation thereof.); Restatement of Contracts (Second) 250 (comment d) (Generally, a party acts at his peril if, insisting on what he mistakenly believes to be his rights, he refuses to perform his duty.). 20 However, the district court found that Arkla possessed the contractual right to terminate its agreement with Roye and properly exercised that right. We agree, and, therefore, affirm the court's ruling that Arkla did not repudiate the contract. 29
30 Roye concedes that the take-or-pay contract, as amended by the 1984 Letter Agreement, gave Arkla some right to require a renegotiation of the contract price and terminate the agreement if the parties could not agree on a new price. However, Roye maintains that the contract only provided Arkla a one-time right to renegotiate, and that Arkla had already exercised that right. We conclude that the contract's express terms are ambiguous. Nevertheless, looking to the parties' correspondence leading up to the 1984 Letter Agreement, we hold that Arkla could require more than one renegotiation of the contract price and could terminate the agreement upon the failure of those renegotiations. Furthermore, even if the contract only provided for a one-time right to renegotiate and cancel, we conclude that Arkla did not exercise that right prior to its April 26, 1989 termination. 31 Oklahoma law provides that a contract must be interpreted to give effect to the mutual intent of the parties at the time they formed the contract. Okla. Stat. tit. 15 152. Where a contract is in writing, the writing alone should be used to determine the parties' intent if possible. Id. 155; see also id. 154 (The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.). However, the course of performance by parties to a contract remains relevant to construing a contract's express terms. Okla. Stat. tit. 12A 2-208. In addition, where the written agreement is ambiguous, a court can look to the negotiations preceding an agreement or other parol evidence to discern the intent of the parties. Public Serv. Co. v. Home Builders Ass'n of Realtors, Inc., 554 P.2d 1181, 1185 (Okla.1976). Where a written agreement is not ambiguous, parol evidence is excluded. Okla. Stat. tit. 15 137; Terrill v. Laney, 193 P.2d 296, 300 (1948). Applying these principles to the instant case, we look first to the written contract but conclude that its express terms are ambiguous and do not clearly specify the scope of the parties' renegotiation and cancellation rights. 32 On the one hand, the 1984 Letter Agreement provided that the parties could require a further renegotiation of price at any time on or after October 1, 1985, and, as the district court noted, at any time indicates the right to unlimited renegotiations. Such an interpretation would be consistent with the factual context surrounding the 1984 Letter Agreement. That is, prior to January 1, 1985, the contract price was established by reference to government regulations. Pursuant to the 1984 Letter Agreement, the parties established an initial deregulated price to remain in place for one year and provided for further renegotiation thereafter, presumably to create ongoing sensitivity to market prices. Roye has offered no explanation for why the parties would have provided for only one further renegotiation given that the price was already adjusted to market levels following deregulation. Moreover, it seems unlikely that the parties would have fixed a set price that could only be adjusted once during the roughly 12 years still remaining on the contract. 33 Nevertheless, other aspects of the contract undercut this reading and suggest that the parties intended only a one-time right to renegotiate. In particular, the contract provided that, if the parties could not agree on a renegotiated price, the price shall continue to be $2.75 per MMBtu. As the district court noted, this provision indicates an intent to allow only one price renegotiation from the $2.75 per MMBtu price, for if multiple price changes were contemplated the provision would likely have specified that the price would remain at whatever had been set as the most recently agreed upon price. In addition, it seems odd that the parties would have created a right to multiple renegotiations without limiting when renegotiations could be required or providing for a specific timetable for new negotiations. Moreover, the phrase at any time, which might suggest unlimited renegotiations, could also be read merely to provide for when renegotiations were permitted and not for how often they could occur or how many were allowed. The contract itself specified that at any time ... either party shall have the right ... to require a further renegotiation (emphasis added), which could indicate a single renegotiation. Accordingly, we remain unable to discern the intent of the parties based on the express terms of the contract, 21 see Wards Co., Inc. v. Stamford Ridgeway Assocs., 761 F.2d 117, 120 (2d Cir.1985) (contract ambiguous where susceptible of at least two fairly reasonable meanings) (quotation omitted), and look to parol evidence and, in particular, to the negotiations between Arkla and Gulf leading up to the 1984 Letter Agreement. 