Opinion ID: 503762
Heading Depth: 1
Heading Rank: 3

Heading: texaco and gulf cross-appeal

Text: 79 At trial, Phoenix was awarded $365,479 for its breach of contract claim for undercalculated royalties. The court ruled that, in computing the two-percent royalty, the consortium had improperly adopted the federally-capped West Texas crude price instead of the higher Ecuadorian government's tax reference price. Defendants cross-appealed from this ruling, contending that their calculations comported with the terms of the 1965 contract. 80 The two-percent royalty arrangement was set out in paragraph 6 of the 1965 contract. The provision states that, for all purposes of the contract, the value of the crude oil shall be understood as the value defined in each case for the purpose of calculating the payment of the royalties which cessionaires must make to the Government. Paragraph 8, on which defendants rely, provides that the price calculations were to be made on the same bases established for the respective payments to the Government, according to [the 1961 Minas Agreement]. 81 The 1961 Minas Agreement established a formula for calculating the royalty owed the government based on the average volume of the oil in the world market. To compute this average value, the Agreement created the equation X = A - B, in which X represented the world market value, A represented the West Texas crude price, and B represented the cost of transporting the crude from Ecuador to New York. 82 However, the 1971 national Hydrocarbons Law explicitly superceded all existing contractual provisions on the calculation of government royalties. Article 65 of the Hydrocarbons Law stated: Royalties in cash, income tax, government's participation and generally any assessments depending on the sale price of hydrocarbons in the foreign market, shall be regulated by the reference prices of petroleum. The government unilaterally set this reference price. 83 The passage of this new law revealed a previously undetected conflict between paragraphs 6 and 8 of the 1965 contract. Paragraph 6 tied Phoenix's royalty to the value of the government royalty, a figure the 1971 Law had legislatively increased. Paragraph 8 appeared to link the Phoenix royalty to the value of the government royalty as it would have been calculated under the 1961 Minas Agreement--the lower West Texas price. 84 In resolving this apparent conflict, the district court ruled that the Hydrocarbons Law had supplanted the terms of the 1961 Agreement to which paragraph 8 referred. Once the 1971 Law was promulgated, calculation of government royalties under the 1961 Concession Contract was based no longer on ... the 1961 Contract, but on ... the 1971 Law. Phoenix IV, 658 F.Supp. at 1080. Thus, because the two-percent royalty was dependent on the amount which cessionaires must make to the Government, the Hydrocarbons Law altered not only the calculation of the government royalty, but the calculation of Phoenix's royalty as well. 85 If the ambiguity of the two-percent royalty provisions of the 1965 contract has led to a result defendants had not anticipated, the fault is their own. As authors of the contract, they could have made their terms plain; their failure to do so cannot inure to their benefit. See John F. Harkins Co. v. Waldinger Corp., 796 F.2d 657, 662 n. 2 (3d Cir.1986), cert. denied, --- U.S. ----, 107 S.Ct. 939, 93 L.Ed.2d 989 (1987). We agree with the district court that the contract's reference to the amount paid in government royalties necessarily established a benchmark which could be altered by the State through force of law. 86 We have examined in detail the defendants' other contentions and we are not persuaded. We accept the view of the district court.
87 On the $365,479 breach of contract judgment, the district court awarded $532,608.71 in prejudgment interest. Defendants challenge the court's calculation of this sum. 88 The 1965 contract contained no prescribed rate of interest, and the parties agree that Ecuador's legal rate of interest would be applicable. Defendants contend that awards of prejudgment interest under Ecuadorian law accrue from the date of service of process. The district court accepted this starting date and then sought to apply the appropriate rate, a task complicated by the precipitous rise in interest rates that occurred during the pendency of this litigation. 89 At the time the complaint was served, the legal rate of interest in Ecuador was 8%. The rate rose dramatically in five stages to 23%, the rate in effect in 1984. Modifications to the interest rates were accomplished by resolutions issued by the Ecuadorian Monetary Board. The resolutions encompassed a wide range of transactions and set varying rates for each, including such diverse items as interest payable on savings passbooks, mortgage bonds, development bonds, obligations of the central and provincial governments, interbank transactions, and various credit operations. 90 Article 8 of a typical resolution read: The provisions of the present Regulation shall apply only to the acts and contracts entered into from and including the date it is published in the Registro Official. Therefore, the types of interest rates stipulated in the acts and contracts entered into prior to that date, be they drawn or to be drawn, shall continue in effect until the expiration date agreed upon in the respective act or contract. 91 The resolutions applied to many different types of transactions and not merely to causes of action in court. The resolutions' language must be read against their background of broad application. 92 In 1975, the Monetary Board issued Resolution 755 which fixed the legal interest rate at 8%. Defendants aver that this rate should apply to the entire breach of contract judgment. The district court disagreed and applied a segmented interest rate reflecting the five successive increases in the Ecuadorian legal rate. 93 The court acknowledged the Resolution's statement that the new rates were to apply only to agreements entered into after the date of the Resolution's publication, but held the restriction was limited to contracts providing a stipulated rate of interest. Because the contract here contained no such stipulation, the prejudgment interest rate was increased as the legal rate rose. 94 In so ruling, the court accepted the views of Phoenix's expert and rejected those of the defendants' experts. The court also declined to follow a decision of the Supreme Court of Ecuador, Segovia v. Acosta, Judgment No. 341, Third Chamber, November 11, 1977, which presented a similar factual situation. The district court observed correctly the lack of precedential effect of judicial decisions in civil law jurisdictions. 95 We find no reversible error in the district court's ruling on prejudgment interest. The court properly reasoned that if the arrearages had been paid promptly, Phoenix could have taken advantage of the rising legal rates of interest in Ecuador. Pursuant to Resolution 11927, Phoenix was compelled to invest half of its after-tax royalty proceeds in Ecuador and, thus, would surely have profited from the soaring legal rates. Prejudgment interest serves to compensate for the loss of use of money due as damages from the time the claim accrues until judgment is entered, thereby achieving full compensation for the injury those damages are intended to redress. West Virginia v. United States, --- U.S. ----, ----, 107 S.Ct. 702, 706 n. 2, 93 L.Ed.2d 639 (1987).