“Mirror-Image” Contract Acceptance: 7th Circuit Finds Attorneys’ Fees Provision in Invoice Not Binding on Food Buyer

imageVLM Food Trading International, Inc. v. Illinois Trading Co., (http://cases.justia.com/federal/appellate-courts/ca7/14-2776/14-2776-2016-01-21.pdf?ts=1453404644) examines whether a contract seller can recover attorneys’ fees where the contract is silent on the recovery of attorneys’ fees but invoices sent by the seller after the goods are shipped do contain fee-shifting language. 

In January 2016, the Seventh Circuit held that the invoice fee-shifting clause did not bind the buyer defendant where the transaction was governed by an international treaty – the U.N. Convention on Contracts for the International Sale of Goods (the “Convention”) – that didn’t specify whether a non-breaching party could recover its attorneys’ fees from the breaching party.

The Contract Chronology: The plaintiff foods seller would submit a purchase order to defendant that stated the product, price, quantity and delivery locus.  The defendant, in turn, would send a confirming e-mail to the plaintiff.  After that, the plaintiff shipped the goods to the defendant and later sent a “trailing” invoice to the defendant.

Neither the purchase order nor the responsive e-mails provided for the recovery of attorneys’ fees.   The first appearance of the fee-shifting language was in the trailing invoices sent after the seller’s items were shipped to the defendant.

The main dispute centered on when the contract was formed and whether the trailing invoices’ fees provisions were part of the contract. 

The Convention employs the “mirror image” rule of contract interpretation: An acceptance must “mirror” the offer or else it’s construed as a counter-offer.  Any additional terms, limitations or other changes proposed after a contract is accepted are considered proposed modifications.  Under the Convention’s mirror-image rule, a party doesn’t have to object to a proposed modification to exclude (reject) it.  Any term not contained in the offer and acceptance simply do not bind the parties.

The Convention also makes clear that a party’s silence or inactivity doesn’t equate to an acceptance of proposed changes to a contract.  Instead, a party can only accept such terms through statement or conduct.

The Seventh Circuit held that the plaintiff’s purchase orders were the offer, and the acceptance was the buyer’s confirmation e-mails.  Under the mirror-image rule, any other terms proposed by either side would be deemed proposed changes and not considered part of the parties’ contract. 

Based on this chronology, the Seventh Circuit held that the contract was formed when plaintiff received the confirmation e-mails.  The trailing invoices (and their fee-shifting and interest language) were sent after the acceptance and as a result did not become part of the contracts.

The Court rejected the plaintiff’s argument that defendant assented to the trailing invoice fee language by an established practice or trade usage – two exceptions provided for in the Convention.  The Court found there was no practice of the defendant showing that it agreed to the fee-shifting language.  Because the mirror image rule applies, the defendant’s silence did not amount to a tacit acknowledgement that it was responsible for the plaintiff’s attorneys’ fees.

The Court also found there was no evidence of “usage” that weighed in favor of enforcing the trailing invoices’ fee-shifting term.  Usage evidence only comes into play under the Convention where a contract is ambiguous (susceptible to two or more equally plausible meanings).  Since the attorneys’ fees language was clear on its face, there was no ambiguity that justified the consideration of any usage evidence.

Lastly, the Court found there was no manifested intent by the defendant to be bound to the attorneys’ fees language in the invoices.  The key evidence on this point was that the plaintiff’s invoices were not sent to defendant’s decision-makers.  Instead, the invoices were sent to the defendant’s generic billing department address. 

Take-aways:

VLM is post-worthy for its chronicling a typical multi-step goods contract involving commercial entities.  Sellers often send invoices containing attorneys’ fees provisions after product has been ordered and shipped by/to a buyer.  In the usual setting (where an international treaty doesn’t apply), the fee language can be considered part of the contract under the Uniform Commercial Code if fee provisions are standard practice in the industry or if there is a course of conduct by the parties showing a mutual intent to be bound to the invoices. 

While the case is anomalous since an international treaty governs its facts, the opinion still offers a useful analysis of the factors a court considers when determining whether after-the-fact contractual terms can bind the parties.