34 Those negotiations and correspondence indicate that the parties to the contract contemplated the right to require annual price negotiations. Specifically, when Arkla wrote Gulf to propose amending the contract in 1984 in anticipation of deregulation, Gulf responded by requesting that: (1) the price be $3.25 per MMBtu instead of $2.75 per MMBtu as Arkla had proposed; and (2) there be annual price renegotiations beginning January 1, 1986. In response, Arkla agreed to including annual price renegotiations, rejected the $3.25 per MMBtu price, and instructed Gulf to make the appropriate changes to the contract and return an executed copy if it agreed to Arkla's offer. Accordingly, when Gulf accepted that offer, the parties had agreed to annual price renegotiations. That agreement is reflected in the executed contract where the parties revised Arkla's proposal to specify that the deregulated price of $2.75 per MMBtu only be effective from January 1, 1985 through December 31, 1985 (the proposal had specified that the price would be effective through December 31, 1986) and initialled the change. Although the parties could have provided more clearly that there would be annual price renegotiations, we conclude based on their preceding correspondence and agreement, that they intended to so provide. Thus, when Arkla required a further renegotiation of price to Roye and subsequently cancelled the agreement when Roye did not respond, it was acting within its contractual rights. 35 Even if we were to interpret the contract to provide only for a single renegotiation and cancellation right, we would hold that Arkla had yet to exercise that right before 1989. The 1984 Letter Agreement provided that a party could cancel the contract at any time 90 days after it delivered a price renegotiation letter and before the parties agreed upon a renegotiated price. Based on the record before us, we conclude that the parties never agreed upon a new price notwithstanding Arkla's multiple attempts to establish one, and therefore, Arkla possessed the right to cancel the contract. 36 Chevron purported to accept Arkla's proposal of a $2.35 per MMBtu price in its January 17, 1986 letter, but, as the district court found, that acceptance was not effective. Roye maintains that Chevron's acceptance of the November 15, 1985 offer was effective on dispatch under Oklahoma's version of the mailbox rule, codified at Okla. Stat. tit. 15 69. However, Arkla never received that purported acceptance. Generally, an acceptance is effective even if it is lost in transit and never received by the offeror. Restatement of Contracts (Second) 63 (comment b); I E. Allan Farnsworth, Farnsworth on Contracts, 3.22 at 280 (1990). However, an offeror can provide otherwise, see Restatement of Contracts (Second) 60 & 63, and in the present case Arkla specified that acceptance would only be accomplished by Arkla's receipt of an executed return copy of Arkla's offer. Thus, there never was an effective acceptance or resulting agreement on a new price. 22 Arkla's subsequent attempts to renegotiate did not produce even a purported acceptance. Accordingly, the parties never reached an effective agreement on a new price, and Arkla never lost its right to cancel the agreement, which arose when it proposed a price renegotiation and 90 days passed without the parties agreeing on a new price. Absent waiver, which we discuss below, Arkla's subsequent attempts to renegotiate did not alter that termination right. Similarly, Arkla never exercised that right to cancel the agreement. Although Arkla threatened to cancel the contract at various points in time, it never actually carried through on its threats, and both sides continued to act at all times as if there were a valid contract. 23 Thus, whether the contract provided for annual or one-time renegotiation, Arkla acted within its rights under the contract. In the following sections, we address whether Arkla somehow forfeited that contractual right. 37
38 Roye first maintains that Arkla lost whatever contractual rights to terminate it might have had by its failure to perform on other parts of the contract. Specifically, Roye argues that Arkla cannot take advantage of the termination provisions of the contract because it was in breach on its take-or-pay obligations on at least the Epley well. However, Roye advances no authority for its proposition. The authorities cited by Roye establish that if a party is in total breach of a contract or repudiates a contract, it loses its right to terminate that contract, see, e.g., Prudential Ins. Co. of America v. Faulkner, 68 F.2d 676, 679 (10th Cir.1934) (One who repudiates his obligation under a contract cannot thereafter exercise an election contained in its provisions.), but, as explained above, Roye has not established that Arkla repudiated the contract or that any breach by Arkla went to the essence of the agreement. Termination rights survive such partial breaches. As Corbin, whom Roye itself relies upon, states, 39 [a] party who has reserved a power of termination loses that power if he himself commits such a breach as goes to the essence and discharges the other party.... However, one who commits a partial breach that does not discharge the other party from his contractual obligation does not thereby extinguish his power of termination that is expressly reserved. 40 6 Arthur L. Corbin, Corbin on Contracts 1266 at 68-69 (1962). Accordingly, Arkla did not lose its termination power because of its breach of other contractual obligations. 41
