author: LEVAL, Circuit Judge:

text:
    Peter SHANN, Plaintiff-Appellant, v. John S. DUNK, Defendant-Appellee. John S. DUNK, Plaintiff-Appellee, v. Peter SHANN, Defendant-Appellant.
    No. 93, Docket 94-9316.
    United States Court of Appeals, Second Circuit.
    Argued Oct. 5, 1995.
    Decided May 10, 1996.

      Peter S. Herman, New York City (Craig S. Brown, McLaughlin & Stem, New York City, of Counsel), for Plaintiff-Appellant.
    James H. McGowan, Syracuse, NY, (Cher-undolo, Bottar & McGowan, Syracuse, NY, and Joseph Serino, Jr., Hiscock & Barclay, Syracuse, NY, of Counsel), for Defendant-Appellee.
    Before: WINTER, JACOBS, and LEVAL, Circuit Judges.
   LEVAL, Circuit Judge:

Peter Shann brought this suit against John S. Dunk (“Dunk”) to enforce an agreement for Shann’s purchase of Dunk’s controlling shares in an explosives company. The agreement, which was made on November 25,1992 (the “November 25 Agreement”), was in rough preliminary form and contemplated memorialization in a more formal contract. It provided for: a down payment of $500,000; monthly payments to Dunk totalling $2,352,-000, plus interest, over five years “as [a] consultant and pursuant to a non-compete agreement” (the “consult/noncompete clause”); and a payment of $360,000, plus interest, to be made after five years to, Dunk’s daughter in exchange for her stock. The district court ruled after trial that the consult/noneompete clause lacked essential terms relating to compensation and scope, rendering the overall agreement void and unenforceable. The court, accordingly, ruled for defendant Dunk. We disagree with the district court’s analysis. In our view, the precise terms of the consull/noncompete agreement were neither essential, nor missing. Nonetheless, we find other unresolved questions as to whether the November 25 Agreement is enforceable, and, if so, whether either of the parties breached it. Accordingly, we vacate the district court’s judgment and remand for further findings.

I. Background

Shann, a British citizen and resident, is a principal in the manufacture and sale of explosives for mining, primarily in the United Kingdom. Dunk is the controlling shareholder of St. Lawrence Explosives Corp. (“SLE”), a New York corporation with its principal place of business in Adams Center, near Watertown, New York. SLE manufactures low-grade explosives, and provides drilling and blasting services. Dunk owns 242 of the 333 outstanding shares of SLE; the remainder are owned by his daughter Deborah Netto (60 shares), his son Erik (27 shares), and SLE’s president, Julie Pecori (4 shares).

Dunk reached 65 years of age in 1991 and was eager to retire. Since June 1988, he had been seeking to sell his controlling shares of SLE. Prior to the events giving rise to this action, Dunk had negotiated with numerous prospective buyers, including Shann, but never reached an agreement.

In the fall of 1992, after a proposed sale fell through, Dunk’s son Erik contacted Shann, proposing that Shann purchase SLE. Because of the failure of their previous negotiations, Shann insisted, before he would come to the United States to explore the sale in depth, that Dunk commit himself to an option agreement that would obligate Dunk to sell his shares. In the course of the negotiations, Shann apparently made clear to Dunk that Shann would not undertake personal responsibility for deferred payments. Shann and Dunk eventually agreed on November 6, 1992, to an option for the sale of SLE. The terms involved a down payment of $1,712,000, plus additional payments of $1,500,000 over six years, pursuant to a con-sull/noncompete clause. When the option contract had been agreed upon, Shann and his solicitor, Reginald Ashworth, came to Watertown to work out the sale with Dunk. However, this option arrangement failed to result in a sale of the company because of the parties’ inability to secure necessary financing. The proposed lenders refused to extend credit without Shann’s personal guarantee, which Shann refused to give.

Shann then departed on business, leaving Ashworth in Watertown to negotiate further with Dunk. On the evening of November 24, 1992, Dunk said to Ashworth, “I’m thinking about financing the deal for you.” The next morning, November 25th, Dunk proposed the terms of an agreement which were satisfactory to Ashworth. Ashworth put the terms down on paper, and secured Shann’s approval. Dunk signed the agreement; it was then faxed to Shann in England, who also signed it.

The November 25 Agreement provided that Dunk would sell Shann his 242 shares of SLE and also procure his daughter’s 60 shares for sale to Shann. The payment terms read as follows:

3) A deposit of 50,000 U.S.D. shall be paid to ... the seller within 14 days_
4) The sum of 450,000 U.S.D. shall be paid by the buyer to the seller at closing....
5) In addition seller shall be paid as consultant and pursuant to a non-compete agreement the following sums:
a) the sum of 2,352,000 U.S.D.
b) a sum equivalent to interest calculated monthly in the amount from time to time outstanding at the rate of prime plus 7% subject to a minimum rate of 10% and a maximum rate of 15%....
6) In addition Deborah will be paid the following sums by the company:
a) the sum of 360,000 U.S.D. 60 months after closing or earlier by agreement.
b) a monthly sum equivalent to interest calculated in accordance with clause 5(b) the first payment to be made one month after closing.

Paragraph 10 of the Agreement provided that “Buyer will present to Seller a purchase agreement basically including [the terms and conditions of the November 25 Agreement and] a pledge of all shares acquired to seller as security to the seller for fulfillment of the agreement_” Both sides agreed that they considered the November 25 agreement to be binding, notwithstanding its expected replacement by a more elaborate, formal contract.

Dunk and Shann then engaged counsel to draft the final stock purchase agreement. Around December 2, 1992, Shann wired the $50,000 deposit to Dunk in accordance with the November 25 Agreement.

Soon thereafter, Dunk’s attorney, William Kissel, argued to Shann’s attorney, Hartley Chazen, that the allocation of $500,000 to the stock purchase and $2,352,000 to the consult/noncompete clause was inappropriate and, for tax reasons, unfair to Dunk, as it would cause him to be taxed at the higher ordinary income rates (instead of capital gain rates) for the major part of the proceeds. Ashworth authorized Chazen to change the allocation.

On December 17 and 18, Chazen sent memos to Kissel outlining the structure of the contract he was drafting. The proposal described in these memos differed in certain respects from the November 25 Agreement. For example, it included Shann’s purchase of Erik Dunk’s stock, which had not been mentioned in the November 25 Agreement. It stated that the shares of SLE would be purchased by a newly formed New York corporation, to be named Lebon II, Inc. And, in response to Kissel’s complaint about the unfair allocation as between purchase price and eonsuli/noncompete, Chazen’s memo assigned $1,500,000 to the “employment contract,” apparently without interest.

On December 22, 1992, shortly after receiving this memo, Dunk met with his advisers. They took exception to changes suggested in Chazen’s memo and expressed the view that the deal did not give Dunk sufficient security. They urged Dunk not to go through with the transaction. After the meeting, Kissel wrote to Dunk saying that the meeting had been “extremely productive and helpful [and that] .... hopefully we can get this sale done for you, one way or another, with or without Peter [Shann]!”

On December 24, Dunk faxed a letter to Shann. The central message of the letter was that Dunk required Shann’s guarantee of the deferred payments, or some other form of security. He wrote, “I need more comfort than your words .... I must have your personal guarantee, or posted Bonds.... I trust you can relieve my concerns, and come up with the Security I need to bring this deal to fruition.”

At the same time, Dunk sent to Shann (and Kissel sent to Chazen) a letter drafted by Kissel, asserting that “several aspects of the transaction as outlined [in Chazen’s memo] are not acceptable to my client and I am writing to outline the transaction as it would be acceptable to my client.” The transaction that “would be acceptable” to Dunk was in numerous respects very different from the November 25 Agreement. For example, it called for payment of $1,452,000 at closing (instead of $500,000), interest of 15% (instead of 7 percentage points over prime, which at the time came to 13%), and payment to Dunk’s daughter spread over five years (instead of deferred to the end of five years). Kissel’s letter required that Shann personally guarantee all the purchase obligations.

Shann sent Dunk proposed closing documents, along with a bank check for $450,000. Dunk refused to sign, saying both that the closing documents departed from the terms of the November 25 Agreement and that he would not do the deal without Shann’s guarantee. Dunk did not cash Shann’s check. Shann then sent Ashworth from England to Watertown to attempt to salvage the deal. Ashworth offered to eliminate any terms from the closing documents that were at variance with the November 25 Agreement— offering essentially to close on the November 25 Agreement, which Shann and Ashworth insisted did not include a personal guarantee by Shann of the deferred payments. Dunk refused, continuing to insist on Shann’s guarantee.

On February 1, 1993, Dunk filed suit in New York state court seeking a declaration that the November 25 Agreement was unenforceable or, in the alternative, that Shann had breached the agreement. Shann then commenced suit in federal district court alleging that Dunk had breached the contract. Shann removed Dunk’s state court action to federal court, and the two cases were consolidated.

A five-day bench trial was held in August 1994, and the court issued its decision in favor of Dunk on November 25, 1994. Shann v. Dunk, 870 F.Supp. 460 (N.D.N.Y.1994). The court found the November 25 Agreement unenforceable because it lacked certain essential terms relating to the consult/noneompete clause, particularly “the terms of employment, the salary, and also the scope and extent of the non-compete agreement between the parties.” Id. at 465.

After thé court entered judgment, Shann moved, pursuant to Fed.R.Civ.P. Rule 59(e), to amend the judgment to require Dunk to return Shann’s $50,000 deposit with interest. The court denied the motion because Shann had failed to raise the issue prior to judgment.

II. Discussion

We review the district court’s factual findings for clear error, and we consider de novo the court’s conclusions of law. United States v. Blue, 78 F.3d 56, 59 (2d Cir.1996). The central issue—whether, based on the factual findings, a binding contract existed— is a question of law that we review de novo. Roman Assocs. v. Local 94-94A-94B, 24 F.3d 447, 449 (2d Cir.1994). It is undisputed that New York law governs this action.

