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TORCO OIL CO. v. LTV STEEL CO.

March 14, 1989

TORCO OIL COMPANY, Plaintiff,
v.
LTV STEEL COMPANY, Defendant


James B. Moran, United States District Judge.


The opinion of the court was delivered by: MORAN

JAMES B. MORAN, UNITED STATES DISTRICT JUDGE

 Plaintiff moves, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for summary judgment, alleging it is owed over $ 800,000 for gas both sides admit was delivered to defendant. Because we hold there are genuine issues as to material facts which might enable defendant to demonstrate it is within its legal rights to refuse payment, we deny plaintiff's motion.

 Plaintiff Torco Oil Company ("Torco") and defendant LTV Steel Company, Inc. ("LTV") entered into negotiations in either May or June 1988 (the exact date is a matter of dispute between the parties) for the former to supply natural gas to the latter. These negotiations continued from that disputed time until August 1988.

 LTV alleges that a revised contract dated June 22, 1988 resulted from the Torco/LTV discussions which began in May 1988. This June 22, 1988 contract purportedly contemplated a starting date of July 1, 1988, but performance at that time was apparently impossible due to pipeline problems. The parties instead agreed the flow of gas would commence August 1, 1988, if the pipeline difficulties could be resolved. That agreement was reduced to a writing dated June 24, 1988 and sent to Torco by LTV.

 As early as the second week of July 1988 it appeared the parties were about to close the deal. At Torco's request LTV sent Torco a letter dated July 11, 1988, which represented that LTV had nominated 25,000 MMBtu/day for August 1988. Torco needed this confirmation in order to procure a letter of credit from Bank of America -- a prerequisite to Torco's own purchase of the gas which would be resold to LTV. The treasurer of Torco, a Mr. Crow, acknowledged this arrangement in a July 14, 1988 letter and strongly insinuated a meeting of the minds had been reached for the entire year:

 
This is to notify you that proceeds due from you under our contract to supply you with approximately 25,000 MMBtu/day of natural gas per day at $ 1.50 per MMBtu during the period of August 1, 1988 through July 31, 1989 have been assigned to Bank of America for the account of Torco Oil Company.

 The Bank of America confirmed to LTV by telex on July 15:

 
Bank of America NT and SA hereby notifies you that Torco Oil Company has granted to the bank an assignment and security interest in the payment due from you to them with respect to your purchase of approximately 25,000 MMBtu of natural gas per day at USD 1.5 per MMBtu during the period of August 1, 1988 through July 31, 1989.

 On July 18, 1988, a Mr. Sanders of LTV proposed additions and corrections to the agreement dated June 24, 1988. An agreement which reflected these changes was sent by Gregory Wilkins, the executive vice-president of Torco, to LTV. This document, entitled "Firm Gas Sales Agreement" ("Sales Agreement"), was dated July 31, 1988 and signed by Mr. Wilkins. On August 2, 1988, Mr. Wilkins forwarded a letter to LTV and enclosed a second original of what he referred to as "our gas supply contract" -- the July 31, 1988 Sales Agreement.

 Gas did not begin to flow until August 6, 1988, when Torco delivered 25,000 MMBtu to LTV. Torco subsequently delivered 15,000 MMBtu on August 7, 1988, 25,000 MMBtu daily between August 8 and August 25, 1988, and 10,000 MMBtu per day from August 25 to August 31, 1988.

 During this period, on August 11, 1988, Torco sent LTV a letter revoking the Sales Agreement and characterizing it as merely an "offer." This resulted in an August 18, 1988 meeting where Torco demanded a higher price in consideration for an option permitting LTV to extend the agreement. On that same day, a Mr. Windahl, LTV's vice-president for purchasing, signed the Sales Agreement of July 31, 1988, and sent it to Torco. LTV also served written notice of its objections to Torco's attempted revocation. Torco ceased gas deliveries as of September 1, 1988 and has not resumed them.

 The Sales Agreement provides for payment of the August 1988 gas on September 27, 1988. On that date, LTV notified Torco that, instead of mailing payment, it would offset the amount due for the August 1988 gas against the damages purportedly suffered by Torco's breach of the year-long contract.

 Torco claims the August 1988 gas was supplied pursuant to an interim agreement separate and distinct from the long-term "offer" represented by the Sales Agreement and presumably contained in the July 11, 1988 nomination letter. LTV instead contends the August, 1988 gas was the first month's ...


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