Uniform Commercial Code Scenario

The Facts

Buyer is a trader of commodities with an expertise in trading copper. Seller is a company that salvages metal from old buildings. Since they both deal in the buying and selling  of commodities (specifically, copper); they are “merchants”.

Tex. Bus. & Com. Code §2.104(a):

Merchant” means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.

On July 23, 2010, Buyer confirmed its purchase from Seller of 40,000 lbs. of copper. Shipment of the copper was to be no later than September 30, 2010. Pricing terms were stated as Spot August COMEX minus $.02/lb. On July 26, 2010, Buyer confirmed the pricing of this order at $3.18/lb.

On August 6, 2010, Buyer confirmed a purchase from Seller of an additional 40,000 lbs. of copper. Shipment of the goods was to be no later than September 30, 2010. Pricing terms for the second order were stated as Spot September COMEX minus $.02/lb. On September 1, 2010, Buyer confirmed the pricing of the second order at $3.44/lb.

Seller failed to ship the 80,000 lbs. of copper by September 30, 2010. The parties orally agreed on 3 different occasions to extend the delivery date(s) until November 2, 2010, November 10, 2010 and December 10, 2010. Seville never delivered the loads on any of the agreed-upon dates.

In early January 2011, Seller told Buyer that it did not intend to deliver the loads unless Buyer first paid for the loads in advance. This condition was never communicated to Buyer prior to January 2011. Seller also informed Buyer that it was not bound to fulfill either contract because there was nothing in writing that was signed by Seller to bind it to the transactions.

Prior to July 23, 2010, Buyer and Seller transacted business on two (2) separate occasions. Neither of the prior transactions was evidenced by a contract. The terms for pricing and payment for the goods were identical in both transactions and significantly, neither transaction required payment in advance of shipment.

If Seller was at fault for not delivering the goods, then the Buyer is entitled to damages in an amount equal to the difference between the market price at the time when Buyer learned of the breach and the contract price, together with any incidental or consequential damages, but less any expenses saved in consequence of Seller’s breach.

Buyer first learned of the breach in January 2011 when Seller first communicated that there was a condition of prepayment before the loads were shipped. At that point in time, the market price of copper was $4.40 per pound, a difference of $1.22 on the first load, and a difference of $.96 on the second load.

Buyer was damaged in the total amount of $87,200.00.

 

1st Contract

40,000 lbs. multiplied by the cover price of $4.40 per pound =        $176,000.00

LESS

40,000 lbs. multiplied by the contract price of $3.18 per pound =   $127,200.00

$48,800.00

2nd Contract

40,000 lbs. multiplied by the cover price of $4.40 per pound =        $176,000.00

LESS

40,000 lbs. multiplied by the contract price of $3.44 per pound =   $137,600.00

                                        $38,400.00

 $48,800 + $38,400 = $87,200

 The Questions

Can the Buyer enforce the contracts with the Seller even though there is no written contract signed by the Seller?

Can the Seller impose a condition of prepayment after it had refused to fulfill the contracts?

Official Ruling

Of course, in any situation where there is a written document that governs the parties (e.g. a written contract); the first place to look for an answer is what the parties agreed to in that writing.

The question is whether the Buyer can argue that it had an agreement with the Seller even though there exists no written contract signed by both parties? An additional question is the effect of the parties’ past dealings. Does that make a difference here?

Under Texas law, the general rule is that a contract for the sale of goods for the price of $500 or more is not enforceable unless there is some writing sufficient to indicate that a contract for sale has been made between the parties, and signed by the party against whom enforcement is sought. Tex. Bus. & Com. Code Ann. §2.201(a) (2009).

This general rule fails to consider that many times, merchants deal with one another on a trust or hand-shake basis. In the interest of commerce, there is an exception to this general rule. The exception is commonly known as the “Merchant’s Exception”. This exception to the general rule states that if, within a reasonable time, a writing in confirmation of the contract and sufficient against the sender is received, and the party receiving it has reason to know its contents and does not give written notice of its objection within ten (10) days after receipt, there need not be a written contract between the parties. Tex. Bus. & Com. Code Ann. § 2.201(b) (2009).

The two (2) prior transactions are also important to the extent that they evidence course of dealing between these parties. It was these parties’ course of dealing to trade with each other WITHOUT a written contract. This prior course of dealing is further evidence that the contract should be enforced under these facts.

What about Seller’s condition of payment up front for the two (2) disputed purchase confirmations. Unless that condition was somehow communicated, it is unlikely to become part of the “agreement”. Further, since these parties never had such a condition apply to its prior dealings, it is unlikely that it can apply to these transactions.

 

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