Ordinarily, preliminary manifestations of assent that require further negotiation and further contracts do not create binding obligations. See Carmon v. Soleh Boneh Ltd., 206 A.D.2d 450, 450, 614 N.Y.S.2d 555, 556 (2d Dep’t 1994), appeal denied, 85 N.Y.2d 804, 626 N.Y.S.2d 756, 650 N.E.2d 415 (1995); Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69, 72 (2d Cir.1989); Reprosystem, B.V. v. SCM Corp., 727 F.2d 257, 261 (2d Cir.), cert. denied, 469 U.S. 828, 105 S.Ct. 110, 83 L.Ed.2d 54 (1984); V'Soske v. Barwick, 404 F.2d 495, 499 (2d Cir.1968), cert. denied, 394 U.S. 921, 89 S.Ct. 1197, 22 L.Ed.2d 454 (1969). Nonetheless, we have recognized that in some rare instances, if a preliminary agreement clearly manifests such intention, it can create binding obligations. See Arcadian, 884 F.2d at 72; Teachers Ins. & Annuity Ass’n v. Tribune Co., 670 F.Supp. 491, 497-99 (S.D.N.Y.1987). The Tribune opinion, which developed a taxonomy for such circumstances, observed that binding preliminary contracts fall into at least two categories. Type I is where all essential terms have been agreed upon in the preliminary contract, no disputed issues are perceived to remain, and a further contract is envisioned primarily to satisfy formalities. Type II is where the parties recognize the existence of open terms, even major ones, but, having agreed on certain important terms, agree to bind themselves to negotiate in good faith to work out the terms remaining open. In Type II agreements, the parties do not bind themselves to conclude the deal but only to negotiate in good faith toward conclusion within the agreed framework. Arcadian, 884 F.2d at 72; Tribune, 670 F.Supp. at 498.

It seems clear, and the district court found, that, notwithstanding their intention to sign a more elaborate and formal contract, the parties viewed themselves as having reached a complete agreement on all significant terms on November 25, 1992, and intended to be bound. Although the parties recognized that the final contract would include additional “boilerplate,” they foresaw no disputes relating to the boilerplate. Accordingly, the parties viewed their contract as either a binding Type I agreement (for the sale of the SLE stock) in which everything had been agreed and all that remained was the need for lawyers’ embellishments, or a binding Type II agreement (to negotiate in good faith) in which all the important terms were settled and the parties agreed to negotiate in good faith over any differences that might arise relating to the undrafted boilerplate.

A. Did the November 25 Agreement Lack Essential Terms?

(1) Consult/Noncompete Clause

Relying on New York law to the effect that contracts are unenforceable unless they cover all essential terms, Brookhaven Hous. Coalition v. Solomon, 583 F.2d 584, 593 (2d Cir.1978); Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 52 N.Y.2d 105, 109, 417 N.E.2d 541, 543, 436 N.Y.S.2d 247, 249 (1981), the district court ruled that no binding contract for the sale of SLE had been formed because essential terms relating to the consult/non-compete clause were lacking.

We disagree. While the terms of an employment contract and noncompete agreement undoubtedly can be of great importance, the evidence suggests that they had no importance here. It was clear beyond doubt that the structure of the November 25 Agreement — allocating $500,000 for Dunk’s stock and $2,352,000 for his consultynoncom-pete agreement — was a fiction. It did not accurately represent the views of either of the parties as to the relative worth of the separate elements of the transaction, but was inspired by the hope of securing tax benefits.

Dunk had decided after passing his 65th birthday in 1991 to retire. In 1989, he had resigned as chief executive of SLE; he ceased to be involved in day-to-day affairs, came into the office only two to three times per week, and limited his involvement to general oversight and major decisions. As he got older, he found it “imperative” that he “get out.” Because he wanted “to continue to ... rub shoulders” with people in the industry, the agreement provided that he would continue for five years to represent the company in trade associations. It also gave him a car at company expense and health coverage. As to his expected duties, however, he testified, “I believe there is some other writing someplace that talks about exactly what they expected me to do. Very limited.”

It was clear to Dunk that the “guts of the deal” was money in exchange for stock. Dunk had quoted his price as $3,212,000. So far as the evidence showed, at no time did Shann negotiate for any commitment of the amount of time, or the degree of service, Dunk would render. Neither side had an interest in the scope of the noncompete clause, because Dunk, entering retirement, had no intention to compete. In fact, representatives of both sides testified that they considered the precise terms of the con-sulVnoncompete agreement to be of little importance. The reason for casting the payments in terms of compensation for Dunk’s agreement to consult and not to compete was that such payments are deductible while stock purchase payments are not. A tax deduction for these payments, if allowed, would result in a great tax saving to SLE, thus permitting a larger overall payment to Dunk out of SLE’s cash flow. If the payments had really been compensation for services rendered during the five years, there would have been no reason to impose an interest charge. In sum, the evidence showed that, in economic reality and in the view of the parties, this was nothing but a stock purchase agreement, with a large portion of the payment disguised as compensation for services in order to make it deductible.

Rather than assessing the presence or absence of “essential terms” in accordance with economic reality and the views of the parties, however, the district court read the contract at face value. The court stated, “the four corners of the contract... place an emphasis on the non-compete clause, and thus, the Court will not look beyond the agreement in order to determine whether the parties actually meant what they said.” Shann, 870 F.Supp. at 466 n. 4.

There is no legal doctrine that requires a court to restrict its examination to the “four comers” of a contract to determine whether omitted terms are essential. See United States v. ITT Continental Baking Co., 420 U.S. 223, 238, 95 S.Ct. 926, 935, 43 L.Ed.2d 148 (1975) (in determining enforceability of contract, court may look outside its “four corners” to consider factors such as circumstances surrounding its formation); Huertas v. East River Hous. Corp., 992 F.2d 1263, 1267 (2d Cir.1993) (same). To the contrary, New York law requires realistic flexibility. It requires use of a standard that is “necessarily flexible, varying for example with the subject of the agreement, its complexity, the purpose for which the contract was made, the circumstances under which it was made, and the relation of the parties.” Cobble Hill, 548 N.Y.S.2d at 923, 548 N.E.2d at 206. In other words, as we have noted before, a court should consider the broad framework of a contract in determining whether missing terms are actually essential—that is, necessary to make the agreement legally binding. Disputed terms “are not to be considered in isolation, but in the context of the overall agreement.” Tribune, 670 F.Supp. at 500.

We. conclude that the district court erred in finding that the November 25 Agreement was void by reason of the absence of essential terms related to the consult/noncompete clause. The missing terms, if any, were of no importance to the parties.

(2) Obligation for Deferred Payments

Nonetheless, we are unable to conclude on the present record and findings that the November 25 Agreement was sufficiently complete to constitute an enforceable contract for the sale of SLE because of uncertainty regarding a far more important term—whether Shann was personally obligated with respect to the very substantial deferred payments. This issue was obviously of great importance to the parties. Without Shann’s guarantee, Dunk’s receipt of the large deferred payments would depend on the sufficiency of SLE’s future cash flow. Dunk feared he would be at the mercy of Shann’s good faith and good management. Shann could divert SLE’s profits to another entity, or, if it was unprofitable, let it run into the ground, leaving Dunk holding the debt of an insolvent company. As for Shann, he was deeply committed to the principle that he should in all possible circumstances avoid personal responsibility. He believed, furthermore, that the purpose of the high interest rate provided by the November 25 Agreement (prime plus 7 percentage points) was to compensate Dunk for the risk that the future payments might not materialize. Shann made clear that he refused to purchase the SLE shares under terms that would leave him liable for the deferred payments. We conclude that the issue of Shann’s responsibility for deferred payments was an “essential” term.

The November 25 Agreement, on its face, is somewhat unclear as to who would be Dunk’s obligor for the deferred payments.

Dunk argues that because the agreement is made solely “between John S. Dunk (Seller) and Peter Shann (Buyer)” and specifies that “seller shall be paid” the deferred sums without designating any other payer, the agreement should be understood to place that payment obligation on Shann. Dunk testified several times that this was his understanding of the agreement.

Shann, on the other hand, contends that the text of the November 25 Agreement shows he is not personally obligated to make or guarantee the deferred payments, or that it is in any event ambiguous. He notes that while paragraph 4, covering the payment of $450,000 at closing, states that it is to be paid “by the buyer,” paragraphs 5 and 6, covering deferred payments, do not refer to the buyer. Indeed, paragraph 6 expressly states that Deborah would be paid “by the company.” And paragraph 5 states that Dunk “shall be paid as [a] consultant and pursuant to a non-compete agreement,” implying that he would be paid by the entity that would employ him as a consultant, and against which he would not compete — i.e., the company.

The district court’s findings on this issue are somewhat confusing. At one point, the court observed that Dunk was “nervous of the fact that the [November 25] agreement did not call for the personal guarantee of [Shann].” Shann, 870 F.Supp. at 463. Elsewhere, the court stated that “the [November 25] agreement is silent as to whether [Shann] would be personally liable to [Dunk] for the post-closing payments.” Id. at 468.

It is clear to us that the written agreement of November 25 is sufficiently ambiguous on the question of Shann’s personal liability for the deferred payments to justify consideration of all the extrinsic evidence of the parties’ negotiations and conduct to determine the meaning of the contract. United States Fire Ins. Co. v. General Reinsurance Corp., 949 F.2d 569, 571 (2d Cir.1991); Garza v. Marine Transp. Lines, Inc., 861 F.2d 23, 27 (2d Cir.1988). Indeed, admission of parol evidence is particularly warranted here because “a court should find an agreement too indefinite [to be enforced] only as a ‘last resort’ when it is ‘satisfied that the agreement cannot be rendered reasonably certain by reference to an extrinsic standard that makes its meaning clear.’ ” Mar Oil, S.A. v. Morrissey, 982 F.2d 830, 840 (2d Cir.1993)(quoting Cobble Hill, 548 N.Y.S.2d at 923, 548 N.E.2d at 206).

