Summary of a Recent
Judicial Development in
Commercial Transactions

Breach of Credit Agreement for Sale of Soybean Oil

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Owensboro Grain Co., LLC v. AUI Contracting, LLC, No. 4:08CV-94-JHM, 2008 WL 5381914 (W.D. Ky. Dec. 18, 2008), the United States District Court for the Western District of Kentucky held that a defendant was in breach of contract for the purchase of soybean oil and that it was not entitled to an offset of damages.

Background

Owensboro Grain sold soybean oil to AUI Management pursuant to a credit agreement that provided that AUI would pay Owensboro within 30 days of the date of each invoice and, if it failed to do so, interest would accrue on the amounts owed. Id. at *1. It also stated that Owensboro could take whatever steps necessary to collect the unpaid balance of any outstanding invoices if the default was not cured within ten days, and that if the maximum credit limit of $1,400,000 was exceeded before the due date of any of the outstanding invoices, Owensboro could suspend all future shipments until AUI paid sufficient funds to keep the total of all unpaid invoices under the maximum credit limit. Id. Owensboro admitted that the maximum credit limit was increased once to $1,800,000, while AUI claimed it had been orally modified several times and therefore Owensboro had refused to fulfill certain orders on which payment was not yet due. Id. Owensboro sued AUI, alleging it had failed to pay invoices within 30 days, failed to remedy the defaults, and rejected demands for payment, and Owensboro moved for summary judgment on its breach of contract claim. Id. at *2.

Arguments

AUI argued that it was entitled to an offset of damages because Owensboro's refusal to fulfill a current contract on which payment was not yet due forced it to purchase soybean oil in the market at an average of $0.15 per pound more than the contracted price. Id. It also argued that Owensboro's claims were barred by laches and estoppel. Id.

Analysis and Holdings

The court found that Owensboro had established that AUI breached its credit agreement, because AUI admitted that it was a party to the agreement and had failed to pay the invoices, and it did not dispute the amount owed. Id. The court further concluded that AUI had failed to present admissible evidence that the credit limit was modified above $1,800,000, and therefore its offset claim failed. Id. at *4. The court also concluded that AUI failed to prove that it reasonably relied on Owensboro's alleged representations that it would not take action under the credit agreement; in fact, the court noted that the terms of the agreement also precluded the estoppel argument by stating that "if the seller, at its own discretion, ships product in excess of the maximum credit established herein, the buyer is not excused from payment." Id. at *5-6. AUI's laches defense, asserted on the basis that Owensboro permitted AUI to exceed its credit limit from November 2007 through June 2008 before it claimed that AUI was in default, failed because AUI failed to demonstrate a lack of diligence by Owensboro or prejudice to itself. Id. at *6. Therefore, the court granted Owensboro's motion for summary judgment on its contract claim. Id. at *7.

The case was decided on December 18, 2008.