New York Law Review

Tag: CT Chemicals (U.S.A.) v. Vinmar Impex, Inc.

  • 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.