The opinion of the court was delivered by: LASKER
Oxon Italia, S.p.A. ("Oxon") is a manufacturer of agricultural chemicals, including atrazine, a special herbicide which Oxon produces in its "raw" or technical state. Atrazine is "formulated," or mixed with inert materials, before it is suitable for agricultural application. Oxon alleges that Farmland Industries, Inc. ("Farmland") breached its contract with Oxon by refusing to pay for five containers of technical atrazine which Oxon sold to Farmland. Oxon also claims that it is entitled to recover for the five containers under the theories of unjust enrichment and conversion. In addition, Oxon alleges that Farmland has failed to pay price increases based on currency fluctuations and increases in the costs of raw materials to Oxon as provided in the contract. Oxon seeks to recover interest it incurred in borrowings caused by all the alleged breaches. Oxon computes these damages to amount to $717,085.03.
Farmland contends that its supply contracts for atrazine were not with Oxon, but rather were with a Canadian company, Soluja Ltee ("Soluja"). While Oxon was the supplier of technical atrazine to Soluja, Farmland emphasizes that its contract with Soluja was for formulated, rather than technical, atrazine. Under its contract with Soluja, Farmland asserts, it was unconditionally entitled to withhold payment on five containers as liquidated damages for Soluja's breach of the contract. Farmland denies that it ever agreed to pay Oxon for the five containers and asserts that Oxon's contention of an oral agreement to that effect is barred by the parol evidence rule and the Statute of Frauds. According to Farmland, the only agreements between it and Oxon were for "spot" purchases of atrazine in 1975. Farmland also contends that Oxon is not entitled to recover under the theory of unjust enrichment because Oxon has been guilty of bad faith, it has slept on its rights, and because Farmland has not been enriched, but rather has suffered substantial lost profits as a result of Soluja's failure to supply atrazine as called for in the contract. In addition, Farmland denies having ever agreed to pay Farmland for any price increases based on raw material cost or currency fluctuations.
The case has been tried to the court. Due to the complexity of the case, the matter has been under consideration for some time since trial. Since the case turns on the involved fact pattern, the facts are set forth at length below.
Many of the underlying facts are not in dispute. The relationship between the parties began in early 1973, when Jacques de Cayetti, the principal of Soluja, contacted Farmland offering to sell it atrazine. Farmland placed an initial order for 500,000 pounds of formulated atrazine in February, 1973. Subsequently, in the spring of 1973, de Cayetti escorted Richard Hutchings and Ray Barry of Farmland on a tour of the facilities of Soluja's suppliers. At that time, Soluja purchased technical atrazine from Oxon and had it formulated by Phyteurop, a French company. Farmland was not legally authorized to import the atrazine directly from these companies because it had no importation label for the products. The atrazine was therefore imported under Soluja's label.
After Farmland's personnel visited the Phyteurop and Oxon facilities, Farmland entered into a contract with Soluja on March 28, 1973, for the purchase of 18,000,000 pounds of formulated atrazine, to be delivered at specified times and purchased at specified base prices. The agreement provided that Farmland could choose to have the atrazine formulated in the United States rather than by the Phyteurop company. It also provided that after June 1, 1974, the prices specified would be indexed to the deutsche mark, and that Soluja and Farmland would exchange bank guarantees to insure performance. (Def. Exs. A and B; Tr. at 305-310) Farmland was made Soluja's exclusive United States distribution agent. Soon thereafter, Soluja and Farmland agreed that the Missouri Chemical Company, a wholly-owned subsidiary of Farmland, would formulate the technical atrazine received from Soluja. Soluja continued to sell formulated atrazine to Farmland itself, however.
Twenty days later, on April 17, 1973, Oxon and Soluja agreed that Oxon would sell to Soluja some 6,900 tons of technical atrazine in lots and time periods corresponding to Farmland's contract with Soluja. The agreement also provided for indexation according to the deutsche mark, and for exchange of bank guarantees. Oxon agreed not to sell atrazine in the United States except to Soluja. (Pl. Exs. 1A and 1B). In satisfaction of the obligations in the two contracts for bank guarantees, Oxon obtained a letter of credit endorsed in Farmland's favor (in satisfaction of its obligation to Soluja under its contract) and Farmland obtained a letter of credit endorsed in favor of Oxon (in satisfaction of its obligation to Soluja).
The transactions proceeded under the terms of the contracts until late 1973 or early 1974, when, due to a shortage of a constituent material resulting from the oil crisis, Oxon was unable to produce the required amounts of atrazine. A meeting was held at Farmland's Kansas City offices in April, 1974 between Farmland, Soluja, and Oxon to discuss the situation. At the meeting, Farmland's attorney served a summons and complaint on Oxon and Soluja based on the nondelivery of the quantities of atrazine contracted for, alleging inter alia that Oxon had agreed to sell Farmland the product. (Tr. at 215-17; Pl. Ex. 4). Shortly thereafter, however, Farmland requested another meeting to discuss the parties' future relationships. This meeting was held on June 12, 1974, in New York City between Barry and Hutchings on behalf of Farmland, Amari and Ferraris on behalf of Oxon, and de Cayetti for Soluja.
