New York Law Review

Tag: Contract Modification

  • CT Chemicals (U.S.A.) v. Vinmar Impex, Inc., 706 N.E.2d 749 (N.Y. 1998): Course of Performance Determines Contract Modification

    CT Chemicals (U.S.A.) v. Vinmar Impex, Inc., 706 N.E.2d 749 (N.Y. 1998)

    Under UCC 2-208, a party’s repeated course of performance, accepted without objection, is relevant to determine the meaning of the agreement and may demonstrate a waiver or modification of contract terms inconsistent with that performance.

    Summary

    CT Chemicals sued Vinmar Impex for breach of contract related to the sale of high-density polyethylene (HDPE). The initial agreement required payment via letter of credit. Vinmar claimed an oral modification to net 30-day terms. The court found that Vinmar’s subsequent actions, including setting up a letter of credit, indicated that the original payment terms remained in effect. Because Vinmar failed to honor the letter of credit for the first shipment, CT Chemicals was justified in withholding the second shipment, and Vinmar breached the contract. This case demonstrates how a party’s conduct can negate claims of oral modification.

    Facts

    CT Chemicals and Vinmar Impex, both chemical dealers, negotiated a sale of HDPE. Initially, Vinmar offered to buy 1,000 metric tons, with payment by letter of credit. CT confirmed the sale and offered an additional 1,000 tons. Vinmar acknowledged the first 1,000 tons. Later, Vinmar alleged an oral agreement to change payment to “net 30 days”. Vinmar sent a purchase order reflecting the net 30 terms, then tried to cancel the order but subsequently agreed to continue. Vinmar later accepted the offer for the second quantity. CT confirmed an amended contract for 1,900/2,000 tons with payment by letter of credit. Vinmar opened a letter of credit for the first 1,000 tons but later refused to waive discrepancies, leading to the bank’s rejection of CT’s presentment and CT withholding the second shipment.

    Procedural History

    CT Chemicals sued Vinmar for breach of contract. The Supreme Court denied cross-motions for summary judgment. The Appellate Division modified, granting summary judgment to CT Chemicals. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether the payment method was modified from a letter of credit to a 30-day credit term?

    2. Whether delivery was severable, with payment due after the first shipment, or whether payment was due only after delivery of all goods?

    3. Whether Vinmar was entitled to demand assurances from CT Chemicals regarding the second shipment prior to paying for the first shipment?

    Holding

    1. No, because the parties’ course of performance demonstrated that the payment term remained letter of credit.

    2. Yes, because the circumstances surrounding the agreement indicated that the parties contemplated two separate shipments with separate payment for each.

    3. No, because Vinmar had possession of the first shipment and was therefore not entitled to suspend payment while demanding assurances.

    Court’s Reasoning

    The court applied UCC 2-208(1), stating that “any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement.” Vinmar’s actions in setting up a letter of credit indicated an understanding that the original payment terms were still in effect. The court also noted UCC 2-208(3) stating that “such course of performance shall be relevant to show a waiver or modification of any term inconsistent with such course of performance”. Regarding delivery, the court applied UCC 2-307: “Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot”. The court found the circumstances confirmed CT’s right to make delivery in two lots and demand separate payment for each lot. Finally, the court noted UCC 2-325(2) and 2-609(1) in concluding that CT Chemicals acted appropriately in suspending the second delivery, because Vinmar had not honored the letter of credit for the first delivery and refused to give assurances that discrepancies would be waived. Because Vinmar breached the contract, CT Chemicals was entitled to withhold the second shipment. The court distinguished Created Gemstones v Union Carbide Corp., noting that in this case, there was no factual issue as to whether the seller breached the contract.

  • In the Matter of Schlaifer v. Kaiser, 61 N.Y.2d 752 (1984): Distinguishing Contract Modification from Novation

    In the Matter of Schlaifer v. Kaiser, 61 N.Y.2d 752 (1984)

    Whether a subsequent agreement constitutes a novation or merely a modification of a prior contract depends on the parties’ intent; absent extrinsic evidence, this determination is a question of law for the court, assessed by comparing the agreements.

    Summary

    This case concerns whether a 1976 agreement between Schlaifer and Kaiser was a novation that extinguished their 1974 contract, or simply a modification. The Court of Appeals held it was a modification. The court also addressed the timeliness of Kaiser’s demand for arbitration seeking rescission based on fraud. The court determined that the arbitration demand was time-barred under CPLR 213(1) and 203(f) because it was filed more than six years after the contract date and more than two years after Kaiser discovered the alleged fraud. Therefore, the Court affirmed the Appellate Division’s decision to stay arbitration.

