Eastern Air Lines, Inc., Plaintiff-Appellant-Cross v. McDonnell Douglas Corporation, Defendant-Appellee-Cross

This important Florida diversity case involves an appeal from-a judgment for damages for breach of contract in < favor of Eastern Air Lines against McDonnell Douglas Aircraft, Inc. based on a jury'verdict in Eastern’s favor for the sum of $24,552,-659.11 plus costs of $241,149.02 — one of the largest jury verdicts ever reviewed by this Court. Involved is a series of contracts covering the years 1965-1968 by which *962 Douglas Aircraft, Inc. 1 agreed to manufacture and sell to Eastern Air Lines nearly 100 jet planes for approximately a half billion dollars. Suit was filed by Eastern against Douglas on July 31, 1970, based on allegations that 90 of these planes were delivered a total of 7,426 days late. It was not until July 12, 1973, after almost three years of pretrial motions and discovery and four and one-half months of trial, that the jury’s verdict was rendered in the District Court.

Our review of the case convinces us that the District Court made a diligent effort to resolve the many difficult matters before it. Nevertheless, we conclude that the trial judge committed substantial and prejudicial errors in a number of his rulings and instructions to the jury, which require reversal of the judgment and a new trial. Accordingly, we reverse and remand.

I. Background

Eastern Air Lines decided in 1964 to replace what remained of its outmoded propeller-driven fleet in an effort to reverse a serious five-year financial decline. Ever since the advent of the commercial jet age in 1959, Eastern had lagged behind its competitors in the purchase of jet-powered planes. Consequently, the company’s decision to order 100 new planes made it the last major trunk carrier to purchase a large number of jet aircraft.

Although Eastern is one of the largest passenger carriers in the world, its route system has historically been composed of relatively short segments. In 1964, only Boeing and Douglas could offer a small, twin-engine, short-range jet suited to Eastern’s needs. Eastern’s decision to purchase the Douglas DC — 9 rather than Boeing’s 737 was based in part on Douglas’ offer to lease it a number of DC-9-14’s as an interim plane until the larger “stretched” DC-9-31’s were available. 2 Boeing had been unable to provide Eastern with an equivalent aircraft as a substitute for its short-haul, twin-engine 737 which was not due to be delivered until a year after Douglas was to begin producing the DC-9-31. For its longer range flights, Eastern also ordered a number of DC-8-61 jets which are Douglas’ equivalent of the Boeing 707. 3

Letters of intent providing for Eastern’s lease or purchase of DC-9-14’s and for its purchase of the “stretched” DC-9-31 and the DC-8 planes were signed in February of 1965. The following July, Douglas and Eastern entered into the first three of what was to be a series of eight contracts providing for the delivery of a total of 99 planes. Five of the eight contracts were amended, some a number of times, between 1965 and 1968. 4

*963 Although varying in details, all the agreements are basically similar; each required Douglas to manufacture a number of planes at a stipulated price per aircraft to be paid upon the delivery of each plane at Douglas’ California plant. Each jet was designated for delivery during a particular calendar month. In addition, every contract contained two provisions which are of special importance to these appeals. One clause is a choice of law provision which requires that the contracts’ construction and performance be determined under California law. 5 The other provision is an “excusable delay” clause which exempts Douglas from liability for delays beyond its control and not its fault. 6

*964 Problems developed in the Douglas-Eastern relationship before even the first plane was scheduled to be delivered. In January 1966, it became evident to both parties that Douglas would be unable to complete its DC-9 — 14 jets in time to meet the contract delivery dates. In an early exchange of letters on the subject, Douglas attributed the delivery delays to “our nation’s rapidly increasing commitments in Southeast Asia,” and Eastern replied by expressing concern and noting that “[i]t appears to us that some of this slippage really should have been avoidable.”

Subsequently it appeared that the delays could not be confined to the DC-9-14 deliveries. During 1966 and 1967, Douglas repeatedly revised its scheduled delivery of DC-8’s and DC-9-31’s. These further delays were viewed with “great concern” by Eastern executives who informed Douglas that the late deliveries were imposing a “substantial burden” on the airline.

