- C.A. No. 15-1172-LPS
- U.S. District Court, Delaware
- Syral Belgium N.V. v. U.S. Ingredients Inc.
CONTRACT MODIFICATION - ORAL MODIFICATION ADMITTED (ART. 29 CISG)
A Belgium seller and a US buyer concluded an oral agreement whereby the former agreed to supply the latter with wheat gluten. Subsequently, the parties agreed orally to modify the original contract. A dispute arose between the parties and the seller sued the buyer for breach of contract.
As to the applicable law, the Court ruled that both the original and the amended contract were governed by CISG, since the Convention applies to written and oral contracts equally and permits modification to be made orally (art. 29 CISG). In reaching such a conclusion, the Court rejected the buyer’s claim that the modified contract was to be subject to domestic law as it related only to time of delivery, quantity of the goods and payment for storage costs. Relying, inter alia, on Art. 19 CISG, the Court observed that a modified contract can be governed by CISG even if not every individual term added with the modification pertains strictly to the sale of goods.
However, the Court found that the purported offer by the seller to modify the contract with regard to the payment of the storage costs was not sufficiently definite in the light of Art. 14 CISG.
Besides, as to the buyer’s allegation that the seller had breached the contract by failing to deliver the total amount of goods agreed upon, the Court noted that the buyer had not provided adequate proof that it had paid the price and, consequently, that the seller had unrightfully suspended performance under Art. 71 CISG and claimed for breach of contract under Art. 64 CISG.
Syral, a Belgium-based entity, sued USI, a Delaware corporation with its principal place ofbusiness in Pennsylvania, for breach of contract on December 18, 2015. (D.L 1 at 1; D.L 12 at
]See http://www.ded.uscourts.gov/judge/chief-judge-Ieonard-p-stark ("New Procedures").
8) The contract at issue involves the sale and shipment ofwheat gluten by Syral to USI? (See
D.L 14 at 1; D.L 15 at 1) USI answered Syral's complaint on February 1,2016 and counterclaimed. (D.I. 7) Syral moved to dismiss USl's counterclaim on February 22,2016.
In lieu of responding to Syral's motion to dismiss, USI filed its Amended Counterclaim on March 7, 2016. (D.I. 12 at 8-15) USPs Amended Counterclaim alleges that Syral sent shipments ofwheat gluten that were too large for USI to handle, violating "applicable industry standards and customs" associated with "supply contracts" such as the contract at issue in this case. (Ia. at 11) To address the oversupply issues, USI avers that the parties agreed to modify their original contract ("Modified Contract") to require Syral to compensate USI for expenses related to the oversupply shipments. (ld. at 11-12)
USI alleges that Syral breached the parties' Modified Contract in two ways. First, USI alleges that Syral breached the Modified Contract by refusing to compensate USI for expenses related to the oversupply shipments. (D.I. 12 at 12) ("Reimbursement Breach") Second, USI alleges that Syral breached the Modified Contract by failing to supply USI with the total amount of wheat gluten Syral agreed to deliver. (Id. at 13) ("Termination Breach")
Syral moved to dismiss USPs Amended Counterclaim for failure to state a claim on March 24, 2016. (D.I. 13) The parties completed briefing on the Motion to Dismiss on April 18,
2The parties agree that there is no written contract between Syral and USL (See Transcript ofJuly 12,2016 Hearing (D.I. 22) ("Tr.") at 4 (Counsel for Syral: "There are purchase orders and confirmations and invoices that evidence a contract, but to my knowledge, there is no written contract that sets forth the various obligations and rights of each ofthe parties in totality."); id. at 18 (The Court: "[Y]ou are not arguing that there is a full written contract between your client and Syral; correct?" Counsel for USI: "No, we are not."))
2016. (D.l. 14, 15, 16) The Court heard oral argument on July 12, 2016. (See Tr.)
II. LEGAL STANDARDS
Evaluating a motion to dismiss under Federal Rule ofCivil Procedure 12(b)(6) requires the Court to accept as true all material allegations ofa complaint. See Spruill v. Gillis, 372 F.3d 218, 223 (3d Cir. 2004). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir. 1997) (internal quotation marks omitted). Thus, the Court may grant such a motion to dismiss only if, after "accepting all well-pleaded allegations in the complaint as true, and viewing them in the light most favorable to plaintiff, plaintiff is not entitled to relief." Maio v. Aetna, Inc., 221 F.3d 472,481-82 (3d Cir. 2000) (internal quotation marks omitted).
