Opinion ID: 2042301
Heading Depth: 1
Heading Rank: 1

Heading: The contract language in dispute states as follows:

Text: TERMINATION: In the event that the coal being supplied becomes unsuitable for combustion either by changes in operation, in equipment or changes in Federal or State regulations, the University shall have the option to terminate the contract or reduce the quantity of coal purchased under the contract on thirty (30) days written notice to the Bidder. If the University cannot economically utilize the coal supplied under this contract or in the event that the Bidders proven escalation results in a total price that is unreasonable in view of the price of other comparable coals being offered under contract for periods of time equal to the period remaining under this contract, then this agreement may be renegotiated on thirty (30) days written notice from either party and, failing mutual agreement within a reasonable period of time, the contract shall be terminated upon thirty (30) days written notice following the end of negotiation. Every effort will be made by the University and Bidder to negotiate in good faith a mutually acceptable price for the coal supplied under this contract before giving notice of termination. (Emphasis added.) ISU and Iowa Fuel disagree on the meaning of the phrase cannot economically utilize but agree that the contract could be canceled upon thirty days notice if negotiations failed. ISU feels that the phrase was included to protect the taxpayers who support this public institution so that ISU could obtain fuel economically. It argues that a plain ordinary meaning is demanded that is unambiguous by which the phrase means given to frugality or thrifty. Iowa Fuel says that the ISU interpretation is tantamount to turning the contract into an evergreen contract, where the price is renegotiated every year. This interpretation would not be reasonable, it argues, since it would override the more specific price adjustment provisions in other sections of the contract. Further, Iowa Fuel argues that it would be put at the economic mercy of ISU by such a construction. It is the cardinal principle of contract construction that the parties' intent controls; and except in cases of ambiguity, this is determined by what the contract itself says. See generally Iowa R.App.P. 14(f)(14); Berryhill v. Hatt, 428 N.W.2d 647, 654 (Iowa 1988). When a contract is not ambiguous, it will be enforced as written, Spilman v. Board of Directors, 253 N.W.2d 593, 596 (Iowa 1977), but when there are ambiguities in a contract, they are strictly construed against the drafter. Village Supply Co. v. Iowa Fund, Inc., 312 N.W.2d 551, 555 (Iowa 1981); Fashion Fabrics of Iowa, Inc. v. Retail Investors Corp., 266 N.W.2d 22, 27 (Iowa 1978); Rector v. Alcorn, 241 N.W.2d 196, 202 (Iowa 1976). Ambiguity exists when, after application of pertinent rules of interpretation to the face of the instrument, a genuine uncertainty exists concerning which of two reasonable constructions is proper. Berryhill, 428 N.W.2d at 654; Gendler Stone Prod. Co. v. Laub, 179 N.W.2d 628, 631 (Iowa 1970). The test for ambiguity is an objective one: Is the language fairly susceptible to two interpretations? Central Bearings Co. v. Wolverine Ins. Co., 179 N.W.2d 443, 445 (Iowa 1970). Because a contract is to be interpreted as a whole, it is assumed in the first instance that no part of it is superfluous; an interpretation which gives a reasonable, lawful, and effective meaning to all terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect. Fashion Fabrics, 266 N.W.2d at 26. Under this principle, the phrase cannot economically utilize must mean something different from the language following it that refers to how cheaply ISU could obtain coal on the open market. Otherwise, the alternative triggering event for price renegotiation would be rendered superfluous. Furthermore, the second triggering event specifically refers to the conditions under which Iowa Fuel's price could be found unreasonable in light of comparable coals being offered at a lower price for time periods equal to the remaining term of the contract. A second principle of construction applicable here provides that when a contract contains both general and specific provisions on a particular issue, the specific provisions are controlling. Mopper v. Circle Key Life Ins. Co., 172 N.W.2d 118, 126 (Iowa 1969); Schlosser v. Van Dusseldorp, 251 Iowa 521, 526, 101 N.W.2d 715, 718 (1960). The contract in this case contains specific and unambiguous provisions regarding when renegotiation could be demanded based on Iowa Fuel's price. We also note the first sentence in the Termination section of the contract does not refer to economic concerns at all and, therefore, is not a trigger for price renegotiation. If Iowa Fuel's coal became unsuitable for combustion, ISU could either terminate the contract or buy in reduced quantities. For example, if changes in ISU's coal plant required a conversion process costing thousands of dollars over ISU's budget, the first sentence might apply, even though the coal was suitable for combustion. Since ISU did not demand renegotiation in 1983 because it could not afford Iowa Fuel's coal and because the record is void of any other evidence showing that Iowa Fuel's coal was unsuitable for combustion, the first sentence is inapplicable. A third principle of contract construction provides that a contract will not be interpreted giving discretion to one party in a manner which would put one party at the mercy of another, unless the contract clearly requires such an interpretation. Midwest Management Corp. v. Stephens, 291 