Throughout this period, Douglas was confronted with a mounting financial crisis which, to some extent, was the result of the DC-8 and DC-9 delivery delays. In the summer of 1966, Douglas forecast a loss of almost $30 million in its operations for the year. By November, Douglas’ cash shortage reached such catastrophic proportions that the company’s creditors insisted that a solvent merger partner be found. The natural choice was the McDonnell Aircraft Company whose military and space activities effectively complemented Douglas’ strength in the commercial aircraft field. After McDonnell infused into Douglas over $68 million in new funds, a merger was consummated on April 28, 1967. The new McDonnell Douglas Corporation assumed all the obligations and liabilities of the former Douglas Aircraft Company.

Delivery delays continued after the merger until the last of the planes was delivered in January 1969. On the average, each of the 90 late planes was delivered 80 days after the month specified in the contract date. Several months after performance had been completed under the last of the eight contracts, Eastern wrote McDonnell on May 29, 1969 presenting a claim for damages resulting from the late deliveries over the previous three years. The airline alleged that these delays could not be deemed excusable under the applicable clause in the agreements. McDonnell rejected the claim and suit was filed in the District Court for the Southern District of Florida.

On the order of the District Judge, the trial was bifurcated with the liability phase to be tried first; to be followed, if necessary, by a trial on damages before the same jury. The greater part of the three-month liability trial was devoted to McDonnell’s efforts to prove that the delivery delays were the product of events covered by the excusable delay clause in each contract. Although McDonnell produced evidence that some of the deliveries were late because of strikes and labor shortages, the heart of its defense was that most of the delays were caused by the rapid military buildup occasioned by the war in Vietnam. During the 1966-1968 escalation of the war, the Government asked the aviation industry to accord specific military projects priority over civilian production. Although military priority, in some cases, was gained through written directives and ratings issued pursuant to the Defense Production Act of 1950 (“D.P.A.”), the Government often effectively achieved the same result by more informal and less direct means. McDonnell endeavored to show that, because its subcontractors cooperated with this “jawboning” policy of the Government, there were serious delays in the delivery of parts vital to DC-8 and DC-9 production. Throughout the course of this phase of the trial, however, the District Judge took the position that the only excusable delays were those resulting from written government orders issued in strict compliance with procurement regulations. As a result, the trial *965 judge refused to allow the jury to consider evidence of less formal efforts by the Government to expedite military production.

McDonnell Douglas also contended that Eastern had failed to give timely and reasonable notice of the breaches, that one of the contracts was no longer enforceable, and that Eastern should be estopped from pursuing any of its claims. The District Court, however, ruled against McDonnell on all these issues.

At the close of the liability trial, the jury was instructed that McDonnell bore the burden of proving that the delays were caused by events which were excused under the contracts. Furthermore, according to the court’s instructions, no event could be an excuse unless it was not reasonably foreseeable at the time the particular contract was entered into. On May 16, 1973, the jury’s verdict, in the form of answers to special interrogatories, found that none of the 7,426 days of delay was excusable.

During the six-week damages phase of the trial, each side presented testimony concerning the effect of the delivery delays on Eastern’s operations during the 1966-1968 period. Eastern’s expert estimated the airline’s lost profits to be $23,400,000 while McDonnell’s expert witness was of the opinion that no such damages resulted from the delays. The airline also presented evidence to support its claims for damages resulting from surplus pilot time expense, wasted pilot training and wasted schedule expense. In addition to these claims, the District Judge permitted the jury to consider Eastern’s contention that, under Florida law, it was entitled to prejudgment interest from the time of the breach. On July 12, 1973, the jury returned a special verdict awarding Eastern a total of $22,219,601 in com.pensatory damages and $9,650,715 in interest. 7

*966 Subsequently, on McDonnell’s motion for judgment notwithstanding the verdict, the District Judge, on March 26, 1974, filed an opinion holding that prejudgment interest was a matter of California law and therefore could not be awarded by the jury as a matter of right. The court, however, did exercise the discretion available to it under California law in awarding Eastern $2,333,-058.11 in prejudgment interest. 8 Finally, on June 24, 1974, the District Court denied McDonnell’s motion to review the $241,-149.02 in costs taxed against it.

In its appeal, McDonnell Douglas’ most fundamental contentions concern the District Court’s rulings on excusable delay, Eastern’s obligation to give reasonable and timely notice of breach, and the enforceability of one of the contracts.

Eastern appeals from the trial judge’s determination that the award of prejudgment interest is controlled by California law, arguing that the jury’s award of $7,-753,215 in prejudgment interest should be reinstated.

