Exxon Corp. v. Crosby-Mississippi Resources, Ltd.

United States Court of Appeals,
Fifth Circuit.
Nos. 93-7519, 93-7525.
EXXON CORPORATION, Plaintiff-Appellee, Cross-Appellant,
v.
CROSBY-MISSISSIPPI RESOURCES, LTD., A Mississippi Limited
Partnership, et al., Defendants-Appellants Cross-Appellees.
CROSBY-MISSISSIPPI, Plaintiff-Appellant,
v.
FLORIDA GAS TRANSMISSION COMPANY and Citrus Marketing, Inc.,
Defendants-Appellees.
Jan. 3, 1995.
Appeals from the United States District Court for the Southern
District of Mississippi.
Before POLITZ, Chief Judge, KING and DAVIS, Circuit Judges.
PER CURIAM:
I. FACTS AND PROCEDURAL HISTORY
Appeal No. 93-7519, involving a dispute between the parties to
an operating agreement, and appeal No. 93-7525, involving a dispute
between the parties to a gas-purchase contract, were consolidated
on appeal because they both involve similar contractual provisions
and the question of whether those provisions violate MISS.CODE ANN.
§ 15-1-5.
A. APPEAL NO. 93-7519
On April 3, 1985, Exxon, as operator, and Crosby Mississippi
Resources Limited (CMR), as non-operator, entered into a joint
operating agreement for the drilling, completion, and operation of
the Oliver Poole 4-1 Oil Well in Amite County, Mississippi.
1
Pursuant to the operating agreement, Exxon was in charge of "all
operations necessary or proper for the development, operation,
protection and maintenance" of the joint property. CMR was to
share in the costs of drilling the well as well as any royalties
derived from the drilling operation.
The parties utilized two standard form contracts to create
their joint operating agreement: Form 610 of the American
Association of Petroleum Landmen 1982 Model Form Operating
Agreement (form 610), and the Council of Petroleum Accountant
Societies (COPAS) Accounting Procedure Joint Operations. The COPAS
accounting procedure was developed for use in conjunction with form
610. The COPAS accounting procedure "allocates the liabilities and
expenditures for which all parties to the Joint Operating Agreement
will be responsible and defines the ways in which an Operator will
account for the costs incurred in operating an oil well." Exxon
Corp. v. Crosby-Mississippi Resources, Ltd., 775 F. Supp. 969, 972
(S.D.Miss.1991).
To recoup CMR's proportionate share of the costs associated
with drilling the well, Exxon sent CMR monthly billings, beginning
in February 1985, entitled "Joint Operations Statements."
Apparently, CMR received a monthly billing statement every month
from February 1985 through September 1988, except for February and
May of 1985. Exxon also sent CMR a monthly "Status of Account"
statement. The Status of Account statements showed the unpaid
balance due from the previous month and added current monthly
charges reflected on the Joint Operations Statements.
2
CMR never paid Exxon for its share of the expenses associated
with the oil well. Finally, on November 6, 1989, Exxon brought
suit against CMR and two general partners of CMR, Stewart Gammill,
III, and Lynn Crosby Gammill (collectively referred to as CMR),
seeking to recover the monies which CMR owed it under the joint
operating agreement. CMR answered, denying liability, and asserted
several defenses to Exxon's collection efforts. CMR asserted that
it was not liable for costs which were the result of Exxon's gross
negligence or willful misconduct. CMR further asserted that it was
not liable for charges made by Exxon in violation of the operating
agreement.
Shortly after the filing of the instant suit, serious
discovery disputes arose between the parties. CMR requested
information relating to the particulars of Exxon's expenditures in
developing the well. Exxon resisted CMR's efforts because it
believed that the COPAS accounting procedures foreclosed any
argument by CMR that the bills were improper. Specifically, Exxon
argued that the following provision of the COPAS accounting
procedures established a conclusive presumption concerning the
amounts which CMR owed under the joint operating agreement:
4. Adjustments
Payment of any such bills shall not prejudice the right of any
Non-Operator to protest or question the correctness thereof:
provided, however, all bills and statements rendered to Non-
Operators by Operator during any calendar year shall
conclusively be presumed to be true and correct after
twenty-four (24) months following the end of any such calendar
year, unless within the said twenty-four (24) month period a
Non-Operator takes written exception thereto and makes claim
on Operator for adjustment
3
(paragraph four). Likewise, CMR resisted Exxon's discovery
requests. CMR and Exxon both filed motions to compel, and a
hearing was held before a magistrate judge. The magistrate judge
ordered CMR to supplement portions of its discovery responses.
However, the magistrate judge held the rest of Exxon's discovery
requests "in abeyance" pending resolution of CMR's motion to
compel. Because Exxon's refusal to comply with CMR's discovery
requests was based on its assertion that the operating agreement
created a conclusive presumption as to the correctness of the
billing statements sent CMR, the magistrate judge suggested that
the discovery issue raised by CMR's motion to compel could be
disposed of by Exxon filing a motion for partial summary judgment.
Therefore, the magistrate judge declined to rule on CMR's motion to
compel until a summary judgment motion had been filed and ruled on.
Exxon then filed a motion for partial summary judgment based
on the conclusive presumption established by paragraph four of the
COPAS accounting procedures. In response to Exxon's motion for
partial summary judgment, CMR contended, inter alia, that the
conclusive presumption violated MISS.CODE ANN. § 15-1-5. Section 15-
1-5 provides:
The limitations prescribed in this chapter shall not be
changed in any way whatsoever by contract between parties, and
any change in such limitations made by any contracts [sic]
stipulation whatsoever shall be absolutely null and void, the
object of this section being to make the period of limitations
for the various causes of action the same for all litigants.
Initially, the district court rejected CMR's contention that
paragraph four did not apply to a situation when no payments had
even been made. Exxon Corp. v. Crosby-Mississippi Resources, Ltd.,
4
775 F. Supp. 969, 974-75 (S.D.Miss.1991). Next, the district court
considered whether MISS.CODE ANN. § 15-1-5 rendered paragraph four
null and void. Id. at 975-76. The district court concluded that
paragraph four did not violate Mississippi law because the contract
provision created a "condition precedent to be met before
challenging the validity of monthly billing statements....
[paragraph four] merely enumerates time-based conditions as
predicates to a Non-Operator's right to challenge billing
statements, and does not create a statute of limitations in
violation of Miss.Code Ann. § 15-1-5." Id. at 976.
Following its determination that paragraph four did not
violate § 15-1-5, the district court concluded that even though
paragraph four created a conclusive presumption, the presumption
was not irrebuttable. Specifically, the district court determined
that the presumption could be rebutted upon a finding of fraud or
bad faith breach of contract. Id. The district court, however,
concluded that CMR had not propounded any evidence to demonstrate
fraud or bad faith breach of contract. Id. at 976-77.
The district court then addressed CMR's contention that the
conclusive presumption applies only if CMR actually received the
bills or statements. According to CMR, it never received billing
statements for the months of February and May of 1985; thus, the
conclusive presumption could not apply to those bills. While the
district court observed that the presumption should apply only if
CMR actually received the bills in question, it noted that CMR had
received "Status of Account" statements from Exxon which included
5
the billing amounts for February and May and found that the
presumption of correctness applied because paragraph four applies
to both "bills and statements."
