- U.S. Court of Appeals (11th Circuit)
- Treibacher Industrie, A.G. v. Allegheny Technologies, Inc.
MEANING OF CONTRACT TERM RESULTING FROM PRACTICES ESTABLISHED BETWEEN PARTIES (ART. 9(1) CISG) – PREVAIL OVER TERM'S COMMON USAGE IN INDUSTRY ALSO IN ABSENCE OF EXPRESS AGREEMENT BY PARTIES ON A DIFFERENT MEANING.
INTERPRETATION OF PARTIES' INTENTION – REFERENCE TO PRACTICES ESTABLISHED BETWEEN PARTIES (ART. 8(3) CISG).
DUTY TO MITIGATE DAMAGES (ART. 77 CISG) - BURDEN OF PROOF ON PARTY IN BREACH TO PROVE FAILURE TO MITIGATE.
By way of two contracts, an Austrian vendor of hard metals (“the seller”), agreed to sell a hard metal powder to the Alabama-based company (“the buyer”) for delivery to “consignment”. The buyer planned to use the powder in its manufacturing. After it had received some of the powder, the buyer refused to take delivery of the amount remaining according to the contract. It wrote a letter to the seller in which it denied having a binding obligation to either take delivery of, or pay for any, powder it did not wish to use. Unknown to the seller, the buyer had in fact purchased the powder from another vendor for a lower price. The seller sued to recover the amount that it would have received had the buyer paid for all of the powder.
Both parties disputed the meaning of the term “consignment” contained in the contracts. The buyer contended that, under the industry’s customary usage of the term “consignment”, no sale occurred unless it actually used the powder. On the contrary the seller put forward that, during the parties’ dealings over a period of seven years, the term “consignment” had been understood to mean that the buyer had a binding obligation to pay for all the powder specified in the contract, while the seller would delay billing the buyer until the powder had actually been used. By applying CISG pursuant to its Art. 1(1)(a), the Court of first instance ruled in favor of the seller and held it entitled to recover damages plus interest. The buyer appealed.
The Appellate court upheld the lower Court decision. In doing so, it rejected the buyer’s argument that the meaning of the term “consignment” under its common usage in the industry should prevail over the meaning as understood from the practices established between the parties. Contrary to what was argued by the buyer, Art. 9(2) CISG (“parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known …”) can not be understood to mean that, unless the parties expressly agree to the meaning of a term, the customary trade usage applies. Nor can such an interpretation be supported, as again contended by the buyer, from the fact that Art. 9(1) CISG separates the phrase “any usage to which they have agreed” (thus meaning express agreement) from the phrase “any practices which they have established” (thus meaning an implicit agreement deriving from the course of dealing). In reaching such a conclusion, the Court pointed out that the buyer’s construction of Art. 9 CISG would render meaningless the reference in Art. 8(3) CISG to any practices established between the parties. Furthermore, such an approach would cause paragraph 1 of Art. 9 CISG to be void, since the parties could no longer be bound by the practices established between themselves but instead, absent an express agreement on the meaning of the term, they would be bound by the term’s customary usage even if they had established a contrary usage in their course of dealing.
The court also noted that the facts confirmed that the meaning of “consigment” was indeed the one argued by the seller. The buyer kept the powder it received from the seller separate from powder it received from others, and sent usage reports to the seller, after which the seller would invoice the buyer. The buyer once expressed its desire to return some powder, but was told by the seller that it could not, as it was contractually obliged to purchase the powder. The buyer subsequently kept the powder, used it and sent a usage report; this instance in particular proved to the court that the buyer had agreed with the seller’s interpretation.
The court also upheld the district court's decision in relation to damages, viz. that the seller reasonably mitigated its losses (art 77 CISG). The buyer, as the party in breach, needed to show that the seller did not take reasonable steps to mitigate its losses. However, not only did the buyer fail to present any such evidence, but the court also found, through evidence provided by the seller, that the seller had both sought to reduce its losses as soon as possible (its first sale of the powder occurred only 17 days after receiving the buyer’s letter of denial) and had also sold the powder at the highest prices possible.
Tjoflat, Circuit Judge:
I. A. This lawsuit arises out of two contracts, executed in November and December of 2000, respectively, whereby Treibacher Industrie, AG ("Treibacher"), an Austrian vendor of hard metal powders, agreed to sell specified quantities of tantalum carbide ("TaC"), a hard metal powder, to TDY Industries, Inc. ("TDY") for delivery to "consignment." TDY planned to use the TaC in manufacturing tungsten-graded carbide powders at its plant in Gurney, Alabama. After it had received some of the amount of TaC specified in the November 2000 contract, TDY refused to take delivery of the balance of the TaC specified in both contracts, and, in a letter to Treibacher dated August 23, 2001, denied that it had a binding obligation to take delivery of or pay for any TaC that it did not wish to use. Unbeknownst to Treibacher, TDY had purchased the TaC it needed from another vendor at lower prices than those specified in its contracts with Treibacher. Treibacher eventually sold the quantities of TaC of which TDY refused to take delivery, but at lower prices than those specified in its contracts with TDY. Treibacher then filed suit against TDY, seeking to recover the balance of the amount Treibacher would have received had TDY paid for all of the TaC specified in the November and December 2000 contracts.