II. Enforceability of Contract 65 — 41—L

A significant preliminary issue concerns the effect to be given Douglas’ agreement to lease to Eastern 15 DC-9-14 aircraft until its larger DC-9-31 planes could be delivered. 9 On July 9, 1965, Contract 65— 41-L, which covered this arrangement, was executed simultaneously with a side letter agreement 10 which gave Douglas the option of selling a particular aircraft to a nonuser third party who would assume the financial burden of leasing the plane to Eastern. 11 Because of its mounting cash shortage, Douglas exercised this option on all the planes covered by Contract 65-41-L.

Pursuant to the contract and the side agreement, Douglas sold each of the first five DC-9-14’s manufactured to several equipment leasing corporations. As each of these jets was delivered between April and July of 1966, Eastern and Douglas executed an amendment to 65-41-L to reflect the fact that the plane was being financed by a *967 third party rather than by Douglas. 12 On July 14, however, the Contract 65-41-L was terminated so that the ten DC-9-14’s which remained to be manufactured could be financed as a group by Bankers Trust Company. In relevant part, the “Agreement to Terminate” provides:

The Agreement to Lease, as amended is hereby terminated and all obligations, duties and liabilities of the parties thereunder are of no further force and effect, . . . except for any liabilities and obligations which may have accrued thereunder and which may not have been performed or discharged prior to the date hereof.

Simultaneously with the termination of Contract 65—41—L, Douglas executed a contract selling the ten planes to Bankers Trust, and Eastern executed a lease of those planes with the bank. 13 Douglas’ agreement with Bankers Trust provided for delivery dates which were substantially later than those originally required under Contract 65-41-L. 14

*968 The trial judge ruled as a matter of law that Douglas was bound by the original delivery dates specified in Contract 65-41-L for all 15 planes even though seven of them were not scheduled for delivery until after the contract was terminated. 15 In the District Judge’s view, the above-quoted provision of the termination agreement preserved “any Douglas liability for late deliveries.” 16 Douglas attacks this ruling as being contrary to the unambiguous language of the termination agreement. 17

Under California law, the jurisdiction whose rules control the construction of all the contracts involved in this ease, 18 to “terminate” a contract “means to abrogate so much of it as remains unperformed, doing away with an existing agreement upon the terms and with the consequences mentioned in the writing . . . .” Sanborn v. Ballanfonte, 1929, 98 Cal.App. 482, 277 P. 152, 155; accord, Grant v. Aerodraulics Co., 1949, 91 Cal.App.2d 68, 204 P.2d 683, 687; Blodgett v. Merritt Annex Oil Co., 1937, 19 Cal.App.2d 169, 65 P.2d 123, 125. Thus, as of July 14, 1966, Contract 65-41-L was no longer binding on Douglas unless the termination agreement specifically continued certain portions of it in effect. See Blodgett v. Merritt Annex Oil Go., supra.

There is no support in the unambiguous, if somewhat awkwardly phrased, language of the “Agreement to Terminate” for the proposition that the original delivery dates were to continue in effect after July 14,1966. Eastern and Douglas quite explicitly “terminated all . obligations and liabilities . . . except for any . . . which may have accrued . prior to [July 14, 1966].” 19 In the ordinary sense of the word, 20 “to accrue” means “to come into existence as an enforceable right.” 21 Since Douglas was not required to deliver the last seven planes until after July 14, 1966, 22 no obligation to deliver these particular aircraft can be deemed to have accrued at the time Contract 65 — 41-L was terminated. 23

Eastern contends, however, that its claims under Contract 65-41-L for the last seven DC-9-14’s to be delivered are preserved because Douglas’ obligation to deliver in a timely fashion “accrued” when the contract was first executed. If we were to adopt Eastern’s view that the accrual of an *969 obligation is the same as its creation, none of the obligations arising under the contract could be deemed terminated despite wording which is explicitly to the contrary. In short, Eastern’s proposed construction would render the entire July 14, 1966 “Agreement to Terminate” a nullity. 24