By this point, the district court had concluded "that
[paragraph four] obligates a Non-Operator to satisfy bills not
excepted to in writing, in the absence of fraud or breach of
contract." The district court, however, declined to award Exxon
the full amount it had requested pursuant to its motion for partial
summary judgment based upon its conclusion that there was a fact
issue as to whether CMR's answer and discovery requests had
satisfied paragraph four's requirement of a written exception for
bills and statements rendered after January 1, 1987. In other
words, if CMR's answer constituted a written exception under
paragraph four, the conclusive presumption would not apply to
billings rendered after January 1, 1987, because CMR would have
taken written exception within twenty-four months following the end
of the calendar year that those bills were received by CMR. In
light of its rulings, the district court entered a partial summary
judgment for Exxon in the amount of $428,668.76.
After a bench trial concerning the meaning of the terms
"written exception" and "claim for adjustment," the district court
concluded that CMR's answer and discovery requests were not written
exceptions under paragraph four.1 Thus, the court concluded that
each of the bills and statements sent by Exxon to CMR was
1
CMR does not appeal from the district court's determination
that its answer and discovery requests were not "written
exceptions" pursuant to paragraph four.
6
conclusively presumed to be true and that Exxon was entitled to
judgment for the entire amount billed.
Following its ruling, the district court instructed the
parties to attempt to resolve the amount of interest and attorneys'
fees CMR owed Exxon under the joint operating agreement. Not
surprisingly, the parties were unable to reach an agreement. The
district court considered the remaining issues by way of affidavits
and post-trial briefs. The following provision governed the amount
of interest owed by CMR under the agreement:
Each Non-Operator shall pay its proportion of all bills within
thirty (30) days after receipt. If payment is not made within
such time, the unpaid balance shall bear interest monthly at
the rate of twelve percent (12%) per annum or the maximum
contract rate permitted by the applicable usury laws in the
state in which the Joint Property is located, whichever is the
lesser, plus attorney's fees, court costs, and other costs in
connection with the collection of unpaid amounts.
Exxon argued before the district court that the contract called for
compound interest; CMR asserted that the contract called for
simple interest. Exxon argued that because it "included in its
bills and statements interest for the period prior to the end of
December 1986, interest is also covered by the operating
agreement's conclusive presumption of correctness." First, the
district court concluded that because " "the Joint Operations
Statements' are the "bills and statements' contemplated under the
COPAS Accounting Procedure and the "Status of Account Statements'
are not, and since Exxon set forth its claimed interest only on the
"Status of Account Statements,' the conclusive presumption does not
apply." Second, based on a COPAS bulletin, which explains the
COPAS accounting procedures, the district court determined that the
7
contract provided for the application of simple interest and not
compound interest.
On July 19, 1993, the district court entered a final judgment
against the defendants jointly and severally in the amount of
$781,531.82. The district court's final judgment further provided
that $304,041.97 of the judgment would bear interest at the simple
interest rate of 12% per annum from July 1, 1993, until paid.
After the entry of final judgment, Exxon and CMR each filed a
notice of appeal. On appeal, CMR asserts that the district court
erred (1) in determining that paragraph four did not violate
MISS.CODE ANN. § 15-1-5, (2) in determining there was no material
issue of fact as to whether CMR had rebutted paragraph four's
conclusive presumption, (3) in refusing to stay its ruling on
Exxon's motion for partial summary judgment pending additional
discovery, and (4) in determining that paragraph four's conclusive
presumption applied to statements for the months of February and
May of 1985 when CMR never received billing statements for those
months. Exxon cross-appeals and asserts that the district court
erred (1) in determining that paragraph four's conclusive
presumption did not apply to the interest which Exxon had charged
CMR pursuant to the contract, and (2) in determining that Exxon was
entitled to simple interest and not compound interest.
B. APPEAL NO. 93-7525
This appeal involves the sale of natural gas from the
Poplarville gas field in Pearl River County, Mississippi. CMR owns
a portion of the mineral interests in the Poplarville Field in
8
Pearl River County, Mississippi. Exxon also owns a significant
interest in a number of the producing wells in the Poplarville
Field. In 1985, Exxon entered into a gas-purchase contract (Exxon
contract) with Florida Gas Transmission Company (FGT). Pursuant to
the Exxon contract, FGT was to purchase natural gas from Exxon
which was attributable to Exxon's interests in the Poplarville
Field.
Following the successful negotiations with Exxon, FGT
approached CMR about purchasing CMR's gas in the Poplarville Field.
On August 15, 1986, CMR and FGT executed a contract for FGT to
purchase gas from CMR. The contract between CMR and FGT was
actually a copy, with certain modifications, of the Exxon contract.
Article VII of the contract determined the price which FGT was
to pay CMR for the gas. Paragraph 1(a), of Article VII, provided
that for the first ninety days following the initial delivery of
gas, the total price payable under the contract "inclusive of all
taxes and other payments to or on behalf of Seller, shall be two
dollars and fifty-five cents ($2.55) per MMBTU." Following this
initial three-month period, paragraph 1(b) provided that for the
next twelve months the total price for the gas "inclusive of all
taxes and other payments to or on behalf of Seller, shall be the
lower of two dollars and seventy-five cents ($2.75) per MMBTU or
eighty percent (80%) of the equivalent MMBTU price of No. 6 Fuel
Oil." Paragraph 1(c) provided that the price following the initial
three-month period and the subsequent twelve-month period was
"inclusive of all taxes and other payments to or on behalf of
9
Seller, shall be seventy-five percent (75%) of the equivalent MMBTU
price of No. 6 Fuel Oil." However, paragraph 1(c) further
contained a floor or minimum price provision. The contract
provided that the floor price was "the price being paid for gas
qualifying for Section 109 of the NGPA."2
Once the pricing provisions of paragraph 1(c) took effect,
paragraph two of Article VII gave FGT the right to "market out."
Essentially, this right to "market out" allowed FGT to set its own
price for the gas. However, once FGT exercised its right to
"market out," paragraph two provided CMR with the right to accept
FGT's proposed price or to cancel the contract.
On March 4, 1987, the pricing provisions of paragraph 1(c) of
the contract were to become effective. In order to avoid paragraph
1(c)'s floor provision, FGT proposed, on February 3, 1987, an
extension of the current pricing provision until both parties could
agree on a new price or until March 31, 1987, whichever was
earlier. CMR agreed to FGT's written proposal.
Because the February 3 letter agreement expired on March 31,
1987, FGT, on March 31, 1987, sent another letter proposing a
second price extension until May 31, 1987, or until both parties
could agree on a new price. CMR agreed to this written proposal by
signing and returning the letter agreement.
After the March 31, 1987, letter agreement expired, the
parties did not enter into another written modification of the
2
The parties stipulated that "NGPA" refers to the Natural
Gas Policy Act of 1978, 15 U.S.C. § 3301 et seq.
10
contract. Therefore, pursuant to the express terms of the
contract, paragraph 1(c), with its floor price, governed the price
payable. Even though the parties never entered into a formal
modification agreement, they did negotiate towards the development
of a mutually agreeable price provision.
On June 4, 1987, FGT sent CMR a fax requesting a waiver of the
floor provision. Thereafter, about June 9, 1987, FGT sent CMR
three duplicate originals of a revised draft of the proposal which
FGT had faxed on June 4, 1987. The terms of the proposal, in
pertinent part, provided:
In lieu of FGT exercising its market-out right as set forth in
Article VII, Paragraph 2 of said Contract, the parties hereby
agree that, for the period commencing June 1, 1987 and
thereafter until this agreement is terminated by either party
upon prior written notice (i) FGT shall purchase, to the
extent that such gas is made available to FGT, 100% of the gas
dedicated by [CMR] under said Contract, and (ii) Crosby shall
waive the NGPA Sec. 109 floor price set forth in Article VII,
Paragraph 1.(c), for as long as this agreement is in effect.