On TDY's motion for summary judgment, the district court isolated Treibacher's claims from the complaint and granted the motion on all counts but Counts I and VI. The court, following a bench trial, gave Treibacher judgment on Counts I and VI, awarding Treibacher $5,327,042.85. Since we affirm the court's judgment on Count I, we need not review the court's disposition of Count VI.
The case proceeded to a bench trial, where TDY and Treibacher disputed the meaning of the term "consignment"-- the delivery term contained in both contracts. TDY introduced experts in the metal industry who testified that the term "consignment," according to its common usage in the trade, meant that no sale occurred unless and until TDY actually used the TaC. Treibacher introduced evidence of the parties' prior dealings to show that the parties, in their course of dealings (extending over a seven-year period), understood the term "consignment" to mean that TDY had a binding obligation to pay for all of the TaC specified in each contract but that Treibacher would delay billing TDY for the materials until TDY had actually used them. The district court ruled that, under the United Nations Convention on Contracts for the International Sale of Goods ("CISG"), opened for signature April 11, 1980, S. Treaty Doc. No. 9, 98th Cong., 1st Sess. 22 (1983), 19 I.L.M. 671, reprinted at 15 U.S.C. app. (1997), evidence of the parties' interpretation of the term in their course of dealings trumped evidence of the term's customary usage in the industry, and found that Treibacher and TDY, in their course of dealings, understood the term to mean "that a sale had occurred, but that invoices would be delayed until the materials were withdrawn." The court therefore entered judgment against TDY, awarding Treibacher $5,327,042.85 in compensatory damages (including interest).
B. TDY now appeals. TDY contends that, under the CISG, a contract term should be construed according to its customary usage in the industry unless the parties have expressly agreed to another usage. TDY argues, in the alternative, that the district court erred in finding that, in their course of dealings, Treibacher and TDY understood the term "consignment" to require TDY to use and pay for all of the TaC specified in each contract. Finally, TDY contends that, if we uphold the district court's ruling that TDY breached its contracts with Treibacher, we should remand the case for a new trial on damages on the ground that the district court erroneously found that Treibacher reasonably mitigated its damages.
Reviewing the district court's legal conclusions de novo and factual findings for clear error, Newell v. Prudential Ins. Co., 904 F.2d 644, 649 (11th Cir.1990), we hold that the district court properly construed the contract under the CISG -- according to the parties' course of dealings -- and did not commit clear error in finding that the parties understood the contracts to require TDY to use all of the TaC specified in the contracts. As to the mitigation of damages issue, which we review for clear error, Bunge Corp. v. Freeport Marine Repair, Inc., 240 F.3d 919, 923 (11th Cir.2001), we find that the evidence before the district court supported its finding that Treibacher's mitigation efforts were reasonable under the circumstances. We therefore affirm the judgment of the district court.
II. A. We begin our analysis by discussing the CISG, which governs the formation of and rights and obligations under contracts for the international sale of goods. CISG, arts. 1, 4. Article 9 of the CISG provides the rules for interpreting the terms of contracts. Article 9(1) states that, "parties are bound by any usage to which they have agreed and by any practices which they have established between themselves." Article 9(2) then states that, "parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract ... a usage of which the parties knew or ought to have known and which in international trade is widely known to ... parties to contracts of the type involved in the particular trade concerned." Article 8 of the CISG governs the interpretation of the parties' statements and conduct. A party's statements and conduct are interpreted according to that party's actual intent "where the other party knew ... what that intent was," CISG, art. 8(1), but, if the other party was unaware of that party's actual intent, then "according to the understanding that a reasonable person ... would have had in the same circumstances," CISG, art. 8(2). To determine a party's actual intent, or a reasonable interpretation thereof, "due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties." CISG, art. 8(3).
In arguing that a term's customary usage takes precedence over the parties' understanding of that term in their course of dealings, TDY seizes upon the language of article 9(2), which states that, "parties are considered, unless otherwise agreed, to have made applicable to their contract" customary trade usages. TDY contends that article 9(2) should be read to mean that, unless parties to a contract expressly agree to the meaning of a term, the customary trade usage applies. In support of its argument, TDY points to the language of article (9)(1), which binds parties to "any usage to which they have agreed and by any practices which they have established between themselves." According to TDY, the drafters of the CISG, by separating the phrase "usages to which they have agreed" from the phrase "practices which they have established between themselves," intended the word "agreed," in article 9, to mean express agreement, as opposed to tacit agreement by course of conduct. Applying this definition to the language of article 9(2), TDY contends that contract terms should, in the absence of express agreement to their usage, be interpreted according to customary usage, instead of the usage established between the parties through their course of conduct.