    Facts

    Schlaifer and Kaiser entered into a contract on June 18, 1974. Later, in 1976, they entered into another agreement. In August 1981, Kaiser served a demand for arbitration, seeking rescission of the 1974 contract based on allegations of fraud.

    Procedural History

    Kaiser sought arbitration of the 1974 agreement based on fraud. The Appellate Division stayed the arbitration. The Court of Appeals reviewed the Appellate Division’s order pursuant to Section 500.4 of the Rules of the Court of Appeals and affirmed the stay.

    Issue(s)

    1. Whether the 1976 agreement constituted a novation of the 1974 agreement, or merely a modification.
    2. Whether Kaiser’s demand for arbitration, seeking rescission of the 1974 agreement based on fraud, was timely.

    Holding

    1. No, the 1976 agreement was a modification, not a novation, because comparison of the two agreements indicates an intent to modify rather than extinguish the 1974 contract.
    2. No, the demand for arbitration was untimely because it was served more than six years after the contract date and more than two years after the discovery of the alleged fraud, exceeding the limitations periods specified in CPLR 213(1) and 203(f).

    Court’s Reasoning

    The Court reasoned that whether the 1976 agreement was a novation or a modification depends on the intent of the parties. Absent extrinsic evidence of intent, the determination is a question of law for the court. The Court stated, “Comparison of the two agreements establishes that what was intended was modification rather than extinguishment of the 1974 contract.” The court relied on Mallad Constr. Corp. v County Fed. Sav. & Loan Assn., 32 NY2d 285, 288, 293 for the principle that intent determines whether a subsequent agreement is a novation or modification. The Court further reasoned that arbitration of a claim for rescission for fraud must be commenced within six years after the date of the contract, or within two years after the fraud was or with reasonable diligence could have been discovered, citing CPLR 213(1) and 203(f), as well as 35 Park Ave. Corp. v Campagna, 48 NY2d 813. Because Kaiser’s demand was served after both of these deadlines, the Court found the Appellate Division was correct in staying arbitration.

  • 805 Third Ave. Co. v. M.W. Realty Associates, 58 N.Y.2d 447 (1983): Economic Duress Requires Wrongful Withholding of a Legal Duty

    805 Third Ave. Co. v. M.W. Realty Associates, 58 N.Y.2d 447 (1983)

    A claim of economic duress in contract modification requires demonstrating that one party wrongfully threatened to breach the original agreement by withholding a legally required performance unless the other party agreed to further demands.

    Summary

    805 Third Avenue Co. sued M.W. Realty Associates seeking to rescind a modified contract for the sale of air rights, claiming economic duress. 805 Third Ave. Co. alleged that M.W. Realty Associates wrongfully refused to deliver documents required under the original contract unless 805 Third Ave. Co. agreed to a modification more favorable to M.W. Realty Associates. The New York Court of Appeals affirmed the dismissal of the complaint, holding that because 805 Third Ave. Co. failed to fulfill its preconditions for M.W. Realty Associates’ performance under the original agreement, M.W. Realty Associates’ refusal to deliver the documents was not a wrongful act constituting economic duress. The court emphasized that a party cannot be guilty of economic duress for refusing to do something it is not legally required to do.

    Facts

    805 Third Avenue Co., a ground lessee, contracted with M.W. Realty Associates to purchase air rights for $1.9 million to construct a 31-story building. The agreement, dated September 18, 1979, stipulated that 805 Third Avenue Co. would deposit cash and a promissory note in escrow, while M.W. Realty Associates would deposit a declaration of zoning lot restrictions and a single lot and easement agreement. These escrow deposits were to be exchanged on the “Sales Closing Date”, defined as the date a building permit was issued or when excavation or construction began for the proposed building. 805 Third Avenue Co. began foundation work on December 4, 1979, after obtaining a permit for the foundation only. In May 1980, 805 Third Avenue Co. demanded delivery of the documents, but M.W. Realty Associates refused unless 805 Third Avenue Co. agreed to modify the contract to terms more favorable to M.W. Realty Associates. 805 Third Avenue Co. then executed the modified contract, claiming economic duress.

    Procedural History

    805 Third Avenue Co. sued M.W. Realty Associates to rescind the modified contract, claiming economic duress. Special Term granted a preliminary injunction maintaining the status quo and denied M.W. Realty Associates’ motion to dismiss. The Appellate Division modified the order by vacating the injunction and granting the motion to dismiss. The Court of Appeals then reviewed the Appellate Division’s order.

    Issue(s)

    Whether M.W. Realty Associates’ refusal to deliver documents under the original contract, absent 805 Third Avenue Co.’s fulfillment of its preconditions, constituted a wrongful threat amounting to economic duress that would justify rescission of the modified contract.