It is undisputed that CMR did not execute and return any of the
duplicate originals to FGT.
Even though CMR failed to execute the contract, FGT began
performing as if this agreement was in full force. The price which
FGT was paying CMR and the price which the express terms of the
parties' agreement called for were significantly different. For
the period from June 1, 1987, to January 31, 1992, including
prejudgment interest, the record suggests that the principal amount
of the underpayments amounted to over seven million dollars.
At the end of 1991, FGT assigned its rights under the
gas-purchase contract to Citrus Marketing Inc. (Citrus).
11
Apparently, because Citrus would now be performing under the
gas-purchase contract, CMR had its legal counsel review the
contract. Finally, in late 1991, CMR claims to have discovered
that FGT had been paying it less than the floor price since June
1987. On December 31, 1991, CMR filed suit, seeking to recover the
difference between the amount actually paid by FGT and the amount
FGT would have paid pursuant to the § 109 floor price. After
learning that CMR was now objecting to the price which it had
continuously accepted for over four years, Citrus exercised its
right to "market out."
Subsequently, CMR filed an amended complaint adding Citrus as
a defendant. FGT and Citrus filed an answer and a counterclaim
alleging fraud. On February 2 and 3, the district court held a
bench trial. The district court initially noted that CMR could not
challenge the validity of the amounts paid by FGT "as to which the
statements from the defendants to the plaintiff itemizing such
purchases were rendered more than two years prior to plaintiff's
objecting to the defendants as to the accuracy of such statements."
Crosby-Mississippi Resources v. Florida Gas Transmission Co., 815
F. Supp. 977, 979 (S.D.Miss.1993).3 Specifically, the district
court determined that the contract's presumption of accuracy
applied to all statements for gas sold prior to November 1989. Id.
Next, the district court determined that the parties, sometime
before June 4, 1987, entered into a verbal agreement, the terms of
3
The district court found that CMR did not object to FGT's
failure to pay the § 109 floor price until December 30, 1991.
Crosby-Mississippi Resources, Co., 815 F. Supp. at 979.
12
which were the same as the proposal set forth in the letter dated
June 4. Id. at 980. The district court further found that Stewart
Gammill III knew from June of 1987 forward that CMR was not being
paid the § 109 floor price. Id. Even though the district court
determined that the parties had entered into an oral modification
of the contract, it concluded it was unenforceable under MISS.CODE
ANN. § 75-2-209 (1971). Id. However, the district court then
found that "this is a classic case for waiver under subsection (4)
of MISS.CODE ANN. § 75-2-209 since there was an attempt at
modification or rescission." Id. The district court further
determined that a stamped notation on the backs of the checks was
ineffective to demonstrate that CMR's course of conduct over four
and a half years did not constitute a waiver of the § 109 floor
price. Id. at 981. In sum, the district court concluded that FGT
had proven its affirmative defense of waiver under the UCC and that
CMR should take nothing.
II. STANDARDS OF REVIEW
We review the granting of summary judgment de novo, applying
the same criteria used by the district court in the first instance.
Conkling v. Turner, 18 F.3d 1285, 1295 (5th Cir.1994). First, we
consult the applicable law to ascertain the material factual
issues. King v. Chide, 974 F.2d 653, 655-56 (5th Cir.1992). We
then review the evidence and inferences to be drawn therefrom in
the light most favorable to the nonmoving party. Lemelle v.
Universal Mfg. Corp., 18 F.3d 1268, 1272 (5th Cir.1994); Federal
Deposit Ins. Corp. v. Dawson, 4 F.3d 1303, 1306 (5th Cir.1993),
13
cert. denied, --- U.S. ----, 114 S. Ct. 2673, 129 L. Ed. 2d 809
(1994). Summary judgment is proper "if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with
the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to judgment
as a matter of law." FED.R.CIV.P. 56(c).
A district court's findings of fact must be accepted unless
clearly erroneous; a district court's conclusions of law are
reviewable de novo. Prudhomme v. Tenneco Oil Co., 955 F.2d 390,
392 (5th Cir.), cert. denied, --- U.S. ----, 113 S. Ct. 84, 121
L. Ed. 2d 48 (1992). The interpretation of an unambiguous contract
is a question of law and is therefore subject to our de novo
review. Haber Oil Co. v. Swinehart (In re Haber Oil), 12 F.3d 426,
443 (5th Cir.1994). The initial question of whether a contract is
ambiguous is also a question of law. Id.
III. DISCUSSION
A. APPEAL NO. 93-7519
1. MISS.CODE ANN. § 15-1-54
Initially, we address the question of whether paragraph four
of the COPAS accounting procedures violates MISS.CODE ANN. § 15-1-5.
As noted above, § 15-1-5 provides:
The limitations prescribed in this chapter shall not be
4
Although appeal No. 93-7519 was consolidated with appeal
No. 93-7525 because they both involved the question of whether
the contracts at issue violated § 15-1-5, we need not address
whether the contract provision at issue in the latter appeal
violated § 15-1-5 because CMR clearly waived enforceability of
the floor provision, thus rendering the § 15-1-5 discussion
unnecessary. See Part B infra.
14
changed in any way whatsoever by contract between parties, and
any change in such limitations made by any contracts [sic]
stipulation whatsoever shall be absolutely null and void, the
object of this section being to make the period of limitations
for the various causes of action the same for all litigants.
As we have already stated, CMR contends that paragraph four
violates this provision of Mississippi law. Paragraph four bears
repeating:
4. Adjustments
Payment of any such bills shall not prejudice the right of any
Non-Operator to protest or question the correctness thereof:
provided, however, all bills and statements rendered to Non-
Operators by Operator during any calendar year shall
conclusively be presumed to be true and correct after
twenty-four (24) months following the end of any such calendar
year, unless within the said twenty-four (24) month period a
Non-Operator takes written exception thereto and makes claim
on Operator for adjustment.
In finding that paragraph four did not violate MISS.CODE ANN.
§ 15-1-5, the district court concluded that "contractual conditions
precedent that must be met for rights to accrue do not violate
Miss.Code Ann. § 15-1-5." Exxon Corp. v. Crosby-Mississippi
Resources Ltd., 775 F. Supp. 969, 975 (S.D.Miss.1991). The district
court went on to conclude that the provision at question created
conditions precedent to be met before challenging the validity of
monthly billing statements. Id. at 976. In reaching this
conclusion, the district court relied on cases in which Mississippi
courts had upheld notice provisions in insurance contracts. Id. at
975-76.
For example, in Brander v. Nabors, the district court held
that a provision in a "claims made" medical malpractice insurance
policy requiring a claim to be made against the insured within
15
thirty-six months of the policy's termination date did not violate
§ 15-1-5. 443 F. Supp. 764, 770-72 (N.D.Miss.), aff'd, 579 F.2d 888
(5th Cir.1978). The pertinent provision of the insurance policy at
issue in Brander provided:
5. In the event of
(a) the expiration of this Insurance by reason of nonrenewal,
...
then this Insurance shall extend, subject otherwise to its
terms, limitations, exclusions and conditions, to apply to
claims made against the Assured during the thirty-six calendar
months following immediately upon such expiration or
termination but only for Malpractice committed or alleged to
have been committed between the Retroactive Date [the
beginning date of the policy] and such expiration or
termination.
Id. at 766.
Under the terms of the policy, coverage extended to all acts
of malpractice committed by the insured while the policy was in
force. However, the policy limited its coverage to claims made
against the insured within thirty-six months of the policy's
termination. In Brander, suit was brought against the insured
fifty-two months after the policy terminated for malpractice
allegedly committed while the policy was in force. Id. at 767.