Because the termination agreement cannot reasonably be interpreted as preserving the original delivery dates for those planes manufactured after July 14, 1966, the trial judge erred in using the Contract 65-41—L schedule to measure delays in the delivery of the seven DC-9-14’s which were not overdue at that time. 25 While we recognize that the termination agreement was executed at Douglas’ behest in order to help it secure third-party financing, it cannot now be réwritten merely because it operates to Eastern’s disadvantage. See Cousins, Inc. v. Hastings Clothing Co., 1941, 45 Cal. App.2d 141, 147, 113 P.2d 878, 881. Courts cannot redraft contracts under the guise of construing them. Hinckley v. Bechtel Corp., 1974, 41 Cal.App.3d 206, 211, 116 Cal.Rptr. 33, 36; see Moss Development Co. v. Geary, 1974, 41 Cal.App.3d 1, 9, 115 Cal. Rptr. 736, 741. 26

Having determined that the termination agreement forecloses any action under Contract 65-41—L for delays which occurred after July 14, 1966, we turn to McDonnell’s contention that those claims which were preserved by this agreement are barred by the statute of limitations. The limitation period to be applied in this diversity case is that which would be applied by the Florida courts. Wells v. Simonds Abrasive Co., 345 U.S. 514, 73 S.Ct. 856, 97 L.Ed. 1211 (1953); 2 J. Moore, Federal Practice ¶ 3.07[2] at 744-746 (1975). As the trial judge correctly held, Florida’s borrowing statute refers us to the applicable statute of limitations imposed by California, the state in which this action arose. 27 Under California law, an action for breach of Contract 65-41-L must be brought within four years of the time in which it accrued. Cal.Code Civ.Pro. § 337. 28

The District Court held that since Contract 65-41-L was not divisible, the four- *970 year limitation period did not begin to run until after October 1966, the time originally specified for delivery of the fifteenth and final plane to be manufactured under this agreement. 29 McDonnell argues that the agreement was severable because each plane was delivered and paid for separately, and therefore the statute of limitations began to run on each plane as it became overdue. However, because we hold that the July 14, 1966 agreement effectively terminated the contract, we need not decide whether Contract 65-41-L was severable or unitary.

There can be no doubt that Eastern’s cause of action under the contract accrued, at the latest, on July 14, 1966 when, for all intents and purposes, performance under Contract 65-41—L ceased. Since this suit was filed more than four years later on July 31,1970, Eastern’s claims arising from the late delivery of the first eight DC-9-14’s scheduled to be manufactured under Contract 65—41—L should have been barred by the District Court.

In conclusion, then, the termination agreement and the statute of limitations together preclude Eastern from bringing suit under Contract 65-41-L for delays in the delivery of DC-9—14 aircraft.

III. Notice of Breach Under the Uniform Commercial Code

During the trial and in final instructions to the jury, the District Court held that Eastern need not prove, as a predicate for recovery in this suit, that it had given McDonnell Douglas reasonable and timely notice of the delivery delays. McDonnell strongly contests the trial judge’s rulings for Eastern on this issue and argues either that the airline should, as a matter of law, be barred from any recovery or, alternatively, that the issue of timely notice should have been submitted to the jury.

The statute governing this question is section 2-607(3)(a) of the Uniform Commercial Code 30 which provides in part as follows:

(3) Where a tender has been accepted (a) the buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy;

McDonnell contends that the trial judge denied it the benefits of this provision, both by ruling that section 2-607 does not apply to late deliveries and by holding in the alternative that Eastern gave adequate notice. Because we are unable to agree with the District Court’s ruling on either ground, we hold that the question of timely notice under section 2-607 should have been submitted to the jury. 31

A. Applicability of U.C.C. § 2-607(3)(a)

Even though section 2-607, by its very terms, governs “any breach,” the trial court found the notice requirement to be inapplicable to delivery delays because a seller necessarily has knowledge of this sort of contract violation. Relying on the case of Jay V. Zimmerman Company v. General Mills, Inc., E.D.Mo., 1971, 327 F.Supp. 1198, 1204, the District Judge concluded that no *971 tice is useless where a breach is apparent to both parties. 32 The trial court apparently was of the view that the sole function of section 2-607 is to inform the seller of hidden defects in his performance. Under this approach, the only purpose of notice is to provide the seller with an opportunity to remedy an otherwise unknown nonconforming tender. See Reininger v. Eldon Mfg. Co., 1952, 114 Cal.App.2d 240, 250 P.2d 4, 8; Chemetron Corporation v. McLouth Steel Corporation, N.D.Ill, 1974, 381 F.Supp. 245, 254.

