VLM 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) considers whether a seller can recover attorneys’ fees where the contract doesn’t provide for fees but the invoices sent after the goods are shipped do have fee-shifting language.
The Seventh Circuit held that the invoice fee-shifting clause does not bind the buyer.
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.
The first appearance of the fee-shifting language in the contracting sequence were found 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.
An international treaty – the U.N. Convention on Contracts for the International Sale of Goods (the “Convention”) – happened to govern this dispute. The Convention applies a derivation of the common law “mirror image” rule of contract interpretation: an acceptance must “mirror” the offer or else it’s construed as a counter-offer.
Under the mirror image rule, any additional terms or qualifications to the offer are considered proposed modifications. 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. What’s more, one’s silence or inactivity doesn’t equal acceptance of the proposed offer changes. A party can only accept the terms through a statement or conduct.
The Seventh Circuit held that the plaintiff’s purchase orders were the offer, and the buyer’s confirming e-mails were the acceptance. Any terms proposed outside the scope of the purchase orders or emails were not part of the parties’ agreement. Since the plaintiff’s trailing invoices (and their fee-shifting and interest language) were sent after the acceptance, they didn’t bind the buyer.
The Court rejected the plaintiff’s trade usage argument – that buyer assented to the fee provision by not objecting to the invoice language. Again, under the mirror image rule, the buyer’s silence isn’t considered acceptance. The Court also found that trade usage only applies where there is contractual ambiguity. Here, the contract was clear and so there was no reason to consider any course of conduct or trade usage evidence.
Finally, the Court found the defendant did not manifest an intent to adhere to the invoice fee language. The key factor on this point was the trailing invoices were sent to defendant’s generic billing address; they weren’t sent to a specific corporate decision-maker.
VLM is interesting reading to me since I’ve encountered this exact fact pattern several times through the years in my commercial litigation practice. The case chronicles a typical multi-step goods contract involving commercial entities.
In a case where an international treaty doesn’t govern, fee language can be considered part of the contract under the Uniform Commercial Code if it is standard practice in an industry to have after-the-fact fee provisions in invoices or the parties’ course of conduct shows an intent to hew to the invoice fee-shifting clause.
VLM offers a useful analysis of the factors a court considers when determining whether after-the-fact contractual terms can bind the parties.