Shann argues that any ambiguity in the express contract terms is resolved by substantial evidence showing that Dunk understood and agreed that Shann would not be liable. In the early discussions, Dunk and his representatives had sought Shann’s personal commitment to make the deferred payments, and Shann had emphatically refused. Dunk understood from the start, and recorded in his notes, that the deferred payments were to come from the cash flow of SLE. He was aware that, during the discussions attempting to bring the option to fruition, Shann consistently refused to guarantee the payments, which resulted in the failure of the option to be consummated. Dunk acknowledged that, shortly prior to making the November 25 Agreement, Ashworth had repeated to him that Shann would not give a guarantee. Dunk had then proposed to finance the deal himself, and proposed the high interest rate of 7 percentage points above prime to compensate himself for the substantial risks he would be taking. When Dunk discussed the draft agreement on November 25 with his accountant Lou Adams, he understood that the deferred payments would be made by SLE and would be tax deductible to it. When he met with his advisers on December 22, according to the testimony of Julie Pecori, Dunk told his advisers that Shann would not guarantee the deferred payments. Dunk received emphatically negative advice from his advisers who stressed the need for “security,” and pointed out that security consisting only of a pledge of the shares of the corporation being sold was of little value since the corporation “could be ruined before the former owner would ever realize what had happened.” He wrote to a private investigator (whom he had engaged to check Shann’s financial situation) that Shann “refuses to give me Any Guarantees or Security other than the [pledge of the] Corporate Stock.” Dunk faxed Shann, saying “I must have your personal guarantee, or posted, Bonds or whatever to back this deal_ [T]his deal needs better financial security for the Seller, and that is me! ... I trust you can relieve my concerns, and come up with the Security I need to bring this deal to fruition.” According to Shann’s argument, the fact that Dunk demanded Shann’s guarantee, rather than arguing that it was already promised under the November 25 Agreement, shows that Dunk understood he had received no promise of Shann’s guarantee on November 25. Finally, Dunk acknowledged in his deposition that in making these demands for Shaun’s guarantee, he was asking for more security than he had in the November 25 Agreement.

We remand to the district court to determine, in consideration of all the surrounding evidence, whether Shann did, or did not, undertake personal responsibility for the deferred payments, or, alternatively, whether the parties had failed to reach an understanding on that question.

B. Proceedings on Remand

We believe the issue of Shann’s liability for the deferred payments was of such importance that, if the district court finds the parties faded to agree on it, the court would be required to void the contract for absence of an essential term. We recognize that voiding an agreement for absence of an essential term is a step that courts should take only in rare and extreme circumstances. See Mar Oil, 982 F.2d at 840; Weinreich v. Sandhaus, 850 F.Supp. 1169, 1177 (S.D.N.Y.1994). Such rulings may undermine settled expectations. We would countenance such a result in this case because of (1) the great importance of the unagreed term, (2) the fact that the agreement was of the preliminary sort that expressly called for further formalization, and (3) the fact that the lack of agreement (if the district court so finds) came to light so soon after signing that the parties had not relied to any significant extent on their apparent contractual rights and obligations.

Part of the reason courts are reluctant, in the absence of clear expressions of intent by the parties, to make such preliminary agreements binding is the higher likelihood, where there has not been an opportunity for careful drafting and painstaking review, that ambiguous formulations will create the appearance of agreement where in fact there is none. Given the special circumstances of this case, if the district court finds that the parties failed to resolve the issue of Shann’s liability, it must conclude that the agreement was illusory (because the parties were in fact in unrecognized disagreement over one of its most important terms) and treat the contract as void. See Durante Bros. & Sons, Inc. v. Flushing Nat’l Bank, 755 F.2d 239, 252 (2d Cir.), cert. denied, 473 U.S. 906, 105 S.Ct. 3530, 87 L.Ed.2d 654 (1985); Brookhaven Hous. Coalition, 583 F.2d at 593; Oscar Prods., Inc. v. Zacharius, 893 F.Supp. 250, 254-55 n. 3 (S.D.N.Y.1995).

If, on the other hand, the parties had reached agreement on the question of Shann’s liability, then the district court must decide whether they had an agreement of Tribune’s Type I or Type II. See Tribune, 670 F.Supp. at 498. If the district court finds that there were no issues outstanding that were perceived by the parties as requiring negotiation, their agreement should be seen as at Type I binding obligation for the sale of SLE. Shann and Dunk could have closed their deal directly on the November 25 Agreement, foregoing the luxury of lengthy formalized contracts. And either party’s refusal to perform in accordance with the agreed terms would constitute an actionable breach.

Alternatively, on the assumption that the parties had agreed on the question of Shann’s liability for the deferred payments, the contract might be seen as a more limited agreement of Tribune’s Type II, by reason of the boilerplate that remained to be drafted. Although such incomplete agreements are normally not binding, if the parties choose they can bind themselves “to negotiate together in good faith in an effort to reach final agreement within the scope” of the terms that have already been agreed. Id,

Thus, if Shann and Dunk had agreed on various terms and accepted a clearly manifested binding obligation to negotiate the open terms in good faith within the agreed boundaries, the law would not deny their enforceable contract rights merely because there were terms that remained to be negotiated. If the parties then failed to reach such agreement despite good faith negotiations within the agreed limits, no breach occurred. If, on the other hand, a party refused to adhere to the already agreed terms, or otherwise acted in bad faith, that would constitute a breach of the Type II agreement.

In sum, if the district court finds that the parties resolved the question of Shann’s liability for deferred payments, it will need to decide whether their agreement was Type I or Type II and whether either side breached. As noted above, if the district court concludes that the issue of liability for deferred payments was not resolved, then the parties failed to reach a binding contract.

C. Shann’s Rule 59(e) Motion

The last remaining issue is the district court’s denial of Shann’s Rule 59(e) motion seeking amendment of the district court’s judgment to require Dunk to return his $50,-000 deposit. We note only that the district court’s justification for not deciding the merits of the motion is no longer applicable. The court stated that it could not rule on whether the deposit should be returned, in light of its finding that no binding contract existed, because Shann had failed to raise the issue before judgment was entered. Because we are vacating the judgment and remanding the case to the district court, Shann may amend his complaint to seek to recover his deposit and the court will have no reason to decline to rule on the issue.

Conclusion

For the foregoing reasons, we vacate the district court’s judgment and remand for further proceedings.

      . "Dunk” alone, as used in this opinion, refers to the seller John Dunk. All mentions of his son Erilc Dunk use only the first name Erik.

      . The November 25 Agreement did not contain a merger clause.

      . See also Durante Bros. & Sons, Inc. v. Flushing Nat’l Bank, 755 F.2d 239, 252 (2d Cir.), cert. denied, 473 U.S. 906, 105 S.Ct. 3530, 87 L.Ed.2d 654 (1985); Cobble Hill Nursing Home, Inc. v. Henry & Warren Corp., 74 N.Y.2d 475, 482, 548 N.E.2d 203, 206, 548 N.Y.S.2d 920, 923 (1989), cert. denied, 498 U.S. 816, 111 S.Ct. 58, 112 L.Ed.2d 33 (1990).
      Some earlier New York state court decisions refer to the absence or presence of "material” terms in determining whether a contract is enforceable. See, e.g., Schumacher, 436 N.Y.S.2d at 249, 417 N.E.2d at 543 ("a mere agreement to agree, in which a material term is left for future negotiations, is unenforceable”). However, in determining the sufficiency of a contract, we have traditionally spoken of whether it contained all the necessary "essential” terms. See, e.g., Enercomp, Inc. v. McCorhill Publishing, Inc., 873 F.2d 536, 546 (2d Cir.1989) (citing Schumacher, yet referring to omission of essential, rather than material, terms); Solomon, 583 F.2d at 593. Apparently, this is also the more recent trend in the New York courts. See, e.g., J.R. Loftus, Inc. v. White, 85 N.Y.2d 874, 876, 626 N.Y.S.2d 52, 53, 649 N.E.2d 1196, 1197 (1995) (record unclear as to whether parties agreed to provision as “essential” term of contract); Cobble Hill, 548 N.Y.S.2d at 923, 548 N.E.2d at 206 (parties to contract must manifest mutual assent to "essential" or "material” terms); Chan v. Bay Ridge Park Hill Realty Co., 213 A.D.2d 467, 469, 623 N.Y.S.2d 896, 897 (2d Dep't 1995) (concluding that parties did. not enter binding contract because of the absence of “essential” terms). Without commenting on whether the two terms are interchangeable, we will refer in this opinion to "essential” terms. Cf. In re Windsor Plumbing Supply Co., 170 B.R. 503, 523 n. 5 (Bankr.E.D.N.Y.1994) ("A material term is any term properly bearing upon the subject matter of the contract. Essential terms are those items whose agreement is prerequisite to the formation of a contract.”).

      . See Ginett v. Computer Task Group, Inc., 962 F.2d 1085, 1099 (2d Cir.1992) (contract’s non-compete clause was not essential at time contract was signed); see also Lande v. Radiology Specialists of Kingston P.C., 806 F.Supp. 1084, 1092 n. 11 (S.D.N.Y.1992) (disputed contract provision was not essential, nor was it discussed or even raised by plaintiff prior to litigation).

      . It appears, in any event, that the essential terms of the consult/noncompete clause were not missing. The contract specified that Dunk would serve as a consultant, for five years, and added that he would represent the company in specified capacities. And by saying that Dunk would not compete, without suggesting any limitation on scope or extent, the contract apparently meant to say that Dunk would not compete at all (which was, indeed, his intention). Dunk’s pay was specified by the allocation of $2,352,000 over five years with interest at a specified rate, plus benefits including health insurance and a company car.
      Alternatively, there was evidence from which the court might have found that the parties intended to plug into the final contract the terms of a consult/noncompete clause that had been drafted in connection with one of Dunk’s earlier efforts to sell his company. In either case, the important point was that neither side considered the consultinoncompete agreement significant, except to the extent it would produce favorable tax consequences.

      . On these facts, such a circumstance would not justify finding a limited commitment of Tribune's Type II. Although Tribune's Type II can apply where the parties have not agreed on a term of significance, that would be so only where the parties clearly manifested a mutual intent to be so bound. There is no suggestion in the evidence that Shann and/or Dunk believed that the issue of Shann’s personal responsibility remained open and that they intended to be bound on other agreed issues while negotiating in good faith to resolve that open question.


source: Caselaw Access Project

author: JON O. NEWMAN, Chief Judge:

license: Public Domain

text:
    Jia-Ging DONG a/k/a Jia-Qing Dong, Petitioner-Appellant, v. William SLATTERY, District Director of the United States Immigration and Naturalization Service, New York District and David L. Milhollen, Director of the Executive Office for Immigration Review and Chairman of the Board of Immigration Appeals, Respondents-Appellees.
    No. 754, Docket 94-2723.
    United States Court of Appeals, Second Circuit.
    Argued Jan. 18, 1996.
    Decided May 13, 1996.

