Business Law

VI. U.C.C. – Sales and Personal Property Leasing

A.      Scope

1.  General

In re Escalera Resources Co., 563 B.R. 336 (Bankr. D. Colo. 2017) – Because metered electrical energy is a “good” within the meaning of the UCC and Bankruptcy Code § 503(b)(9), the utility that provided electricity to the debtor during the 20 days preceding bankruptcy was entitled to administrative expense priority for the price of the electricity.*

Mellen, Inc. v. Biltmore Loan and Jewelry-Scottsdale, LLC, 247 F. Supp. 3d 1084 (D. Ariz. 2017), appeal filed (9th Cir. Apr. 27, 2017) – The pawn broker that purchased a diamond that the rightful owner had entrusted to a jeweler did not acquire good title to the diamond under § 2-403(2) because: (i) the pawn broker purchased the diamond not from the jeweler, but from another person who claimed that the jeweler was his agent, and the owner had not entrusted the diamond to the seller; (ii) the seller was not a person who deals in goods of that kind; and (iii) the pawn broker was not a buyer in ordinary course of business because it acquired the diamond in partial satisfaction of an earlier loan. The pawn broker did not get good title under § 2-403(1) because neither the jeweler nor the seller acquired the diamond through a transaction of purchase, and thus neither had voidable title and the power to transfer good title to a good faith purchaser for value.

Export Development Canada v. E.S.E. Electronics, 2017 WL 3868795 (C.D. Cal. 2017) – The terms in invoices sent by a seller of goods providing for interest on past due accounts and recovery of attorney’s fees incurred to collect were not material additions to the parties’ agreement. Because the buyer neither objected to the terms nor expressly limited acceptance to the terms of the purchase orders, the terms became part of the parties’ contract.

2.  Software and Other Intangibles

B.       Contract Formation and Modification; Statute of Frauds; ‘Battle of the Forms’; Contract Interpretation; Title Issues

Fresh Direct, Inc. v. Harvin Foods, Inc., 2017 WL 1197674 (D. Del. 2017) – Regardless of whether the invoices sent by sellers of produce to a buyer were acceptances or confirmations of an oral agreement reached on the phone, the additional terms in the invoices had to be analyzed under § 2-207. Those terms – which consisted of interest on overdue invoices and attorney’s fees incurred in collecting – were not material, and because the agreements were between merchants and the buyer never objected to the terms, the terms became part of the contract.

Blackwell Motors, Inc. v. DeShields, 2017 WL 4127459 (Mo. Ct. App. 2017) – The buyer of automobiles from an individual who acquired the automobiles at a dealers-only auction after submitting forged documents showing he was entitled to buy on behalf of a dealer had no claim against the seller that repossessed the automobiles after the bogus checks for the purchase price were dishonored. The individual was a thief who acquired no title to the automobiles and thus could pass no title to the buyer. Although a person who acquires goods by fraud has voidable title and can pass good title to a good faith purchaser for value, the individual was not a party to the sales contract at the dealers-only auction. The dealer he allegedly represented was.

C.       Warranties and Products Liability

Connor v. Reilly, 2017 WL 213840 (W.D. Wis. 2017) – The buyer of a car did not have a cause of action under § 1983 against the sheriff that seized the car and then released it to the secured party without first providing the buyer with a hearing. The buyer had acquired the car, indirectly, from an individual who had paid for it with a fraudulent cashier’s check and who, when reselling it, had provided a fake Notice of Lien Release. The secured party retained a security interest in the car that was superior to the rights of the buyer.

Martin v. Smith, _ NW _ _ (Wash.Ct.App. 2017) – A party to a contract, not subject to Article 2 of the UCC, breached a warranty in the agreement. The court held that the breach made the contract void, even if the breach was not material.

D.      Limitation of Liability

E.       ‘Economic Loss’ Doctrine

F.       Performance, Breach and Damages

In re TSAWD Holdings, Inc., 574 B.R. 482 (Bankr. D. Del. 2017) – Although the seller of goods had the right to stop shipment while the goods were in transit after discovering that the buyer was insolvent, and the seller sent proper notice to shop shipment by sending it to the freight forwarder, which was the agent of the carrier, the carrier was not obliged to follow the seller’s instruction because neither the seller nor the freight forwarder was listed as the consignee on the nonnegotiable document of title.

Accordingly, the buyer became the owner of the goods upon receipt and the goods thereafter became property of the estate when the debtor filed for bankruptcy protection.

Koviack Irrigation and Farm Services, Inc. v. Maple Row Farms, LLC, 2017 WL 4182409 (Mich. Ct. App. 2017) – A buyer of equipment for an irrigation system was entitled to reject nonconforming goods that were delivered late in the harvest season and which the buyer waited until spring to install and test.

G.      Personal Property Leasing

Blue Ridge Bank v. City of Fairmont, 2017 WL 555986 (W. Va. 2017) – A city that leased equipment under a finance lease with a hell-or- high-water clause had a defense to payment against the bank that received an assignment of the lease from the lessor. Because, after the lessor failed to pay the supplier for the equipment, the city paid the supplier directly, the city had a defense arising from the lease transaction, and thus it did not matter whether that defense accrued before or after the assignment to the bank. Although both the hell-or-high-water clause and § 2A-407 cut off most of a finance lessee’s defenses to payment, that rule applies only after the finance lessee accepts the goods. In this case, the city accepted the goods not under the lease, but under its own purchase contract with the supplier. ¡   State Bank & Trust Co. v. Philly Wholesale, LLC, 2017 WL 3279023 (E.D. Pa. 2017) – A liquidated damages clause in an equipment lease that provided for payment of both the entire unpaid amount under the lease and the present value of all future rent reduced by three percent was an unenforceable penalty. The sum was essentially a double recovery and was not a reasonable estimate of the lessor’s damages, which might be the future income stream under the lease (i.e., rent) plus the diminished value of the property upon repossession and the cost in time, effort, and expense in dealing with default. Moreover, while a late fee can be charged on past due amounts, the lessor could not get both a late fee and default interest with respect to the same missed payment because that would be a double recovery for the same injury. Because the court awarded default interest, there would be no award of the claimed late fees.

2017-2018 Commercial Law Developments


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