The insurer claimed it was not liable under the policy because no
claim was made against the insured within thirty-six months
following the termination of the policy. Id. The insured argued
that the policy's thirty-six month notice provision violated § 15-
1-5 because it impermissibly shortened the applicable statute of
limitations. Id. The district court determined that the question
to be answered in the case was whether "the restrictions as to time
16
articulated in the policy, during which claims must be made against
the assured, are valid conditions precedent to the insurer's
liability or impermissible attempts to shorten the state's
applicable" statute of limitations. Id. at 770-71. The district
court found that the "policy limitations relating to the time
within which a claim must be made against the assured are valid
conditions precedent to the insurer's liability and are not
violative of § 15-1-5." Id. at 772; see Cox v. Lamar Life Ins.
Co., 208 Miss. 146, 43 So. 2d 884, 886 (1950) (holding that a
provision in a life insurance policy which allowed for the waiver
of premiums and a monthly income if the insured supplied the
insurer with proof of permanent disability by the anniversary date
of the policy nearest the insured's sixtieth birthday was a
condition precedent to the insurer's liability and therefore not a
restriction on the applicable statute of limitations).
CMR argues that cases such as Brander are inapplicable to the
present issue because the notice provisions in those cases were
valid conditions precedent to liability, while the contractual
provision in this case limits the time within which a party may act
to enforce his rights. As support for its contention that the
provision at issue in this case violates Mississippi law, CMR
relies on Dodson v. Western Union Telegraph Co., 97 Miss. 104, 52
So. 693 (1910), and Illinois Central Railroad Co. v. Jordan, 108
Miss. 140, 66 So. 406 (1914).
In Dodson, the plaintiff sued Western Union for its failure to
deliver a telegram. 52 So. at 693. Western Union contended that
17
the following provision relieved it of any liability:
The company will not hold itself liable for errors or delays
in transmission or delivery of unrepeated messages, beyond the
amount of tolls paid thereon, nor in any case where the claim
is not presented in writing within sixty days after the
message is filed with the company for transmission.
Id. Dodson failed to present his claim within sixty days, and the
lower court determined that this failure precluded him from
recovering any damages from the company. Id. On appeal, the
Mississippi Supreme Court noted that it had previously upheld a
provision such as this as a valid "condition precedent, with which
the claimant must comply or lose his claim, and if he does comply
he may sue within the time limited by the statute, and that it is
not a limitation but a reasonable regulation." Id. The court,
however, noted that a recently passed statute, § 3127—predecessor
to § 15-1-5—was intended to void contractual provisions which have
the effect of shortening the applicable statute of limitations.
Id. The court concluded that "[a]ll contracts which directly or
indirectly have that effect are condemned." Id. at 694. On
suggestion for rehearing, the court noted that previous cases
upholding provisions such as this were, in essence, overruled by
the new statute. Id.
Likewise, in Illinois Central Railroad Co. v. Jordan, the
Mississippi Supreme Court determined that a provision in a bill of
lading which stated that
[i]t is further agreed by the shipper that no claim for loss
or damage to stock shall be valid against said railroad
company unless it shall be made in writing, verified by
affidavit, and delivered to the general freight agent of the
company at the station from which the stock is shipped, or the
agent of the company at the point of destination, within 10
18
days from the time said stock is removed from the cars
was invalid as an improper attempt to change the applicable statute
of limitations. 66 So. at 406.
Based on Dodson and Jordan, CMR asserts that the contractual
provision at issue is an improper attempt to shorten the applicable
statute of limitations.5 Certainly, the broad language in Dodson
and its rejection of previous cases upholding notice provisions as
proper conditions precedent would certainly appear to control the
instant case. However, we believe that the full import of Dodson
and Jordan has been limited by subsequent decisions by the
5
CMR also attempts to rely on Smith v. Orkin Exterminating
Co., Inc., to support its contention that paragraph four violates
Mississippi law. 791 F. Supp. 1137 (S.D.Miss.1990), aff'd, 943
F.2d 1314 (5th Cir.1991). However, we do not find Smith to be
applicable to this case. In Smith, the court was confronted with
the question of whether a contractual limitation of remedies
provision was enforceable under Mississippi law. Id. at 1140.
The agreement contained a provision which provided for a one year
period in which to instigate suit. Id. at 1142. The plaintiff
argued that the provision calling for the instigation of suit
within one year was void under Mississippi law. Id. The
agreement further provided that the limitation of remedy
provision was "[s]ubject to the general terms and conditions" of
the contract. Id. Because the limitation of remedy provision
was "subject" to the allegedly void instigation of suit
provision, the plaintiff argued that the limitation of remedy
provision was likewise unenforceable. Id. The district court
rejected this argument because it determined it could "easily
sever the allegedly unenforceable clause from the remainder of
the contract without reforming the substance of the contract."
Id. However, the district court did not discuss whether the
provision providing for a one year time period to bring suit
violated Mississippi law. Further, the district court's opinion
does not indicate whether the plaintiff had violated the
provision. The district simply concluded that even if the
provision was invalid under Mississippi law, the limitation of
remedy provision was not automatically rendered void. Thus,
because the district court did not discuss the enforceability of
the contract's instigation of suit provision, the Smith decision
is of no help in resolving the issue before this court.
19
Mississippi Supreme Court.
For example, in Aetna Life Insurance Co. v. Walley, an insured
sued his insurer in an attempt to collect money he had spent in
settlement of a malpractice judgment entered against him, as well
as money expended in defending the original suit. 174 Miss. 365,
164 So. 16, 16 (1935). The insurer defended the suit on the
grounds that the insured had failed to comply with clauses A, B,
and C of the contract which provided:
A. Upon becoming aware of any malpractice, error or mistake,
or any allegation of such malpractice, error or mistake, the
Assured shall give immediate written notice thereof with the
fullest information obtainable at the time to the Company, or
its duly authorized agent. If claim is made on account of
such malpractice, error or mistake, or allegations thereof,
the Assured shall give like notice of such claim, together
with full particulars. The Assured shall, at all times,
render to the Company all co-operation and assistance in his
power.
Report and defense of suits.
B. If suit is brought against the Assured to enforce a claim
for damages covered by this policy, he shall immediately
forward to the Company every summons or other process as soon
as the same shall have been served on him, and the Company
will, at its own cost, defend such suit in the name and on
behalf of the Assured.
Co-operation of Assured. Expenses.
C. The Assured, whenever requested by the Company, shall aid
in securing information and evidence, and the attendance of
witnesses, and in prosecuting appeals, but the Assured shall
not voluntarily assume any liability or interfere in any
negotiations for settlement, or in any legal proceedings, or
incur any expense or settle any claim, except at his own cost
without the written consent of the Company previously given.
In construing the applicable provisions, the Walley court
noted that
[t]he requirements of clauses A, B, and C of the policy
conferred a valuable right upon the [insurer], the purpose of
20
which was to enable it to investigate a claim against the
appellee covered by the policy; to itself decide whether the
claim should be settled without litigation, and, if not, to
prepare its defense thereto, and should have been complied
with, unless compliance therewith was waived or excused under
some pertinent rule of law.
Walley, 164 So. at 19. In rejecting the insured's argument that
clauses A, B, and C of the contract were void as impermissible
restrictions on the applicable statute of limitations, the court
stated that the
notice here required in no way affects the time within which
suit must be brought on a policy, or within which notice must
be given of a liability claimed to have arisen thereunder.
The right of the insured to recover on this policy does not
arise, if at all, until the termination of a suit against him
for malpractice, and the time within which the insured must
sue on the policy begins when, but not until, the termination
of such a suit.
