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Madison Industries Inc. v. Eastman Kodak Co.

Decided: April 5, 1990.


On appeal from the Superior Court of New Jersey, Law Division, Middlesex County.

O'Brien, Havey and Stern. The opinion of the court was delivered by Havey, J.A.D.


Plaintiff Madison Industries, Inc., appeals from an order for summary judgment dismissing its breach of contract case against defendant Eastman Kodak Company. Prior to entering the order, Judge Harding took testimony at a hearing to resolve a preliminary question as to the applicability of the "merchant's exception" under the Uniform Commercial Code, N.J.S.A. 12A:2-201(2). The judge concluded that the purported contract between the parties involved an "open-ended option" and not a "sale" as defined by the Code and therefore the "merchant's exception" did not apply. Consequently, he applied the general statute of frauds, N.J.S.A. 25:1-5, and concluded that since the "life span" of the purported agreement exceeded one year, the contract was unenforceable to the extent it had not been performed by Eastman Kodak.

On appeal, Madison argues that its contract with Eastman Kodak involved the "sale" of zinc hydroxide sludge and therefore fell within the "merchant's exception" to the Code's statute of frauds. Alternatively, it contends that the agreement was sufficiently "signed" by Eastman Kodak to satisfy the statute of frauds requirements under the Code, N.J.S.A. 12A:2-201(1) and (3)(b). It also asserts that Eastman Kodak should be estopped from raising the bar of the statute of frauds and that the trial court abused its discretion in denying Madison's motion to amend its complaint. Finally, it argues that the trial judge improperly considered oral testimony on Eastman Kodak's summary judgment motion. We reject each contention and affirm.

The essential facts are not in dispute. Madison manufactures zinc salts. Eastman Kodak manufactures vitamin E at its Rochester, New York plant, using zinc to process the biologically non-active vitamin E to active vitamin E. The process generates a liquid waste stream of zinc chloride solution. Eastman Kodak converted the zinc chloride solution into zinc hydroxide sludge and, in the 1970's and early 1980's, disposed of the sludge by paying chemical waste handlers to remove it to a landfill.

In December 1981, Madison offered to purchase Eastman Kodak's zinc chloride solution for 10cent per pound of zinc. In early 1982, the parties made an arrangement whereby Madison began removing the zinc chloride solution from Eastman Kodak's Rochester plant and transporting it to Madison's plant in Old Bridge, New Jersey, with Madison billing Eastman Kodak for the freight charges incurred by it and giving Eastman Kodak a credit for each pound of zinc it recovered from the waste solution. On February 22, 1982 Eastman Kodak forwarded a draft agreement under which it proposed that the sale and transportation arrangement continue for a one-year period, with an extension for an additional two years.

On March 5, 1982, Madison's representative, Hyman Bzura, wrote to Eastman Kodak suggesting an alternate pricing scheme based upon a concentration of zinc chloride ranging from 30% to 46%. In response, Eastman Kodak forwarded a second revised agreement on April 15, 1982 which incorporated Bzura's suggested alternate pricing scheme, changed the term of the contract from one to three years (with a provision for an automatic three-year extension), and stated that New Jersey law was to govern the agreement's interpretation. After discussing the second draft with Bzura, Dennis Zink, Eastman Kodak's sales supervisor, advised Bzura that he had to secure the formal approval of his supervisor before the agreement could be executed.

In April 1982, it was determined that the zinc chloride solution had caused damage to the rubber lining of Madison's tank wagons. As a result, the parties agreed that Madison would no longer remove the liquid solution, but would only take zinc hydroxide sludge. On May 27, 1982, Madison sent a revised draft agreement to Eastman Kodak which provided for a term of five years, with an option for an additional three-year term. The agreement contained the following reference to zinc hydroxide sludge:

Madison shall have the right of first refusal to purchase any zinc hydroxide in Kodak's possession. Kodak will do its best to rid the zinc hydroxide of chlorides (in any event no higher than 5% chloride contained). The purchase price shall be a loading charge of $200.00 per dump trailer load.

On June 14, 1982, Eastman Kodak's attorney forwarded a revised draft of the agreement to Bzura which Bzura executed on September 16, 1982. However, Bzura added a sentence requiring Eastman Kodak to guarantee that its sludge would be 40% zinc, and asked Eastman Kodak officials to initial the addition. According to Madison, this sentence was a confirmation of Eastman Kodak's oral agreement regarding the purity of the sludge.

Eastman Kodak did not execute the revised draft because it knew that the waste sludge could not consistently contain 40% zinc. Although the agreement was not executed, Madison continued to receive zinc hydroxide sludge from Eastman Kodak until October 12, 1984. On that date, Eastman Kodak advised Madison that:

In light of the reduced volume of zinc hydroxide, it has been necessary to re-evaluate the present outlets of this by-product. Due to the limited amount of material it is ...

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