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Note: United Polychem, Inc. (Buyer) agreed to buy five million pounds of ethylene, a petroleum product from Westlake Petrochemicals, L.L.C. (Seller). At the time of the agreement, the parties had not settled the credit terms. As security for its credit, Buyer offered to provide an LC in the amount of USD 2 million plus a personal guaranty executed by Buyer's president, both in favor of Seller. Seller claimed to have left a voicemail message accepting the credit terms, but Buyer denied receiving it. Subsequently, the price of ethylene dropped, and Buyer informed Seller that it would not perform and that there was no contract as Seller had not confirmed the credit terms.

Seller sued Buyer for breach of contract; Buyer counterclaimed, also for breach of contract. The district court jury ruled that Buyer and Seller had formed a binding contract, and accordingly the court ruled that the Buyer had breached the contract. Buyer appealed, claiming (1) that the agreement violated the statute of frauds because the credit terms were not in writing and (2) that agreement on the credit terms was a condition precedent to formation of the contract. The U.S. Court of Appeals for the Fifth Circuit, Wiener, J., disagreed, ruling that there was a "legally sufficient evidentiary basis" for the jury's conclusion that the parties entered into a binding contract. The court held that the credit terms were not "essential" to the contract under both the U.C.C. and Texas state statute of frauds, and, therefore, were not required to be in a written agreement.

The court further ruled that, in fact, the industry norm was to negotiate payment and credit terms after the contract had been formed and just prior to performance. In addition, the court stated that "the evidence in the record does not firmly establish that the parties intended the credit issue to be a condition precedent to the contract", holding that approval of credit was not a condition precedent to formation and at best a condition precedent to performance.

[JEB/ak]

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