However, "[t]o survive a motion to dismiss, a civil plaintiff must allege facts that 'raise a right to relief above the speCUlative level on the assumption that the allegations in the complaint are true (even ifdoubtful in fact). ,,, Victaulic Co. v. Tieman, 499 F.3d 227, 234 (3d Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations and quotation marks omitted)). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662,678 (2009). "The complaint must state enough facts to raise a reasonable expectation that discovery will reveal evidence of [each] necessary element" ofa plaintiffs claim. Wilkerson v. New Media Tech. Charter Sch. Inc., 522 F.3d 315, 321 (3d Cir. 2008) (internal quotation marks omitted).
The Court is not obligated to accept as true "bald assertions," Morse v. Lower Merion
Sch. Dist., 132 F.3d 902,906 (3d Cir. 1997) (internal quotation marks omitted), "unsupported
conclusions and unwarranted inferences," Schuylkill Energy Res., Inc. v. Pennsylvania Power & Light Co., 113 F.3d 405, 417 (3d Cir. 1997), or allegations that are "self-evidently false," Nami v. Fauver, 82 F.3d 63, 69 (3d Cir. 1996).
A. Choice of Law
The parties agree that terms ofthe original contract are governed by the United Nations Convention on Contracts for the International Sale of Goods, Apr. 11, 1980, Senate Treaty Document No. 98-9 (1983), 19 LL.M. 671 (1980), reprinted at 15 U.S.c. App. (1998) ("CISG").
(D.L 14 at 9 n.l; D.L 15 at 1) The CISG applies to '''contracts ofsale ofgoods between parties whose places ofbusiness are in different States ... when the States are Contracting States.'" Forestal Guarani S.A. v. Daros Int 'I, Inc., 613 F.3d 395, 397 (3d Cir. 2010) (quoting CISG Art. 1(l)(a». The parties agree that the United States and Belgium are signatories to the CISG. (D.L 14 at 9 n.1; D.L 15 at 6 n.l) The CISG permits and covers oral contracts, such as the original contract and Modified Contract at issue in this case. (See generally CISG Arts. 14-24)
Although the parties agree that the CISG governed the parties' original contract for the sale of wheat gluten, Syral argues that the Modified Contract "does not relate to a sale of goods, but to Syral' s alleged agreement to pay for storage costs" and, therefore, that it should be governed by Delaware law. CD.L 14 at 15; see also Tr. at 6) USI responds that the Modified Contract should be governed by the CISG, because the Modified Contract, as a whole, still relates to the sale of goods. (D.L 15 at 8 n.2)
The Court agrees with USI that the Modified Contract is governed by the CISG because
the Modified Contract as a whole relates to the sale of goods, even ifindividual terms added by
modification do not relate to the actual sale of goods. Article 29 ofthe CISG contemplates modification of a contract for the sale ofgoods "by the mere agreement ofthe parties," and other parts ofthe CISG make it clear that not every term of a contract must relate to literal sales of goods. See, e.g., CISG Art. 3( 1) ("Contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a
substantial part of the materials necessary for such manufacture or production. ") (emphasis
added); id. Art. 19(3) ("Additional or different terms relating, among other things, to the price, payment, quality and quantity ofthe goods, place and time ofdelivery, extent ofone party's
liability to the other or the settlement of disputes are considered to alter the terms ofthe offer
materially.") (emphasis added).
The Modified Contract, as described in US!' s Amended Counterclaim, added an agreement between the parties related to the timing and amount of wheat gluten to be delivered and Syral' s purported obligation to reimburse USI for expenses related to the amount of wheat gluten delivered. This agreement, in combination with the terms ofthe original contract, is governed by the CISG because the "preponderant part" ofthe parties' obligations relate the sale of goods. Cf CISG Art. 3(2) ("This Convention does not apply to contracts in which the preponderantpart ofthe obligations of the party who furnishes the goods consists in the supply oflabour or other services.") (emphasis added).