      Theodore N. Cox, New York City, for petitioner-appellant.
    Diogenes P. Kekatos, Asst. U.S. Atty., New York City (Mary Jo White, U.S. Atty., Steven I. Froot, Asst. U.S. Atty., New York City, on the brief), for respondents-appellees.
    (Joseph P. Secóla, Vincent P. McCarthy, McCarthy & Secóla, New Milford, CT, Thomas P. Monaghan, New Hope, KY, Keith A. Fournier, Virginia Beách, VA, submitted a brief for amicus curiae The American Center for Law and Justice, Human Life and Reproduction Project).
    Before: NEWMAN, Chief Judge, MAHONEY and FRIEDMAN Circuit Judges.

       Honorable Daniel M. Friedman, of the United States Court of Appeals for the Federal Circuit, sitting by designation.

   JON O. NEWMAN, Chief Judge:

This appeal concerns an unfortunate lack of coordination between the Legislative and Executive Branches on a matter involving deportation to the People’s Republic of China (“PRC”) of aliens who fear that' their forced return will subject them to their country’s population control policies, including forced sterilization and coerced abortion. Though both Branches have separately indicated their intention to provide relief for such aliens, they have not done so in a coordinated manner that authorizes the Judicial Branch to intervene.

Jia-Ging Dong appeals from the December 5, 1994, judgment of the United States District Court for the Southern District of New York (Michael B. Mukasey, Judge), denying his petition for a writ of habeas corpus. Dong contends that the District Court erred in finding that he was ineligible for asylum or withholding of deportation. Because Dong’s principal arguments are foreclosed by our prior decision in Zhang v. Slattery, 55 F.3d 732 (2d Cir.1995), cert. denied, — U.S. —, 116 S.Ct. 1271, 134 L.Ed.2d 217 (1996), and his new arguments are legally unavailing, we are obliged to affirm. We do so, however, with considerable regret that the expressed intentions of the political branches have not yet combined to produce a judicially enforceable protection for aliens such as Dong.

Background

Dong was one of 300 aliens trying to be smuggled into the United States aboard the Chinese freighter “Golden Venture,” which ran aground on a New York beach in 1993. He has been held in the custody of the Immigration and Naturalization Service (“INS”) as an excludable alien ever since. Ultimately acknowledging that he was subject to deportation, Dong sought administrative relief from the INS in the form of either asylum, 8 U.S.C. § 1158 (1994), or withholding of deportation, 8 U.S.C. § 1253(h)(1) (1994).

His claim for administrative relief was based on the following circumstances. In an effort to limit population growth, the PRC pursues a “one couple, one child” policy, normally limiting families to one child. Dong alleges that in the Fujian Province, where he lived, this policy is often enforced by compulsory sterilization or forced abortion. Following the birth of his first child, local officials permitted Dong and his wife to have a second child because the first one suffered from polio. After the birth of the second child, local officials ordered Dong’s wife to insert an IUD. She complied, but nevertheless became pregnant. Local officials then ordered her to have an abortion and warned that if she fled to avoid the abortion, her house would be destroyed. Despite the threat, the couple fled to a relative’s home in a nearby village.

Dong’s father visited them and reported that local officials had beaten him, destroyed some of the contents of the couple’s home, and threatened to beat Dong and force his wife to have an abortion if they were located. That report prompted Dong to flee to this country. Dong later learned that his wife, then four and one-half months pregnant, had been forced to have an abortion.

Dong recounted these circumstances to the Immigration Judge (“IJ”) hearing the asylum request and also stated his belief that, if sent back to China, he would be severely punished for aiding his wife to evade state policy and would receive added punishment for leaving his country. The IJ found Dong’s testimony “credible in every respect.” Nevertheless, asylum was denied, in reliance on the decision of the Board of Immigration Appeals (“BIA”) in Matter of Chang, Interim Decision No. 3107, 1989 WL 247513 (BIA May 12, 1989). Chang held that the PRC’s implementation of its family planning policies normally does not entitle an alien to asylum. The IJ noted that asylum might be available if an individual faced harsher treatment than usual, not merely through the routine enforcement of the “one family, one child” policy, but because of that individual’s public opposition to the policy. However, the IJ found no evidence in Dong’s ease of the threat of such enhanced punishment for political views. Dong was therefore ordered excluded and deported.

The BIA denied an administrative appeal, and the District Court denied Dong’s petition for habeas corpus. Dong v. Slattery, 870 F.Supp. 53 (S.D.N.Y.1994).

Discussion

Our prior decision in Zhang forecloses nearly all of Dong’s arguments. The BIA decision as to Dong, like its earlier decision as to Zhang, rested on the 1989 decision in Chang, and our decision in Zhang ruled that Chang was still the law guiding BIA decisions, despite the numerous legislative and executive attempts to overturn it. Zhang, 55 F.3d at 743-49 (“[N]one of the actions taken by the Bush Administration overturned Chang.”); accord Chen Zhou Chai v. Carroll, 48 F.3d 1331, 1338-41 (4th Cir.1995); Gao v. Waters, 869 F.Supp. 1474, 1480 (N.D.Cal.1994).

Our prior opinion in Zhang comprehensively sets forth the somewhat bizarre history of governmental efforts to modify the BIA’s view that enforcement of population control by means of forced sterilization or coerced abortion does not entitle an alien to asylum. Zhang, 55 F.3d at 738-43. There have been at least four separate attempts to overturn Chang: (1) House Bill 2712, H.R. 2712, 101st Cong., 1st Sess. § 3(a) (1989) (the Emergency Chinese Immigration Relief Act of 1989), passed by both houses of Congress, but vetoed by President Bush on the ground that he could accomplish Congress’s laudable objectives by executive action, see Mem. of Disapproval for the Bill Providing Emergency Chinese Immigration Relief, 1989 Pub.Papers 1611-12 (Nov. 30, 1989); (2) the January 1990 Interim Rule, 55 Fed.Reg. 2803, 2805 (1990), which would have overruled Chang, but which never became effective; (3) Executive Order 12,711, 55 Fed.Reg. 13,897 (1990), issued by President Bush on April 11, 1990, directing the Secretary of State and the Attorney General to provide “enhanced consideration” for aliens fearing forced abortion or coerced sterilization; and (4) the January 1993 Final Rule, Att’y Gen.Order No. 1659-93, § 208.13(b)(2)(ii) (1993), signed January 15, 1993, by Attorney General Barr, but not effective for lack of publication, which would have accorded relief to aliens fearing forced sterilization or coerced abortion. Zhang also noted an order of Attorney General Reno, issued in December 1993, declining the BIA’s request for resolution of the apparent conflict between Executive Order 12,711 and Chang. See Att’y Gen.Order No. 1756-93 (1993). We also note that even now Congress is considering a bill that would overrule Chang. See House Bill 2202, H.R. 2202, 104th Cong., 2d Sess. § 501(a) (1996) (the Immigration in the National Interest Act of 1995) (passed by House of Representatives and currently pending in Senate).

In his reply brief, Dong points to an additional (and heretofore unconsidered) governmental action, which he claims succeeded in overturning Chang. In the Chinese Student Protection Act § 2(b)(1), Pub.L. No. 102-404, 106 Stat. 1969, 1969 (1992) (“CSPA”), reprinted in 8 U.S.C. § 1255 note (1994), Congress explicitly incorporated by reference a portion of Executive Order 12,-711. Dong argues that this incorporation acts as a Congressional ratification of the entire executive order. The CSPA, however, and the portion of the executive order incorporated therein, deals with only a small group of Chinese nationals who arrived in the United States prior to June 5, 1989. Congress did not express any intention in the CSPA to overturn Chang, which deals with the much different (and potentially much larger) group of Chinese nationals who are continually arriving in the United States and seeking asylum based on China’s family planning policy.

Dong further seeks to avoid the force of Zhang by making the novel argument that a combination of Executive Order 12,711 and the Administrative Procedure Act (“APA”) serves to overrule Chang. In Zhang, we held that Executive Order 12,711 was not judicially enforceable because it did not create a private right of action. Zhang, 55 F.3d at 747-48; accord Chen Zhou Chai, 48 F.3d at 1338-40; Gao, 869 F.Supp. at 1480. Dong argues, however, that even if Executive Order 12,711 fails to create a private right of action in and of itself, the APA nevertheless provides a sufficient, independent basis for asserting standing to gain relief.

Dong cites National Wildlife Federation v. Babbitt, 37 Env’t Rep.Cas. (BNA) 1670, CIVA. No. 88-0301, 1993 WL 304008, at *8 (D.D.C. July 30, 1993), for the proposition that the APA may serve to enforce an executive order against an administrative agency’s failure to act. However, that decision held that an executive order may be judicially enforceable only if it “has the force óf law....” Id.; see also Independent Meat Packers Association v. Butz, 526 F.2d 228, 235-36 (8th Cir.1975) (finding that executive order directed to executive branch officials was “intended primarily as a managerial tool for implementing the President’s personal economic policies and not as a legal framework enforceable by private civil action”), cert. denied, 424 U.S. 966, 96 S.Ct. 1461, 47 L.Ed.2d 733 (1976).

As we ruled in Zhang, Executive Order 12,711 is not based on any specific law-making authority derived from an express or implied grant of Congressional power. Zhang, 55 F.3d at 747-48. Therefore, Executive Order 12,711 does not have the force or effect of law. See Chen Zhou Chai, 48 F.3d at 1339. Judicial enforcement under the APA is unavailable. See National Wildlife, CIV.A. No. 88-0301, 1993 WL 304008, at *8.

The only other argument that Dong presents to distinguish his case from Zhang is also without merit. Dong argues that Zhang is factually inapposite because, in that case, the petitioner claimed only a prospective fear of persecution, whereas Dong claims actual persecution. Nothing in Zhang or Chang, however, limits their application to only those cases where the persecution is prospective in nature. Chang states simply:

We cannot find that implementation of the “one couple, one child” policy in and of itself, even to the extent that involuntary sterilizations may occur, is persecution or creates a well-founded fear of persecution “on account of race, religion, nationality, membership in a particular social group, or political opinion.” ... To the extent ... that such a policy is solely tied to controlling population, rather than as a guise for acting against people for reasons protected by the Act, we cannot find that persons who do not wish to have the policy applied to them are victims of persecution or have a well-founded fear of persecution within the present scope of the Act.

Matter of Chang, Interim Decision No. 3107, 1989 WL 247513.