Id. at 19. The court concluded that these "clauses of the policy
relate only to things to be done before liability thereon becomes
fixed, and when such is the case [ ] Section 2294, Code of 1930, is
not violated." Id. at 19-20.
In Western Casualty and Surety Co. v. Honeywell, Inc., the
Mississippi Supreme Court considered whether the following
provision in a payment bond violated Mississippi public policy:
3. No suit or action shall be commenced hereunder by any
claimant:
a) Unless claimant, other than one having a direct contract
with the Principal, shall have given written notice to any two
of the following: the Principal, the Owner, or the Surety
above named, within 90 days after such claimant did or
performed the last of the work or labor, or furnished the last
of the materials for which said claim is made, stating with
substantial accuracy the amount claimed and the name of the
party to whom the materials were furnished, or from whom the
work or labor was done or performed.
380 So. 2d 1385, 1387 (Miss.1980). The payment bond at issue was
21
executed pursuant to Mississippi statutory law which required the
general contractor to execute a bond assuring that all persons
supplying labor or material would be promptly paid. Id. at 1388.
Mississippi statutory law did not address the question of whether
the notice provision at issue was a valid provision of the required
bond.6 Further, the applicable statute of limitations provided
that suit must be brought within one year of final settlement of
the construction contract. Id. at 1386.
Honeywell, a supplier of a subcontractor, did not have a
contract with the prime contractor, and, thus, was required, under
the terms of the payment bond, to give written notice before filing
an action to collect under the payment bond. Id. at 1387.
Honeywell, however, failed to furnish the required notice. Id.
Honeywell filed suit against the surety within the applicable
statute of limitations for a suit on a bond. Id. The trial court
concluded the ninety-day notice provision was repugnant to
Mississippi public policy. Id.
On appeal, the Mississippi Supreme Court determined that the
applicable notice provision did not violate public policy. The
precise question on appeal was whether the ninety-day notice
provision violated public policy as expressed in the applicable
statute of limitation which allowed for suit on the bond "to be
commenced [ ] after the complete performance of said contract and
6
The Mississippi Supreme Court noted that the ninety-day
notice provision contained in the bond is a mandatory provision
for federal construction contracts. Western Casualty and Sur.
Co., 380 So. 2d at 1387.
22
final settlement thereof, and shall be commenced within one year
after the performance and final settlement of said contract and not
later." Id. at 1386. Even though § 15-1-5 was not directly
applicable to the case, the court relied on its earlier decision in
Aetna Life Ins. Co. v. Walley, 164 So. 16 (1935) to conclude that
the ninety-day notice provision did not violate public policy.
Specifically, the court noted that, "[t]he 90 day notice provision
in the payment bond did not limit the time that Honeywell could
bring suit under section 31-5-7 [the applicable statute of
limitations] but related only to things to be done by Honeywell as
a supplier of a sub-contractor before Western Casualty became
liable to Honeywell." Western Casualty and Sur. Co., 380 So. 2d at
1388. Thus, the court concluded that the ninety-day notice
provision was a condition precedent to recovery by Honeywell. Id.
at 1390.
However, it must be noted that not all notice provisions
contained in insurance contracts have been upheld by the
Mississippi Supreme Court. In Latham v. United States Fidelity &
Guaranty Co., the Mississippi Supreme Court determined that the
following provision of a fidelity bond was an impermissible
restriction of the applicable statute of limitations:
No action shall lie against the Underwriter unless, as a
condition precedent thereto, there shall have been full
compliance with all the terms of this bond, not until ninety
days after the required proofs of loss have been filed with
the Underwriter, nor at all unless commenced within one year
from the date when the Insured discovers the loss. If any
limitation of time for notice of loss or any legal proceeding
herein contained is shorter than that permitted to be fixed by
agreement under any statute controlling the construction of
this bond, the shortest permissible statutory limitation of
23
time shall govern and shall supersede the time limitation
herein stated.
267 So. 2d 895, 896 (Miss.1972) (alteration in original). However,
Latham is distinguishable from the instant case. In Latham, the
contractual provision at question required the insured to bring
suit within one year of discovery of the loss even if the insured
had complied with all other requirements of the contract. It is
hard to imagine a provision which would more clearly violate § 15-
1-5 than this one.
Sitting in diversity, our quest is to determine how the
Mississippi Supreme Court would construe the provision at issue in
this appeal. We believe that, presented with the question before
us, the Mississippi Supreme Court would determine that paragraph
four of the COPAS accounting procedures does not violate § 15-1-5.
First, we note that this provision is different from other
provisions which the Mississippi Supreme Court has struck down
because it does not completely foreclose CMR from bringing suit
against Exxon. E.g., Latham, 267 So. 2d at 896 (striking down a
contractual provision which provided that an insurer could not
bring suit unless the suit was commenced within one year from when
the insurer discovered the loss). Rather, the provision creates an
evidentiary presumption, albeit a conclusive one, in favor of
Exxon's billing statements upon the non-operator's failure to take
exception to those statements within the applicable time period.7
7
We further note that paragraph four's requirements are
minimal. All the provision requires is that CMR, the
non-operator, send Exxon, the operator, a written exception to
any bill within two years. In fact, the operating agreement
24
If it is theoretically possible that paragraph four could be
interpreted as foreclosing a claim before the applicable statute of
limitations has run—a matter we need not decide—this is not such a
case. In the instant case, CMR has asserted defenses to Exxon's
collection efforts, but no affirmative claims for relief.
Specifically, CMR has interposed as an affirmative defense the
following: gross negligence, willful misconduct, and failure "to
meet the requirements of and satisfy the provisions of the
agreement." CMR does not, because it cannot, argue that its right
to pursue these affirmative defenses to avoid liability to Exxon is
subject to any limitation periods—statutory or otherwise. See
Distribution Servs. Ltd. v. Eddie Parker Interests, Inc., 897 F.2d
811, 813 (5th Cir.1990) (noting that a defense is never barred by
limitations so long as the plaintiff's main action itself is
timely). Thus, paragraph four cannot, in this case, act to
terminate CMR's defense to Exxon's suit prematurely. Even though
CMR has attempted to couch its defenses to Exxon's collection
further protects a non-operator, such as CMR, by granting it the
right to conduct an audit of Exxon's accounts and records. The
relevant provision provides:
A Non-Operator, upon notice in writing to Operator and
all other Non-Operators, shall have the right to audit
Operator's accounts and records relating to the Joint
Account for any calendar year within the twenty-four
(24) month period following the end of such calendar
year; provided, however, the making of an audit shall
not extend the time for taking of written exception to
and the adjustments of accounts as provided in
Paragraph 4 of this Section I.
In essence, the audit provision allows a non-operator to
conduct a fishing expedition.
25
efforts as claims for relief, these are really defenses in that
they seek to deduct from Exxon's recovery under the contract.
Further, even if CMR has asserted claims which were improperly
labeled as defenses, those claims were properly dismissed because
CMR failed to present any evidence in support, not because
paragraph four foreclosed them. See Part III.2 supra. Therefore,
under the facts presented in this case, we cannot say that
paragraph four violates Mississippi law as an impermissible limit
on any applicable statute of limitations.
2. Attacking the Presumption
Next, CMR asserts that the district court improperly granted
summary judgment for Exxon because there were material issues of
fact as to whether CMR could rebut paragraph four's conclusive
presumption. The district court determined that the conclusive
presumption established by the joint operating agreement could be
rebutted upon a showing of fraud or bad faith breach of contract.