Section 2-607’s origins, however, reveal that it has a much broader function. The Code’s notice requirement was derived from decisional law in California 33 and several other states which sought to ameliorate the harsh common law rule that acceptance of goods by the buyer waived any and all of his remedies. Franck v. J. J. Sugarman-Rudolph Co., 1952, 40 Cal.2d 81, 251 P.2d 949, 953; Whitfield v. Jessup, 1948, 31 Cal.2d 826, 829, 193 P.2d 1, 2; see 3 S. Williston, Contracts § 714 (rev. ed. 1961). This approach was codified under section 49 of the Uniform Sales Act 34 which was adopted in California as Civ.Code § 1769.

As Professor Williston, the author of the Sales Act, has noted, section 49 continued the common law rule treating a seller’s tender of goods as an offer of them in full satisfaction. 3 S. Williston, Contracts § 714 (rev. ed. 1961). The buyer, though, was permitted to accept the offer without waiving any claims if he gave the seller prompt notice to this effect. See Reininger v. Eldon Mfg. Co., supra, 250 P.2d at 7. This approach reconciled the desire to give finality to transactions in which goods were accepted with the need to accommodate a buyer who, for business reasons, had to accept the tendered goods despite unsatisfactory performance by the seller. Metro Invest. Corp. v. Portland Rd. Lumber Yard, Inc., 1972, 263 Or. 76, 501 P.2d 312, 314. Pre-U.C.C. decisions in California and elsewhere, therefore, recognized that the primary purpose of notice is to inform the seller that, even though his tender has been accepted by the buyer, his performance is nonetheless considered a breach of contract. E. g., Columbia Axle Co. v. American Auto *972 mobile Ins. Co., 6 Cir., 1933, 63 F.2d 206, 207; Reininger v. Eldon Mfg. Co., supra, 250 P.2d at 8.

Under section 49 it was irrelevant whether a seller had actual knowledge of a nonconforming tender. Instead, the critical question was whether the seller had been informed that the buyer considered him to be in breach. Consequently, in Professor Williston’s words, “the section is applicable not only to defects in quality but to breach of any promise or warranty, as, for instance, delay in time.” 35 5 S. Williston, Contracts § 714 at 409 (3d ed. 1961) (emphasis supplied). Pre-U.C.C. decisions, therefore, applied the notice requirement in delivery delay cases. 36 Judge Learned Hand, for example, applied section 49 in a ease in which performance had been delayed, noting:

The plaintiff replies that the buyer is not required to give notice of what the seller already knows, but this confuses two quite different things. The notice “of the breach” required is not of the facts, which the seller presumably knows quite as well as, if not better than, the buyer, but of buyer’s claim that they constitute a breach. The purpose of the notice is to advise the seller that he must meet a claim for damages, as to which, rightly or wrongly, the law requires that he shall have early warning.

American Mfg. Co. v. United States Shipping Board E. F. Corp., 2 Cir., 1925, 7 F.2d 565, 566; cited with approval Whitfield v. Jessup, supra, 31 Cal.2d at 830, 193 P.2d at 4; Reininger v. Eldon Mfg. Co., supra, 250 P.2d at 8. But see Johnson v. Comptoir Franco Belge D’Exportation, etc., 1955, 135 Cal.App.2d 683, 288 P.2d 151, 156.

As the drafters of Article 2 acknowledge, section 2-607 continues the basic policies underlying section 49 of the Uniform Sales Act. 37 Indeed, the notice requirement developed in pre-U.C.C. cases is entirely consistent with the Article 2 goals of encouraging compromise and promoting good faith in commercial relations. 38 As Comment 4 to section 2-607 indicates, the purpose of notice is not merely to inform the seller that his tender is nonconforming, but to open the way for settlement through negotiation between the parties. In the words of the California Supreme Court, “the sound commercial rule” codified in section 2-607 also requires that a seller be reasonably protected against stale claims arising out of transactions which a buyer has led him to believe were closed. Pollard v. Saxe & Yolles Development Company, 1974, 12 Cal.3d 374, 115 Cal.Rptr. 648, 525 P.2d 88; see Prosser, The Assault upon the Citadel (Strict Liability to the Consumer), 69 Yale L.J. 1099, 1130 (1960). Early warning permits the seller to investigate the claim while the facts are fresh, avoid the defect in the future, minimize his damages, or perhaps assert a timely claim of his own against third parties. See Phillips, Notice of Breach in Sales and Strict Tort Liability *973 Law: Should There Be A Difference?, 47 Ind.L.J. 457, 465-70 (1972); Note, Notice of Breach and the Uniform Commercial Code, 25 U.Fla.L.Rev. 520, 521-25 (1973).

