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Thursday, February 13, 2014

A Couple of UCC Statute of Frauds Cases

This is the third in a series of posts commenting on the cases cited in Jennifer Martin's summary of developments in Sales law published in The Businss Lawyer.

Professor Martin discusses two Statute of Frauds (SoF) cases.  The first, Atlas Corp. v. H & W Corrugated Parts, Inc. does not cover any new territory.  The second, E. Mishan & Sons, Inc., v. Homeland Housewares, LLC, raises more interesting issues and is a nice illustration of the status of e-mails as "writings" for the purposes of the SoF.  The latter does not seem to be available on the web, but here's the cite: No. 10 Civ. 4931(DAB), 2012 WL 2952901 (S.D.N.Y. July 16, 2012). 

 In the first case, Atlas Corp. (Atlas) sold corrugated sheets and packaging products to H & W Corrugated Parts, Inc. (H&W).  Atlas invoiced H&W for $133,405.24, but H&W never paid.  Eventually, Atlas sued for breach of contract.  H&W never answered the complaint, and Atlas moved for summary judgment.  Although the motion was unopposed, the court considered whether the agreement was within the SoF, as the only writings in evidence were the invoices, which were not signed by the parties against whom enforcement was sought.  Having had a reasonable opportunity to inspect the goods and not having rejected them, H&W is deemed to have received and accepted the goods, bringing the agreement within one of the exceptions to the SoF, 2-201(3)(c).  The contract is thus enforceable notwithstanding the SoF, and H&W, not having paid for the goods, is liable for breach.

Blender
Not the Magic Bullet Blender

Homeland Housewares LLC (Homeland) manufactures the Magic Bullet blender.  Homeland entered into an agreement with E. Mishan & Sons, which the Court refers to as "Emson," granting Emson the exclusive right to sell Magic Bullet blenders (not pictured at left) in the U.S. and Canada.  Between March 2004 and March 2009, Emson ordered well over 1 million blenders from Household.  Although the price fluctuated, it was generally about $21/blender, and Emson paid a 25% up-front deposit.  After 2006, the parties operated without a written agreement.

In 2008-2009, the parties agreed to change their arrangement.  Household sold directly to Bed, Bath & Beyond, Costco and Amazon, but Emson sought to remain as exclusive distributor to all other retailers.  Emson alleges that the parties reached an oral agreement for a three year deal, the details of which were included in an e-mail confirmation that Emson sent on April 2, 2009.  Homeland's principal responded the same day in an e-mail stating that Homeland "will need to add some provisions to this. We will [g]et back to you .” Although further discussions ensued, the parties dispute whether the disputed terms were material.  

In any case, the parties continued to perform.  Emson sought a per unit price reduction as called for in the e-mail confirmation.  Homeland refused, citing increased costs.  Emson did not push the point.  That fact might suggest awareness that there was no binding agreement, or it might just suggest a modification of the existing agreement, which is permissible without consideration under UCC 2-209 so long as the parties agree to it.  In March 2010, Emson learned that Homeland was soliciting direct sales to retailers.  The parties tried to hammer out a new deal but the negotiations failed.  By June 2010, Homeland had taken over all sales of the Magic Bullet in the U.S. and Canada.

Magic Bullet
Actual (alleged) magic bullet

Emson sued, and Homeland moved for summary judgment, claiming that the parties had no contract because the SoF bars enforcement of any alleged oral agreement for the sale of goods in excess of $500. 

As I have remarked before, I find it curious that courts automatically apply the UCC to distributorship agreements.  In this case, if I understand how the transaction worked, Emson may have operated as a bailee for goods that it passed on to retailers.  Since it was dealing with large merchants, it likely would only order blenders that it already intended to pass on to merchants.  It was basically just a broker.  The court might well find that, because of assumption of risk and perhaps other matters, this agreement was in fact one in which goods were sold from Homeland to Emson and then again from Emson to retailers.  But it is also possible that the goods passed through Emson and went straight to the retailers, in which case, I'm not sure the UCC should apply.  But the parties agreed that the UCC applies to distributorship agreements and the court went along with that.  Whatever.

Relying on the merchant exception to the SOF in UCC 2-201(2), Emson characterizes its April 2, 2009 e-mail as a written confirmation sent to a merchant, recieved and not objected to within 10 days.  If that exception applies, the parties had a binding agreement.  But Homeland argues that its response, referencing additional provisions, was a sufficient objection to take it outside of the ambit of the exception.  The court did not resolve that issue but found that material questions of fact remained.  The court denied Homeland's motion for summary judgment.

 

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