Tag: invoices

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

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. 

Take-aways:

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.

 

 

 

No Course of Dealing In Trucking Dispute – Attorneys’ Fees Language in Invoice Not Binding On Transport Co. (IL ND)

C&K Trucking, LLC v. AGL, LLC, 2015 WL 6756282, features a narcotic fact pattern and this legal issue: Can boilerplate “legalese” in an invoice create binding contract rights against the invoice recipient?

Whether the mere mention of this topic is sleep inducing will depend on the person.  But what I can say is that the question is a pertinent one from a commercial litigation standpoint since it continues to crop up pretty regularly in practice.

I’ve represented parties trying to enforce favorable invoice language while at other times, defended against one-sided invoice terms.  The main issue there, like in today’s featured case, is whether there was a meeting of the minds on the disputed invoice language.

The plaintiff transportation broker in C&K Trucking sued to recover damages for unpaid cargo brokerage services. The broker’s damages action was based on invoices that provided it could recover unpaid amounts in addition to interest and attorneys’ fees.

The problem was that the broker didn’t send its invoices until after it performed under a series of oral contracts with the trucking firm defendants.

The contracting chronology went like this: plaintiff broker verbally hired the defendant to transport cargo for the plaintiff’s clients.  Once the defendants delivered the cargo and was paid by the broker’s clients, the broker sent the defendants invoices that contained the disputed fee-shifting terms.

Defendants moved for summary judgment that the invoice attorneys’ fees provision weren’t enforceable since they (defendants) never agreed to fee-shifting at the outset.  The Northern District agreed and granted defendants’ summary judgment motion.  In doing so, the court relied on some fundamental contract formation principles and reiterated the quantum of evidence needed to survive a summary judgment motion.

In Federal court, the summary judgment movant must show the court that a trial is pointless – that there’s no disputed issue of fact. Once the movant meets this burden, the non-moving party must then show that the affidavits, depositions and admissions on file do in fact show there are “material” disputed facts that should be resolved at trial.

A disputed fact is material where it might affect the outcome of the suit. But a metaphysical doubt isn’t enough. If the evidence doesn’t show a true factual dispute, a summary judgment will be granted.

To establish the formation of a valid contract in Illinois, the plaintiff must prove there was an offer, an acceptance and valuable consideration.  The plaintiff must also establish that the contract’s main terms were definite and certain.

Any one-sided attempt to change terms of a contract by sending an invoice with additional terms that were never discussed by the parties will normally fail to create an enforceable contract. 

An exception to this applies where there is a course of dealing between the parties.  A course of dealing is defined as a continuous relationship between parties over time that, based on the parties’ conduct, reflects a mutual understanding of each party’s rights and duties concerning a particular transaction.  A course of dealing under contract law can inform or qualify written contract language.

In this case, the plaintiff argued that the defendants’ years-long pattern of accepting and paying plaintiff’s invoices established a course of dealing and evinced defendant’s implied acceptance of the invoice contents.  The court rejected this argument since there was no evidence that defendants ever paid the plaintiff’s attorneys’ fees through the life of the verbal contracts.  The court also pointed to the fact that defendants disputed many of plaintiff’s invoices as additional proof that there was no tacit acknowledgement by defendants that it was responsible for plaintiff’s attorneys’ fees.

Afterwords:

The key lesson from the factually unsexy C&K Trucking case is that boilerplate fee-shifting invoice terms sent after the contract is performed generally aren’t enforceable. There must be a meeting of the minds at the contract formation stage to allow fee-shifting.

A course of dealing based on the parties’ past conduct can sometimes serve as a proxy for explicit contract terms or a party’s acceptance of those terms.  However, where the parties’ prior transactions do not clearly show mutual assent to disputed language, the breach of contract plaintiff cannot rely on the course of dealing rule to prove a defendant’s implied acceptance.