Lumber Sales v. Brown

Kris provided me with a case that addresses the issue presented in problem 10 on p. 510- Lumber Sales v. Brown.  Please consider the following:

"The plaintiff contends and defendant admits that on or about the 6th day of November, 1968, the defendant agreed to purchase from plaintiff five carloads of lumber, which the plaintiff agreed to sell and deliver to defendant at a certain railroad siding near Radnor Yards in Nashville, Tennessee, which siding was known and designated by the railroad carrier as No. 609-A.
 
Plaintiff contends that all five carloads of lumber were delivered to defendant at said railroad siding in Nashville, Tennessee, and the defendant admits that four carloads thereof were received by him, but he denies that the fifth carload of lumber, which was to consist of two by four pine studs, was ever delivered to him or received by him.
 
The plaintiff's contention that this fifth carload of lumber was duly delivered to defendant and the defendant's denial that same was delivered to or received by him is the substance of the controversy between the parties...

The trial Court held that the risk of loss in this case did, in fact, pass to the defendant buyer...

This was an ordinary business day and the time of 11:07 A.M. was a reasonable business hour.  If it was not convenient with the defendant to unload the lumber within the few hours after being duly notified of delivery, then he should have protected himself against risk of loss by directing someone to guard the cargo against loss by theft and other hazards.
 
To hold that the seller or the carrier should, under the circumstances existing in a case of this kind, continue to protect the goods until such time as the buyer may find it convenient to unload them would impose an undue burden upon the seller or the carrier and unnecessarily obstruct the channels of commerce...

... the judgment of the trial [***12]  Court is affirmed."

Please read: Kovel Letters

http://www.forbes.com/sites/robertwood/2011/06/21/can-irs-force-your-accountant-to-talk/

http://www.calkinsmediation.com/treatise.htm

Please read the "law review article" found on this site for Wednesday November 7, 2012. 

Definitions of Negotiable Instruments under UCC

Please read and study for Monday- October 31, 2011

§ 3-104. NEGOTIABLE INSTRUMENT.

• (a) Except as provided in subsections (c) and (d), "negotiable instrument" means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:
  • (1) is payable to bearer or to order at the time it is issued or first comes into possession of a holder;
  • (2) is payable on demand or at a definite time; and
  • (3) does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor.
• (b) "Instrument" means a negotiable instrument.
• (c) An order that meets all of the requirements of subsection (a), except paragraph (1), and otherwise falls within the definition of "check" in subsection (f) is a negotiable instrument and a check.
• (d) A promise or order other than a check is not an instrument if, at the time it is issued or first comes into possession of a holder, it contains a conspicuous statement, however expressed, to the effect that the promise or order is not negotiable or is not an instrument governed by this Article.
• (e) An instrument is a "note" if it is a promise and is a "draft" if it is an order. If an instrument falls within the definition of both "note" and "draft," a person entitled to enforce the instrument may treat it as either.
• (f) "Check" means (i) a draft, other than a documentary draft, payable on demand and drawn on a bank or (ii) a cashier's check or teller's check. An instrument may be a check even though it is described on its face by another term, such as "money order."
• (g) "Cashier's check" means a draft with respect to which the drawer and drawee are the same bank or branches of the same bank.
• (h) "Teller's check" means a draft drawn by a bank (i) on another bank, or (ii) payable at or through a bank.
• (i) "Traveler's check" means an instrument that (i) is payable on demand, (ii) is drawn on or payable at or through a bank, (iii) is designated by the term "traveler's check" or by a substantially similar term, and (iv) requires, as a condition to payment, a countersignature by a person whose specimen signature appears on the instrument.
• (j) "Certificate of deposit" means an instrument containing an acknowledgment by a bank that a sum of money has been received by the bank and a promise by the bank to repay the sum of money. A certificate of deposit is a note of the bank.

source: www.law.cornell.edu/ucc/3/3-104

The Credit Crisis and Commercial Impracticability

The credit crisis that resulted from, among other events, the bankruptcy of Lehman Brothers in 2008 greatly intensified the recession and became incredibly detrimental to real estate developers. For example, in an extremely high profile lawsuit in November 2008, Trump International Hotel brought litigation against Deutsche Bank and other lenders stating a right to an extension of the maturity date on the mortgage loan until after the crisis had ended. Although both sides suspended the litigation, Trump was claiming Commercial Impracticability due to:

1) An unexpected occurrence
2) The risk of the crisis not being assigned by the contract and
3) The occurrence of the crisis rendering the performance impracticable.

Although I think this could be interpreted as a valid argument, I believe signing a mortgage loan has an inherent risk of the possibility of a recession and a severe market crash and therefore I believe it is more likely the courts would not have ruled in Trump's favor.

Liz McKernan

Commercial Impracticability

Aluminum Company of America v. Essex Group Inc

A cost increase brought on by regulatory changes was held sufficient to invoke a commercial impracticability defense in Aluminum Company of America v Essex Group Inc. The buyer and the seller entered into a toll conversion service contract under which the buyer would supply the seller with alumina. The seller would convert the alumina by a smelting process into molten aluminum that would then be picked up by the buyer for further processing. In the mid-1970s, new regulations for oil and pollution control dramatically increased the seller’s smelting costs and would have caused the seller to lose more than $75 million during the life of the contract, while the buyer conversely stood to gain a windfall profit. The court found that regulatory changes of this sort were an unforeseen supervening circumstance, not within the contemplation of the parties at the time of contracting. To the relief of the seller, the court found that the seller’s performance became commercially impracticable.

Source: Commercial Impracticability and Fair Allocation Under UCC 2-615by John R. Trentacosta http://www.michbar.org/journal/pdf/pdf4article1767.pdf

All of the following were fulfilled in order to achieve a defense of commercial impracticability:

(1) The seller must not have assumed the risk of some un-

known contingency;

(2) The nonoccurrence of the contingency must have been a

basic assumption underlying the contract; and

(3) The occurrence of that contingency must have made per-

formance commercially impracticable.

Ariel Fins

2 Questions re: Creditors and Consignments

In a consignment arrangement under what circumstances can a creditor of the consignee attach goods under consignment and in the possession of the consignee/factor?

§ 2-326. Sale on Approval and Sale or Return; Consignment Sales and Rights of Creditors.

(1) Unless otherwise agreed, if delivered goods may be returned by the buyer even though they conform to the contract, the transaction is

(a) a "sale on approval" if the goods are delivered primarily for use, and
(b) a "sale or return" if the goods are delivered primarily for resale.

(2) Except as provided in subsection (3), goods held on approval are not subject to the claims of the buyer's creditors until acceptance; goods held on sale or return are subject to such claims while in the buyer's possession.

(3) Where goods are delivered to a person for sale and such person maintains a place of business at which he deals in goods of the kind involved, under a name other than the name of the person making delivery, then with respect to claims of creditors of the person conducting the business the goods are deemed to be on sale or return. The provisions of this subsection are applicable even though an agreement purports to reserve title to the person making delivery until payment or resale or uses such words as "on consignment" or "on memorandum". However, this subsection is not applicable if the person making delivery

(a) complies with an applicable law providing for a consignor's interest or the like to be evidenced by a sign, or
(b) establishes that the person conducting the business is generally known by his creditors to be substantially engaged in selling the goods of others, or
(c) complies with the filing provisions of the Article on Secured Transactions (Article 9).


In a consignment arrangement under what circumstances can a creditor of the consignor attach goods under consignment and in possession of the consignee/factor?

In a consignment sale the consigned goods belong to the the consignor therefore the consignor has title and risk of loss to the goods. Also consider law of bailment in the consignment process.