VLM Food Trading International, Inc. v. Illinois Trading Co.
811 F.3d 247, 2016 WL 241367, 2016 U.S. App. LEXIS 1013 (2016)
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Rule of Law:
Under the UN Convention on Contracts for the International Sale of Goods (CISG), a new term included in an invoice sent after a contract has been formed by offer and acceptance does not become part of the contract. Such a term is a proposed modification that requires express assent from the other party and cannot be accepted through mere silence, inactivity, or performance of the original contract's terms.
Facts:
- VLM Food Trading International, Inc. ('VLM'), a Canadian company, sold frozen potatoes to Illinois Trading Company ('Illinois Trading'), an American company.
- The parties established a consistent transaction process: Illinois Trading would send a purchase order detailing the product, quantity, and price.
- VLM would then send an email confirming these terms.
- After VLM shipped the goods and Illinois Trading accepted them, VLM would mail a trailing invoice.
- These trailing invoices, but not the initial purchase orders or confirmations, contained a provision making Illinois Trading liable for attorney's fees in the event of a breach.
- Illinois Trading never discussed, negotiated, or otherwise expressly agreed to the attorney's fees provision.
- After nine successful transactions, Illinois Trading experienced financial difficulty and failed to pay for the next nine shipments.
Procedural Posture:
- VLM sued Illinois Trading, its controlling partnership, and its president in federal district court for non-payment.
- The district court entered a default against all defendants after they failed to file a timely answer.
- The court then vacated the default as to the president only, but all three defendants filed an answer.
- Applying Illinois's version of the UCC, the district court granted summary judgment for VLM, finding the attorney's fees provision was part of the contract.
- Illinois Trading appealed to the U.S. Court of Appeals for the Seventh Circuit.
- The Seventh Circuit reversed in a prior decision ('VLM I'), holding that the CISG applied, and remanded the case.
- On remand, the district court applied the CISG and granted summary judgment for Illinois Trading, finding the fees provision was not part of the contract.
- VLM appealed this new judgment to the Seventh Circuit.
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Issue:
Does an attorney's fees provision included in a seller's trailing invoices, but not in the initial purchase orders or confirmations, become a binding part of an international sales contract governed by the CISG when the buyer does not expressly assent to it?
Opinions:
Majority - Sykes, Circuit Judge.
No. An attorney's fees provision included in trailing invoices does not become a binding part of a contract governed by the CISG without the buyer's express assent. The court reasoned that under the CISG, the contract was formed when VLM sent its confirmation e-mails, which accepted the offers made in Illinois Trading's purchase orders. The attorney's fees provision, introduced for the first time in invoices sent after contract formation, constituted a proposed modification under Article 29 of the CISG, not a counteroffer. For a modification to be effective, it requires the agreement of the parties. Under Article 18, acceptance cannot be demonstrated by silence or inactivity. Illinois Trading never made any statement or performed any conduct that indicated acceptance of the new term; its payment of prior invoices was merely performance of its pre-existing contractual obligation to pay for the goods. The court distinguished the CISG's strict 'mirror image rule' from the more flexible approach of the UCC, emphasizing that under the CISG, a failure to object to a unilaterally proposed modification is not sufficient to incorporate it into the contract.
Analysis:
This decision solidifies the application of the common-law 'mirror image rule' for contract formation and modification under the CISG in U.S. federal courts. It creates a sharp distinction between the CISG and the UCC's § 2-207 'battle of the forms' doctrine, putting practitioners on notice that the rules for international sales are fundamentally different. The ruling establishes a bright-line rule that material terms cannot be added post-formation via boilerplate on invoices without affirmative assent from the other party. This holding provides certainty for international businesses, ensuring that they will not be bound by surprise terms to which they did not explicitly agree.