The fact that Dong alleges actual persecution rather than a well-founded fear of persecution is immaterial. Dong must still show that the application of China’s family planning policy against him is based on a motivation other than general population control. Dong has not made such a showing.

At oral argument, the Government acknowledged that Dong was entitled to apply for discretionary parole, pursuant to an INS memorandum of August 5, 1994, entitled Processing of Chinese Nationals Who Fear Coercive Family Planning Practices. We have since been advised that Dong applied for such relief, but the District Director of the INS at New Orleans, La., denied the request on February 23, 1996. No issue concerning the lawfulness of that denial is before us.

Since we are constrained by our prior precedent in Zhang to uphold Matter of Chang, and the BIA properly applied Chang in this case, the District Court’s denial of Dong’s petition for a writ of habeas corpus is affirmed.

      . Executive Order 12,711 is directed solely toward the Secretary of State and the Attorney General. The order states: “The Secretary of State and the Attorney General are directed to provide for enhanced consideration under the immigration laws for individuals from any country who express a fear of persecution upon return to their country related to that country’s policy of forced abortion or coerced steriliza-tion_” Exec.Order 12,711.

      . The argument presented by amicus curiae on behalf of Dong is also without merit. Amicus curiae argues that the "resurrection” of Chang by the BIA in 1993 was a de facto change in policy, requiring notice and comment pursuant to the APA. As this Court stated in Zhang, however, there simply was no such "resurrection” or change in policy. "fT]he BIA has followed its holding in Chang every tíme it has been asked to consider the PRC 'one child’ issue.” Zhang, 55 F.3d at 750; see also Dong, 870 F.Supp. at 59 ("The policy consistently adhered to by the BIA and applied to aliens seeking asylum based on the 'one child’ rule is the policy articulated in Chang."). Therefore, the APA’s requirement of notice and comment is inapplicable to Chang.


author: PER CURIAM:

text:
    UNITED STATES of America, Appellee, v. Jerry WATERS, Defendant-Appellant.
    No. 1900, Docket 96-1156.
    United States Court of Appeals, Second Circuit.
    Argued May 7, 1996.
    Decided May 15, 1996.

      Edward S. Zas, New York City, for defendant-appellant.
    Ellen M. Corcella, Assistant United States Attorney for the Eastern District of New York, Brooklyn, New York (Zachary W. Carter, United States Attorney, Emily Berger, Assistant United States Attorney for the Eastern District of New York, of counsel), for appellee.
    Before: FEINBERG, CABRANES, and PARKER, Circuit Judges.
   PER CURIAM:

Defendant Jerry Waters appeals from a March 5, 1996, order of the United States District Court for the Eastern District of New York (Carol Bagley Amon, Judge), pursuant to Rule 35(c) of the Federal Rules of Criminal Procedure, modifying the sentence imposed for Waters’s violation of the terms of his supervised release on the ground that the court had failed to consider § 7B1.3(e) of the United States Sentencing Guidelines.

I. Facts

On December 7, 1994, defendant Jerry Waters began serving a three-year term of supervised release, following a conviction and a term of imprisonment for theft of government property in violation of 18 U.S.C. § 641. As a special condition of his supervised release, the court ordered that Waters discontinue his drug use. On June 7, 1995, the United States Probation Department (“Probation”) filed a Violation of Supervised Release Report, indicating that (1) Waters had been arrested by the New York City Police on May 6, 1995, after they found bags of crack cocaine in his car and on his person; (2) he had been arrested again on May 9, 1995, for selling crack cocaine to an undercover officer; and (3) two urine samples provided by Waters to Probation on February 23, 1995, and April 12, 1995, had tested positive for controlled substances.

Waters was held in pretrial detention by New York State for eight months pending disposition of the drug charges. His state trial resulted in a hung jury, and he was released on his own recognizance on January 11, 1996. On that date, Waters was taken into federal custody pursuant to a detainer based upon an arrest warrant entered by the district court upon review of the Violation of Supervised Release Report. In prosecuting Waters’s violation of his supervised release, the government elected to proceed against him based solely on his continued drug use— ie., the positive drug tests — rather than on the pending drug charges. At a hearing on February 27, 1996, the district court found that Waters had violated the terms of his supervised release and proceeded to sentencing.

After an extended colloquy, the district court rejected Waters’s argument that it should act “equitably” in light of the eight months that he spent in New York state custody by sentencing him to the time he had already served in detention on the drug charges and imposing no additional punishment for his violation of federal supervised release. Rather, the court revoked Waters’s supervised release and sentenced him to a six-month term of imprisonment.

On or about March 5, 1996, Probation informed the district court that, pursuant to 18 U.S.C. § 3585(b)(2), the Bureau of Prisons intended to credit Waters for the eight months he served in state custody, and accordingly was poised to release him forthwith. Probation directed the court’s attention to U.S.S.G. § 7B1.3(e), a policy statement that instructs district courts to increase the term of imprisonment for a violation of supervised release “by the amount of time in official detention that will be credited toward service of the term of imprisonment under 18 U.S.C. § 3585(b).”

The parties appeared for resentencing on March 5, 1996. Reasoning that the original six-month sentence was imposed in error due to its failure to consider U.S.S.G. § 7B1.3(e) and 18 U.S.C. § 3585(b) and that it had earlier stated on the record its intention that the defendant serve a six-month sentence, the district court decided that it had authority under Rule 35(c) to resentence Waters:

I was clearly not aware of the provision of law [under] which this time was credited to the defendant under [18 U.S.C. § ] 3585....
I think that the sentence was in error because I think that the policy statement that we’ve articulated here on the record today, which is [§] 7B1.3(e), does clearly apply. Although it is a policy statement, ... not a guideline[,] I think that at the original time of sentencing, ... I was required to take that into account. I clearly did not take it into account and it was error not to. That’s why I believe that the sentence comes appropriately within [Rule] 35(c).

In accordance with § 7B1.3(e), the court considered 18 U.S.C. § 3585(b) and adjusted for the eight months that Waters served in state custody on the New York drug charges— eight months that had yet to be applied to any state or federal sentence. As a result, Waters was resentenced to a term of fourteen months.

On March 6, 1996, Waters filed a notice of appeal from the resentencing order. A panel of this court granted his motion for release pending appeal on March 26, 1996, and ordered his appeal expedited. We now affirm the judgment of the district court.

II. Discussion

Rule 35(c) of the Federal Rules of Criminal Procedure provides for correction of a sentence by the sentencing court: “The court, acting within 7 days after the imposition of sentence, may correct a sentence that was imposed as a result of arithmetical, technical, or other clear error.” A district court’s concededly narrow authority to correct a sen-fence imposed as a result of “clear error” is limited to “cases in which an obvious error or mistake has occurred in the sentence, that is, errors which would almost certainly result in a remand of the case to the trial court for further action under Rule 35(a).” United States v. Abreu-Cabrera, 64 F.3d 67, 72 (2d Cir.1995) (quoting Fed.R.Crim.P. 35, 1991 advisory committee’s note).

On appeal, Waters argues that the court’s failure to consider U.S.S.G. § 7B1.3 when imposing his sentence for violation of his supervised release does not amount to “clear error” within the meaning Rule 35(c). However, inasmuch as Rule 35(c) incorporates Rule 35(a), which authorizes the correction of a sentence on remand when the original sentence results from “an incorrect application of the sentencing guidelines,” we find that the district court was authorized to re-sentence the defendant in the instant case.

For our purposes, it is not significant that § 7B1.3(e) is a policy statement rather than a guideline. Chapter 7 of the Sentencing Guidelines, governing violations of probation and supervised release, is composed solely of advisory policy statements adopted by the Sentencing Commission to permit courts and the Commission to evaluate the effects of provisional policies before ultimately promulgating formal guidelines. See generally U.S.S.G. ch. 7, pt. A. Although these policy statements are advisory, rather than mandatory, see United States v. Anderson, 15 F.3d 278, 283-84 (2d Cir.1994), district courts are required to consider them when sentencing a defendant for a violation of probation or supervised release, id. at 284 (“[T]he district court was required to consider the policy statements set forth at Chapter 7 in sentencing a defendant upon the revocation of probation.”); United States v. Bermudez, 974 F.2d 12, 14 (2d Cir.1992) (per curiam) (“Courts should ... take [Chapter 7 of the Guidelines Manual] into account when sentencing for a violation of supervised release.”); see also United States v. Milano, 32 F.3d 1499, 1503 (11th Cir.1994); United States v. Mathena, 23 F.3d 87, 93 (5th Cir.1994); United States v. Sparks, 19 F.3d 1099, 1101 (6th Cir.1994); United States v. O’Neil, 11 F.3d 292, 301 n. 11 (1st Cir.1993); United States v. Levi, 2 F.3d 842, 845 (8th Cir.1993); United States v. Lee, 957 F.2d 770, 774 (10th Cir.1992); United States v. Blackston, 940 F.2d 877, 893 (3d Cir.), cert. denied, 502 U.S. 992, 112 S.Ct. 611, 116 L.Ed.2d 634 (1991). Indeed, pursuant to 18 U.S.C. § 3583(e), the factors that a court must consider when revoking or modifying a term of supervised include “the applicable guidelines or policy statements issued by the Sentencing Commission.” 18 U.S.C. § 3553(a)(4)(B).

In the instant case, the district court erred by its acknowledged failure to consider § 7B 1.3(e) when sentencing Waters for violating the terms of his supervised release. As it noted at the resentencing hearing:

I am not required to follow policy statements in the same way I am required to follow guidelines, and [§] 7B1.3 is a policy statement.... [Nonetheless, I should take [policy statements] into account.
In this case, it’s clear that I did not take that policy statement into account and I think it was error not to take it into account.

Because courts are required to consider the policy statements in Chapter 7 of the Guidelines, we find that the district court’s failure to do so here constituted an “incorrect application of the sentencing guidelines” within the meaning of Rule 35(a). Accordingly, it properly exercised its authority to correct its error within seven days after the imposition of the original sentence, pursuant to Rule 35(c).

We note that this case bears no resemblance to United States v. Abreu-Cabrera, 64 F.3d at 72, where the court’s resentencing “represented nothing more than a district court’s change of heart as to the appropriateness of the sentence.” The court’s resen-tencing of Waters was not the result of misgivings about the severity or the leniency of the sentence imposed or a “change of heart” regarding the sentence, much less about its decision to reject or apply § 7B1.3(e). It is clear from the record that the district court neglected to consider the policy statement at all, in direct contravention of § 3583(e) and established circuit authority. Its efforts to rectify its error were entirely appropriate and well within its authority under Rule 35(c).

