American Dredging Co. v. Plaza Petroleum Inc.

• Decision Date: 16 March 1992
• Docket Number: No. 90 CV 353 (SJ).,90 CV 353 (SJ).
• Citation: 799 F. Supp. 1335
• Parties: AMERICAN DREDGING COMPANY, Plaintiff, v. PLAZA PETROLEUM INCORPORATED, Kerr-McGee Refining Corporation, Royal Petroleum, a Division of Kerr-McGee Refining Corporation, and Eklof Marine Corporation, Defendants.
• Court: U.S. District Court — Eastern District of New York

799 F. Supp. 1335

AMERICAN DREDGING COMPANY, Plaintiff, v. PLAZA PETROLEUM INCORPORATED, Kerr-McGee Refining Corporation, Royal Petroleum, a Division of Kerr-McGee Refining Corporation, and Eklof Marine Corporation, Defendants.

No. 90 CV 353 (SJ).

United States District Court, E.D. New York.

March 16, 1992.

COPYRIGHT MATERIAL OMITTED

Michael D. Martucci by Michael D. Martucci, New York City, for plaintiff.

Selverne & Flam by Eric Vaughn Flam, New York City, for defendant Plaza Petroleum Inc.

Paul, Hastings, Janofsky & Walker by Kevin C. Logue, New York City, for defendants Kerr-McGee Refining Corp. and Royal Petroleum.

Freehill Hogan & Mahar by James Ross, New York City, for Eklof Marine Corp.

MEMORANDUM AND ORDER

JOHNSON, District Judge:

Plaintiff American Dredging Company ("ADC") purchased 38,000 gallons of "No. 2 fuel oil" from Plaza Petroleum Inc. ("Plaza"). Plaza, in turn, contacted Royal Petroleum, a division of Kerr McGee Refining Corporation, Inc. (collectively "KMRC") and purchased 38,000 gallons of fuel from KMRC. Eklof Marine Corp. ("Eklof") was engaged to transport the fuel. Plaintiff alleges that the oil it received was contaminated and seeks monetary compensation for the damages that such contamination caused. Defendants Plaza and KMRC move for summary judgment. Each of the motions has been fully briefed and oral argument was heard on January 17, 1992.

I. Plaza's Motion

"Under Fed.R.Civ.P. 56(c), summary judgment should be granted if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. `Viewing the evidence produced in the light most favorable to the nonmovant, if a rational trier could not find for the nonmovant, then there is no genuine issue of material fact and entry of summary judgment is appropriate.'" Suburban Propane v. Proctor Gas, Inc., 953 F.2d 780 (2d Cir.1992). Furthermore, when the issue is construction of a contract, summary judgment is proper only when the contract is "`wholly unambiguous.'" Mycak v. Honeywell, Inc., 953 F.2d 798 (2d Cir.1992) quoting Wards Co. v. Stamford Ridgeway Assocs., 761 F.2d 117, 120 (2d Cir.1985)). The mere assertion of ambiguity is insufficient to preclude summary judgment.

Plaintiff raises four claims against Plaza: (1) breach of express warranty; (2) breach of implied warranty of merchantability; (c) negligently shipping the fuel on the Eklof barge; and (4) unseaworthiness of the Eklof barge.

a. Express Warranty and Implied Warranty Claims

1. Incorporation by Reference.

The plaintiff concedes that there was an express contract between itself and Plaza, but challenges what terms it assented to in that agreement. The contract from which this dispute arises consists of a telex (the "Telex") that was sent by Plaza to ADC and which contains a notation on it ("ADCO CMDN") showing its receipt by ADC. Plaintiff does not allege that it objected to the Telex in any way and, indeed, it accepted the fuel. Plaintiff argues, however, that it did not intend to assent to the Terms and Conditions incorporated by reference into the Telex. Specifically, at the bottom of the Telex, there is a clause which states:

THE PRODUCT IS SOLD ... SUBJECT TO THE "TERMS AND CONDITIONS OF SALE OF PETROLEUM PRODUCTS" ISSUED BY PLAZA PETROLEUM, INC. WHICH IS AVAILABLE FOR REVIEW UPON REQUEST.

Paragraph 12(c) of the "Terms and Conditions of Sale of Petroleum Products," (the "Terms and Conditions") provides that:

EXCEPT AS EXPRESSLY PROVIDED IN THE CONTRACT, THE SELLER SHALL NOT BE LIABLE FOR CONSEQUENTIAL, INDIRECT OR SPECIAL LOSSES OR SPECIAL DAMAGES OF ANY KIND ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE PERFORMANCE OF OR FAILURE TO PERFORM THE CONTRACT.

Because it purports not to have seen or agreed to the Terms and Conditions, ADC argues that the paragraph limiting damages was not validly incorporated and is therefore without effect. On that basis, ADC believes that it is entitled to the damages sought. I disagree.

There is no dispute that the Telex is the contract between the parties. At issue only is whether the Terms and Conditions were validly incorporated into the main agreement. To be sure, the Telex was a valid contract: it contains the names of the parties, the price and quantity of goods to be sold and identifies that it is a contract for the sale of goods. In addition, the symbol "ADCO CMDN" is appropriately treated as a signature under U.C.C. 1-201(39). Pursuant to U.C.C. 2-201, therefore, the Telex was a valid contract. See also, Apex Oil Co. v. Vanguard Oil & Service Co., Inc., 760 F.2d 417, 423 (2d Cir.1985) (citing U.C.C. § 2-201(2)). And, no objections to the Telex were made by ADC in any form.

