Taita Chemical Co. v. Westlake Styrene Corp.

Court of Appeals for the Fifth Circuit
2001 U.S. App. LEXIS 4516, 2001 WL 285998, 246 F.3d 377 (2001)

ELI5:

Rule of Law:

A party's continued performance of a contract by paying disputed amounts does not constitute modification, waiver, or estoppel as a matter of law if there is conflicting evidence that creates a genuine issue of material fact regarding the party's intent to relinquish its contractual rights.

Facts:

In 1991, Taita Chemical Co., Ltd. ('Taita') and Westlake Styrene Corporation ('Westlake') entered a long-term Off-Take Agreement requiring Taita to purchase 40% of Westlake's production.
The contract contained a 'most favored nations' clause, entitling Taita to the lowest price Westlake offered to any other customer under a 'firm multi-year contract.'
In late 1994, Westlake entered into contracts with Novacor and Cook Composites, offering them lower prices for smaller volumes of product than Taita was purchasing.
In early 1995, Taita demanded the lower price. Westlake initially complied but then reversed its position, arguing the clause only applied to contracts for 'comparable volumes' and threatened to cut off Taita's supply if the higher price was not paid.
After Westlake's threat, Taita began paying the full, undiscounted invoices.
In September 1995, Taita's chairman again protested the pricing based on the finalized Cook Composites contract, but Westlake again refused.
From November 1995 to December 1996, Taita continued to pay the higher, undiscounted invoices without explicitly noting they were 'under protest,' while allegedly tracking the overcharges internally and raising the issue in other contexts.
In December 1996, Taita's parent company sold its interest in Westlake, ending the Off-Take Agreement without a mutual release of claims between the parties.

Procedural Posture:

Taita Chemical Co. sued Westlake Styrene Corporation in the U.S. District Court, alleging breach of contract.
The district court granted Taita's motion for partial summary judgment on the interpretation of the contract's pricing clause.
The district court then granted Westlake's motion for summary judgment on its affirmative defenses of modification, waiver, and estoppel, dismissing Taita's claims.
The district court also dismissed as moot Westlake's counterclaim against Taita.
Taita, as appellant, appealed the grant of summary judgment on the affirmative defenses to the U.S. Court of Appeals for the Fifth Circuit.
Westlake, as appellee, cross-appealed the partial summary judgment on contract interpretation and the dismissal of its counterclaim.

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Issue:

Does a party's payment of invoices at a disputed higher price for fourteen months, following an initial protest, establish the affirmative defenses of modification, waiver, or estoppel as a matter of law, thereby precluding a claim for breach of contract?

Opinions:

Majority - Kent, J.

No. A party's conduct in paying disputed invoices does not establish the affirmative defenses of modification, waiver, or estoppel as a matter of law where there is sufficient countervailing evidence to create a genuine issue of material fact as to the party's intent. The court reasoned that summary judgment was inappropriate because Taita introduced enough evidence to create a factual dispute. For modification, which requires a meeting of the minds, Taita's evidence of prior protests and internal tracking of overcharges created a triable issue as to whether it ever consented to the higher price. Similarly, for waiver, which requires an intentional relinquishment of a known right, this same evidence disputed any intent to waive. Finally, for equitable estoppel, a jury could find Westlake's reliance on Taita's payments was not justifiable, as Westlake could have sought clarification or a release and may have known Taita still contested the price. Therefore, the dispute must be resolved by a jury.

Analysis:

This case underscores the high threshold for granting summary judgment on affirmative defenses that turn on a party's intent, such as modification, waiver, and estoppel. It establishes that conduct like continued payment under a disputed contract term is not dispositive and can be rebutted by other evidence suggesting a lack of consent or intent to waive rights. The decision provides a crucial precedent for parties in long-term commercial relationships who may choose to continue performance to mitigate damages or preserve the business relationship while still intending to enforce their contractual rights. It reinforces that such matters, which involve weighing conflicting evidence and assessing credibility, are typically questions for the jury, not the judge.

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