The defendant attempts to characterize his resentencing as an effort by the court to correct its mistaken prediction that Waters would receive no credit for time spent in state custody under 18 U.S.C. § 3585(b), thereby violating the rule of United States v. Wilson, 503 U.S. 329, 112 S.Ct. 1351, 117 L.Ed.2d 593 (1992). In Wilson, the Supreme Court reversed the Sixth Circuit’s ruling that a district court should have credited a defendant for time served in state custody. Interpreting § 3585(b), the Court held that the authority to calculate or determine credit for time served lies exclusively with the Bureau of Prisons and that such determinations can only be made after a sentence is imposed by the district court. Id. at 334, 112 S.Ct. at 1354. Waters contends that the court did not fail to consider § 7B1.3(e), but rather made an “erroneous assumption” about how the Bureau of Prisons would interpret and apply § 3585(b). He argues that such a mistaken prediction is not the type of “clear error” contemplated by Rule 35(c), and that any attempt to resentence him in light of the Bureau of Prison’s decision would be an impermissible attempt to circumvent Wilson by adjusting Ms sentence in order to reduce the “credit” awarded by the Bureau of Prisons.

We are unpersuaded. First, as noted above, we find that the district court neglected to even consider U.S.S.G. § 7B1.3(e) (and, it follows, the credit that the defendant would receive from the Bureau of Prisons under § 3585(b)). Our review of the record gives no indication that the court was aware of the policy statement’s existence. Throughout the entire original sentencing hearing, there was but one passing reference to Chapter 7, and absolutely no discussion of how the court might adjust the defendant’s sentence under § 7B 1.3(e) to account for anticipated credit. Although defense counsel did represent to the court that Waters would get no credit towards Ms sentence for the time he spent in state custody, no such determination was ever made by the district court, and it seems clear the court was not aware of the- applicability or the mechamcs of § 3585(b) at that time. Furthermore, we have the court’s own candid admission at resentencing:

I am concerned about what happened here and the confusion that resulted. I was clearly not aware of the provision of law [under] wMch tMs time was credited to the defendant under 3585.
... I think that at the original time of sentencing, when I sentenced before, ... I was required to take that into aecount[] ... and it was error not to.

Accordingly, we reject the defendant’s suggestion that the court was merely using Rule 35(e) to correct its mistaken prediction about the amount of credit Waters would receive from the Bureau of Prisons. No prediction whatsoever was made because the court simply was not aware of the relevant statutory and gmdelines provisions. In so finding, we offer no oprnion on the question of whether Wilson — or for that matter, Rule 35(c) — prohibits a district court from resentencing a defendant to effect its original intent where it makes an erroneous prediction about the amount of credit ultimately awarded by the Bureau of Prisons under § 3585(b). This is not such a case.

To the extent that Waters’s argument may be understood to suggest that U.S.S.G. § 7B 1.3(e) has been overturned by Wilson, we find it to be without merit. Section 7B1.3(e) does not require the district court to credit a defendant for time served; nor does it suggest that a court might have such authority. District courts are merely given the option — insofar as § 7B1.3(e) is a policy statement and not a guideline — to increase a defendant’s term of imprisonment to account for the time that they anticipate “will be credited towards service of the term of imprisonment under 18 U.S.C. § 3585(b).” (Emphasis added.) Consistent with the dictates of Wilson, the application notes to the policy statement acknowledge that the authority to credit a defendant for time served in custody rests with the Bureau of Prisons pursuant to 18 U.S.C. § 3585(b). U.S.S.G. § 7B1.3 application note 3.

III. Conclusion

To summarize:

We find that the district court properly exercised its authority pursuant to Rule 35(e) by modifying the original sentence imposed upon the defendant after recognizing its failure to consider U.S.S.G. § 7B1.3(e) (policy statement).

Affirmed.

      . 18 U.S.C. § 3585(b) provides:
      A defendant shall be given credit toward the service of a term of imprisonment for any time he has spent in official detention prior to the date the sentence commences—
      (1) as a result of the offense for which the sentence was imposed; or
      (2) as a result of any other charge for which the defendant was arrested after the commission of the offense for which the sentence was imposed;

      that has not been credited against another sentence.
      (Emphasis added.)

      . The full text of U.S.S.G. § 7B1.3(e) is as follows:
      Where the court revokes probation or supervised release and imposes a term of imprisonment, it shall increase the term of imprisonment determined under subsections (b), (c), and (d) ... by the amount of time in official detention that will be credited toward service of the term of imprisonment under 18 U.S.C. § 3585(b), other than time in official detention resulting from the federal probation or supervised release violation warrant or proceeding.

      . Rule 35(a) provides that:
      The court shall correct a sentence that is determined on appeal ... to have been imposed in violation of law, to have been imposed as a result of an incorrect application of the sentencing guidelines, or to be unreasonable, upon remand of the case to the court—
      (1) for imposition of a sentence in accord with the findings of the court of appeals; or (2) for further sentencing proceedings if, after such proceedings, the court determines that the original sentence was incorrect.

      . Although the Supreme Court held in Stinson v. United States, 508 U.S. 36, 44-46, 113 S.Ct. 1913, 1919, 123 L.Ed.2d 598 (1993), and Williams v. United States, 503 U.S. 193, 199-203, 112 S.Ct. 1112, 1119-20, 117 L.Ed.2d 341 (1992), that policy statements and commentary interpreting the Sentencing Guidelines or prohibiting a court from taking a specific action are binding on district courts, we found in Anderson that Stinson did not extend to “policy statements that stand independent of a guideline.” 15 F.3d at 284 n. 6. Virtually every circuit has similarly held that the non-interpretive policy statements of Chapter 7 — which do not accompany any guideline and were specifically designated as advisory by the Sentencing Commission — are not mandatory. See United States v. Davis, 53 F.3d 638, 640-41 (4th Cir.1995); United States v. Hill, 48 F.3d 228, 230-32 (7th Cir.1995); United States v. Milano, 32 F.3d 1499, 1502-03 (11th Cir.1994); United States v. Mathena, 23 F.3d 87, 90 & n. 6, 93 (5th Cir.1994); United States v. Sparks, 19 F.3d 1099, 1101 (6th Cir.1994); United States v. O'Neil, 11 F.3d 292, 301 n. 11 (1st Cir.1993); United States v. Levi, 2 F.3d 842, 845 (8th Cir.1993); United States v. Hooker, 993 F.2d 898, 900-01 (D.C.Cir.1993); United States v. Lee,
        957 F.2d 770, 773-74 (10th Cir.1992) (antedating Williams and Stinson); United States v. Blackston, 940 F.2d 877, 893 (3d Cir.) (same), cert. denied, 502 U.S. 992, 112 S.Ct. 611, 116 L.Ed.2d 634 (1991). But see United States v. Plunkett, 74 F.3d 938, 940 (9th Cir.1996), amended No. 95-30053 (9th Cir. Mar. 12, 1996).


author: OAKES, Senior Circuit Judge:

text:
    FULTON COGENERATION ASSOCIATES, Plaintiff-Appellee, v. NIAGARA MOHAWK POWER CORP., Defendant-Appellant.
    No. 700, Docket 95-7540.
    United States Court of Appeals, Second Circuit.
    Argued Feb. 2, 1996.
    Decided May 15, 1996.

      Robert A. Barrer, Syracuse, NY (Hiscoek & Barclay, LLP; Brian K. Billinson, Niagara Mohawk Power Corporation, of counsel), for Defendant-Appellant.
    Leonard H. Singer, Albany, NY (Couch, White, Brenner, Howard & Feigenbaum, of counsel), for Plaintiff-Appellee.
    Before OAKES, KEARSE and WINTER, Circuit Judges.
   OAKES, Senior Circuit Judge:

Niagara Mohawk Power Corporation (“Niagara”) appeals from a summary judgment entered by the United States District Court for the Northern District of New York, Frederick J. Scullin, Jr., Judge, in favor of Fulton Cogeneration Associates (“Fulton”) on its claim against Niagara for breach of contract. The district court held that Niagara was obligated under the contract to purchase all electricity generated by an electric generating facility operated by Fulton in the Town of Fulton, New York, so long as such quantities were not unreasonably disproportionate to the stated estimates within the contract, and that, as a matter of law, Fulton never produced an amount of electricity that exceeded commercially reasonable expectations. Niagara argues on appeal that the district court should have dismissed or stayed the action until the New York Public Service Commission (“PSC”) ruled on the matter, that the district court erred in granting Fulton summary judgment because several genuine issues of material fact exist, and that the district court erred in not granting summary judgment to Niagara because Niagara acted properly under the Agreement and PSC rules. We find that this case presents material issues that must be determined by a trier of fact, and we therefore reverse and vacate in part the summary judgment in favor of Fulton and remand. In all other respects, we affirm the district court.

BACKGROUND

In 1978, Congress passed the Public Utility Regulatory Policies Act (“PURPA”), 16 U.S.C. § 824, et seq., in an effort to reduce United States dependence on foreign oil by encouraging the development of alternative energy sources. To further this goal, PURPA requires electric utilities to purchase all electricity produced by independent power producers operating so-called Qualifying Facilities (“QF”). See 16 U.S.C. § 824a-3(b); 18 C.F.R. § 292.304. State agencies such as the PSC are empowered to regulate the facilities and approve the contracts covered by PURPA. See 16 U.S.C. § 824a-3; N.Y.Pub. Serv.Law § 66-c(l) (McKinney Sup.1995).

In December 1987, Turner Power Group, Inc., Fulton’s predecessor-in-interest and an independent power producer operating a QF (the “Plant”), entered into a power purchasing agreement (the “Agreement”) with Niagara pursuant to the provisions of PURPA. The first ‘WHEREAS” clause of the Agreement describes the size of Fulton’s Plant:

SELLER will own and operate an electric generating plant ... with a capacity of approximately 47.0 megawatts, and with expected annual production of approximately 392,000 Megawatt-hours (individually and together referred to as “ELECTRICITY”)

Under the terms of the Agreement, Fulton agreed to deliver and Niagara agreed to accept all of the “electricity” produced by the Plant, net of any amounts used by Fulton itself. The Agreement further provides that Niagara must pay for the electricity “on the basis of energy, or kwh, delivered” to Niagara at the rate established in Niagara’s tariff, which- is 6<f/Kwh. The PSC approved the contract in April 1988.