B. Syral's Motion to Dismiss
USI characterizes its Amended Counterclaim as pleading "two independent contractual breaches by Syral": (l) failure to "pay costs associated with Syral's oversized deliveries of wheat
gluten" (the Reimbursement Breach) and (2) failure to "furnish the total amount ofwheat gluten
that Syral promised to deliver" (the Termination Breach). (D.!. 15 at 1) In seeking dismissal, Syral argues that (1) the Reimbursement Breach fails because USI failed to allege any contract between the parties that included a definite price term associated with Syral's purported obligation to reimburse USI for the costs of storing the oversupply shipments, and (2) the Termination Breach was not a breach, but rather a justified suspension ofperformance in response to USI's failure to pay for Syral's delivered shipments. (D.I. 16 at 2-3, 7) Syral also argues that USI's failure to pay was a "fundamental" breach ofthe Modified Contract and, therefore, that the Modified Contract was terminated under Article 64 ofthe CISG. (Jd. at 4-5)
1. Reimbursement Breach
The Amended Counterclaim alleges that Syral offered to "compensate USI for the expenses USI incurred because of the 'oversupply' wheat gluten shipments" and that USI accepted this offer, forming the Modified Contract. (D.I. 12 at 11-12) USI alleges that Syral undertook this reimbursement obligation in exchange for USI's forbearance from bringing suit against Syral for Syral's alleged breach of"industry standards and customs" which were "a part of the contract" and which forbade Syral from shipping excessive amounts ofwheat gluten per shipment. (D.I. 15 at 5-6, 8 n.2)
USI's allegations related to the Reimbursement Breach are insufficient as a matter oflaw. The pleading standard under Federal Rule ofCivil Procedure 8 requires USI to allege which "industry standards and customs" were part ofthe pertinent contract( s) and how they were breached. See Jqbal, 556 U.S. at 678. In addition, USI needs to provide Syral adequate notice of how much wheat gluten, per shipment, is alleged to have been so excessive as to qualify as an
"oversupply" shipment. The Amended Counterclaim provides Syral with no way of even
calculating how much it allegedly owes USI in reimbursement costs.
The CISG states that "[a] proposal for concluding a contract addressed to one or more specific persons constitutes an offer ifit is sufficiently definite and indicates the intention of the offeror to be bound in cases ofacceptance." CISG Art. 14( 1) (emphasis added). As pleaded in US!' s Amended Counterclaim, the purported offer by Syral to reimburse USI for oversupply expenses was not sufficiently definite to form the Modified Contract under the CISG.
For the foregoing reasons, US!' s Amended Counterclaim fails to state a claim for relief under USI's Reimbursement Breach theory.
2. Termination Breach
The Amended Counterclaim alleges that Syral breached the Modified Contract by failing to supply the full amount of wheat gluten Syral had promised to deliver. (D.1. 12 at 13) However, there is nothing in the Amended Counterclaim that indicates USI made any payments under the Modified Contract to Syral. (See generally id.) At the hearing, USI indicated that it had at least some general idea ofhow many invoices it was aware of or in possession ofwhich could have been used to estimate how much USI had paid Syral. (See Tr. at 27-28) In order to state a plausible claim for relief under Iqbal and Twombly, USI needs to plead an amount paid by USI to Syral and an amount of wheat gluten delivered by Syral to USI -or at least reasonably specific ranges ofpossibilities for these two unknowns -given USI's knowledge ofthe invoices it paid.
Article 71 ofthe CISG permits a contracting party to suspend performance when the other contracting party indicates that it will not perform a "substantial part" of a contract. CISG Art.
71 (1) ("A party may suspend the performance of his obligations if, after the conclusion ofthe contract, it becomes apparent that the other party will not perform a substantial part of his obligations as a result of: (a) a serious deficiency in his ability to perform or in his creditworthiness; or (b) his conduct in preparing to perform or in performing the contract."). Moreover, Article 64 permits termination of a contract for failure to perform. In order to state a plausible claim for relief under Iqbal and Twombly, USI needs to include some notice as to how Syral's termination ofdeliveries was allegedly unjustified under Articles 64 and 71 of the CISG-i.e., more detailed allegations (supported by attaching, for example, invoices) showing that USI was substantially performing its obligations under the Modified Contract at the time ofSyral's alleged Termination Breach.
For the foregoing reasons, USI's Amended Counterclaim fails to state a claim for relief under USPs Termination Breach theory.
For the foregoing reasons, S)Tal's Motion to Dismiss is granted and USPs Amended Counterclaim is dismissed without prejudice.
Published in original:
- available at the University of Pace website, http://iicl.law.pace.edu/cisg/cisg}}