Fairchild, Stevens and Sprecher, Circuit Judges. Stevens, Circuit Judge (dissenting).
This diversity case raises the question of whether interest became due and payable on a loan. The parties, despite able counsel, have managed to balance the affirmative and negative factors in almost perfect equipoise.
Husky Oil Company appeals from a judgment holding it liable for interest in the amount of $115,000, plus interest on that sum, due on two promissory notes given by Husky to International Minerals and Chemical Corporation (IMC) in 1967 and 1968.
The facts as found by the district court are as follows: IMC is a New York corporation engaged in the discovery, extraction and sale of various minerals and chemicals for industrial and consumer use. Husky is a Delaware corporation whose business is the production, refining and marketing of oil, gas and oil products. In 1956, Husky acquired ownership of leaseholds in Idaho containing extensive bodies of phosphate ore.
On October 20, 1961, IMC and Husky entered into an agreement under which Husky would receive a $3,000,000 interest-free loan from IMC, to be repaid December 15, 1966 unless the agreement was terminated earlier. In return, IMC would be allowed to explore the phosphate leaseholds in order to determine whether a profitable mining operation was feasible. If the operation appeared profitable, the agreement permitted submission and acceptance of a joint venture program. If IMC did not submit a joint venture program by May 1, 1966, or if any such program was not approved by Husky, the agreement would terminate on December 15, 1966. In this event, Husky was obligated to repay the loan either in cash, whereupon IMC would also receive a 25% interest in the leaseholds, or by conveying the leaseholds to IMC, in which case IMC would pay Husky 50% of the appraised value of the leaseholds in excess of $3,000,000.
The agreement was modified in June, 1962 whereby Husky borrowed $3,000,000 from the First National Bank of Chicago against a note due December 15, 1966. The bank loan was guaranteed by IMC and IMC agreed to pay 4 3/4% interest on the note. The proceeds of this loan were used to repay the loan from IMC.
The agreement was again amended in February, 1966, extending the term of the agreement until December 15, 1967, to allow IMC further time to explore the possibility of a joint venture. In December, 1966, Husky agreed to extend the maturity of the bank loan from December 15, 1966 until December 15, 1967.
In December of 1966, representatives of Husky and IMC also met in Los Angeles to discuss, among other things, the termination of the agreement. The district court found that they agreed that if the leaseholds had not been sold prior to September 30, 1967, Husky would reimburse IMC for interest on the $3,000,000 loan after that date.
On November 14, 1967, pursuant to the amended agreement, Husky requested IMC to prepay Husky's $3,000,000 note to the First National Bank by December 1, 1967. IMC did prepay the principal and accrued interest on December 1, and the First National Bank delivered Husky's noninterest bearing $3,000,000 note to IMC.
Representatives of IMC and Husky met in Chicago on November 28, 1967. The question of Husky's reimbursing IMC for interest on the $3,000,000 loan was discussed at this meeting. On December 18, 1967, Husky sent IMC a check for $37,972.60 for interest on the loan from September 30, 1967 through December 15, 1967.
Prior to December 15, 1967, Husky requested that the due date on its $3,000,000 loan be extended from December 15, 1967 to December 29, 1967. IMC agreed on the condition that 6% interest be paid for the extension period. Husky sent IMC a check for $6,904.10 in payment for this interest on December 29, 1967.
Prior to the December 29, 1967 due date, Husky informed IMC that it elected to repay the $3,000,000 loan by conveyance of the phosphate leaseholds. Husky sought, however, to convey the leaseholds in installments over a three-year period (1967-69) so that it would not realize the entire gain during 1967, thus distorting its per share earnings.*fn1 Donald Jensen, General Attorney and Assistant Secretary of Husky, drafted a proposed agreement and read the proposal over the phone to an IMC representative. IMC later called Jensen back and told him that IMC wanted the interest increased from 6% to 7% per annum. The agreement in final form embodied the proposed change.
