Case Summary

In Columbia Nitrogen Corp. v. Royster Co. (1971), the U.S. Court of Appeals for the Fourth Circuit considered a dispute over a phosphate contract.

Royster manufactures fertilizers and Columbia produces nitrogen. For several years, Royster was a major purchaser of Columbia’s products for use in its fertilizers, but Columbia had never been a significant customer of Royster. In fall 1966, Royster started producing more phosphate than it needed for its own fertilizer operations, so they entered into a contract to sell Columbia a minimum of 31,000 tons of phosphate each year for three years.

Shortly thereafter, market prices for phosphate dropped significantly below the specified contract price. Even after Royster agreed to lower its price, it was still significantly above market price and as a result, Columbia bought less than a tenth of the minimum quantity agreed upon in the contract.

Royster brought suit for damages, since they were forced to sell the remaining phosphate to another buyer at substantially below the contract price. Columbia sought to introduce evidence that it was common in the fertilizer industry to adjust price and quantity terms to account for market fluctuations and that, in prior transactions between the two parties, Royster regularly deviated from the specified amount or price in their contracts to buy from Columbia. The trial court excluded the evidence and ruled for Royster. Columbia appealed.

The U.S. Court of Appeals for the Fourth Circuit ruled that the letter agreement satisfied the statute of frauds, as it included key contract terms like price, quantity, and duration. They also found that the parties intended to be bound by its terms, as it called itself a "summary agreement" that would later be "reduced to a definitive agreement."

Additionally, the court allowed for course of dealing or usage of trade to explain or supplement contract terms, as long as they didn't conflict with the agreement. They found evidence of prior dealings and industry practices treating price and quantity terms as projections, subject to change based on market fluctuations.

This case is important as it demonstrates the principle of definiteness in contract law, requiring clear and certain terms for enforceability. It also shows that courts will enforce agreements evidenced by sufficient writing, even if not formally finalized. Finally, the case showcases how courts consider course of dealing, usage of trade, and the parties' language and conduct in deciding whether a contract was intended to be binding.