    Holding

    No, because 805 Third Avenue Co. failed to fulfill the preconditions for M.W. Realty Associates’ performance under the original contract, M.W. Realty Associates’ refusal to deliver the documents was not a wrongful act and therefore did not constitute economic duress.

    Court’s Reasoning

    The court found that the contract of September 18, 1979, annexed to the complaint, governed the obligations of the parties. According to the contract, M.W. Realty Associates was only obligated to deliver the declaration and lot agreement on the “Sales Closing Date,” which the contract defined as the date of the building permit’s issuance or the commencement of construction. Because 805 Third Avenue Co. began construction on December 4, 1979, the Sales Closing Date was triggered. The court determined that delivery of the declaration and lot agreement was conditioned on 805 Third Avenue Co. delivering (a) the cash down payment and promissory note, plus interest, (b) a letter of credit securing payment of the balance, and (c) the architectural drawings. Since 805 Third Avenue Co. failed to plead that it fulfilled these conditions, M.W. Realty Associates was under no legal duty to deliver the documents. The court stated, “a party cannot be guilty of economic duress for refusing to do that which it is not legally required to do.” The court distinguished this case from others where the plaintiff’s pleading was sufficient on its face but the right to recovery was doubtful, noting that this action was controlled by the contract annexed to the complaint and that there was no factual dispute, only a legal one concerning the instrument’s interpretation. The court relied on the principle that contract interpretation is a legal matter for the court, and the contract provisions prevail over conclusory allegations in the complaint.

  • In re Eoseman, 21 N.Y.2d 143 (1967): Enforceability of Contract Modification with Agreement to Agree

    In re Eoseman, 21 N.Y.2d 143 (1967)

    An agreement to agree in the future is unenforceable, but if that portion of the agreement is excised, the remaining valid terms of the contract remain in effect if they can be reasonably construed.

    Summary

    This case concerns the interpretation of a contract modification regarding payments to a widow. The original agreement stipulated weekly payments. A subsequent modification temporarily reduced the weekly rate with a clause stating the parties would discuss raising the rate later. The court held that the ‘agreement to agree’ on future rates was unenforceable due to indefiniteness. However, the temporary modification was valid and enforceable. The court reasoned that the temporary modification clause, when read in conjunction with the clause maintaining the original contract’s force, indicated an intent to revert to the original payment terms after the modification period ended.

    Facts

    Plaintiff’s husband, prior to his death in 1959, had an agreement with defendant Eoseman that the surviving partner in their accounting firm would employ the widow of the deceased partner for $100 per week until $52,000 (or $40,000 in case of remarriage) was paid.

    In 1962, plaintiff and defendant Eoseman modified the agreement, reducing the weekly payments to $70 from September 17, 1962, to March 17, 1964. The modification stated that after March 17, 1964, the future weekly payments would be discussed for revision upwards. The modification also stipulated that except as expressly modified, all other terms of the 1959 agreement remained in effect.

    Procedural History

    The Supreme Court awarded the plaintiff arrearages at the rate of $70 per week. The plaintiff appealed.

    Issue(s)

    Whether the 1962 modification agreement constituted a temporary modification of the original 1959 agreement, or a complete rescission and replacement of the payment terms, considering the clause regarding future rate discussions.

    Holding

    No, the 1962 modification was a temporary modification because the clause regarding future rate discussions, while unenforceable, did not invalidate the clearly defined period of reduced payments, and the original agreement remained in effect except as expressly modified.

    Court’s Reasoning

    The court found that the portion of the 1962 modification agreement that stated the parties would discuss future weekly salary for upward revision was an unenforceable agreement to agree because it was indefinite and uncertain, citing Bogy v. Berlage, 265 App. Div. 249, 251. The court applied the principle that a void portion of an agreement can be excised without affecting the validity of the remainder, referencing 1 Williston, Contracts [3d ed.], § 48.

    The court reasoned that the change in weekly rate, specified to commence on September 17, 1962, and continue to March 17, 1964, indicated a temporary modification rather than a rescission of the original agreement. The modification explicitly stated that “except as herein expressly modified, all other terms, covenants and conditions of the said agreement dated July 9, 1959, shall remain in full force and effect.”

    The court concluded that the salary should revert to $100 on March 17, 1964, and plaintiff was entitled to arrearages at that rate. This was a matter of construing the intent of the parties from the contract language. The Court held that the plaintiff was due $9,400 plus interest instead of the $6,500 originally awarded. The court’s holding suggests a preference for interpreting contracts to give effect to all their provisions where reasonably possible, avoiding findings of complete rescission when a partial modification is a more plausible interpretation.