1. Why didn’t HKE ever charge Kelomar the late interest charge until this dispute?
2. Why did the court reject Kelomar’s argument that it was reasonable to think that HKE had waived the late interest charge and was barred from recov-ering it? Should HKE be able to choose when it
does and when it doesn’t enforce the clause?

3. What should HKE do in the future to avoid any such argument that it has waived the right to enforce the late payment term? What could Kelomar do in order to be sure that any future invoice from any future seller does not result in additional terms being added?

Hebberd-Kulow Enterprises (HKE) sold agricultural supplies to Kelomar over a period of approximately 20 years between 1987 and 2007. During that time period Kelomar would routinely order products over the phone. In these phone calls, the parties’ representatives would discuss and agree to the type of item, its quantity, and its price.  Kelomar would provide HKE with a purchase order number for the requested items, but it never sent a formal purchase order document. After delivery of the items to Kelomar, HKE would send Kelomar an invoice that corresponded to the applicable purchase order number. In 2003, HKE began to include a pro-vision for late payments on its invoices: “Unpaid invoices beyond terms will be assessed a monthly service charge of 1–1/2%.” According to HKE, the late penalty interest rate was standard in the industry. Although Kelomar often paid late, HKE never charged Kelomar interest on the late payments because of their long-term business relationship. HKE never informed Kelomar of the new provision and Kelomar never objected to it.

A dispute between the parties arose after HKE delivered approximately $250,000 worth of goods in 2007. These goods were shipped separately with corresponding invoices. Kelomar refused to pay the invoices because it claimed to have incurred dam-ages in a differentset of contractual transactions with HKE that were unrelated to the $250,000 shipment. HKE sued for the price of the goods and also for late payment interest on the amount due based on the late payment provision included on the invoices. A jury awarded HKE damages for the unpaid 2007 invoices and awarded HKE the late payment interest included on the invoices. Kelomar appealed, arguing, among other things, that the penalty interest was not part of the agreement under the UCC’s battle of the forms provision and that failing to enforce the late payment penalty in the past barred HKE from recovering it in this case.

The California Court of Appeals affirmed the jury’s award in favor of HKE. The court concluded that the jury had properly applied the battle of the forms standards in finding that the late payment penalty was part of the contract in the 2012 invoices. The court rejected Kelomar’s argument that the inter-est language on the invoices, even if known to it, contained an additional term that would never be enforced because of their course of past dealing. The court pointed out that HKE established that Kelomar did not raise objections to the interest provision and that this was a standard provision in the industry that was not unexpected between merchants.

“In this [review of the evidence], we are satisfied that the jury verdict awarding interest pursuant to the [2012] invoices, on the basis of supple-mental contractual terms known to and agreed to by the parties, is well supported by the testimony [at trial], which showed the general course of dealing in the industry and the specific transactions between these parties occurring within that frame-work. After the interest provision was added to the invoices and made known to Kelomar, the parties continued to close their deals over time, and [the UCC] required the jury to take into account what really happened between the parties. This included consideration of Kelomar’s refusal to pay and HKE’s reasonable expectations that this changed the nature of their contractual arrangements and made a known term, previously held in abeyance, become enforceable.”