                                                                                                                           Opinions of the United
2007 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


7-19-2007

Valero Marketing v. Greeni OY
Precedential or Non-Precedential: Non-Precedential

Docket No. 06-3390




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                                                   NOT PRECEDENTIAL
                 IN THE UNITED STATES COURT OF APPEALS
                          FOR THE THIRD CIRCUIT
                              _______________

                                No: 06-3390/06-3525

                             VALERO MARKETING &
                              SUPPLY COMPANY,

                                    Appellant in 06-3390

                                           v.

                               GREENI OY;
                   GREENI TRADING OY, Appellant in 06-3525
                             _______________

                   On Appeal from the United States District Court
                              for the District of New Jersey
                                  (D.C. No. 01-cv-5254)
                  District Judge: Honorable Dickinson R. Debevoise
                                    _______________

                                Argued June 27, 2007

             Before: BARRY, FUENTES and JORDAN, Circuit Judges.

                                (Filed: July 19, 2007)
                                  _______________

James A. Saville, Jr. [ARGUED]
Hill Rivkins & Hayden LLP
924 US Highway 9 South
South Amboy, NJ 08879
   Counsel for Appellant/Cross-Appellee

Michael G. Davies [ARGUED]
Vedder, Price, Kaufman & Kammholz, P.C.
805 Third Avenue
New York, NY 10022
  Counsel for Appellee/Cross-Appellant
                                      _______________

                                  OPINION OF THE COURT
                                      _______________

JORDAN, Circuit Judge.

         Valero Marketing & Supply Co. (“Valero”) appeals from the judgment of the

District Court against it and in favor of the defendant, Greeni Trading Oy (“Greeni”).1

Because we have concluded that the District Court erred in holding that the parties’

September 14, 2001 agreement was not a valid contract, we will reverse and remand the

case for further consideration.

                                               I.

         Because we write only for the parties, we set forth only those facts relevant to our

decision. On August 15, 2001, Greeni contracted with Valero to sell to Valero 25,000

metric tons of naphtha, a liquid that can be blended with other components to make

finished gasoline. That contract (the “August 15 Agreement”) was the result of

discussions conducted wholly through a middleman; Greeni and Valero did not speak to

each other directly. A written confirmation of the deal was sent by the middleman to both

parties that same day. The confirmation contained the agreed upon price term and

provided that delivery was to be to Valero’s tanks in New York Harbor2 between


  1
    In the original complaint, a related company, Greeni Oy, was named as a defendant,
but the complaint against Greeni Oy was dismissed by the District Court with the
agreement of the parties.
  2
      The portion of the harbor involved in this case is a port in Perth Amboy, New Jersey.
                                               2
September 10 and 20, 2001. The confirmation also provided that the vessel used to carry

the naphtha would be “subject to [Valero’s] marine department acceptance which shall

not be unreasonably withheld.” Joint Appendix (“J.A.”) at 901.

       Valero sent its own written confirmation to Greeni on August 17, 2001. That

document generally confirmed the terms of the August 15 Agreement as stated by the

middleman, but also provided that “New York law and jurisdiction shall apply.” J.A. at

906. Greeni did not object or otherwise respond to Valero’s purported confirmation.

       After the August 15 Agreement was in place, Greeni arranged for a vessel to carry

the naphtha from Greeni’s stock location in Europe to Valero’s tanks in New York

Harbor. By August 23, 2001, Greeni had taken out subjects3 on a ship called the BEAR

G, a ship that Greeni had previously used many times to carry petroleum products.

Despite the contract provision that any ship Greeni chose to deliver the naphtha was

subject to Valero’s approval, and in a reversal of the order of events it should have

followed, Greeni obligated itself on August 29, 2001 to use the BEAR G to ship the

naphtha, and only after that, on August 30, 2001, proposed the BEAR G to Valero.

Greeni claims that it committed itself to the BEAR G before gaining Valero’s approval

because Valero had previously approved the BEAR G to carry vacuum gas oil, another

petroleum product.


  3
     “Taking out subjects” on a vessel is a common practice in the shipping industry, and
means, as we understand from the record, reserving a ship subject to a later, definitive
obligation to use that ship. The practice allows the parties to a shipping contract a period
of time to decide whether they want to use a particular vessel.
                                             3
       When Greeni nominated the BEAR G to Valero, Valero undertook a process it

calls “vetting” the vessel. A representative of Valero worked for about an hour to review

different reports and call industry contacts to ask for information about the BEAR G.

Valero ultimately rejected the BEAR G, sending an email to Greeni on August 30 stating,

without elaboration: “We have received your nomination of the vessel ‘Bear G’.

Unfortunately, this vessel does not meet Valero’s criteria for acceptance at this time. We

kindly ask that you renominate another vessel for our review.” J.A. at 969.

       Despite Valero’s rejection of the BEAR G, and because Greeni was unable to find

another vessel, Greeni loaded the naphtha destined for Valero onto the BEAR G.

