Nissho-Iwai Co., Ltd. v. Occidental Crude Sales, Inc.
729 F.2d 1530 · Court of Appeals for the Fifth Circuit · 1984
Facts
Occidental contracted to supply crude oil to Nissho, but failed to perform in late 1975 and early 1976 due to Libyan government actions and pipeline issues. Nissho sued for breach of contract and fraud, claiming lost profits from a resale contract and settlement costs from a shipping dispute. A jury found Occidental liable for both, but the court reversed the fraud verdict and remanded for a new trial on contract damages.
Procedural history
Nissho filed a diversity action against Occidental, which was transferred to the U.S. District Court for the Southern District of Texas. The first jury trial resulted in a verdict for Nissho on contract damages and punitive fraud damages without compensatory fraud damages, leading the judge to recall the jury for further deliberations. After the second verdict, the judge declared a mistrial sua sponte due to jury confusion and ordered a new trial. The second jury trial found Occidental liable for breach of contract and fraud, awarding damages, which Occidental then appealed.
Issue
Did the trial court err in instructing the jury that the force majeure clause required the excusing events to be beyond Occidental's reasonable control, and was the jury's award of damages, including lost profits during a contract suspension period, proper? Can misrepresentations made during contract performance support a separate fraud claim when damages are not distinct from contract breach?
Holding
The court affirmed Occidental's liability for breach of contract, finding the force majeure instruction proper and the unilateral waiver finding supported. However, the court reversed the damage award, holding that lost profits during a contract suspension period are not compensable, and remanded for a new trial limited to contract damages. The fraud verdict was also reversed because the alleged injuries were not distinct from those caused by the contract breach.
Rule
A force majeure clause, even with specifically enumerated events, implies a "reasonable control" limitation under California law, requiring the party to take reasonable steps to prevent the excusing event. Damages for lost profits are not recoverable during a period when the contract was mutually suspended. A fraud claim arising from misrepresentations during contract performance requires proof of injuries distinct from those caused by the breach of contract.
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