## Facts

- A Japanese trading company contracted to buy low-sulfur Libyan crude oil from an American oil company for resale to Japanese utilities.
- In 1973, the parties executed a long-term crude-oil supply agreement requiring delivery of 750,000 barrels per month through December 31, 1978, governed by California law and containing a force-majeure clause keyed to events beyond the seller’s reasonable control.
- Libya imposed increasing demands on oil companies and in 1973 nationalized a controlling interest in the seller’s concessions; later, in 1975, the seller withheld substantial sums owed to Libya.
- Libya placed an export embargo from October to December 1975, and the seller also experienced pipeline breakdowns and sand contamination, with shutdown continuing until May 1976.
- The buyer received no oil during the last four months of 1975 and the first four months of 1976.
- Relying on the supply contract, the buyer entered a long-term shipping arrangement and resale contracts with Japanese utilities; the shipping dispute later settled for $2,225,000, and a major utility cancelled its purchase contract.
- The buyer sued in federal court on diversity; a jury awarded contract damages and separate fraud damages based on alleged misrepresentations about supply constraints and performance.

## Issues

1. Whether the seller’s nonperformance was excused by the contract’s force-majeure clause under California law.
2. Whether instructing the jury that force majeure required events beyond the seller’s “reasonable control” was proper.
3. Whether the evidence supported the jury’s contract-damages award, including claimed lost profits and consequential losses tied to downstream contracts.
4. Whether the evidence supported an independent fraud claim and separate fraud damages, or whether the tort theory duplicated the contract claim.

## Decision

- Affirmed the finding of breach of contract and rejected the seller’s force-majeure defense as a basis for reversal.
- Held the “reasonable control” force-majeure instruction was consistent with the contract language and California law.
- Reversed and remanded for a new trial limited to contract damages because the award exceeded evidentiary support and appeared to include amounts for periods not properly attributable to breach (including a mutually agreed suspension period).
- Reversed the fraud verdict and fraud damages because the alleged misrepresentations were not shown to be a distinct tort independent of contractual nonperformance.
- Found no abuse of discretion in the district court’s taxation of costs.

## Legal Principles

- A force-majeure clause tied to events “beyond reasonable control” requires proof not only of external impediments, but also that the nonperforming party acted reasonably and did not materially contribute to the nonperformance.
- In allocating commercial risk by contract, foreseeable political or operational risks in an unstable supply setting may not be shifted wholesale through force majeure when the seller’s choices and mitigation efforts are at issue.
- Contract damages must be limited to losses proximately caused by the breach and supported by the evidence; awards may not include amounts attributable to periods of agreed contractual suspension or otherwise unsupported components.
- In sophisticated commercial transactions governed by an integrated written agreement, fraud claims that merely restate a failure to perform, and that risk duplicative recovery, do not justify separate tort damages absent proof of an independent actionable misrepresentation and nonoverlapping harm.

## Conclusion

The court left intact the jury’s determination that the seller breached the crude-oil supply contract and was not excused by force majeure, but it vacated the fraud recovery and ordered a new trial confined to recalculating contract damages consistent with causation, evidentiary support, and any agreed suspension of performance.


Nissho-Iwai Co., Ltd. v. Occidental Crude Sales, Inc., 729 F.2d 1530 (5th Cir. 1984)