The Plant is designed to deliver electricity to Niagara and steam to a Nestle Chocolate & Confections Company factory located nearby. The Plant’s gas turbine generator set burns natural gas or #2 distillate oil to produce electricity. Exhaust heat from the turbine is captured and used to generate steam, some of which can be injected back into the turbine to boost capacity levels, and therefore ultimate energy production, after Fulton has sent the required amount of steam to the Nestle factory.

The distinction between capacity and energy is crucial to an understanding of the dispute between these two parties. As explained in affidavits submitted by both parties, the term “capacity” refers to the amount of electric power that an electric generator can produce, and is measured in kilowatts (Kw) or megawatts (Mw). The term “energy” is the usage of capacity over a period of time and is measured in kño-watthours (Kwh) or megawatthours (Mwh). Thus, the two concepts are linked and dependent upon one another. As the contract states, the terms are referred to individually and collectively as “ELECTRICITY.”

Upon completion of the Plant in July 1991, Fulton began delivering electricity to Niagara. From July 1991 through April 1992, Niagara bought all delivered electricity from Fulton at the rate of 6<t/Kwh.

On March 13,1992, Niagara informed Fulton that the Plant was producing above a 47 megawatt capacity. Because Niagara believed it was not required to pay for production above that level, it stated that it would use a formula called “Demonstrated Maximum Net Capability,” or “DMNC,” to measure the seasonal capacity of the Plant and prorate payments to Fulton. Under this formula, if the capacity climbed over the 47 megawatts provided in the contract, Niagara would calculate a seasonal capacity rate based upon the four peak hour capacity output in the summer and winter — in other words, the highest average consecutive four-hour output — and would pay the 6<t/Kwh rate only for that proportion of electricity attributable to a 47 megawatt capacity. Any excess would be paid at a market rate, which was lower than the 6<c/Kwh contract rate. The DMNC formula was mentioned nowhere within the Agreement between Niagara and Fulton, but Niagara chose it because it had been utilized by the PSC in connection with other PURPA contracts.

Niagara thus measured the seasonal capacity of the Plant in terms of the DMNC formula at 50 megawatts. Niagara thereafter paid for 47/50ths of the energy at the 6<t/Kwh rate and the rest at a market rate. Niagara used this DMNC formula from May 1992 through October 1992. After October 1992, it began paying the 6<c/Kwh rate again. The use of the formula resulted in Niagara paying Fulton $279,691.19 less in 1992 than it would have been obligated tó do at the contract rate.

Fulton commenced this breach of contract action based upon diversity of citizenship on October 30, 1992, seeking both equitable and monetary relief.- After denying Niagara’s motion to dismiss the complaint due to the doctrines of abstention and primary jurisdiction, the district court ordered that discovery proceed. After the close of discovery, both parties moved for summary judgment. In an order dated October 11, 1994, the district court denied both parties’ motions. The case was scheduled for a final pre-trial conference and a bench trial to commence on March 27,1995. On the morning of the first day of trial, the district court decided to reconsider the summary judgment motions sua sponte, based in large part upon a recently decided case of the Appellate Division, Third Department, Philadelphia Corp. v. Niagara Mohawk Power Corp., 207 A.D.2d 176, 621 N.Y.S.2d 237 (3d Dept.1995). After hearing oral argument, the district court granted summary judgment to Fulton.

Niagara’s motion for reconsideration was subsequently denied, and this appeal ensued.

DISCUSSION

Niagara raises three issues in its appeal. First, it claims that the district court should have declined jurisdiction in this ease based upon the doctrine of abstention or, alternatively, the doctrine of primary jurisdiction. Second, Niagara asserts that the district court erred in granting summary judgment to Fulton because material issues of fact regarding the alleged breach of contract remain in dispute. Finally, Niagara argues that the district court should have entered summary judgment in favor of Niagara because Niagara acted properly under the terms of the Agreement and PSC rules. We will address each of these issues in turn.

I. Exercise of Jurisdiction

Niagara moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss Fulton’s complaint on the basis of the doctrine of abstention, or, in the alternative, the doctrine of primary jurisdiction. The district court denied Niagara’s motion, finding that no state policy problems of substantial importance were, involved and that this breach of contract action did not fall within the particular expertise and regulatory duties of the PSC. We agree with the district court and therefore affirm its denial of Niagara’s motion to dismiss.

A. Doctrine of Abstention

Federal courts have a “virtually unflagging obligation ... to exercise the jurisdiction given them.” In re Joint Eastern and Southern District Asbestos Litigation, 78 F.3d 764, 775 (2d Cir.1996) (quoting Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 1246, 47 L.Ed.2d 483 (1976)). A district court’s decision to abstain is appropriate only in order:

(1) to avoid a federal constitutional issue where that issue may be mooted or altered by a state-court ruling on the state-law question; or (2) to avoid hindrance of such state functions as criminal prosecutions or the collection of state taxes; or (3) to conserve federal judicial resources in those “exceptional circumstances” where there is concurrent state-court litigation whose resolution could result in “comprehensive disposition of litigation”; or (4) to defer to state resolution of difficult state-law questions that involve local regulation and administration or important matters of local public policy.

Id. (citations omitted). A district court abuses its discretion if it abstains from jurisdiction in a case that is not covered by one of these four narrow exceptions. Id. at 775-76.

Niagara argues that the fourth category listed above applies to this case: that a district court may decline to adjudicate difficult questions of state law bearing on substantial public policy matters whose import extends beyond the particular case. This exception to a district court’s duty to exercise jurisdiction is commonly referred to as Bur-ford abstention, after Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943), where the Supreme Court decided that abstention from jurisdiction was proper in a case in equity involving review of a Texas Railroad Commission order regarding the conservation of oil and gas. In New Orleans Public Service, Inc. v. Council of New Orleans, 491 U.S. 350, 361, 109 S.Ct. 2506, 2514-15, 105 L.Ed.2d 298 (1989), the Supreme Court summarized the principles underlying Burford abstention:

Where timely and adequate state-court review is available, a federal court ... must decline to interfere with the proceedings or orders of state administrative agencies: (1) when there are “difficult questions of state law bearing on policy problems of substantial public import whose importance tran- • scends the result in the case then at bar”; or (2) where the “exercise of federal review of the question in a case and in similar cases would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern.”

(quoting Colorado River, 424 U.S. at 814, 96 S.Ct. at 1245).

We agree with the district court that application of Burford abstention would be inappropriate in this case. There are no difficult questions of state law affecting policy issues of substantial import here; the case simply involves a breach of contract. Though the PSC approved the contract, it has not attempted to interpret the contract or monitor the parties’ performance since its initial involvement. Therefore, there is no indication that New York considers the issues presented by this dispute to be ones of substantial import. Neither does exercise of jurisdiction in this case threaten to disrupt a coherent policy of New York, because although there is a state regulatory scheme regarding contract approval in cases such as this, there is no state regulatory scheme governing contract interpretation or performance. Accordingly, the district court properly refused to apply Burford abstention.

B. Primary Jurisdiction Doctrine

As an alternative to Niagara’s argument regarding Burford abstention, it claims that the district court should have applied the primary jurisdiction doctrine and withheld its exercise of jurisdiction until an application was made to the PSC seeking a clarification of the Agreement.

The primary jurisdiction doctrine applies “whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body.” United States v. Western Pac. R.R. Co., 352 U.S. 59, 64, 77 S.Ct. 161, 165, 1 L.Ed.2d 126 (1956); see also Johnson v. Nyack Hosp., 964 F.2d 116, 122-23 (2d Cir.1992) (finding the doctrine applicable to cases involving state agencies). The aim of the doctrine, then, is to ensure that courts and agencies with concurrent jurisdiction over a matter do not work at cross-purposes. See General Elec. Co. v. M.V. Nedlloyd, 817 F.2d 1022, 1026 (2d Cir.1987) (citing 3 K. Davis, Administrative Law, § 19.01 at 5 (1958)), cert. denied, 484 U.S. 1011, 108 S.Ct. 710, 98 L.Ed.2d 661 (1988). In deciding whether to apply the primary jurisdiction doctrine to a given case, a court must take into account the need for-uniform decisions and the specialized knowledge of the agency involved. Western Pac. R.R., 352 U.S. at 64, 77 S.Ct. at 165; see also Goya Foods, Inc. v. Tropicana Products, Inc., 846 F.2d 848, 851 (2d Cir.1988). As a threshold matter, of course, a court must find that the agency has jurisdiction over the issue presented. Golden Hill Paugussett Tribe of Indians v. Weicker, 39 F.3d 51, 59 (2d Cir.1994).

We agree with the district court that the primary jurisdiction doctrine cannot be properly applied to this case. The PSC’s explicit jurisdiction is limited by New York Public Service Law § 66-c (McKinney Sup. 1995), which speaks only of the PSC’s power to require utilities to enter into power purchasing agreements with alternative energy producers. The PSC has been reluctant to extend this express jurisdiction over the formation of contracts to adjudication of breach of contract disputes. See Northeast Cogen., Inc., NYPSC Case No. 90-E-0975, Declaratory Ruling at 5 (Apr. 8, 1991); Kamine/Besicorp Allegany L.P. v. Rochester Gas & Electric Corp., 908 F.Supp. 1180, 1186 (W.D.N.Y.1995). Even if the PSC could exercise proper jurisdiction over this case, however, we would nevertheless find the primary jurisdiction doctrine inappropriate because the issues of contract interpretation here are neither beyond the conventional expertise of judges nor within the special competence of the PSC. Compare Schuylkill Energy Resources, Inc. v. Pennsylvania Power & Light Co., 1996 WL 32891, *2-3 (E.D.Pa. Jan. 23, 1996) (finding application of primary jurisdiction doctrine proper in a power purchasing agreement case when disputed issue concerned technical application of Public Utility Commission’s curtailment regulations). Therefore, we affirm the district court’s denial of Niagara’s motion to dismiss on the basis of the primary jurisdiction doctrine.

