Columbia Nitrogen Corp. v. Royster Company

United States Court of Appeals for the Fourth Circuit · Contracts

ContractsUCC parol evidencecourse of dealingusage of tradeantitrustUCC 2-202UCC 1-205course of dealing

Facts

Royster and Columbia entered a three-year written contract under which Royster would sell Columbia minimum yearly quantities of phosphate at stated prices subject to an escalation clause. After phosphate prices dropped sharply, Columbia ordered only a fraction of the scheduled tonnage and argued that, in this industry and in the parties' prior dealings, stated price and quantity terms were treated as projections adjusted to market conditions. Columbia proffered evidence of trade usage and a six-year course of dealing showing repeated substantial deviations from stated quantities and prices, including instances where Royster took none of contracted goods. The district court excluded that evidence and Royster recovered damages after reselling the rejected phosphate below the contract price.

Issue

Whether, under the Virginia UCC, Columbia's evidence of trade usage and prior course of dealing was admissible to explain or supplement a written phosphate sales contract even though the contract appeared complete and unambiguous. The case also presented whether later purchase-order terms altered the contract and whether Columbia could rely on reciprocal-dealing theories in defense and counterclaim.

Rule

In a sale-of-goods contract governed by the UCC, extrinsic evidence of course of dealing and usage of trade may be admitted to explain or supplement a writing intended as the parties' final expression without any prior finding of ambiguity. The controlling admissibility question is whether the proffered evidence can reasonably be construed as consistent with the express terms; if unreasonable, the express terms control. Unless carefully negated, course of dealing and usage of trade are not barred by a general clause stating that the writing contains all terms or that no verbal understandings will be recognized.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Blue Mesa Feed Ingredients, based in Wichita, signs a final written contract to buy annual minimum quantities of soybean meal from Prairie Delta Processing in Des Moines at stated prices. When demand collapses after a livestock disease outbreak, Blue Mesa offers testimony that in that trade stated quantities are treated as flexible estimates adjusted to market conditions, even when contracts look complete on their face.

If the seller objects that the writing is unambiguous and therefore the testimony is inadmissible, how should the court rule?

Explanation. The majority held that under UCC § 2-202, evidence of course of dealing and usage of trade may explain or supplement a final written sales agreement without any threshold finding of ambiguity. The admissibility question is whether the proffered evidence can reasonably be construed as consistent with the contract’s express terms. A complete-looking writing does not itself foreclose such evidence. (Derived from Columbia Nitrogen Corp. v. Royster Company (n.d.).)