Redefining Contract Formation in Lease Agreements: The Role of Post-Performance Incorporation of Terms

Introduction

The Judgment in Gravity Oilfield Services, LLC v. Valence Natural Gas Solutions LLC (2025 N.D. 35) marks an important development in contract law, particularly regarding the timing of contract formation and the incorporation by reference of terms and conditions. Central to the dispute is whether the lease agreement between Gravity and Valence was formed at the time of equipment delivery (in March 2021) or later, in April 2022, when Gravity’s sales orders and invoices—bearing a reference to its website's Terms and Conditions—came into play.

The case involves Gravity Oilfield Services, acting as the plaintiff and appellee, and Valence Natural Gas Solutions, as the defendant and appellant. While both parties agreed an agreement existed, they were at loggerheads over the timing of contract formation and which set of terms—either Gravity’s website-based conditions or Valence’s own Purchase Order terms—governed their relationship. The dispute touches on nuanced issues of consent, performance, and the manner in which contractual terms may be incorporated into an agreement.

Summary of the Judgment

The district court had granted summary judgment in favor of Gravity by ruling that the contract between the parties was formed in April 2022 and that Gravity’s Terms and Conditions, referenced by its website, were incorporated into the agreement. Key findings included:

The court rejected Valence’s argument that contract formation occurred in March 2021, focusing instead on the dispute over when consent was actually manifested.
The district court relied heavily on the case RTS Shearing, LLC v. BNI Coal, Ltd. to hold that incorporating standard terms by reference is effective even if the counterparty did not review them prior to performance.
The judgment also awarded attorney’s fees based on the incorporation of Gravity’s Terms and Conditions.

On appeal, however, the Supreme Court of North Dakota reversed the district court’s decision. The appellate court determined that genuine issues of material fact remained regarding the timing of contract formation and the proper incorporation of contractual terms, precluding summary judgment on the breach of contract claim.

Analysis

Precedents Cited

Several precedents and statutory provisions were crucial in shaping the court’s analysis:

N.D.C.C. § 41-02.1-13: This statute was cited regarding the sufficiency of evidence required to show an agreement under a lease contract. Valence argued that the agreement was formed under this statute; however, the court noted that the statute does not define what is “sufficient to show agreement,” leading the court to rely on broader principles of contract formation.
RTS Shearing, LLC v. BNI Coal, Ltd. (2021 ND 170): Gravity relied on this case to justify that a document containing standard terms available by reference could be incorporated into the contract, and that post-performance communications could bind the parties. Nevertheless, the appellate court emphasized that the facts in the present case diverged from RTS Shearing, particularly because the contested terms were introduced after performance and were not part of the initial purchase orders.
Other North Dakota statutes (e.g., N.D.C.C. §§ 9-01-02, 9-03-01, and 9-03-17) were also pivotal in defining the requirements for consent and communication of contractual terms.

Legal Reasoning

The court’s legal reasoning centered on two intertwined issues: the timing of contract formation and the effective incorporation of Gravity’s terms by reference.

1. Timing of Contract Formation: The parties unequivocally agreed that a contract existed; however, the dispute was focused on when that agreement crystallized. Valence contended that contract formation occurred in March 2021, when delivery of the leased equipment took place, evidenced by their continued course of performance. The court noted that while performance can indeed communicate acceptance, establishing the precise moment of formation requires clear evidence of mutual assent to all material terms.

2. Incorporation of Terms by Reference: The controversy deepened with Gravity’s attempt to incorporate its website’s Terms and Conditions through monthly sales orders and invoices starting in September 2021. The district court had ruled these terms were effectively incorporated, citing RTS Shearing. On appeal, the Supreme Court found that because the disputed terms were added post-performance (and notably after the fire on April 8, 2022), it remains a genuine question as to whether both parties consented to these terms.

The court underscored that for a valid contract, the consent of both parties must be clearly and deliberately communicated. The absence of evidence that Valence agreed to the terms on the sales order and invoice as presented in April 2022 meant that the lower court’s conflation of post-performance affirmation with initial acceptance was legally erroneous.

Impact

This decision is set to influence future contract disputes, particularly in the leasing context. Its implications include:

Clarification of Contract Formation: Courts will likely scrutinize the timing of contractual acceptance and the methods by which terms are communicated more closely. This could affect how businesses document and confirm contractual agreements.
Incorporation by Reference: Parties attempting to modify or add terms after initial performance must ensure that any such changes are clearly communicated and mutually assented to. The ruling emphasizes that unilateral additions cannot override the original contract formation facts.
Burden of Evidence: The decision reinforces that a party must provide clear evidence of mutual consent when trying to introduce later or additional contractual terms, especially when such terms might alter liability or performance obligations.

Complex Concepts Simplified

Some of the more complex legal ideas in this Judgment include:

Consent and Contract Formation: Consent in contract law requires that both parties communicate their agreement to the same terms. If one party shows acceptance only by performing under conditions that were not explicitly agreed upon initially, it is not enough evidence of consent for later-modified terms.
Incorporation by Reference: This legal concept allows parties to include external documents (such as standard terms on a website) as part of their contract, provided there is clear mutual assent to such inclusion. If the additional terms are introduced after the core contract has been performed, then their incorporation can be disputed.
Summary Judgment Standard: The court’s decision underscores that summary judgment is only appropriate when there are no genuine factual disputes. Here, the timing of contract acceptance and the actual incorporation of new terms were factual issues that needed resolution at trial.

Conclusion

The Supreme Court of North Dakota’s decision in Gravity Oilfield Services, LLC v. Valence Natural Gas Solutions LLC signals a critical reassessment of how contract formation and the incorporation of additional terms are approached in lease agreements. By reversing the lower court’s summary judgment, the Court has emphasized that:

Consent must be clearly communicated and mutually acknowledged by both parties.
The timing of performance and the introduction of new terms by reference cannot automatically alter the terms of an original agreement.
Genuine factual disputes regarding the formation and evolution of a contract must be resolved in a full trial setting.

In a broader legal context, this Judgment serves as a cautionary note to practitioners: when drafting and executing contracts, especially those involving complex performance-based transactions, it is imperative to ensure that all terms—whether initially agreed upon or later introduced—are unequivocally incorporated with the express assent of both parties. This ruling will likely influence future disputes by requiring rigorous proof of mutual consent for any post-performance modifications, thereby fostering greater contractual clarity and fairness.