Exxon Corp. v. Crosby-Mississippi Resources, Ltd., 775 F. Supp. 969,
976-77 (S.D.Miss.1991). However, the district court ultimately
granted Exxon's motion for partial summary judgment because CMR did
not submit any evidence to demonstrate it would be able to rebut
the conclusive presumption. Id. The district court further denied
CMR's request for additional discovery because it believed CMR
wished to conduct a fishing expedition. Id.
First, we address CMR's contention that the district court
improperly granted Exxon's motion for partial summary judgment
because of the existence of material issues of genuine fact. CMR
26
contends that the following allegations, contained in its discovery
responses, establish material issues of fact which should have
precluded summary judgment: (1) Exxon had failed to pay CMR its
share of the proceeds from the sale of production from the well,
and (2) Exxon had over-engineered the well by the use of "overly
designed and unneeded equipment8."
After reviewing the evidence which CMR cites us, we conclude
that the district court did not err in granting Exxon summary
judgment. Even assuming CMR's contention that Exxon's failure to
pay production proceeds would be relevant in rebutting the
conclusive presumption, CMR presents no evidence that such money
8
CMR's evidence in this regard is confined to the following
response to Exxon's interrogatories:
Defendants specifically question some expenditures
based upon an examination of the drillsite and
equipment by J. Terry Owen, petroleum engineer,
Jackson, Mississippi, consultant to Defendants, and
upon a conversation or conversations had between Mr.
Owen and an engineer of Exxon. Mr. Owen's onsite
examination led him to believe that the tank battery
for the subject well was far more than was needed for
this well. Likewise, Mr. Owen is of the opinion that
much of the surface equipment such as heater treaters,
was overdesigned in the sense that equipment of that
design and capacity was not needed for this well. In a
conversation with an engineer of Exxon, Mr. Owen
determined that Exxon was using heavy walled tubulars
of the type normally used when one encounters hydrogen
sulphide. The Exxon engineer indicated that it was
used because the Exxon research department recommended
such. In the opinion of Mr. Owen, and based upon his
knowledge of the situation, the use of such tubulars
was unnecessary as hydrogen sulphide has not been
encountered in wells drilled in the lower Tuscaloosa
formation in Mississippi.
CMR has not directed this court to any sworn statement by
Mr. Owen in support of these allegations.
27
was owing. In fact, in its discovery responses, CMR admits that
Exxon paid it the only amount which CMR was aware Exxon owed it.9
We further conclude that the other evidence which CMR proffered to
establish a genuine issue of fact is equally unavailing. See
Martin v. John W. Stone Oil Distrib., 819 F.2d 547, 549 (5th
Cir.1987) ("Neither the district court nor this court may properly
consider hearsay evidence in affidavits and depositions.").
Next, we address CMR's contention that the district court
erred in granting summary judgment without allowing it to complete
further discovery. CMR asserts it was unable to establish any of
its defenses because the district court granted Exxon summary
judgment before it was able to sufficiently conduct discovery and
obtain proof for its defenses. In denying CMR's request, the
district court determined it should not delay ruling on Exxon's
motion for summary judgment because CMR had not "set forth specific
instances of breach of contract, nor do they list the facts that
might support a showing of breach of contract. The Court will not
refrain from ruling on [Exxon's] Motion for Partial Summary
Judgment simply because [CMR] wish[es] to engage in speculative
discovery." Exxon Corp., 775 F. Supp. at 977.
9
We further note that the district court gave CMR credit for
production proceeds which Exxon had withheld. In its final
judgment of July 3, 1993, the district court stated that CMR is
"entitled to a credit of $26,895.10 as Defendants' share of
production proceeds held by Exxon Corporation for production
during the period of February, 1985 through February, 1986." CMR
has not argued on appeal that the amount which the district court
offset was incorrect or that the district court failed to offset
other withheld production revenues; rather, CMR argues only that
because Exxon wrongfully withheld production revenues, the
district court could not grant summary judgment.
28
We review a district court's decision to preclude further
discovery prior to granting summary judgment under the abuse of
discretion standard. Wichita Falls Office Assocs. v. Banc One
Corp., 978 F.2d 915, 918 (5th Cir.1992), cert. denied, --- U.S. ---
-, 113 S. Ct. 2340, 124 L. Ed. 2d 251 (1993). The party moving for a
continuance of discovery must establish three general requirements:
(1) request extended discovery prior to the district court's ruling
on summary judgment, (2) place the district court on notice that
further discovery pertaining to the summary judgment is being
sought, and (3) demonstrate to the district court how the requested
discovery pertains to the pending motion. Id. at 919.
Initially, we note that the district court did not err in
refusing discovery on matters which were foreclosed by the
conclusive presumption established by paragraph four of the
operating agreement. Many of CMR's discovery requests relate
solely to the appropriateness of Exxon's billing statements.
However, because Exxon's charges were deemed established, the
district court properly rejected CMR's request to extend discovery
to enable it to demonstrate the billings were inappropriate.
Calpetco 1981 v. Marshall Exploration, Inc., 989 F.2d 1408, 1417
(5th Cir.1993) (upholding district court's rejection of evidence to
dispute the validity of charges which were conclusively established
under the parties' operating agreement).
Further, we do not believe the district court abused its
discretion in denying CMR's request for additional discovery
concerning its remaining defenses. In its reply to Exxon's motion
29
for partial summary judgment, CMR's attorney attached an affidavit
outlining why CMR needed additional discovery to oppose Exxon's
motion. In his affidavit, CMR's attorney stated that his
"experience [had] led [him] to the conclusion that in an
undertaking as complex and expensive as the drilling of an oil
well, there is the reasonable probability of errors which would
constitute breaches of the [joint operating agreement] by the
Operator." We agree with the district court that CMR's request for
an extension of discovery was merely a request by CMR to conduct a
fishing expedition. Thus, we uphold the district court's denial of
CMR's request for additional discovery. Robbins v. Amoco Prod.
Co., 952 F.2d 901, 907 (5th Cir.1992) (upholding the district
court's denial of a motion for additional discovery because the
party's request "contains only the vague assertion that additional
discovery is needed"); Paul Kadair, Inc. v. Sony Corp. of Am., 694
F.2d 1017, 1030 (5th Cir.1983) (noting that Rule 56(f) cannot be
relied upon to defeat a motion for summary judgment "where the
result of a continuance to obtain further information would be
wholly speculative").
3. Does paragraph four's conclusive presumption apply to Exxon's
billing statements for February and May 1985
CMR asserts the district court erred in applying paragraph
four's conclusive presumption to amounts which Exxon billed it for
February and May 1985. CMR argued below that even if paragraph
four's conclusive presumption applied to Exxon's bills, it could
not apply to amounts which Exxon had attempted to bill for February
and May of 1985 because CMR never received billing statements for
30
those months. The district court determined that actual receipt of
the bill by CMR was required for the presumption of conclusiveness
to apply. Exxon Corp., 775 F. Supp. at 978. The district court
then noted that Exxon also prepared "Status of Account Statements"
which reflected the billing amounts for February and May 1985.
Because the Status of Account Statements reflected the charges
incurred in February and May 1985, the district court determined
that paragraph four's conclusive presumption attached to the
amounts billed for those months.
