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Olefins Trading Inc. v. Han Yang Chem Corp.

argued: September 15, 1993.



Before: Mansmann, Greenberg, and Weis, Circuit Judges.

Author: Mansmann


MANSMANN, Circuit Judge.

We are asked to determine whether the magistrate Judge, trying the matter with a jury by consent of the parties, erred in granting a renewed motion for judgment as a matter of law in this diversity case brought under New Jersey's law of contracts. Although both parties in this breach of contract action acknowledge the existence of a valid contract, they disagree on whether a particular term was included in that contract. In overturning the jury's verdict, which specifically found that a material breach of contract had occurred, the court erroneously applied § 2-207 of the Uniform Commercial Code ("UCC")*fn1 to excise an express term of the oral modified contract formed by the parties in this dispute. We will vacate the judgment and remand for the trial court to consider part of the defendant's concurrent motion for a new trial.


The salient historical facts that form the basis of this appeal are largely undisputed. We set them forth in the light most favorable to the verdict winner, the plaintiff-appellant, Olefins Trading, Inc.

Olefins is a Connecticut corporation engaged in the trading and marketing of bulk chemicals and chemical products. Han Yang Corp. is a South Korean Corporation and is engaged in the manufacture of petrochemical products. Han Yang maintains an office in New Jersey for the purpose of "sourcing" chemicals for use in its petrochemical business. On or about March 12, 1991, Y.I. Han of Olefins began preliminary negotiations with Han Yang regarding the sale of bulk ethylene.

On March 13, 1991, Y.I. Han of Olefins and Shin Lee of Han Yang exchanged written confirmation letters outlining the terms of an oral contract formed by the parties on that date. Under the terms of the oral contract, Han Yang promised to purchase 4500 metric tons ("mt") of bulk ethylene ( plus or minus 5% at Olefins' option) from Olefins at a price of $915/mt. In exchange for Han Yang's promise to purchase, Olefins promised to sell and deliver the ethylene one month later to Han Yang's manufacturing facility in Yeosu, South Korea. Both parties agreed that payment was to be made via a letter of credit in the amount of $4,117,500. Although contested at trial, the jury found that Han Yang had promised to open this letter of credit by March 15, 1991. In addition, both parties agreed that Olefins' chemical supplier, Repsol Petroleo, would produce the ethylene and would ship it directly from Tarragona, Spain to Yeosu, South Korea.

On March 14, 1991, Olefins entered into a supply contract with Repsol for the purchase and sale of 4500mt of ethylene in order to satisfy its obligation to Han Yang. Olefins promised to pay Repsol $890/mt for the ethylene. That same day, Olefins nominated the ship Teviot as the cargo vessel that would transport the ethylene from Spain to South Korea. At trial, both Olefins and Han Yang stipulated that the Teviot could carry exactly 4600mt of ethylene.

As of March 13, 1991, Olefins and Han Yang were bound by a valid contract for the purchase and sale of 4500mt of ethylene at a price of $915/mt. Shortly after the contract was formed, however, the international market price of ethylene began to drop dramatically. By early April of 1991, the market price of ethylene was set at approximately $600/mt on a CIF basis ("cost, insurance and freight") to South Korea, almost $300/mt less than the international market price two weeks earlier. As of April 2, 1991, Han Yang still had not opened a letter of credit as originally agreed.

On April 2, 1991, Shin Lee of Han Yang contacted Y.I. Han of Olefins to see whether the original contract could be renegotiated. After some initial resistance, Shin Lee successfully negotiated a modification to the original contract on April 4, 1991. The precise terms of this modified oral contract are the subject of this appeal.

On April 4, 1991, both parties orally agreed to reduce the quantity of ethylene from 4500mt ( plus or minus 5%) to 4200mt (maximum) and to discount the price from $915/mt to $900/mt. Olefins asserts that both parties also orally agreed that Han Yang would issue Olefins a "commercial credit" in the amount of $238,125 by April 5, 1991; this sum was to be paid to Olefins in the next Olefins-Han Yang transaction. Olefins alleges that the parties intended the commercial credit to compensate Olefins for its losses in modifying the original contract and indeed was Han Yang's certification that it owed Olefins the $238,125. Han Yang vehemently denied having assented to this latter term.

After the parties' oral negotiations concluded, Han Yang sent Olefins a revised purchase confirmation recounting the terms of the modified ethylene contract.*fn2 The confirmation contained the new quantity and discounted price for the modified ethylene contract, but it did not mention the commercial credit. Olefins responded by insisting that Han Yang concede the commercial credit in the amount of $238,125 "as per agreed on the phone." Han Yang did not respond.

On April 8, 1991, Olefins sent Han Yang a letter demanding that Han Yang open a letter of credit immediately "along with a letter confirming commercial settlement of [Olefins'] estimated losses equalling U.S.$238,125." Again, Han Yang did not accede to the commercial credit term, but on April 9, 1991, Han Yang opened a letter of credit in the modified contract amount of $3,780,000 (4200mt x $900/mt), naming Olefins as the beneficiary.

On April 19, 1991, Olefins extended an offer to Han Yang for another shipment of bulk ethylene to Yeosu, South Korea. Ostensibly, this offer was made by Olefins to enable it to recover the commercial credit from the April 4, 1991 transaction. Han Yang rejected this offer.

On April 23, 1991, the Teviot was loaded with 4174mt of ethylene, bound for South Korea. Olefins then sent Han Yang an invoice for $233,238.21 as an expression of its actual losses suffered under the modified contract. This sum included $62,613.21 in lost profits*fn3 and a deadfreight charge*fn4 of $170,625.00. The deadfreight charge was later reduced to $132,632.34 when the parties discovered that the Teviot was only capable of carrying 4600mt of ethylene. Accordingly, Olefins asserted that Han Yang caused it to suffer actual losses under the modified contract in the amount of $195,245.55.*fn5

At the close of the trial, the trial Judge instructed the jury on the basic concepts of contract formation. He then instructed the jury on the particular issues in the case. Regarding the alleged breach of the April 4, 1991 contract, namely, whether Han Yang had breached an oral contract by failing to issue a commercial credit to Olefins, the trial Judge instructed the jury as follows:

Now, the plaintiff contends that the parties entered into a modified contract which supplanted the initial contract and that defendant breached the modified contract by not issuing to plaintiff a commercial credit.

In order to find for the plaintiff on this claim, you must first find from all the evidence presented that the defendant Han Yang agreed to provide such a commercial credit. In order to determine whether a commercial credit term was part of the modified contract, you should consider whether such a term materially altered the parties' agreement or whether the defendant notified the plaintiff of its objection to the inclusion of such a term. If you find that such a term materially altered the agreement, or that the defendant properly objected to it, then you must find that it was not part of the agreement between the parties and you must return a verdict for the defendant.

If you find that the commercial credit term was part of the modified contract, you may find that Han Yang's failure to issue the commercial credit was a breach.

Tr. at 525-26. Based on this instruction, "the jury returned the special verdict questionnaire, finding that Han Yang had breached a material term of the April 4, 1991 agreement by not providing a commercial credit by April 5, 1991."*fn6 Olefins Trading, Inc. v. Han Yang Chem. Corp., 813 F. Supp. 310, 316 (D.N.J. 1993). The jury assigned a value to the commercial credit term by returning a verdict for $195,245.55 in favor of Olefins. According to the trial court, the value of the ...

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