ContractsProf Blog

Editor: D. A. Jeremy Telman
Valparaiso Univ. Law School

A Member of the Law Professor Blogs Network

Monday, July 14, 2008

Iowa Supremes Rule in Favor of Ice Cream

IowaThis Iowa case is a good one for the summer, at least to the extent it involves the production of ice cream.

Pursuant to a contract between Wells Diary and Pillsbury, Wells promised to produce Haagen-Dazs ice cream for Pillsbury. However, there was an explosion at Wells' manufacturing facility in Le Mars, Iowa. Pillbury sued Wells for breach of contract, requesting damages related to the explosion at Well's facility. Wells pointed to the force majuere clause in the parties' contract:

FORCE MAJEURE: Neither party will be liable for delays or suspension of performance (other than the obligation to pay for services and goods sold and delivered) caused by acts of God or governmental authority, strikes, accidents, explosions, floods, fires or the total loss of manufacturing facilities or any other cause that is beyond the reasonable control of that party (“Force Majeure”) so long as that party has used its best efforts to perform despite such Force Majeure.

(emphasis added). The district court found that the the placement of the phrase "that is beyond the reasonable control of that party" created an ambiguity. It then granted Wells' motion for summary judgment on the grounds that the parties' conrtact relieved Wells of performance.

The Iowa Supreme Court described the district court's determination that there were two, competing interpretations:

The district court held one reasonable interpretation of the force-majeure clause is that this phrase modifies “acts of God or governmental authority, strikes, accidents, explosions, floods, fires or the total loss of manufacturing facilities or any other cause.” Under this interpretation, the explosion and fire at the south ice cream manufacturing facility would not excuse Wells’ nonperformance under the contract if the explosion and fire were not beyond the reasonable control of Wells. The district court found another reasonable interpretation of the force-majeure clause is that this phrase only applies to “any other cause.” Under this interpretation, the explosion and fire at the south ice cream manufacturing facility excuse Wells’ performance under the contract even if the explosion and fire were within the reasonable control of Wells.

The Iowa supreme Court disagreed that the placement of that clause created an ambiguity:

The determination of whether the language of a contract is ambiguous is ordinarily one of law for the court. *** We understand how the district court came to the conclusion that the placement of the phrase “that is beyond the reasonable control of that party,” can make the force-majeure clause reasonably susceptible to two meanings, if the district court examined the force-majeure clause out of context with the entire agreement. However, when a court is required to make a determination of whether a clause is ambiguous, the words and phrases of sentences cannot be read in isolation. *** The determination of whether “an agreement is ambiguous must be reached through a process of synthesis in which words, phrases, and sentences are assigned a meaning in accordance with the apparent purpose of the agreement as a whole.” ***

Applying these principals to the force-majeure clause, we disagree with the district court and find the force-majeure clause is not ambiguous. “Force majeure” is “an event that can be neither anticipated nor controlled.” Black’s Law Dictionary 657 (7th ed. 1999). A “force- majeure clause” is a clause “allocating the risk if performance becomes impossible or impracticable as a result of an event or effect that the parties could not have anticipated or controlled.” Id. A force-majeure clause is not intended to shield a party from the normal risks associated with an agreement. 30 Richard A. Lord, Williston on Contracts § 77:6, at 299 (4th ed. 2004). Wells claims the force-majeure clause would relieve it from performance even if a strike, accident, explosion, flood, fire or the total loss of the manufacturing facilities was caused by an event within its control. The record is clear that when the parties entered into the 1999 production contract they did not negotiate what would constitute a force-majeure event. The only discussion between the parties involved what would be the obligations of the parties if a force-majeure event occurred.

Had the parties meant to change the common meaning of the force-majeure clause, the parties should have had a discussion regarding the definition of a force-majeure event. Wells’ claimed interpretation of the force-majeure clause is not reasonable in light of the common understanding of a force-majeure clause and the lack of a discussion between the parties changing the common meaning of such a clause.

In addition, Wells’ interpretation of the force-majeure clause is not reasonable in light of the purpose of the contract. The purpose of the contract was for Wells to provide Pillsbury with a specific amount of
product in a defined period of time. When the contract is read in its entirety, the obligations of each party are described in detail. There is nothing in the language used by the parties, which describes each
party’s various obligations, that indicates a party’s negligence would excuse nonperformance of a specific obligation. Moreover, an agreement excusing a party’s performance due to that party’s negligence defeats the purpose of having an agreement requiring specific performance within a specified period of time.

Therefore, because Wells’ interpretation is inconsistent with the common understanding of a force-majeure clause and the purpose of a production contract that requires specific performance to be completed in a specified period, the contract is not reasonably susceptible to more than one interpretation. Accordingly, as a matter of law we find the phrase “that is beyond the reasonable control of that party” modifies all the events enumerated by the parties in the force-majeure clause. Consequently, we find that Wells is not entitled to summary judgment based on the force-majeure clause, and we reverse the district court’s ruling on this issue.

Net result: summary judgment in favor of Wells is reversed, and the case is remanded for further proceedings.

[For Civ Pro enthusiasts, the case also contains a nice discussion of the difference between standing and the real party in interest doctrine.]

Pillsbury Inc. v. Wells Dairy Inc., No. 05/06-1002 (Iowa, July 11, 2008).

[Meredith R. Miller]

http://lawprofessors.typepad.com/contractsprof_blog/2008/07/iowa-supremes-r.html

Recent Cases | Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef00e553b7c1b88834

Listed below are links to weblogs that reference Iowa Supremes Rule in Favor of Ice Cream: