Opinion ID: 714635
Heading Depth: 3
Heading Rank: 1

Heading: Right to Terminate Under the Contract

Text: 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