The testimony differed as to what occurred at the June 12th meeting. According to Amari, it was orally agreed by all three parties that the previous contracts should be modified in the following respects: 1) to provide for a new price structure by which a base price would be paid by Farmland directly to Oxon, and an additional price relating to increases in raw material costs and currency indexation would be paid by Farmland to Soluja, and then by Soluja to Oxon; 2) to alter the quantities of atrazine to be shipped by Oxon; 3) to dismiss all claims and litigation arising out of prior events, and most significantly, Amari testified that the parties 4) agreed to a new security arrangement by which Farmland would retain payment for five containers on a rolling forward basis, with final payment to be made when Oxon completed performance. According to Amari, the joint agreement among the parties was to be reflected in back-to-back contracts between Soluja/Oxon and Soluja/Farmland. (Tr. at 220-23; 250-52).
Hutchings, however, testified that no such oral agreements were made between Farmland and Oxon. According to him, Farmland's sole purpose in attending the meeting was to secure a new agreement with Soluja which would assure Farmland the delivery of sufficient atrazine. Hutchings stated that Farmland's business discussions at the meeting were with de Cayetti, not with Oxon personnel, and that de Cayetti made a point of keeping his discussions with Oxon separate from his discussions with Farmland. Hutchings acknowledged that there was general discussion between Soluja, Farmland and Oxon about the problems that had arisen earlier, but denied that any three way agreement had been reached. Instead, Hutchings believed at the conclusion of the meeting that it had reached an agreement on basic principles with Soluja, and that it would finalize a contract with Soluja after Soluja worked out its arrangements with Oxon. (Tr. at 318-324).
On the same day, June 12, 1974, Oxon and Soluja reached agreement on the terms of a new contractual arrangement, embodying the changes about which Amari testified, and providing that, as a condition precedent, Soluja was to modify its contract with Farmland on "comparable terms." (Pl. Ex. 6). On June 26, 1974, in Montreal, Soluja and Farmland finalized their agreement. It corresponded to the agreement between Soluja and Oxon in most respects, with the significant exception that, while the Oxon/Soluja contract provided for Farmland to withhold payment on five containers on a rolling forward basis for the sole purpose of securing Oxon's completion of delivery, the Farmland/Soluja contract permitted Farmland to withhold payment on five containers on a rolling forward basis and to retain payment "as liquidated damages for the failure of Soluja to timely deliver product to Farmland." Moreover, the Farmland/Soluja agreement provided that "it is expressly agreed between the parties hereto that this contract between Farmland and Soluja shall stand on its own terms and that the same is not affected by any contractual arrangements between Soluja and its supplier, Oxon, whether or not the same has been heretofore disclosed to Farmland." (Pl. Ex. 6).
Oxon began shipping atrazine within one week of the June 12th meeting, and thereafter devoted its entire production capacity to producing atrazine for ultimate purchase by Farmland. The relations between the parties proceeded smoothly until late 1974, when, as both Farmland and Oxon agree, Soluja invoked an elaborate scheme to defraud them. At that time, de Cayetti visited Oxon and said that Soluja needed a shipment of atrazine for the Canadian market to maintain its registration there. de Cayetti assured the Oxon representatives that such a shipment would not upset relations with Farmland because Farmland did not need additional atrazine at the time. In addition, Soluja sent a letter to Oxon which purported to indicate that Barry of Farmland had received a copy. (Tr. 52; Pl. Ex. 8). Believing that Farmland had no objection, Oxon agreed to sell Soluja the requested atrazine. Meanwhile, de Cayetti had told Farmland representatives that Oxon was unable to provide the additional quantities of atrazine that Farmland wished to purchase but that Soluja could obtain additional atrazine from a Yugoslavian supplier at prices higher than the Oxon price. In need of additional atrazine, Farmland agreed to the purchase. In February, 1975, Farmland representatives met with Oxon personnel in Milan and discovered Soluja's duplicity. They agreed to keep each other informed about their dealings with Soluja and to trace the "Canadian" atrazine which Oxon was to ship to Soluja to confirm that it was the same "Yugoslavian" atrazine which Soluja was selling to Farmland. According to Brolis, it was also agreed that Farmland and Oxon would terminate their dealings with Soluja sometime in the future and deal on a direct basis. That course of action was not possible at the time because Farmland still did not possess a label for importation. Farmland and Oxon kept each other informed on the matter for the next several months and, in May, 1975, confirmed Soluja's fraud when Farmland received the "Yugoslavian" atrazine and learned from Oxon that it was the same atrazine which Oxon had sold Soluja for Canadian distribution.
Meanwhile, disagreements arose between Oxon and Soluja as to Oxon's right to price increases to reflect increases in the costs of raw materials. Under the June 12, 1974, agreement between Oxon and Soluja, Oxon was entitled to price increases of up to 7% for each of various contract periods to the extent such increases were justified by increases in the cost of raw materials to Oxon. The agreement provided that, if Oxon sought price increases greater than 7%, Soluja was entitled to reject delivery and Oxon would thereafter be relieved from its obligations under the contract. (Pl. Ex. 5). According to Oxon's witnesses, its price increases for the first contractual period exceeded 7%, but Oxon limited its price increase to Soluja to 7% at the time. However, in early 1975, Oxon informed Soluja that it would charge its actual increased cost for the following contractual period. Soluja protested the increase, complaining to Oxon that Farmland would not pay the additional cost. Oxon's witnesses testified that the subject of the increases was also discussed at the February, 1975 ...