The Status of Account Statement which the district court found
reflected the charges incurred in February and May 1985 was issued
in December 1986. Our review of the record demonstrates that this
Status of Account Statement "reflects" the billing statements for
February and May 1985 by including them in the total which CMR owed
to Exxon. In other words, the statements did not specifically set
out what the billing amounts for February and May 1985 were. The
parties' joint operating agreement required Exxon to prepare bills
for the preceding month which "will be accompanied by statements
which identify the authority for expenditure, lease or facility,
and all charges and credits, summarized by appropriate
classifications of investment and expense except that items of
Controllable Material and unusual charges and credits shall be
separately identified and fully described in detail." Exxon's
Status of Account Statements are not detailed enough to satisfy the
joint operating agreement's billing requirements and therefore are
not entitled to the presumption of correctness afforded by
31
paragraph four.
4. Exxon's cross-appeal
On cross-appeal, Exxon asserts that the district court erred
in determining that the operating agreement called for simple
rather than compound interest. As stated earlier, the relevant
contractual provision provides:
Each Non-Operator shall pay its proportion of all bills within
thirty (30) days after receipt. If payment is not made within
such time, the unpaid balance shall bear interest monthly at
the rate of twelve percent (12%) per annum or the maximum
contract rate permitted by the applicable usury laws in the
state in which the Joint Property is located, whichever is the
lesser, plus attorney's fees, court costs, and other costs in
connection with the collection of unpaid amounts.
Exxon argued before the district court that the above
provision clearly and unambiguously calls for compound interest.
The district court, however, determined that the COPAS accounting
procedures called for the application of simple interest. In
reaching this conclusion, the district court relied on COPAS
bulletin No. 5. COPAS bulletins explain the COPAS accounting
procedures. Exxon argued that COPAS bulletin No. 5 was irrelevant
to the issue before the district court because bulletin No. 13 was
the current bulletin at the time the contract at issue was
executed. The district court, however, determined that bulletin
No. 5 was the applicable bulletin because a COPAS bulletin remains
effective until a subsequent bulletin expressly overrules it.
Because bulletin No. 13 did not expressly overrule No. 5, the
district court looked to that bulletin for guidance. Bulletin No.
5 stated that simple interest should accrue on all unpaid payments.
As further support for its contention that the joint operating
32
agreement provides for compound interest, Exxon relies on Texon
Energy Corp. v. Dow Chem. Co., 733 S.W.2d 328 (Tex.App.—Houston
[14th Dist.] 1987, writ ref'd n.r.e.). In Texon, the court
interpreted the following provision as clearly and unambiguously
providing for compound interest: "If payment is not made within
such time, the unpaid balance shall bear interest monthly at the
rate of twelve percent (12%) per annum." Id. at 331. The Texon
court rejected the argument that the term unpaid balance referred
to the unpaid principal balance because it believed that such a
construction rendered the term monthly "totally meaningless." Id.
CMR argues that Texon is not persuasive authority because
Mississippi law requires that a contract specify that interest will
be compounded while Texas does not have such a requirement. To
support this contention, CMR relies on this court's decision in
Stovall v. Illinois Cent. Gulf R.R., 722 F.2d 190 (5th Cir.1984).
In Stovall, we considered "whether interest awarded by a 1981
judgment was intended to be computed on a simple basis or instead
to be compounded annually." Id. at 191. We concluded that
pre-judgment interest was to be compounded annually and
post-judgment interest was to be compounded on a simple basis. Id.
We concluded that MISS.CODE ANN. § 75-17-1(1), which provided that
the legal rate of interest was to be "six percent (6%) per annum,
calculated according to the actuarial method," had the "technical
meaning that interest be computed at the specified rate, compounded
annually." Id. at 192. Thus, we upheld the district court's
determination that pre-judgment interest should be computed at six
33
percent per annum, compounded annually. Id.
In determining the proper rate of interest for post-judgment
interest, we construed MISS.CODE ANN. § 75-17-7, which provided that
judgments on accounts " "shall bear interest at the rate of eight
percentum (8%) per annum' " as providing for simple interest. Id.
In reaching this conclusion, we noted that the general rule is that
"when interest is allowable, it is to be computed on a simple
rather than compound basis in the absence of express authorization
otherwise." Id.
However, even if Mississippi follows the general rule that
when interest is allowed it is to be computed on a simple rather
than compound basis absent express authorization, we believe that
the contract provision at question unambiguously and as a matter of
law calls for compound interest. Therefore, we reverse the
district court's determination that the joint operating agreement
between Exxon and CMR provided for simple interest.
In conclusion, we affirm the district court's determination
that paragraph four of the COPAS accounting procedures, as applied
here, did not violate § 15-1-5, reverse the district court's
determination that the conclusive presumption applies to the
amounts Exxon billed CMR for February and May 1985, and reverse the
district court's determination that the joint operating agreement
called for simple interest.
B. APPEAL NO. 93-7525
The principal issue in this case is whether CMR has waived
the gas-purchase contract's floor pricing provision which required
34
FGT to pay a price for CMR's gas not less than the price set forth
under § 109 of the NGPA. The resolution of this case is controlled
by the Uniform Commercial Code (UCC), which has been adopted by
Mississippi. MISS.CODE ANN. § 75-2-107(1) (1981) ("A contract for
the sale of minerals or the like (including oil and gas) ... is a
contract for the sale of goods within this chapter....)
(parenthesis in original). The applicable statutory provisions
include MISS.CODE ANN. § 75-2-208(3), and § 75-2-209(2), (4).
Section 75-2-209(2) provides: "A signed agreement which
excludes modification or rescission except by a signed writing
cannot be otherwise modified or rescinded, but except as between
merchants such a requirement on a form supplied by the merchant
must be separately signed by the other party." This provision
allows the parties to a contract to expand the UCC's statute of
frauds provision. Thus, the parties may include in their contract
a provision which requires any modification or rescission of the
contract to be writing.
However, the UCC limits the effect of this provision by
providing that "[a]lthough an attempt at modification or rescission
does not satisfy the requirements of subsection (2) or (3) [75-2-
209(2), (3) ] it can operate as a waiver." MISS.CODE ANN. § 75-2-
209(4) (1981). The UCC further provides that "[s]ubject to the
provisions of section 75-2-209 on modification and waiver, such
course of performance shall be relevant to show a waiver or
modification of any term inconsistent with such course of
performance." MISS.CODE ANN. § 75-2-208(3) (1981). Thus, "[t]he
35
combination of §§ [75-2-208(3) and 75-2-209(4) ] establishes that
the parties course of performance after execution of the contract
can operate as a waiver of specific contractual provisions." T.J.
Stevenson & Co. v. 81,193 Bags of Flour, 629 F.2d 338, 365 (5th
Cir.1980).
In the instant case, the district court determined that CMR
had waived enforcement of the § 109 floor price. Crosby-
Mississippi Resources v. Florida Gas Transmission, 815 F. Supp. 977,
981 (S.D.Miss.1993). First, the district court determined that
Stewart Gammill III "was aware from June 1987 forward that [CMR]
was not being paid according to the 109 floor price even though
[Stewart Gammill III] might not have known the exact amount of the
floor price." Id. at 980. The district court concluded that CMR
and FGT unsuccessfully attempted to modify the terms of the
gas-purchase contract. Id. at 980-81. However, even though the
attempt at modification proved unsuccessful because it was never
put forth in a signed writing, the district court determined that
CMR knew it was not being paid according to the § 109 floor
provision and, because it continued to accept payment at a lower
price, it had waived the contract's floor provision. Id. at 981.
On appeal, CMR asserts that the district court erred because
it erroneously interpreted the following contractual provision:
This Contract constitutes the entire agreement between the
parties and no waiver, representation, or agreement, oral or
otherwise, shall affect the subject matter hereof unless and
until such waiver, representation or agreement is reduced to
writing and executed by authorized representatives of the
parties.
