2011 Commercial Law Developments

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

A. Scope

1. General

2. Software and Other Intangibles

  • The Compliance Source, Inc. v. Green Point Mortgage Funding, Inc., 624 F.3d 252 (5th Cir. 2010) – A lender who permitted its outside attorneys to use licensed software for financing forms violated the lender's license agreement with the owner of the software.

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

1. General

  • Ancile Investment Co. v. Archer Daniels Midland Co. , 784 F. Supp. 2d 296 (S.D.N.Y. 2011) – A lender to a fertilizer buyer had no cause of action against the buyer's fertilizer supplier, which had received payment from the lender, for failure to endorse and deliver bills of lading to the lender, pursuant to the parties' prior course of dealing. The lender had no contract with the supplier and was not a third-party beneficiary of the supplier's contract with the buyer.
  • Webster Business Credit Corp. v. Bradley Lumber Co. , 2011 WL 5974582 (W.D. Ark. 2011) – Applying New York law, borrower could not have a claim against its secured lender for breach of the parties' loan agreement, based on a modification or waiver arising from course of dealing, because the agreement expressly provided that neither it nor any of its provisions “may be changed, modified, amended, waived, supplemented, discharged, cancelled or terminated orally or by any course of dealing.”

2. Battle of the Forms

  • CFN, Inc. v. Drake Petroleum Co., Inc. , 2010 R.I. Super. LEXIS 141 (Silverstein, J.) – A gas station and fuel distributor entered into a contract to develop the gas station. The agreement provided, among other things, for a $40,000.00 advance for “re-imaging” the station. The gas station granted a mortgage and security interest to secure its obligations under the contract. The re-imaging project ran over budget. Later, the distributor prepared an amendment to the contract that would make the gas station liable for the overruns, but the gas station never signed it. Eventually, the gas station terminated the contract and paid all amounts due except the cost overruns. The distributor sought to foreclose to recover the overruns. The court held that, under R.I.G.L.§ 6A-2-202, the parol evidence rule prevented the distributor from introducing evidence that the gas station was responsible for the cost overruns. The Statute of Frauds in R.I.G.L.§ 6A-2-201 rendered the amendment ineffective. The court granted the distributor's claim for unjust enrichment for the cost overruns and ordered the gas station to pay them as an unsecured claim. See also under “Real Property Secured Transactions” (above).

C. Warranties and Products Liability

1. Warranties

2. Limitation of Liability

  • Hartford Fire Insurance Co. v. Roadtec, Inc., 2010 WL 4967979 (S.D.N.Y. 2010) – Manufacturer/seller of equipment did not effectively disclaim the implied warranty of merchantability under U.C.C. § 2-316. A warranty (containing limitations and disclaimers) was contained only in manuals that were “hundreds of pages long” and delivered with the equipment. The disclaimer therefore was not timely (it did not appear in the agreement that both parties signed, but only in the manuals delivered after the contract was formed and therefore was not part of the agreement under U.C.C. § 2-207; see also OC 4 to 2-207)) and was not conspicuous as required by U.C.C. § 2-316 (and as defined in Former U.C.C. § 1-201(10)). Printing the disclaimer at the end of the manuals was not an “eye catching location” that commands “the attention of the non-drafting party.” The court also found that the buyer had not waived the implied warranty of merchantability through its conduct. While U.C.C. § 2-316 provides that an implied warranty can be excluded or modified by course of dealing or course of performance, the buyer's request for replacement parts did not indicate an acquiescence in or even an awareness of the disclaimers of implied warranties.

3. “Economic Loss” Doctrine

D. Performance, Breach and Damages

  • SportChassis, LLC v. Broward Motorsports of Palm Beach, LLC , 2011 WL 5429404 (W.D. Okla. 2011) – Consignment agreement that required the consignee to follow any written instructions from the consignor's secured party regarding return of the goods did not, in the absence of such instructions, authorize the consignee to ignore the consignor's instructions to return the goods. Accordingly, the consignee committed conversion by failing to return the goods upon the consignee's demand.

E. Personal Property Leasing

  • In re B.C. Rogers Poultry, Inc. , 455 B.R. 524 (Bankr. S.D. Miss. 2011) – Equipment lessor did not misrepresent the equipment covered by the lease by failing to mention that 10 of the 169 items were or might be subject to a prior lease, and thus lessor had no duty to provide correct information when it became known. Although Article 5 leaves open the possibility that an applicant could be subrogated to an account party's claim for breach against a beneficiary that drew on a letter of credit, subrogation was inappropriate in this case because the lessor/beneficiary was not unjustly enriched.
  • VFS Leasing Co. v. J & L Trucking, Inc. , 2011 WL 3439525 (N.D. Ohio 2011) – Lessor under finance lease of four trucks had no obligation, after lessee's default, to conduct a sale of the leased property in a commercially reasonable manner and made no implied warranties of quality to the lessee. Question of fact remained as to whether lessor made express warranties by conditioning the lessee's duty to accept the trucks on whether the trucks were “in good order and in conformance with any applicable purchase order or supply contract.”
  • Blue Gordon, C.V. v. Quicksilver Jet Sales, Inc. , 2011 WL 2583651 (5th Cir. 2011) – Because, in the absence of instructions from the aircraft lessee, lessor may allocate payments in any manner it wishes that is fair an equitable, lessor was entitled to apply payments to debts in a way that did not cure timely lessee's default and thus no reasonable jury could find that lessor's termination of lease was unauthorized.
  • Vreeland v. Ferrer , 71 so. 3d 70 (Fla. 2011) – 49 U.S.C. § 44112, which insulates lessors and lienors from vicarious liability for personal injury property loss on land or water resulting from the crash of an aircraft, preempts state law only to the extent the injury occurred to a person or property on the ground or water, not to passengers on the plane.
  • Lyon Fin. Servs., Inc., v. Shyam L. Diahya, M.D., Inc., 71 U.C.C. Rep. Serv. 2d 257 (D. Minn. 2010) – Exploring criteria for finance lease and stating that in an Article 2A finance lease that contains a “hell or high water” provision, the lessee is responsible for making all payments under the lease, regardless of any claim the lessee may have against lessor or the equipment .
  • Leaf Fin. Corp. v. ACS Servs., Inc., 71 U.C.C. Rep. Serv. 2d 698 (Del. Super. Ct. 2010) – Concluding transaction was finance lease.

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