Article

Note: In connection with the purchase of of xylene feedstock, Kolmar Americas, Inc. (Buyer/Applicant) arranged for a commercial letter of credit in favor of Koch Supply & Trading, LP (Seller/Beneficiary). The amount and other details of the LC were not mentioned in the opinion.

Buyer/Applicant was to have a carrier pick up shipments of 5,000 metric tons of feedstock twice per month. When Buyer/Applicant's carrier failed to meet the pick-up deadline for the second shipment of September 2010, Buyer/Applicant faced a possible breach of contract. Foreseeing the breach and in light of rising costs, Seller/Beneficiary offered Buyer/Applicant a contract amendment that would raise the price of the shipment according to their increased costs, but that also would provide a deadline extension allowing Buyer/Applicant to avoid the breach of contract. Buyer/Applicant eventually notified Seller/ Beneficiary that the terms of the commercial letter of credit were changed to reflect the new price, but expressed a reservation of all rights with respect to the original contract. A dispute arose over whether Buyer/Applicant missed the extended deadline and Seller/Beneficiary cancelled the delivery. Buyer/Applicant sued for breach of contract. Seller/Beneficiary counter claimed for breach of contract.

The United States District Court for the Southern District of New York, Rakoff, J., granted partial judgment to Buyer/Applicant as to Seller's first September shipment, which happened to be short, and partial judgment to Seller/Applicant with respect to the second September delivery.

Because the contract had called for two shipments each month of 5,000 metric tons each, the Judge ruled that despite the intent of Seller/Beneficiary to make up the difference in the second shipment, the shortage still constituted a breach of contract.

With regard to the second shipment, the Judge ruled that amendment of the letter of credit did not constitute agreement to amend the contract, because the letter of credit is independent of any underlying contracts. In response to Buyer's arguments that agreement to the contract amendment could be ascertained by conduct, part performance, or estoppel/waiver under N.Y. U.C.C. §2-207(3), the Judge noted that such forms of agreement must be "unequivocally referable" to the new contract. In this case, Buyer/Applicant's continued insistence on the reservation of its rights with respect to the original contract rendered its amendment of the letter of credit questionable as agreement to different contract terms and not unequivocally referable to agreement to the contract amendment offered by the Seller/Beneficiary. The Judge further noted that Buyer/Applicant effectively conceded that Buyer/Applicant had never agreed to the contract amendment by stating in its own brief that it had intended all along to litigate the price increase. Because no amended contract existed, the Judge found that a breach of the original contract existed from the moment the 30 September 2010 deadline passed.

[JEB/vjm]

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