TDY's construction of article 9 would, however, render article 8(3) superfluous and the latter portion of article 9(1) a nullity. The inclusion in article 8(3) of "any practices which the parties have established between themselves," as a factor in interpreting the parties' statements and conduct, would be meaningless if a term's customary usage controlled that term's meaning in the face of a conflicting usage in the parties' course of dealings. The latter portion of article 9(1) would be void because the parties would no longer be "bound by any practices which they have established between themselves." Instead, in the absence of an express agreement as to a term's meaning, the parties would be bound by that term's customary usage, even if they had established a contrary usage in their course of dealings. We therefore reject TDY's interpretation of article 9(2), and, like the district court, adopt a reading that gives force to articles 8(3) and 9(1), namely, that the parties' usage of a term in their course of dealings controls that term's meaning in the face of a conflicting customary usage of the term. Cf. Gonzalez v. McNary, 980 F.2d 1418, 1420 (11th Cir.1993) ("A statute should be construed so that effect is given to all its provisions, so that no part of it will be inoperative or superfluous, void or insignificant.").
B. The district court did not commit clear error in finding that, in their course of dealings, TDY and Treibacher defined the term "consignment" to require TDY to accept and pay for all of the TaC specified in each contract. The parties do not dispute that they executed, between 1993 and 2000, a series of contracts in which Treibacher agreed to sell certain hard metal powders, such as TaC, to TDY. In each instance, TDY discussed its needs with Treibacher, after which Treibacher and TDY executed a contract whereby Treibacher agreed to sell a fixed quantity of materials at a fixed price for delivery to "consignment." Treibacher then delivered to TDY the specified quantity of materials--sometimes in installments, depending upon TDY's needs. TDY kept the materials it received from Treibacher in a "consignment store," where the materials were labeled as being from Treibacher and segregated from other vendors' materials. As it withdrew the materials from the consignment store for use, TDY published "usage reports," which documented the amounts of materials withdrawn. TDY sent the usage reports to Treibacher, and Treibacher, in turn, sent TDY invoices for the amounts of materials withdrawn at the price specified in the relevant contract. TDY then paid the invoices when they came due. In each instance, TDY ultimately withdrew and paid for the full quantity of materials specified in each contract.
A particularly telling interaction, the existence of which the parties do not dispute, occurred in February 2000, when a TDY employee, Conrad Atchley, sent an e-mail to his counterpart at Treibacher, Peter Hinterhofer, expressing TDY's desire to return unused portions of a hard metal powder, titanium carbonitride ("TiCN"), which Treibacher had delivered. Hinterhofer telephoned Atchley in response and explained that TDY could not return the TiCN because TDY was contractually obligated to purchase the materials; Treibacher had delivered the TiCN as part of a quantity of TiCN that it was obligated to provide TDY under a contract executed in December 1999. Atchley told Hinterhofer that TDY would keep the TiCN. TDY subsequently used the TiCN and sent a usage report to Treibacher, for which Treibacher sent TDY an invoice, which TDY paid. This interaction -- evidencing TDY's acquiescence in Treibacher's interpretation of the contract -- along with TDY's practice, between 1993 and 2000, of using and paying for all of the TaC specified in each contract amply support the district court's finding that the parties, in their course of dealings, construed their contracts to require TDY to use and pay for all of the TaC specified in each contract.
C. With respect to damages, the district court did not commit clear error in finding that Treibacher reasonably mitigated its damages. Article 77 of the CISG requires a party claiming breach of contract to "take such measures as are reasonable in the circumstances to mitigate the loss." Article 77, however, places the burden on the breaching party to "claim a reduction in the damages in the amount by which the loss should have been mitigated." Treibacher's Commercial Director, Ulf Strumberger, and Hinterhofer testified that Treibacher sought to mitigate damages as soon as possible and ultimately obtained the highest prices possible for the quantity of TaC that TDY refused; their first sale in mitigation occurred on September 9, 2001, seventeen days after the date of TDY's letter denying its obligation to purchase all of the TaC. TDY, the party carrying the burden of proving Treibacher's failure to mitigate, presented no evidence showing that Treibacher did not act reasonably. The district court therefore had no basis upon which to find that Treibacher did not take reasonable steps to mitigate its losses.
III. In sum, the district court properly determined that, under the CISG, the meaning the parties ascribe to a contractual term in their course of dealings establishes the meaning of that term in the face of a conflicting customary usage of the term. The district court was not clearly erroneous in finding that Treibacher and TDY understood their contracts to require TDY to purchase all of the TaC specified in each contract and that Treibacher took reasonable measures to mitigate its losses after TDY breached. Accordingly, the judgment of the district court is
Original in English:
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