Given these undeniable purposes, it is not enough under section 2-607 that a seller has knowledge of the facts constituting a nonconforming tender; he must also be informed that the buyer considers him to be in breach of the contract. The Code’s notice requirement, then, is applicable to delivery delays as well as other breaches. 39 MacGregor v. McReki, Inc., 1971, 30 Colo. App. 196, 494 P.2d 1297, 1299; R. Anderson, Uniform Commercial Code § 2-607:13 at 211 (1971); Note, Notice of Breach and the Uniform Commercial Code, 25 U.Fla.L.Rev. 520, 526 (1973); see Warren’s Kiddie Shoppe, Inc. v. Casual Slacks, Inc., 1969, 120 Ga.App. 578, 580, 171 S.E.2d 643, 645; Beacon Plastic & Metal Prod., Inc. v. Corn Products Co., App.Term, 1968, 57 Misc.2d 634, 637, 293 N.Y.S.2d 429, 433. Accordingly, we decline to follow the reasoning of the Zimmerman decision, and we find that the trial court erred in not applying section 2-607 to the delivery delays at issue in this ease.

B. Adequate Notice Under Section 2— 607(3)(a)

Turning next to the lower court’s alternative rationale for ruling against McDonnell on the issue, we must determine whether the notice given by Eastern was both sufficient and timely as a matter of law. Finding the facts “essentially uncontradicted,” the trial court concluded that Eastern adequately informed McDonnell that it considered the delivery delays to be an actionable breach:

Eastern’s management repeatedly protested the delays and requested negotiation of the dispute, but they were always put off by McDonnell Douglas with the assurance that the matter would be taken up once the assembly line was back on schedule. When production was again on-line many months later it became obvious to Eastern that no good-faith settlement negotiations would take place. 40

Because the court’s ruling was, in effect, a directed verdict, it can be sustained only if there is no conflict in substantial evidence and the inferences from these facts “point so strongly and overwhelmingly” in favor of Eastern that reasonable men could not have arrived at a contrary verdict. Boeing Company v. Shipman, 5 Cir., 1969, 411 F.2d 365, 374-75 (en banc). As will be demonstrated below, the adequacy and timeliness of notice under section 2-607 typically depend upon the reasonableness of the buyer’s efforts to communicate his dissatisfaction. See United States v. Crawford, 5 Cir., 1971, 443 F.2d 611, 614. Therefore, whether the notice requirement has been complied with is a question which is particularly within the province of the jury. See Pritchard v. Liggett & Myers Tobacco Company, 3 Cir., 1961, 295 F.2d 292, 298; L. A. Green Seed Company of Arkansas v. Williams, Ark., 1969, 438 S.W.2d 717; 2 R. Anderson, Uniform Commercial Code § 2-607:24 (1971). As was noted by the Third Circuit:

Where more than one inference may be drawn from undisputed facts, or the facts are disputed, the timeliness and sufficiency of a notice of breach . . . are questions for the jury to resolve. The question of reasonableness must be determined from the circumstances in the individual case.

Pritchard v. Liggett & Myers Tobacco Company, supra (applying Uniform Sales Act); see Columbia Axle Co. v. American Automobile Ins. Co., 6 Cir., 1933, 63 F.2d 206, 208.

Applying this standard of review to the facts, we find that there was at least *974 one substantial factual dispute before the court and that the trial judge’s interpretation of the facts in the case was not the only reasonable inference that could be drawn from them. We, therefore, reverse on this issue as well. We do not agree, however, with McDonnell’s contention that, as a matter of law, Eastern’s notice was inadequate and untimely.

As we have seen, the contractual relationship between Douglas and Eastern stretched over a number of years and was governed by a series of separate agreements, several of which were amended a number of times. 41 The complexity of these agreements and the large number of planes involved required the parties to be in constant communication with each other. Indeed, throughout this period, Eastern was informed of all significant developments by one of its own engineers who was in residence at the Douglas plant. Eastern, therefore, often knew of anticipated delivery delays before being formally informed of them by Douglas.

