North Central Airlines, Inc. v. Continental Oil Co. (574 F.2d 582, 1978)

MacKINNON, Circuit Judge:

Appellee-North Central Airlines, Inc. (“North Central”) and appellant-Continental Oil Company (“Conoco”) are parties to a contract for the purchase and supply of aviation fuel. North Central’s breach of contract claim involves the proper interpretation — or alternatively the continued legal effect of — a clause of the contract providing for adjustment of prices for aviation fuel based upon posted prices for the crude oil from which the aviation fuel is refined.

I. BACKGROUND

In June, 1969, the parties entered into a contract under which Conoco, a petroleum producer, refiner, and supplier, would meet the aviation fuel requirements of North Central at the Denver, Colorado airport (J.A. 401-09). This agreement expired on December 31, 1971, but a 1971 amendment extended its terms through December 31, 1974 and also made other minor changes in fuel quantities to be supplied and in the terms of payment (J.A. 410-11).

The price adjustment clause of the contract, which is the focus of this litigation, provides as follows:

A. The Base Price, excluding all taxes, storage charges and into-plane service charges (into-plane service charges to be at North Central’s expense) for all Cono-co Jet-50 delivered hereunder shall be $.1100 per gallon.

B. Crude Oil Cost Escalation

The Base Price set forth in A above shall apply when the arithmetic average price for Wyoming Sweet Crude Oil (40 gravity) posted by Continental Oil Company and Pan American Petroleum is $3.23 per barrel (average posted price as of March 10, 1969). The Base Price shall increase or decrease, as the case may be, $0.00125 [Visit] per gallon for each full five cents (5