Oglebay Norton Co. v. Armco, Inc.

Brief Fact Summary. Plaintiff Oglebay Norton Co. and Defendant Armco, Inc., entered into a long-term contract that required Defendant to pay for shipping via a primary and secondary pricing mechanism.  After the parties were unable to agree on a shipping rate for the year 1986, Plaintiff filed a declaratory judgment action seeking to have the Court fix the shipping rate for the year.

Synopsis of Rule of Law. Since the parties intended to be bound to the contract, the trial court had the authority to set a shipping rate and require the parties to negotiate and mediate with each shipping season.

Facts. The parties entered into a contract in 1957, which provided that Plaintiff would have adequate shipping capacity available and Defendant would use that capacity for the transportation of iron ore on the Great Lakes.  The primary pricing mechanism dictated that Defendant agrees to pay for all iron ore transported according to the “regular net contract rates for the season…as recognized by the leading iron ore shippers.”  If, however, there was no regular net contract rate, the secondary pricing mechanism provided that the parties shall mutually agree upon a rate.  The parties established the contract shipping rate from 1957 to 1983 by reference to a rate published in Skillings Mining Review.  This satisfied the requirements of the primary pricing mechanism.  After the iron ore industry experienced a serious downturn in 1983, the parties negotiated a mutually satisfactory rate for 1984.  However, after that, they were unable to agree on a rate.  Plaintiff thereafter initiated this declaratory judgment action, asking the trial court to set a rate.  Defendant responded by filing a counterclaim seeking to have the contract declared unenforceable.

Issue. •    Did the parties intend to be bound by the contract despite the failure of the primary and secondary pricing mechanisms?
•    If the parties intended to be bound, may the trial court set $6.25 per gross ton as a reasonable rate for the 1986 shipping season?
•    May the trial court order the parties to use a mediator if they are unable to agree on a shipping rate for each annual shipping season?

Held. •    Yes.  This is a question of fact for the trial court to decide.  The trial court recognized that the parties had a long-standing, close business relationship as evidenced by joint ventures, interlocking directorates, and Defendant’s ownership of Plaintiff’s stock.  Since the trial court determined that the parties intended to be bound despite the failure of the primary and secondary pricing mechanisms, the Ohio State Supreme Court will not disturb the findings.
•    Yes.  Under the Uniform Commercial Code § 2-305(1), when the parties intend to be bound, as here, and the price has not been determined, the price is a reasonable price at the time of delivery.  Here, the Court looked to the parties’ extensive course of dealing and comparisons of market prices to determine a reasonable rate.
•    Yes.  A trial court may order specific performance if the parties to a contract intend to be bound and a determination of long-term damages would be too speculative.  Here, the trial court is merely facilitating the most practical manner to determine a rate for shipping each year.

Discussion. Where the parties to a contract intend to be bound (such an intent being a question of fact for the trial court), the trial court may set a reasonable price and order the parties to mediate, if necessary, to establish future prices.