Confirmation Of Deal With After-The-Fact Terms And Conditions Is Part Of The Original Agreement

• Posted on: Mar 6 2017

Your client is engaged in negotiations to sell his company’s widgets in a purchase and sale transaction. After months of negotiations, the parties verbally agree to the salient terms of the transaction – that is, they agree to price, quantity, and specifications. You summarize these terms in an email on the same day. Your email also confirms that a formal contract will follow.

The following day, you send the contract to the buyer and its counsel. The agreement contains the agreed upon material terms, but also includes terms and conditions not discussed over the phone, such as a forum selection/choice of law provision, a waiver of warranty provision, a notice of claim provision, and a merger clause. In your email communication to which the agreement and the accompanying terms and conditions are attached, you inform the buyer and its counsel that they have 48 hours to comment on, or object to, any provision in the contract, including the additional terms and conditions. The deadline passes without objection.

Subsequently, a dispute arises over your client’s delivery of widgets in accordance with the specifications in the contract. Rather than send your client notice of the dispute as required by the contract, the buyer sues your client for breach of contract.

The foregoing scenario forms the basic fact pattern in Lion Copolymer, LLC v Kolmar Ams., Inc., 2017 N.Y. Slip Op. 01307 (1^st Dept. Feb. 21, 2017).  As discussed below, Lion Copolymer stands for the proposition that the subsequent confirmation of a verbal agreement by a formal contract containing additional terms and conditions does not negate or modify the original agreement.

Background

On July 19, 2011, the defendant Kolmar Americas, Inc. (“Kolmar”) and the plaintiff Lion Copolymer, LLC (“Lion”) entered into an agreement whereby Kolmar agreed to sell and Lion agreed to buy 3,000 to 3,500 metric tons of butadiene (a raw material required to manufacture synthetic rubber) (“Butadiene” or the “Product”) for $2.12 per pound. The Butadiene was to be shipped within Exxon Import Specifications to “CFR Baton Rouge, LA (ACT Terminal) via ‘Arctic Gas.’” The parties negotiated the Butadiene purchase by phone.

Upon reaching agreement on quantity, price, and shipping specifications (i.e., “the major details of the agreed-upon deal”), Kolmar e-mailed Lion on July 19, 2011, to summarize those contractual terms and confirm that a “formal contract [would] follow.” The following day, Kolmar sent Lion the formal contract, which embodied the parties’ full agreement and set forth Kolmar’s Transaction Confirmation (the “Confirmation”) and General Terms and Conditions (“GT&Cs”) (the Confirmation and GT&Cs together are referred to as the “Contract”).

The Contract included provisions that were not discussed over the phone. These terms included, among others, that: (1) Kolmar would deliver Butadiene, at loading, that met certain defined specifications, including quality and quantity; (2) title and risk of loss passed to Lion upon loading of the Butadiene aboard the ocean vessel; (3) in the event of any challenge to the quality of the Butadiene that was loaded onto the ocean vessel, Lion was required to provide written notice to Kolmar no later than five (5) calendar days after loading of the Butadiene onto the vessel commenced; and (4) any claims regarding  the quality of the Product were to be submitted to Kolmar in writing with supporting documentation within 90 days of the Product having been loaded aboard the vessel or the claims would be forever “waived and barred.” In addition, the Confirmation contained a forum selection/choice of law provision, a waiver of warranty provision, and a limited liability for damages provision.

The Confirmation also contained a merger clause, which specifically provided that it, and the GT&Cs, “constitute[d] the Parties’ full and entire understanding of the [Butadiene] sales transaction and may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement.” The Confirmation further provided that the “terms of the sales transaction as expressed in this Confirmation will be deemed irrevocably accepted” by Lion unless Lion provided written notice to Kolmar of any errors or omissions to the sales terms within 48 hours of the Confirmation being sent.

During discovery, a Lion senior officer testified that the company (i) received the Confirmation and GT&Cs, (ii) understood that the Confirmation and GT&Cs would become part of the Contract if Lion did not object within 48 hours, and (iii) did not object to any of the terms and conditions in the Confirmation and GT&Cs.

Between July 27, 2011 and August 5, 2011, Kolmar arranged for several quantities of Butadiene to be loaded aboard the ARCTIC GAS near Flushing, Netherlands. An inspection of the Butadiene revealed, however, that the Butadiene did not meet the specifications set forth in the Contract.

On August 22, 2011, the ARCTIC GAS arrived at ACT Terminal Baton Rouge to discharge the Butadiene. On August 30, 2011, Exxon purchased the Butadiene from Lion for $8,879,260.53. In October 2011, Lion submitted a claim against its cargo insurer for $7,955,239.92, representing the difference between the Exxon purchase price and the amount that Lion paid to Kolmar under the Contract.

Although the Butadiene did not meet the specification’s in the Contract, Lion did not: (1) send notice in writing, or in any other form, rejecting the Butadiene loaded aboard the ARCTIC GAS, (2) provide Kolmar with any notice that the Butadiene failed to conform to the Contract, and (3) provide Kolmar with written notice of a claim, or any documentation supporting such a claim, at any time before the lawsuit was filed in June 2012.

In its complaint, Lion asserted causes of action for breach of contract, negligence and breach of implied warranties related to its purchase of the Butadiene. On October 9, 2015, Kolmar moved for summary judgment on Lion’s causes of action. On April 21, 2016, the motion court granted Kolmar’s motion with respect to Lion’s causes of action for negligence and breach of implied warranties, and denied Kolmar’s motion with respect to Lion’s cause of action for breach of contract. The parties appealed.

The First Department’s Ruling

The First Department unanimously modified the motion court’s ruling with regard the breach of contract claim to grant Kolmar’s motion. The Court otherwise affirmed the motion court’s decision.

The Court found that the “Confirmation and terms and conditions provided by defendant Kolmar Americas, Inc. (Kolmar) formed the parties’ contract.” The fact that the “forum selection, waiver of warranty and notice of claim provisions” came after the salient terms were agreed to over the phone “did not constitute a material alteration such as would require Lion’s consent for enforcement.” Consequently, the notice provision in the Contract controlled.

Having determined that the terms and conditions in the Contract controlled the parties’ actions, the Court found that Lion’s failure to comply with it constituted a breach of contract:

Kolmar established Lion’s failure to comply with the notice of claim provision. Lion’s assertion that it complied with the two year requirement does not negate its obligation to provide an initial notice of claim within 90 days of discharge. In the absence of a timely notice of claim, Lion is barred from bringing its breach of contract claim, regardless of the questions raised regarding whether the butadiene was nonconforming when it was loaded onto a ship in the Netherlands and whether the butadiene testing in the Netherlands contained manifest errors.

As result, the Court reversed the motion court’s denial of Kolmar’s summary judgment motion as to Lion’s breach of contract claim.

Takeaway

Lion Copolymer is notable for its treatment of contract formation and whether the parties had a meeting of the minds when they agreed to the transaction. As discussed above, where the parties agree on the major terms of a transaction and later confirm those terms in writing, the fact that additional terms and conditions are added to the writing does not negate or modify enforcement of those terms. In fact, the new provisions in the subsequent writing will constitute a part of the parties’ original agreement when no party objects to them.

Tagged with: Business Law, Business Litigation, Commercial Litigation