42 Roye argues next that Arkla waived any cancellation rights it might have had under the contract by issuing cancellation notices during its correspondence with Gulf and Chevron and then rescinding or failing to act upon those notices. Roye claims that Arkla must provide reasonable notification of its retraction of its previous waiver under Okla. Stat. tit. 12A 2-209(5) before it can reassert its cancellation rights. However, Roye has failed to establish that Arkla displayed a clear intention to relinquish its cancellation rights. See Hidalgo Properties, Inc. v. Wachovia Mortgage Co., 617 F.2d 196, 199 (10th Cir.1980) (stating that Oklahoma law requires a clear expression of the intent to relinquish rights for waiver to be found). 43 Arkla first threatened to cancel the contract in its January 1, 1986 letter, in which it stated that the letter would serve as a cancellation notice if Gulf rejected its proposal. However, neither Gulf nor its successor Chevron ever rejected Arkla's proposal. Rather, Chevron actually purported to accept Arkla's proposal, and at least indicated a willingness to engage in price renegotiations. As such, Arkla's failure to cancel the contract does not indicate what it would or would not do in the event that its proposal were rejected and no new price agreed upon. Arkla's second threatened cancellation came in its July 8, 1986 letter to Chevron, in which it stated that it would cancel the contract if Chevron did not agree to its proposal for a new price by July 20, 1986. Arkla and Chevron then extended the deadline by oral agreement to August 1, 1986, and by its July 31, 1986 letter Chevron indicated its intention to enter into further negotiations. Again, Arkla's failure to effect a cancellation in the midst of ongoing negotiations does not indicate a clear intent to relinquish its right to terminate the contract if renegotiations were ultimately unsuccessful. Moreover, even if Arkla had previously waived its termination rights, Arkla provided Roye some notice that it was reasserting those rights when it corresponded with Roye in 1989 and answered Roye's query about which contractual provision gave Arkla the right to require a renegotiation. Accordingly, we hold that Arkla did not waive its right to terminate the contract upon the parties' failure to agree upon a new price. 44
45 Finally, Roye asserts that Arkla's attempted termination was ineffective because it was exercised in bad faith. Okla. Stat. tit. 12A 1-203 requires that [e]very contract or duty within this Act imposes an obligation of good faith in its performance or enforcement. Good faith between merchants is defined as honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade. Id. 2-103. Roye somewhat obliquely suggests that Arkla breached its obligation to act in good faith by: (1) seeking a new price without a legitimate commercial reason; (2) falsely assuring Roye that it intended to perform the contract; and (3) attempting to renegotiate contractual terms other than price. We remain unpersuaded that Arkla acted in bad faith. 46 First, Roye provides no authority to support its claim that Arkla must articulate a legitimate commercial reason for seeking a renegotiated price. Roye cites Okla. Stat. tit. 12A 2-209, which provides that parties cannot use extortion to modify contracts without the support of new consideration. However, Arkla did not seek a modification of the contract, but rather exercised an existing right provided under the contract. Moreover, Roye has not established that Arkla lacked a legitimate commercial reason to seek a lower reasonable purchase price. 47 Second, Roye has not shown that Arkla falsely assured Roye that it intended to continue performing on the contract. Arkla explains that it intended to continue the contract when it responded to Roye, and only terminated the agreement when the parties were unable to agree on a new price, as was its right under the contract. Even if Roye could show that Arkla falsely assured Roye, Roye has not shown how it relied on that assurance or how any assurance would make Arkla's subsequent termination wrongful if that termination were still pursuant to the contract's terms. 48 Third, Arkla's attempt to negotiate terms other than price does not render its termination based on the failure to agree on a new price improper. Nothing in the contract barred Arkla from proposing modifications to any aspect of the contract, even if the contract only specifically provided for the right to renegotiate price. As such, Arkla would not have been entitled to terminate the contract based on the failure of the parties to agree on one of these other terms, but its attempt to change these other terms did not impact its contractual right to cancel when the parties could not agree on a new price. Accordingly, Arkla both possessed the contractual right to terminate and did nothing to waive or otherwise forfeit that right. 24