II. Grant of Summary Judgment in Favor of Fulton

We turn next to Niagara’s claim that the district court erred in granting summary judgment to Fulton. The district court found that the Agreement obligated Niagara to purchase from Fulton all electricity delivered by Fulton at the 6<t/Kwh rate, so long as such quantities were not unreasonably disproportionate to the stated estimates within the contract. The court further found that, as a matter of law, Fulton never produced an amount of electricity that exceeded commercially reasonable expectations. Niagara contends that the district court erred because the existence of genuine issues of material fact regarding the role of capacity and commercially reasonable expectations preclude summary judgment.

Summary judgment is mandated when “there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). A court must determine “whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). In a breach of contract action, summary judgment is appropriate “[w]here the language of the contract is unambiguous, and reasonable persons could not differ as to its meaning.” Rothenberg v. Lincoln Farm Camp, Inc., 755 F.2d 1017, 1019 (2d Cir.1985); State v. Peerless Ins. Co., 108 A.D.2d 385, 390, 489 N.Y.S.2d 213, 218 (1st Dept.1985), aff'd, 67 N.Y.2d 845, 501 N.Y.S.2d 651, 492 N.E.2d 779 (1986).

The district court found that the Agreement between Fulton and Niagara was an output contract, and as such was subject to good faith and commercial standards of fair dealing. Based upon this finding and the recent case of Philadelphia Corp. v. Niagara Mohawk Power Corp., 207 A.D.2d 176, 621 N.Y.S.2d 237 (3d Dept.1995), the district court held that the capacity and energy estimates in the first Whereas clause of the Agreement did not create absolute máxi-mums limiting Niagara’s obligation to purchase electricity.

We agree with the district court and reject Niagara’s claim that the parties intended “a capacity of approximately 47 megawatts, and ... annual production of approximately 392,000 Megawatt-hours” to mean “no more than 47 megawatts of capacity and 392,000 megawatthours of energy.” In Philadelphia Corp., a breach of contract action involving power purchasing agreements defining the electricity to be sold “in terms of approximate capacity and approximate annual production,” id. at 177, 621 N.Y.S.2d 237, the court found that the estimates stated in the contracts were targets, not máximums or mínimums. The court held:

[Defendant is obligated to purchase and plaintiffs are obligated to sell electricity in such quantities which are not unreasonably disproportionate to the stated estimates within the contracts.... While the estimates are not absolute maximum quantities beyond which the contracts do not apply, ... neither may plaintiffs modify their outputs beyond the normal range commercially consistent with the capacity estimates used in the contracts....

Id. at 177-78, 621 N.Y.S.2d 237. Philadelphia Corp. directly controls the interpretation of the capacity and energy estimates in this case. Thus, we affirm that portion of the district court’s opinion holding that the Agreement unambiguously obligates Niagara to purchase and Fulton to sell electricity in quantities not unreasonably disproportionate to the stated estimates within the Agreement.

The district court also found that, as a matter of law, Fulton’s production never exceeded commercially reasonable expectations. The court reasoned that the only relevant estimate in the Agreement was the “annual production of approximately 392,000 megawatthours of energy.” The court held that since Fulton never exceeded this yearly energy estimate, it did not breach the Agreement, regardless of whether it exceeded the capacity estimates in the Agreement. In finding that “approximately 392,000 mega-watthours” was the only relevant estimate in the Agreement, the district court relied on the parties’ stipulation that Niagara purchased energy, not capacity, from Fulton and upon the fact that the Agreement called for payment on the basis of kilowatthours rather than kilowatts. We disagree with the district court that these two facts lead inexorably to the conclusion that the capacity estimate does not affect the parties’ obligations under the Agreement.

There are several reasons why we believe the level of capacity may be read as a material term of the Agreement. As an initial matter, contracts should he construed so as to give effect to all provisions. Cruden v. Bank of New York, 957 F.2d 961, 976 (2d Cir.1992). The district court’s interpretation of the contract leaves the capacity estimate completely ineffectual.

Additionally, as the parties agree, energy is the usage of capacity over time. Therefore, one cannot speak of energy apart from capacity: energy is defined in terms of capacity. As explained in the affidavit of Mark Barry, a manager of the Plant, “[t]he amount of energy which a gas turbine generator set, or any electric generator, can produce is a function of its capacity during each hour it is on line and the total number of hours on line.”

Indeed, it seems that a central purpose of the Agreement would be defeated if capacity were not considered a material term. The purpose of estimates in power purchasing agreements is to allow utilities to plan accurately for generation and load. As the PSC explained in one ruling:

Electric system reliability demands that utilities continuously match generation and load. Planning for future electric needs thus requires firm estimates of the expected amount and timing of on-site generation that will be sold to utilities.
Representations in purchase agreements as to the size and type of a facility are a key underlying source of information regarding the amount of non-utility generation available.

Indeck-Yerkes Energy Services, Inc., NYPSC Case No. 88-E-114, Declaratory Ruling at 3 (Sept. 14, 1988) (emphasis added), aff'd, 164 A.D.2d 618, 564 N.Y.S.2d 841 (3d Dept.1991). If the capacity estimate were not material, Fulton would be allowed to deliver electricity without regard to timing. For example, Fulton could deliver all 392,000 megawatts of energy during one part of the year (by using a higher capacity level) and deliver none during the remainder. However, electricity amounts must be predictable over time because electricity cannot be efficiently stored for later use. Electricity is not a commodity like steel beams that can be stored and passed out to the ultimate consumer as need demands. Rather, Niagara could be left with unusable energy and an inability to meet consumers’ needs efficiently if the capacity estimate were not a material term of the Agreement subject to the standard of commercial reasonableness.

For these reasons, we believe that both the energy and capacity estimates in the Agreement are material terms subject to standards of commercial reasonableness.

The district court also found that even if it were to take capacity into account, the capacity variance never exceeded commercially reasonable expectations. We vacate this portion of the court’s opinion because we find that there remain disputed issues of fact regarding whether the variances at issue in this case were reasonable.

Although there is evidence in the record of the Plant’s billing history, including total monthly Kwh generation, we cannot discern from the evidence the variance of the Plant’s capacity over the course of the Agreement. In this regard, evidence of the proper way to measure or analyze capacity must be presented to illuminate the parties’ reasonable expectations of the Plant capacity. Fulton, it appears, would ask the court to look to average annual capacity, whereas Niagara would argue for capacity on the basis of four hour periods of time. Each of these methods produce wildly different results and may lead to different conclusions regarding the parties’ performance under the Agreement.

Specific evidence regarding the cause of the capacity variance in the Plant is also needed. The parties agree that the capacity of gas-fired plants can vary based upon air temperature. Fulton claims that variances in this Plant are solely the result of these ambient air temperature changes, not of any Plant design modification, and thus are fully within the reasonable expectations of the parties. Niagara claims to be able to prove through specific expert testimony that the Plant’s capacity level can be controlled by Fulton. Niagara’s claim seems to gain support from the Barry affidavit, submitted by Fulton, in which Barry explains that ambient air temperature changes are but one factor affecting capacity: fuel gas supply pressure and the amount of steam recovered and injected back into the generator, rather than sent to the Nestle factory, may also affect capacity levels. The degree of Fulton’s control over the capacity variance at the Plant may thus be crucial to the ultimate outcome of this case. PSC rulings have stated that capacity variances that occur due to post-contract changes in a plant’s design or party’s behavior are not covered by the contract. See American Ref-Fuel Co., NYPSC Case No. 90-E-0238, Declaratory Ruling at 9 (Aug. 22, 1990); Indeck-Yerkes, supra, Declaratory Ruling at 5.

However, Fulton may indeed prevail in this case if it can prove that the capacity variance was not within its control and the variance at issue here was within the contemplation of the parties. We hold, though, that such issues cannot be resolved as a matter of law at this juncture. We therefore vacate the portion of the district court’s opinion finding that the. capacity variance did not exceed commercially reasonable expectations.

We emphasize that our decision concerns only the propriety of summary judgment as a means of resolving the role of capacity in the Agreement. We do not comment on the merits of Niagara’s claims regarding its unilateral change in payment methodology. We simply find that disputed issues of fact exist with respect to the parties’ commercially reasonable expectations and the capacity variance of the Plant.

III. Denial of Summary Judgment In Favor of Niagara

Niagara asserts that summary judgment should be granted in its favor because it acted properly under the Agreement and PSC rules. We affirm the district court’s decision denying Niagara summary judgment because, as we stated above, there remain disputed issues of material fact that preclude a decision regarding whether either party acted properly under the Agreement.

CONCLUSION

We reverse and vacate in part the district court’s grant of summary judgment to Fulton, and remand for a factual determination whether the capacity variances of the Fulton Plant were commercially reasonable. In all other respects, we affirm the able decision of the district court.

      . The Agreement states: "SELLER shall deliver to NIAGARA and NIAGARA shall accept all of the ELECTRICITY produced at the PLANT net of parasitic loads subject to the terms and conditions of this AGREEMENT." The term "parasitic load[]” refers to the electricity used by the Fulton Plant.

      .Niagara installed meters at the Fulton plant to measure capacity and energy. According to an affidavit submitted by Fulton, a 47 MW gas turbine plant, if operated continuously 24 hours a day, 365 days per year, would generate 411,720,-000 Kwh per year, but because of downtime amounting to about 8 days per year for necessary maintenance, and forced outages calculated to sacrifice 3% of the total production, the plant was estimated to produce approximately 390,-600,000 Kwh annually.

      . Niagara later conceded that Fulton was entitled to $152,264.47 of this amount because of a July 24, 1992, amendment to Section 66-c of the New York Public Service Law which applies to payments under PURPA contracts. There remains, therefore, $127,426.72 plus interest in dispute between the parties.

      . The district court also denied Fulton’s motion for sanctions based upon Niagara's belated concession that it owed Fulton $152,264.47 of the contested amount.

      . Though Fulton urges otherwise, the case of Energy Tactics, Inc. v. Niagara Mohawk Power Corp., — A.D.2d —, 631 N.Y.S.2d 697 (2d Dept.1995) does not alter our decision in this case because in Energy Tactics the energy output, not the capacity, exceeded the contract estimate, which was construed to cover only the first year of a twenty year contract. The court there did not discuss the materialüy of capacity estimates directly, though in upholding the cogenerator’s claim to full payment on the added output after the first year (when a second generator went into operations as contemplated in the contract), it recognized that the 1.0 capacity of both generators enabled an output in excess of about 50% of the stated estimate.