By early January of 1966, both parties were aware that production under Contract 65^41 — L, the agreement with the earliest delivery dates, was behind schedule. Douglas did not officially notify Eastern of the impending delays until February when it sent several letters ascribing the DC-9-14 production difficulties to delays by subcontractors and a shortage of skilled labor. In Douglas’ view, all of these problems were due to “our nation’s rapidly increasing commitments in Southeast Asia.” Douglas also indicated that it was making every effort to mitigate the impact of its subcontractors’ difficulties.

Eastern replied on March 15, stating that it was “most disappointed with the delivery status” of the DC-9-14’s. The airline noted that it had repeatedly expressed concern over the lack of early notification by Douglas. Without contesting Douglas’ assertions concerning the Vietnam War, Eastern stated that

It appears to us that some of this slippage really should have been avoidable if corrections had been rigorously pursued when it first became apparent. In light of this, we believe the Douglas Company has a responsibility to assist Eastern wherever possible in the reduction of our own preinauguration activities. Some of the areas that assistance would be beneficial [sic] are training (flight crews, cabin attendants, mechanics, and inspectors) and additional introductory service support.

While it may be too early to evaluate completely, we assume your corrective actions will preserve the presently planned deliveries for the DC-9-31 and the DC-8-61 currently on order by Eastern.

On May 4, Douglas wrote Eastern expressing its willingness to discuss ways of “minimizing the difficulties these delays are causing you.” Douglas, however, asked the airline to defer such conversations until production was back on schedule. There was no further correspondence concerning Contract 65-41 — L, and, as we have seen, the agreement itself was terminated on July 14, 1966.

By fall of 1966, however, it became apparent that there also would be delays in the delivery of the DC-9-31 and DC-8-61 planes. Between October 1966 and September of 1967, Douglas wrote Eastern at least four times informing the airline of further delays in the production of these two types of aircraft. In a September 28, 1967 letter, written after the April merger, McDonnell Douglas again attributed the delays to “the worker shortage and continuing material and equipment shortages.”

Eastern’s first formal response to this series of announcements came on October 6, 1967. This letter informed McDonnell that “the delays in aircraft delivery have been very expensive to Eastern Airlines and we must view continuing slippage with great concern.” Eastern went on to state that

the delivery delays have cost Eastern so heavily that it would now appear that we made a mistake in going the DC-9 and DC-8-61 routes. Terms that were of *975 fered to us by another manufacturer would have been far less costly and although all aircraft manufacturers have suffered to some degree from common problems, it is apparent that the delivery schedule offered to us by your competitors have been more realistic than those attained by Douglas.

The delivery record of your current series of aircraft must necessarily be taken into account as we evaluate the purchase of the next series of airplanes. Unless there is concrete evidence that we can expect the DC-10 to be delivered in accordance with schedules offered by Douglas, it will be very difficult for us to decide in favor of your product as compared with that of another manufacturer.

On November 7, 1968, Eastern’s Chief Financial Officer, Mr. Simons, wrote McDonnell Douglas asking that every effort be made to deliver several planes on schedule because a delay during the peak holiday season would place “a substantial burden on Eastern which is more severe than that imposed on your other customers.”

There were no further significant written communications from Eastern until May 29, 1969 when McDonnell was formally presented with a claim for damages, in a letter from Eastern reading, in part, as follows:

Eastern has made a full study of such delays and their economic impact and has concluded that Eastern has sustained very substantial damages as a result of delays which cannot be deemed “excusable” within the meaning of the definition in the applicable Purchase Agreements. At its meeting on May 27, 1969, our Board of Directors instructed management to present and process a claim for such damages.

In addition to this undisputed documentary evidence, the District Court had before it testimony concerning Eastern’s attitude toward the delivery delays. Eastern’s Chairman, Floyd Hall, testified that he “talked with almost every one of the top officials [of Douglas and then of McDonnell Douglas] at one time or another. [E]very time I met them I reminded them of the late delivery of their aircraft.” W. Glenn Harlan, Eastern’s Senior Vice President of Legal Affairs, also testified that he refused Douglas’ request to waive the airline’s claims concerning the late deliveries.

The record, however, also contains testimony that Eastern informed McDonnell executives that it did not intend to make a claim for the late deliveries. James S. McDonnell, Chairman of McDonnell Douglas, testified that, as late as October 1968, Eastern’s President, Arthur Lewis, assured him that no damages would be sought. Another McDonnell executive, Jackson R. McGowan, also t