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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: October 13, 2021

First Department Holds That Proposed Documentary Evidence Did Not Conclusively Establish That Fuel Oil Met Specifications In Purchase Contract And That General Warranty Disclaimer Is Ineffective As To Required Specifications For Fuel Oil In The Contract

On October 1, 2021, in Glencore Ltd. v Freepoint Commodities LLC., Index No. 653431/19 and First Department Case No. 2020-02381, the First Department unanimously affirmed an Order of Justice Joel M. Cohen, which denied Defendant’s motion to dismiss pursuant to CPLR 3211(a)(1) and (a)(7).  The Court explained:

The motion court properly declined to dismiss plaintiff’s cause of action for breach of the parties’ purchase contract premised on defendant’s delivery of off-specification low sulphur fuel oil (LSFO) in Houston. The documentary evidence did not conclusively establish that the LSFO defendant delivered in Houston met the specifications set forth in the purchase contract (see generally CPLR 3211[a][1]; Goshen v Mutual Life Ins. Co. of N.Y., 98 NY2d 314, 326[2002]). Specifically, the certificates of analysis issued by the mutually-agreed upon inspector in July 2018, finding that the LSFO met the contract’s specifications, reported on a sample of LSFO that was taken after the LSFO was shipped from Houston to the U.S. Virgin Islands and was blended with additional oil products (cf. Curacao Oil N.V. v Trafigura Pte. Ltd., 189AD3d 404 [1st Dept 2020], lv dismissed 37 NY3d 925 [2021]; Sempra Energy Trading Corp. v BP Prods. N. Am., Inc., 52 AD3d 350 [1st Dept 2008]). Moreover, because the parties’ contracts did not conclusively establish that the July 2018 certificates were final and binding on the parties, the certificate of analysis issued in August 2018, reporting that the same sample of LSFO did not meet certain criteria, raises questions as to whether the LSFO was off-specification after it was blended in the Virgin Islands. Defendant’s argument that the July 2018 certificates were irrefutably issued pursuant to the purchase contract, not the subsequent mitigation contract, is not persuasive, and simply raises an issue of fact.

Plaintiff stated a claim for breach of contract based on quality. Defendant’s reliance on the warranty disclaimer in the purchase contract is unavailing because defendant expressly warranted that the LSFO it delivered in Houston would meet the specifications set forth in that contract, and as previously discussed, defendant has failed to establish, as a matter of law, that the LSFO delivered met those specifications. Defendant’s F.O.B. argument is inapposite because, as the motion court noted, plaintiff does not claim that the LSFO became off-specification in transit; rather, plaintiff claims that the LSFO was off-specification at the time it was delivered by defendant (see UCC 2-319[1][b]).

The attorneys at Schlam Stone & Dolan frequently litigate disputes concerning warranties in contracts.

Contact our attorneys at commercialdivisionblog@schlamstone.com if you or a client have questions regarding a dispute dealing with contracts and any warranties therein.

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