This case deals with several issues regarding contract formation under the UCC. Logan and Kanawha Coal agreed to purchase coal from Detherage via a fax dated March 9, 2010. The fax stated that it had a cover sheet, a purchase order, and two additional pages. However, the two additional pages never were faxed, only the purchase order along with the cover sheet. Detherage received the fax and returned it signed but with the quantity of coal changed from 10,000 clean tons to 7,000 clean tons. Loan’s representative returned Detherage’s fax with a notation handwritten on the back of the cover page, “We have a deal.” On May 11, 2010, Logan sent Detherage a letter with the full agreement, including the original missing two pages. In those missing two pages was a binding arbitration clause. Detherage began delivering coal after receiving this subsequent correspondence in May.
Issues Presented A contract dispute arose and Logan filed a claim to be resolved by binding arbitration. Detherage disputed the clause calling for binding arbitration in the contract. The binding arbitration found for Logan for $2.7 million, which Detherage also disputed.
Decisions A number of UCC contract issues are posed here. Firstly, what is the status of the March 10th faxes? The court laid out a classic UCC battle of the forms scenario: “… the parties intended to be bound by their fax exchanges … [o]n the cover page of this document was the statement “We have a deal.”
After this exchange, Detherage began to deliver coal to Logan. Thus, Logan and Detherage intended to be bound by their March 10 agreement and a valid contact was formed.”
Secondly, does the subsequent correspondence of May 2010 subject Detherage to the binding arbitration clause? Generally speaking, the battle of the forms and the UCC application of the statue of frauds dictates that the last correspondence of the forms finalizes the terms of the contract, provided there is no objection. This application applies only to parties who are merchants but both Logan and Detherage are clearly merchants here. However, there is a quirk in the facts in this case. When the May 2010 correspondence was transmitted to Detherage, a contract had already been created. So the legal question becomes, Can a subsequent fax alter the terms of a pre-existing contract? “Logan argues that that its May 11, 2010 letter constituted a contract modification proposal, which Detherage accepted through its silence and by beginning performance under the contract.”
The court found no acceptance of the modification. While silence followed by performance can indicate acceptance of the offer under West Virginia law, express consent is required for a modification to an existing contract. The court noted that “… mutual assent requires a ‘meeting of the minds’ between the two parties and may be evidenced ‘word, act, or conduct which evince the intention of the parties to contract.’”
The court reversed the order of the binding arbitration.
CRITICAL THINKING:
Consider this scenario from this case. Detherage did not affirmatively assent to the May 2011 contract modification. But, does Detherage’s silence and then delivery of the coal create some kind of reliance in Logan as to the validity of the May modification? We’ve seen reliance theories override issue in common law with contract formation, consideration, and even with the statute of frauds. Should reliance theory applications be available here for Logan? What is the ethical basis for the reliance theory in terms of the language of the WP approach to ethics?
ETHICAL DECISION MAKING:
Do you think Detherage’s argument are strained and only for the purpose of getting out of the binding arbitration decision? Do you agree with the conclusion that Detherage is a merchant and, as such, had the obligation to read and object to any of the information in the May documentation? Or, is the court’s decision justified?