However, because of a delay in loading the BEAR G in Hamburg, Germany, it did not

leave Hamburg until September 10, 2001. As of that date, the master of the BEAR G

estimated an arrival in New York Harbor on September 21, 2001, outside the contractual

delivery window.

       On September 14, 2001, the parties entered into a new agreement (the “September

14 Agreement”). Valero, through the same middleman, sent a proposal to Greeni

suggesting that it would not permit Greeni to offload the naphtha directly at the terminal

but would take delivery only by barge because Greeni had chosen to use an unapproved

vessel, the BEAR G, to ship the naphtha. Valero also stated that, because it would be

impossible for Greeni to deliver within the contractual window, Valero would

       accept the total volume of product delivered by Greeni to their terminal no
       later than midnight on September 23. For this accomodation [sic] the
       contract price will be adjusted by a discount of $0.0175 per us gallon. After

                                             4
       this time Valero is not obligated to take any more volume under this
       contract. For all barrels delivered on September 20, Valero will of course
       pay the full contract price.

J.A. at 908. The proposal also specified that it would be Greeni’s responsibility to charter

the barges, something that Greeni generally had not done before. Greeni agreed to the

proposal, although it later complained that it felt the proposal was a “take it or leave it”

proposition. Valero sent a written confirmation of the agreement to Greeni, specifying

that it would take delivery of all cargo delivered by barge before midnight on September

24, 2001.4

       The BEAR G arrived in New York Harbor on September 22 at 3:30 in the

morning. Greeni asserts that it could have delivered the naphtha by the end of the day on

the 22nd, within the contract extension time, if Valero had not insisted that delivery be by

barge.5 The parties do not dispute that no naphtha was delivered to Valero by September

24.

       Both parties claim they sustained significant losses. Valero asserts that it intended

to blend the naphtha with other components to make 87 octane gasoline, which it would

have sold prior to September 30, 2001, and that each day of delay cost Valero significant

sums of money. Greeni, on the other hand, asserts that because Valero refused to accept

  4
    Although Valero had originally proposed that delivery must take place by September
23, the parties later agreed to delivery by September 24.
  5
    Although Greeni attempted to charter barges to deliver the naphtha to Valero, it was
unable to do so. As the District Court observed, “Greeni cites the World Trade Center
attack of September 11, 2001 as the reason for its inability to charter barges by September
24, 2001.” J.A. at 5, n.6.
                                              5
delivery of the naphtha and because the market price for naphtha was falling, it had to

cover by selling its naphtha to Valero and others at significantly reduced prices, and that

it also incurred charges for keeping the BEAR G in New York Harbor for an extended

period of time.

       Valero filed suit against Greeni in the United States District Court for the District

of New Jersey on November 13, 2001, alleging that Greeni had breached the contract

between the parties. Greeni counterclaimed, asserting that it was Valero that had

breached the contract. Valero moved for summary judgment on liability. The District

Court denied that motion, stating that the United Nations Convention on Contracts for the

International Sale of Goods (“CISG”) applied to the agreement, and that, under that law,

there were genuine issues of material fact as to whether there was a breach of contract.

The Court also found that the September 14 Agreement constituted a new contract.6

       The District Court conducted a four-day bench trial, and issued its findings of fact

and conclusions of law on April 4, 2006. It concluded that Valero’s rejection of the

BEAR G was unreasonable, and thus a violation of the August 15 Agreement. The Court

also found that, under the CISG, Greeni had breached the August 15 Agreement by

arriving in New York Harbor two days outside the contractual window set by that



  6
     Greeni filed a motion asking the Court to amend its summary judgment opinion to
delete the finding that a second agreement was reached on September 14, 2001. The
Court, however, denied that motion and reaffirmed that “there was a second agreement”
stating that “[t]he evidence of the existence and terms of the September 14, 2001
agreement is not negated by competent evidence.” J.A. at 21.
                                              6
agreement. However, the Court concluded that the delay did not entitle Valero to avoid

its obligations under the contract because that two-day delay did not amount to a

fundamental breach of the August 15 Agreement.

       The District Court went on to discuss the September 14 Agreement that allowed

Greeni to deliver the naphtha by September 24. The Court highlighted Article 47 of the

CISG, one of the provisions that govern the “Remedies for Breach of Contract by the

Seller in a Sale of Goods.” That provision allows a buyer to set an additional period of

time for the seller to deliver, but states that “the buyer may not, during that period, resort

to any remedy for breach of contract.” 15 U.S.C. App. Art. 47(2). The Court held that, in

consequence of that provision, Valero did not have the right to demand that Greeni enter

into the September 14 Agreement, and thus despite its earlier holding to the contrary, the

Court ruled that the September 14 Agreement was of no effect. Therefore, the District

Court found that Valero was entitled to recover damages only for the two-day delay

between the September 20 delivery deadline in the August 15 Agreement and the day the

BEAR G arrived in New York Harbor. It went on to find that Valero had not proven it

suffered any damages from that delay. It also found that, because Valero improperly

avoided its obligations under the August 15 Agreement, Greeni was entitled to recover

damages for Valero’s failure to accept delivery of and pay for the naphtha as required by

that Agreement.