After reciting the terms of the earlier 1961 agreement, the Termination Agreement dated December 29, 1967, stated in relevant part:
"On or before and effective as of December 29, 1967, Husky will convey an undivided 25% of the phosphate leaseholds, as described in attachment 1 of the referenced October 20, 1961, agreement (the 'Leases'), to International with warranty of good and merchantable title and will also deliver to International its promissory note in the amount of $2,250,000.00 bearing interest at 7% with a due date of June 30, 1968. Upon delivery of such assignment and note, International shall surrender to Husky its promissory note of December 1, 1967, in the original amount of $3,000,000.00. If either party is successful in arranging a sale of the Leases at an amount in excess of $3,000,000.00 and upon terms and conditions mutually acceptable to both International and Husky prior to June 30, 1968, the proceeds of such a sale shall be allocated first to the payment of the Husky note plus interest, then International shall receive the next $750,000.00, and thereafter, Husky shall receive 75% of the remainder and International shall receive 25%.
"If a mutually acceptable sale has not been obtained on or before June 30, 1968, Husky shall convey to International a good and merchantable title to an additional undivided 40% interest in and to the Leases; and deliver to International its promissory note in the amount of $1,050,000.00 bearing interest at 7%; and International shall surrender Husky's prior note of December 29, 1967, in the amount of $2,250,000.00. If either party is successful in arranging a sale of the Leases at an amount in excess of $3,000.000.00 and upon terms and conditions mutually accepted to both International and Husky prior to January 10, 1969, the proceeds of such a sale shall be allocated first to the payment of the Husky note plus interest, then International shall receive the next $1,950,000.00, and thereafter, Husky shall receive 35% of the remainder and International shall receive 65%.
"If a mutually accepted sale has not been obtained on or before January 10, 1969, Husky shall thereupon convey to International all of Husky's remaining undivided interest in and to the Leases; and, upon such conveyance, International shall surrender Husky's note of June 30, 1968, in the amount of $1,050,000.00."
The December 29, 1967 agreement also expressly provided for the handling of interest in the event of one contingency:
"At any time subsequent to January 15, 1968, and during the term of this agreement, International is granted the unconditional right and option, upon 90 days' advance written notice, to demand a conveyance from Husky of all of Husky's then remaining undivided interest in and to the Leases. If such a demand is made by International and a conveyance tendered by Husky prior to June 30, 1968, International shall, on June 30, 1968, (i) credit Husky's Note account in the amount of $1,200,000.00 plus interest accrued on such amount, and (ii) on January 10, 1969, International shall issue an additional credit to Husky in the amount of $1,050,000.00 plus interest. Upon such credits being issued, International shall surrender to Husky on January 10, 1969, its promissory note dated December 29, 1967, in the principal amount of $2,250,000.00."
In January, 1968, Husky sent to IMC its promissory note for $2,250,000, bearing interest at 7% per annum "until the principal hereof shall have become due and payable," and interest at 8% thereafter, due June 30, 1968. Husky also sent assignments of a 25% interest in the phosphate leaseholds. IMC had no prior notice of the form of the note or of the provisions it would contain. On May 8, 1968, IMC returned Husky's $3,000,000 promissory note.
On June 28, 1968, Husky sent to IMC its promissory note for $1,050,000 plus 7% interest as before, due January 10, 1969. Assignments of an additional 40% interest in the leaseholds were also sent. On July 1, 1968, IMC returned Husky's promissory note for $2,250,000. On July 19, IMC demanded payment of the interest due on the note.
On December 31, 1968, Husky conveyed to IMC its remaining 35% interest in the leaseholds. In January, 1969 IMC returned Husky's promissory note in the amount of $1,050,000. No purchaser had been found for the leaseholds between the effective date of the Termination Agreement (December 29, 1967) and December 31, 1968. No interest was paid by Husky on either the $2,250,000 or $1,050,000 promissory note.
On the basis of these facts, the district court held that Husky's obligation to pay 7% interest on each of its promissory notes until maturity was not dependent upon whether a mutually acceptable sale of the phosphate leaseholds was made prior to the maturity date of the notes and that IMC did not intend to renounce its claim for interest when it surrendered the two notes. Husky argues that these findings and conclusions are clearly erroneous and insists ...