According to CMR, the preceding "no waiver" provision precludes a
36
finding of waiver because the provision expressly provides that no
waiver is enforceable unless it is in writing. In response to this
argument, the district court determined that the use of the word "
"waiver' was not used as a term of art attempting to bring this
contract out from subsection (4) of Miss. Code Ann. § 75-2-209
(1972)." Id. at 979. Rather, the district court determined that
the word waiver was basically used synonymously for modification.
Id.
As further support for its position, CMR relies on cases which
have refused to recognize oral waivers in the face of no waiver
clauses. See, e.g., Marlowe v. Argentine Naval Comm'n, 808 F.2d
120, 123 (D.C.Cir.1986). For example, in South Hampton Co. v.
Stinnes Corp., 733 F.2d 1108 (5th Cir.1984), this court rejected
South Hampton's argument that a contractual provision had been
waived. In South Hampton, we determined that Stinnes was justified
in cancelling its contract with South Hampton because South Hampton
had failed to construct shore tank facilities which were to be used
to determine the quantity and quality of the product delivered to
Stinnes, the buyer. Id. at 1116. In an effort to demonstrate that
Stinnes had wrongfully cancelled the contract, South Hampton argued
that the parties had agreed to change the contract's delivery
requirements such that failure to construct shore tank facilities
would not justify cancellation of the contract. Id. at 1117.
According to South Hampton, the new delivery agreement was not a
modification of the contract but a "waiver." Id. We concluded
that the following contractual provision foreclosed South Hampton's
37
position: "[T]he contract may not be changed or terminated orally
and no attempted change, termination or waiver of any of the
provisions hereof shall be binding unless it is in writing." Id.
In essence, South Hampton argued that it had waived enforcement of
the original terms of the contract, which were intended to operate
for its benefit. We emphasized the novelty of South Hampton's
position:
We note that South Hampton, in its offensive use of waiver
theory, has taken a somewhat novel position. It insists that
it, not Stinnes, has waived the shore tankage requirement.
Consequently we are not called upon to decide if Stinnes's
acceptance of product delivered on an out-turn basis
constitutes a waiver of the shore tank requirement.
Similarly, South Hampton has not argued that Stinnes' actions
could be construed as a ratification of any modification.
Id. at 1118 n. 14. While we did determine that a no oral
modification clause precluded South Hampton's waiver argument, we
did not address the issue presented in this case.
Next, CMR attempts to attack the district court's decision by
arguing that the district court erroneously concluded that it had
affirmatively waived enforcement of the floor provision. First,
CMR contends that the parties' previous course of performance in
altering the gas-purchase contract's pricing provision demonstrates
that it did not intend to waive the floor provision. Specifically,
CMR asserts that this course of performance shows that the parties
did not intend to change the contract absent a signed writing.
Second, CMR contends that it did not accept or acquiesce in FGT's
failure to comply with the floor provision. In support of this
argument, CMR points this court to the following endorsement, which
CMR apparently stamped on every check which FGT sent it:
38
"ACCEPTANCE AND ENDORSEMENT BY PAYEE DOES NOT CONSTITUTE A
RATIFICATION, AMENDMENT, OR REVISION OF ANY OIL, GAS, AND MINERAL
LEASE, POOLING, UNITIZATION AGREEMENT, OR JOINT OPERATING AGREEMENT
NOT ALREADY EXECUTED BY PAYEE, NOR DOES PAYEE WAIVE ANY RIGHTS TO
CORRECT MONIES DUE PAYEE." In this vein, CMR relies on § 75-1-207
which provides:
A party who with explicit reservation of rights performs or
promises performance or assents to performance in a manner
demanded or offered by the other party does not thereby
prejudice the rights reserved. Such words as "without
prejudice," "under protest" or the like are sufficient
(emphasis added). Finally, CMR attacks the district court's
conclusion that it knew that FGT was not complying with the floor
provision. In reaching its conclusion, the district court
determined that "the parties entered into an oral or verbal
agreement to change the original contract sometime prior to June 4,
1987, and that this agreement that they entered into verbally was
basically as set out in the letter of June 4, 1987." Crosby-
Mississippi Resources, 815 F. Supp. at 980. CMR attacks this
finding by arguing that the testimony which the court heard was not
credible. Specifically, CMR points out instances in the witnesses
depositions which contradict their trial testimony. FGT, however,
presented evidence from two witnesses that CMR and FGT entered into
an oral agreement to waive the floor provision. After reviewing
the record, we cannot say the district court's determination that
CMR entered into an oral modification agreement was clearly
erroneous.
Although CMR attempts to make much about the "no waiver"
39
provision, we do not believe that the provision should be
interpreted as foreclosing a finding that CMR waived enforcement of
the floor provision. See Westinghouse Credit Corp. v. Shelton, 645
F.2d 869 (10th Cir.1981) (anti-waiver provision itself may be
waived). Further, we believe that CMR's interpretation of the
contractual provision would cause an inequitable result in this
case. Based on the district court's finding that CMR orally agreed
to change the pricing terms and forego enforcement of the floor
provision, CMR accepted payments, undisputedly below the floor
provision, for about four and one-half years. Requiring FGT to pay
the floor price after this consistent course of conduct would work
a serious injustice because it would effectively deprive FGT of its
right to "market out." In other words, if CMR had told FGT that it
was not going to accept a price lower than the floor price, FGT
could have exercised its right to market out; however, CMR's
course of conduct has limited that possibility.
Moreover, we do not believe that the stamped notation on the
backs of the checks, which was done in the ordinary course of
business, precludes a finding that CMR waived enforcement of the
floor provision. We do not believe that the district court clearly
erred in determining that CMR's actions in this regard were not an
"explicit reservation" of rights, especially in light of CMR's
course of conduct in consistently accepting underpayments. In sum,
we conclude that even though the parties' attempted modification
was ineffective as such, the oral agreement to modify, coupled with
the course of performance, demonstrates that CMR waived enforcement
40
of the floor provision. E.g., T.J. Stevenson & Co. v. 81,193 Bags
of Flour, 629 F.2d 338, 365-66 (5th Cir.1980) (determining that
party had waived compliance with contract's notice provision
because of the party's course of performance); J.W. Goodliffe &
Son v. Odzer, 283 Pa.Super. 1487, 423 A.2d 1032, 1035 (1980)
(determining that parties' attempted modification, when combined
with a course of dealing over three years and involving hundreds of
transactions, constituted a waiver of contractual provision).10
IV. CONCLUSION
A. APPEAL NO. 93-7519
For the foregoing reasons, we REVERSE the district court's
determination that the operating agreement called for simple
interest, REVERSE the district court's conclusion that the
conclusive presumption applies to the amounts which Exxon billed
CMR for February and May 1985, and AFFIRM the district court's
judgment in all other respects.
B. APPEAL NO. 93-7525
10
CMR argues that the pretrial order does not list as a
disputed issue the meaning of the term "waiver" in the no-waiver
clause of the contract. Consequently, it argues that it did not
have fair notice that the court would consider the term to be
ambiguous. CMR reasons that the court could not properly
construe the term against it without CMR having any advance
notice that the meaning of the term "waiver" was a fact in issue.
Contrary to CMR's protestations, the pretrial order is replete
with references to issues of fact as to whether waiver had in
fact occurred. Although the issues may not be worded as
precisely as CMR would like, this court has never required—and
indeed cannot require—technical perfection in pretrial orders.
Moreover, CMR was fully aware of the trial court's interest in
this specific issue about which they now complain, as is
evidenced by the exchanges at oral argument on the pretrial
motions for summary judgment.
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For the foregoing reasons, the district court's judgment is
AFFIRMED.
42