                                               7
        The District Court had jurisdiction in this diversity case pursuant to 28 U.S.C. §

1332. We have jurisdiction over the final order of the District Court under 28 U.S.C. §

1291.

                                              II.

        Valero asserts, among other things, that the District Court erred in finding that the

September 14 Agreement was of no effect. Whether the September 14 Agreement was a

binding contract is a question of law subject to plenary review. In re Cendant Corp.

Prides Litig., 233 F.3d 188, 193 (3d Cir. 2000) (“[C]ontract construction, that is, the legal

operation of the contract, is a question of law mandating plenary review.”).

        We assume arguendo that the District Court was correct in applying the CISG in

interpreting the September 14 Agreement.7 15 U.S.C. App. Art. 1; Valero Mktg. &

Supply Co. v. Greeni Oy, 373 F. Supp. 2d 475, 479 (D.N.J. 2005). The CISG contains

two provisions, Articles 29 and 47, which are arguably relevant to the September 14

Agreement. The District Court, however, analyzed the September 14 Agreement only

under Article 47.

        Article 47 is one of the remedies the CISG provides to a buyer when a seller has

breached a contract. That section states:

        (1) The buyer may fix an additional period of time of reasonable length for
        performance by the seller of his obligations.



  7
   We do not perceive a conflict between the CISG and New York law on the issue of
whether the September 14 Agreement is valid and binding.
                                              8
          (2) Unless the buyer has received notice from the seller that he will not
          perform within the period so fixed, the buyer may not, during that period,
          resort to any remedy for breach of contract. However, the buyer is not
          deprived thereby of any right he may have to claim damages for delay in
          performance.

15 U.S.C. App. Art. 47. The purpose of Article 47 is to allow a buyer to set an additional

period of time for delivery, after which the contract can be avoided. See UNCITRAL

Digest8 Art. 47 ¶ 1 (stating that Article 47 “is particularly relevant for the right to

terminate the contract under article 49.”). Under Article 47, however, during any

additional period of time that a buyer may grant for performance, the buyer is not entitled

to ask for any other remedy for the seller’s breach, including contract avoidance or price

reduction. 15 U.S.C. App. Art. 47(2); see also UNCITRAL Digest Art. 47 ¶ 8 (“the

buyer may not claim avoidance or price reduction as long as the additional period of time

lasts”). Because the September 14 Agreement contained a price reduction term and a

requirement that Greeni deliver the naphtha by barge, the District Court viewed the

September 14 Agreement as an improper invocation of an additional remedy prohibited in

Article 47. The District Court thus found that the September 14 Agreement was of no

effect.

          We do not agree with that reasoning. Assuming that the September 14 Agreement

would not have been an appropriate use of Article 47 of the CISG, as the District Court

held, that does not mean that the September 14 Agreement was an ineffective contract


  8
    The UNCITRAL Digest is a digest of international case law analyzing the CISG. It
can be found at www.uncitral.org.
                                               9
modification. Article 29 of the CISG discusses contract modification and states simply

that “[a] contract may be modified or terminated by the mere agreement of the parties.”

15 U.S.C. App. Art. 29. Although Greeni asserted at trial that it agreed to the September

14 Agreement because it felt that it was a “take it or leave it” proposition, the record is

clear that Greeni did assent to that agreement. Greeni does not argue that it was under

duress, and it was indeed free to leave the September 14 Agreement on the bargaining

table, attempt to cover, and seek remedies for any breach of the August 15 Agreement. It

chose instead to take the new deal. The “mere agreement” of the parties reflected in the

September 14 Agreement thus constituted a permissible contract modification under

Article 29, rather than an extension of time for performance under Article 47 of the CISG.

Accordingly, the September 14 Agreement was valid and governed the conduct of the

parties for the remainder of their interaction.9

       We therefore reverse the District Court’s judgment based on its holding that the

September 14 Agreement was ineffective, and remand the case for further proceedings

consistent with this opinion.10

  9
    We need not, therefore, consider the District Court’s finding that Valero unreasonably
withheld its consent to the chartering of the BEAR G. We address here only the
effectiveness of the September 14 Agreement. The legal consequences of that Agreement
and the parties’ actions are a matter for the District Court to determine in the first
instance.
  10
    Greeni has also filed a cross-appeal asserting that the District Court erred in not
awarding it damages relating to demurrage charges it incurred because the BEAR G was
in New York Harbor far longer than expected. Because we find that the September 14
Agreement was valid, and are consequently vacating the District Court’s decision and
remanding the case for a determination of the parties’ rights and obligations under that
                                              10
agreement, we will dismiss that appeal and leave to the District Court the determination
of the parties’ damages in the first instance.
                                           11