A contract can be comprised of separate writings or documents if the contract makes it clear that it is to be read with other writings. Dietrich v. Chemical Bank, 115 Misc.2d 713, 454 N.Y.S.2d 490 (1981); see also, Texaco Export, Inc. v. Overseas Tankship Corp., 477 F.Supp. 289 (S.D.N.Y.), aff'd, 614 F.2d 1291 (2d Cir. 1979). The doctrine of incorporation by reference requires that the document to be incorporated be referred to and described in the contract so that the referenced document may be identified beyond doubt. Chiacchia v. National Westminster Bank, 124 A.D.2d 626, 507 N.Y.S.2d 888 (2d Dep't. 1986). Summary judgment be precluded only when the reference which incorporates the extraneous document is ambiguous. See Chiacchia, 507 N.Y.S.2d at 890.

The incorporation by reference clause at issue herein is crystal clear. The Telex states in no uncertain terms that the "sale is subject to the Terms and Conditions of the Sale of Petroleum Products ... which is available upon request." This reference clearly identifies the document to be incorporated, offers to issue the document upon ADC's request and specifies that the sale is subject to its terms. It cannot be said that this is ambiguous, or that ADC did not have notice of the incorporated document. As such, ADC's argument that the ambiguities in the contract and issue of intent must be considered by a jury are groundless. To summarize, the Telex constitutes the agreement between ADC and Plaza and it is unambiguous in its terms, one of which limits Plaza's obligation to pay consequential damages.

2. Conspicuousness.

The plaintiff further argues, citing U.C.C. § 2-316(2), that even if the clause was properly incorporated into the telex, such terms should not be given effect because it was not conspicuous. This argument, too, is without merit. U.C.C. § 2-316(2) provides that an exclusion or modification of an implied warranty must be in writing and must be conspicuous. Application of U.C.C. § 2-316 in this context is inappropriate as the clause here at issue, paragraph 12(c) of the Terms and Conditions, is simply a limitation of damages and not a disclaimer of warranty. In fact, Plaza expressly warrants the product to be merchantable in paragraph 12(b) of the "Terms and Conditions."

Any limitation of remedy is governed by U.C.C. 2-719(3), not U.C.C. § 2-316. The issues of disclaimer or warranty and of limitation of remedy are two distinct issues, governed by different requirements. Matco Electric Co. v. American District Telegraph, 156 A.D.2d 840, 549 N.Y.S.2d 843 (3rd Dep't.1989); see also, Boone Valley Cooperative v. French Oil Mill Co., 383 F.Supp. 606 (N.D.Iowa 1974); White & Summers, Uniform Commercial Code 383-386 (1986). U.C.C. § 2-719 provides that parties to a contract may agree to exclude consequential damages upon breach so long as such limitation is not "unconscionable." But, U.C.C. § 2-719(3) does not require that the clause be "conspicuous."

The issue of unconscionability is a matter of law for the court to decide and it does not automatically defeat a motion for summary judgment. See Architectural Aluminum Corp. v. MaCarr, Inc., 70 Misc.2d 495, 333 N.Y.S.2d 818 (1972); County Asphalt v. Lewis Welding, 444 F.2d 372 (2d Cir.1971). There are many factors which a court may consider when deciding the issue of unconscionability including whether terms were hidden in fine print. See Nu Dimensions Figure Salons v. Becerra, 73 Misc.2d 140, 340 N.Y.S.2d 268 (1973). When the contract is between two commercial entities, unconscionability must be viewed "in light of the general commercial background and the commercial needs of the particular trade or case," and there is a presumption of conscionability when the contract is between businessmen in a commercial setting. Courts have rarely found a clause to be unconscionable in a commercial contract. See Rubin v. Telemet, 698 F.Supp. 447 (S.D.N.Y.1988); Cayuga Harvester, Inc. v. Allis Chalmers Corp., 95 A.D.2d 5, 465 N.Y.S.2d 606 (4th Dep't 1983).

Plaintiff argues that because the incorporation-by-reference clause was inconspicuous, the clause is necessarily unconscionable. As noted above, conspicuousness is a factor for the court to consider when determining if a clause is unconscionable. Nonetheless, it is not dispositive. Neither § 2-719 nor its comments require a limitation of remedy to be conspicuous. Computerized Radiological Services v. Syntex, 595 F.Supp. 1495 (E.D.N.Y.1984). In general, unconscionability requires a showing of the absence of meaningful choice on the part of one of the parties together with contract terms that are unreasonably favorable to the other party. Rubin v. Telemet America, Inc., 698 F.Supp. 447, 450 (S.D.N.Y.1988).

The print of clause incorporating the Terms and Conditions was not inconspicuous and it alone does not support a finding of unconscionability. In fact, it is the same size print as the remainder of the Telex. Nor does it evidence a lack of equal bargaining power.

In the instance case, ADC and Plaza are both sophisticated commercial entities. It is not uncommon for merchants to limit consequential damages or to incorporate terms of other documents, and commercial entities are well-aware of the need to carefully scrutinize the documents that...