N.W.2d 896, 913 (Iowa 1980); Harvey Constr. Co. v. Parmele, 253 Iowa 731, 741-42, 113 N.W.2d 760, 766 (1962). Based on this principle, Iowa Fuel says it must not be totally at ISU's mercy whenever ISU felt, for whatever reason, it might be able to save Iowa taxpayers' money. A fourth principle of contract construction provides that while words are to be given their ordinary meaning, particular words and phrases in a contract are not to be interpreted in isolation. Connor v. Thompson Constr. & Dev. Co., 166 N.W.2d 109, 112 (Iowa 1969); Rotterman v. General Mills, Inc., 61 N.W.2d 718, 721 (Iowa 1954). ISU relies heavily on the dictionary definitions of economical and utilize to provide ordinary meanings for these terms as used in the contract. However, defendants' argument places such inordinate emphasis on the adverb economically that they completely lose the verb utilize and the object coal. In construing the language If the University cannot economically utilize the coal supplied under this contract, the trial court made these findings of fact: At a time when ISU was paying $1.89 per million BTU's the University of Iowa and the University of Northern Iowa were paying substantially less. The parties negotiated and a reduced price was agreed upon. Although IFM was not happy, the parties did reach an agreement. While the advantage was with ISU in the negotiations, because it could buy coal cheaper from other suppliers, the Court finds that the claims of IFM that the price reduction was arbitrary and capricious is without merit. The parties negotiated and reached an agreement. On July 12, 1983 ISU responded to IFM's pricing proposal of $1.71 per million BTU's with a proposal of its own. That is, that IFM supply coal at $1.67 per million BTU's. IFM took this as a take-it-or-leave-it offer and because of IFM's position in the market, the offer was accepted. No counterproposal was made by IFM. IFM had invested large sums of money to service this contract. Further, 95% of its business was with ISU. The Court notes that the contract provided that Every effort will be made by the University and bidder to negotiate in good faith a mutually acceptable price for the coal ... Since ISU drew up the contract, the Court concludes that it required both sides to negotiate in good faith and not in bad faith. However, the above scenario falls short of showing ISU negotiated in bad faith; that is to say, ISU did not negotiate in good faith. The court of appeals held that error by the trial court occurred here because it must have based its decision, by implication, on a construction by ISU that was absurd. That construction assumed that ISU could demand a renegotiation anytime it felt the need to be thrifty. Our examination of the record shows that while ISU's argument for an unambiguous plain meaning is strongly urged, it does not go that far. Neither does the trial court's interpretation. ISU also argues that the economically utilize sentence is designed to provide relief to ISU when coal prices have declined as in the present case. The latter part of the sentence on renegotiation of price in the contract only applies to price escalations and is keyed to other comparable coal prices. Although ISU believes the phrase is unambiguous, its own arguments together with those of Iowa Fuel and the court of appeals display considerable ambiguity. As such, there was sufficient reasonableness in the position taken by ISU that it had a contract right to demand a renegotiation of price based on economic utilization. The conference between ISU and Iowa Fuel was found by the trial court to have resulted in a reduced price by negotiation. ISU was found to have not violated the good faith provision in the contract. In this law action, we conclude that there is substantial evidence to support the trial court's findings. Appellate courts are bound by them. See Iowa R.App.P. 14(f)(1). Accordingly, we vacate the decision of the court of appeals and affirm the district court on this issue. II. Iowa Fuel further contends that the trial court erred in failing to find that the coal delivered in fiscal year 1985-86 satisfied its contractual obligation. Iowa Fuel also asserts that cancellation of the contract was not warranted even if it was found to be in breach of contract for delivering insufficient quantities. The record clearly indicates that Iowa Fuel repeatedly failed to provide the quantity and quality of coal for which it had contracted. Iowa Fuel had shortfalls of 21,595 tons, 19,428 tons, and 7,816 tons in the three fiscal years between 1983 and 1986. These were shortfalls of 21.60%, 19.43%, and 9.77% of the expected amounts. Iowa Fuel placed considerable evidence in the record in an attempt to excuse its shortfalls and to show compliance with the contract. Iowa Fuel attempts to show that the parties had agreed to allow the supply to vary by ten percent of the expected amount. The district court found that Iowa Fuel failed in its burden to show the termination was wrongful and we agree. ISU had a right to terminate the contract for failure to supply the stipulated quantities. Iowa Fuel also contends that its shortfalls were excused. Although the trial court alluded to the possibility that the shortcomings by [Iowa Fuel] may have been excused, and indeed it was for several years, it obviously found that strict performance had not been excused. Further, the record indicates that ISU remained concerned about the quantity of coal Iowa Fuel was supplying throughout the 1983-86 period. Substantial evidence supports the trial court on this issue. DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT JUDGMENT AFFIRMED.