Columbia Nitrogen Corporation v. Royster Company

Facts

Royster made mixed fertilizers. Columbia mainly produced nitrogen. For several years Royster had bought heavily from Columbia, but Columbia had never been a significant customer of Royster. In the fall of 1966 Royster built a facility that let it produce more phosphate than it needed. After long negotiations, the companies signed a contract dated May 8, 1967. Royster would sell Columbia at least 31,000 tons of phosphate each year for three years, with an option to extend. The contract stated a price per ton, adjustable under an escalation clause tied to production costs. It said that no verbal understanding would be recognized and that it expressed all the terms and conditions of the agreement. Phosphate prices then fell sharply. Columbia could not resell at a competitive price and ordered only part of the scheduled tonnage, less than a tenth of the first year's amount. Royster cut its diammonium phosphate price for three months but stayed well above the market. Columbia offered to take the phosphate at the market price, but Royster insisted on the contract price. When Columbia refused delivery, Royster resold the phosphate for Columbia's account at a price well below the contract price. Columbia offered trade testimony that stated prices and quantities in fertilizer contracts are mere projections adjusted to the market. It also offered proof of six years of dealings with Royster showing repeated, substantial departures from stated amounts or prices, totaling more than $500,000 in reduced sales.

Issues

1. Under the Uniform Commercial Code as adopted in Virginia, must a court first find a written contract ambiguous before it admits evidence of trade usage and course of dealing?
2. Does a written contract that looks complete, with detailed terms and a clause disclaiming verbal understandings, bar evidence of trade usage and course of dealing?
3. May a party to a voluntary, non-coercive reciprocal dealing arrangement use it as an affirmative defense to a suit on the contract, or as the basis for a treble-damages counterclaim?

Holding

The district court wrongly excluded Columbia's evidence of trade usage and course of dealing, so the contract judgment is vacated for a new trial. Assuming without deciding that the non-coercive reciprocal dealing violated the Sherman Act, it gave Columbia neither a defense to the contract suit nor a counterclaim, so the antitrust rulings stand.