Sharp Iron Group, LLC, 4:18-cv-01974

Background

Total E&S and Sharp Iron entered purchase orders requiring Sharp to deliver multiple custom T-2600 frames weekly and pay $26,000 per frame; Sharp manufactured 25 frames in late 2014 which Total paid for.
Beginning December 2014, Total repeatedly asked Sharp to slow or stop shipments; parties revised the schedule and Total later told Sharp to stop shipments until further notice while Sharp continued finishing frames already in production (about 20 completed between Jan–May 2015).
Sharp contends it tendered delivery of the completed, custom frames and that Total’s pre-2016 refusals to accept and pay constituted breach; Total contends it exercised contractual rights to defer deliveries and later terminated the orders, owing nothing for unshipped frames.
Total sent a written termination/cancellation notice on January 18, 2016; Sharp sued in state court (Dec 2015) and filed a proof of claim in Total’s Chapter 11 bankruptcy; the bankruptcy court sustained Total’s objection, finding no breach.
The district court reviewed de novo legal issues and for clear error factual findings, concluded the record contains material factual disputes about when Total effectively changed or terminated performance, whether Sharp gave timely written requests to adjust price/schedule, and whether Total negotiated in good faith — and therefore reversed and remanded.

Issues

Issue	Plaintiff's Argument (Sharp)	Defendant's Argument (Total)	Held
Whether Sharp "delivered" frames (tender vs. actual physical receipt) so as to trigger Total’s payment obligation	Tendered conforming goods and gave notice; delivery under the contract/Code includes tender, so Total owes payment for pre-termination frames	"Delivery" requires actual receipt; unpaid unshipped frames were never delivered so no payment obligation	Court found ambiguity in contract/record about tender vs actual delivery and whether Sharp’s communications satisfied written-notice/adjustment requirements — factual disputes preclude affirming no-liability; remanded
Whether §9 (Changes) allowed Total to defer shipments without liability and whether Total had duty to negotiate equitable adjustments in good faith	§9 required Total to negotiate equitable price/schedule adjustments after a timely written request; Total’s repeated deferrals without agreement could make it liable	§9 expressly lets Total change place/time/quantity; Total could lawfully defer/modify shipments under that provision	Court construed §9 to require good-faith negotiation of adjustments on timely request and found disputed facts about whether Sharp provided timely written requests and whether Total negotiated in good faith — remand required
Whether §2 allowed Total to terminate without liability for frames manufactured before written termination	Termination (as opposed to cancellation for breach) does not extinguish rights based on prior performance; Total’s pre-termination conduct and lack of clear notice mean liability may survive termination	§2 permits Total to terminate on written notice; absent actual delivery prior to termination, Total is not liable for unshipped frames	Court rejected bankruptcy court’s finding that Total unambiguously exercised a liability-free termination; ambiguities about timing, notice, and the consequences of Total’s conduct require further fact-finding — remanded

Key Cases Cited

Stern v. Marshall, 564 U.S. 462 (appellate standard of review for bankruptcy appeals)
Anadarko Petroleum Corp. v. Williams Alaska Petroleum, Inc., 737 F.3d 966 (seller’s obligation discharged by tender; buyer’s payment obligation survives termination after seller completed performance)
Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323 (contract interpretation focuses on parties’ written expression of intent)
In re Halliburton Co., 80 S.W.3d 566 (unilateral modification/termination clauses not illusory where notice requirement exists)
M&G Polymers USA, LLC v. Tackett, 851 F.3d 473 (illusory promises and enforceability principles)
El Paso Natural Gas Co. v. Minco Oil & Gas, Inc., 8 S.W.3d 309 (good-faith duty in contract performance and modification)