Columbia Nitrogen Corp. v. Royster Co

In Columbia Nitrogen Corp. v. Royster Co., 451 F.2d 3 (4th Cir. 1971), Columbia, the buyer, had in the past primarily produced and sold nitrogen to Royster. When Royster opened a new plant that produced more phosphate than it needed, the parties reversed roles and signed a sales contract for Royster to sell excess phosphate to Columbia. The contract terms set out the price that would be charged by Royster and the amount to be sold. It provided for the price to go up if certain events occurred but did not provide for price declines. When the price of nitrogen fell precipitously, Columbia refused to accept the full amount of nitrogen specified in the contract after Royster refused to renegotiate the contract price. The District Judge's exclusion of usage of the trade and course of dealing to explain the express quantity term in the contract was reversed. Columbia had offered to prove that the quantity set out in the contract was a mere projection to be adjusted according to market forces. Ambiguity was not necessary for the admission of evidence of usage and prior dealings. Even though the lengthy contract was the result of long and careful negotiations and apparently covered every contingency, the appellate court ruled that "the test of admissibility is not whether the contract appears on its face to be complete in every detail, but whether the proffered evidence of course of dealing and trade usage reasonably can be construed as consistent with the express terms of the agreement." Id. at 9. The express quantity term could be reasonably construed as consistent with a usage that such terms would be mere projections for several reasons: (1) the contract did not expressly state that usage and dealings evidence would be excluded; (2) the contract was silent on the adjustment of price or quantities in a declining market; (3) the minimum tonnage was expressed in the contract as Products Supplied, not Products Purchased; (4) the default clause of the contract did not state a penalty for failure to take delivery; and (5) apparently most important in the court's view, the parties had deviated from similar express terms in earlier contracts in times of declining market. Id. at 9-10. The contract's merger clause said that there were no oral agreements. The court explained that its ruling "reflects the reality of the marketplace and avoids the overly legalistic interpretations which the Code seeks to abolish." Id. at 10. The Code assigns dealing and usage evidence "unique and important roles" and therefore "overly simplistic and overly legalistic interpretation of a contract should be shunned." Id. at 11.