Opinion ID: 1532378
Heading Depth: 1
Heading Rank: 6

Heading: enforceability of the strategic alliance agreement

Text: Air Products argues that the Strategic Alliance Agreement is unenforceable because two material terms, the Products and the Customers listed in Exhibits A and B, were subject to modification at any time. For that reason, Air Products urges, the Agreement is too illusory to be enforceable, as no court could readily determine an appropriate remedy for a breach. Rejecting that argument, the Court of Chancery concluded that the Alliance Agreement did not fail for indefiniteness under New York law, because the parties intended to be bound by the Agreement and because its terms and the parties' actual course of performance provided a reasonably certain basis to fashion a remedy. We agree. A contract does not necessarily become indefinite because it leaves open a term for future agreement. [10] New York courts will apply the doctrine of indefiniteness to defeat a contract only as a last resort. Under New York law, a court will not invalidate a contract as indefinite unless it is satisfied that the contract cannot be rendered reasonably certain by reference to an extrinsic standard that makes its meaning clear. [11] Such an extrinsic standard exists here. Because the Alliance Agreement is a requirements contract for the sale of goods, the provisions of the New York Uniform Commercial Code (UCC) control it. [12] The UCC expressly recognizes, consistent with New York common law, that a contract may be valid and enforceable even if some of its terms are left to future negotiation. [13] Under the UCC, a contract does not fail for indefiniteness if the parties intended to make a contract and if a reasonably certain basis exists for crafting an appropriate remedy. [14] The Court of Chancery correctly found that the Alliance Agreement satisfies that test. Air Products cannot realistically argue that it did not intend to be bound by the Alliance Agreement. The parties' intent to be bound by the Agreement is independently established by the undisputed fact that for five years they performed under the terms of the Agreement, without objection by either side. Moreover, this is not a case where the contract is only an agreement to agree to a material term and where the parties intended for the agreement to be binding only if the parties later arrived at a mutually agreeable term. In such a case, no enforceable contract arises unless the parties in fact agree to that term. [15] Here, in contrast, the parties agreed what specific Products and Customers would be covered by the Agreement, and nothing in that Agreement provides that a failure to agree to future modifications of the terms Products and Customers would cause the termination. The terms of the Agreement and the parties' course of performance also provide a reasonably certain basis for the Court to craft a remedy. In Section 1(a) the parties agreed to review Exhibits A and B in good faith . . . to reflect the parties' current assessment as to the focus of the efforts of the alliance. The requirement of a good faith modification to reflect the parties'current assessment of the Alliance, affords a reviewing court sufficient guidance to determine how the parties would have modified the Agreement had they done so formally. The Court of Chancery also properly looked to the parties' historical course of performance to interpret the Agreement and to devise a remedy. Section 2-208(1) of the New York UCC expressly states that any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement. [16] The only authority Air Products cites to support its unenforceability argument, Joseph Martin, Jr. Delicatessen, Inc. v. Schumacher, [17] is distinguishable on its facts. There, a lease agreement permitted the tenant to renew the lease for an additional five-year period at annual rents to be agreed upon. [18] The New York Court of Appeals found that the renewal clause was unenforceable, because it was a mere agreement to agree that contained no objective standard or formula to enable a court to establish an appropriate rent. In Joseph Martin, the tenant sought specific performance, not damages, and the court noted that it is particularly important to have definite contract terms where the extraordinary remedy of specific performance is sought. [19] Moreover, the court noted that the lease was not covered by the UCC because it did not involve a sale of goods. The court acknowledged that open terms in sale of goods contracts were more readily acceptable than open terms in real estate contracts. [20] In this case, the contract is one for the sale of goods, not real estate, and the remedy being sought is damages, not specific performance. Under New York law, those distinctions are important. In May Metropolitan Corp. v. May Oil Burner Corp., [21] the New York Court of Appeals found enforceable a contract term that was similar to the term litigated in Joseph Martin, but where the contract involved the sale of goods. In May, the parties agreed that the plaintiff could renew its franchise of the defendant's oil burner equipment on a yearly basis, as long as the parties agreed upon an acceptable quota each year. The Court enforced that renewal provision, finding that the parties' course of dealing provided an extrinsic standard upon which the court could give meaning to that term. When interpreting sale of goods contracts, the New York courts continue to follow May, [22] which is consistent with the standards established by the UCC. The Court of Chancery correctly applied those standards to the Alliance Agreement. Here, the parties intended to be bound by the Alliance Agreement, and the terms of that Agreement and the parties' performance thereunder provide a sufficient basis for the Court to fashion a remedy. Therefore, the Court of Chancery correctly found the Agreement valid and enforceable under New York law. It follows that because Air Products breached that Agreement by not filling its wet process chemical requirements through Honeywell, the Court of Chancery correctly determined that Honeywell was entitled to recover money damages for that breach.