Wednesday, March 30, 2016

A Practical Application


During the past year, this blog has presented a number of creative readings and applications of a large number of Code Sections.  Among those section are Sections 1-201(b)(20) which defines good faith; Section 1-304 which imposes a duty of good faith in all contracts or duties under the Uniform Commercial Code;  Section 1-103(b) involving supplemental laws applicable to the Code, and Section 2-607(5)(a) which involves ‘vouching in’ a seller of goods whose buyer is sued.
An Ohio court recently considered some of these claims in an opinion which is linked to this post.  As you will see, consistent with the majority of cases which have addressed the issue, the court found that there was no independent cause of action for a breach of the duty to act in good faith.  However, the court did not discuss whether certain remedial provisions were lost if a party were not found to have been acting in good faith. Such a result is consistent with the comments to Section 1-304 as discussed in a previous post. The court did not address this point since it was not before the court on the plaintiff’s motion for summary judgment. As the court noted it did not consider the report I wrote which was a correct ruling.  It is the job of the attorneys to present respective interpretations of the law to the court, so that the court can make the most informed decision possible.
Section 2-607(5)(a) was discussed in relatively recent post. If you recall my suggestion was to be certain to track the language of the statute to avoid having to prove ‘substantial compliance’.  In the case under discussion, a good letter was drafted, but not one that tracked the language of Section 2-607(5)(a).  Fortunately for the plaintiff, the court found substantial compliance with the notice requirements of Section 2-607(5)(a) and found for plaintiff on the most critical issues of the case.  As discussed in the opinion, this finding rendered plaintiff’s cause of action for collateral estoppel moot. 
Finally, the court did not discuss the recovery of attorney’s fees under Section 2-607(5)(a) since it was not before the court.  An award of attorneys’ fees is supported by case law which was discussed in the post on Section 2-607(5)(a). It may be that if the case goes to trial they can be recovered.
For those of you who have read all the posts, you will see many things in the court’s opinion.  I have posted the opinion and the Expert Witness Report so that you can see some of the concepts we have discussed in action.  I also do so to emphasize how critical it is to have the facts down cold. That is how good arguments are put together.  Finally, to emphasize the role of the attorney in UCC cases.  Courts are busy.  Courts want to reach the right result.  They will make decisions based upon what is properly pled and in the record.  The attorney who consistently does this will win almost every time.

Saturday, March 12, 2016

A Case for Setting Standards

            In our discussion of Article 1, it was noted that the Uniform Commercial Code embodies freedom of contract as an underlying principle.  Section 1-302 is a codification of this basic principle. Section 1-302(1a) states as follows:
(a)  Except as otherwise provided in subsection (b) or elsewhere in [the Uniform Commercial Code], the effect of provisions of [the Uniform Commercial Code] may be varied by agreement.
The limits of the abilities of the parties regarding freedom of contract, as well as some of the specific freedoms granted are noted in section 1-302(b)
(b) The obligations of good faith, diligence, reasonableness, and care prescribed by [the Uniform Commercial Code] may not be disclaimed by agreement. The parties, by agreement, may determine the standards by which the performance of those obligations is to be measured if those standards are not manifestly unreasonable.
            It is my belief that parties should set standards for good faith, diligence, reasonableness and care whenever contracts are being drafted. Setting these standards removes the question from the jury or the court as to the actual legal question and restricts inquiry to the question of whether or not the fact standards set by the parties have been met and whether or not the standards set are manifestly unreasonable.  An excellent example of the importance of setting standards can be found under Article 7 in connection with the storage of goods.
Section 7-204 deals with the duties of a warehouse to exercise care with respect to goods it has stored.  Subsection (a) to Section 7-204 states as follows:
A warehouse is liable for damages for loss of or injury to the goods caused by its failure to exercise care with regard to the goods that a reasonably careful person would exercise under similar circumstances. However, unless otherwise agreed, the warehouse is not liable for damages that could not have been avoided by the exercise of that care.
It is seen that the warehouse must exercise the level of care which a ‘reasonably careful person’ would exercise under similar circumstances.  This of course, is a standard and used frequently in many areas of law. 
            What is or is not consistent with the standard enunciated however, can be dramatically different than what one might reasonably believe would meet that standard.  This is illustrated in United States Borax and Chemical Company v. Blackhawk Warehousing and Leasing Company 586 S.W. 2d 248 (Ark. CA, 1979). Borax involved the storage of goods consisting of agricultural chemicals owned by U.S. Borax pursuant to a warehousing agreement between the parties. In early 1977 goods belonging to Borax were stolen from Blackhawk. The goods in question consisted of 288 five gallon cans of a product known as Cobex.  The court described the burglary as follows:
The burglars entered the building by ripping open one of the side panels. Then chemicals which had been stored next to the wall were pulled outside to allow entry into the building. After entry a padlock and chain were cut to allow a door to be opened. A forklift truck was "hot wired" since it was locked. Then it was used by burglars to move a sailboat blocking the path to appellant's stored chemicals. Other chemicals in the way were shoved aside, and the cans of appellant's stored chemicals were taken from the premises. The loss sustained by the plaintiff amounted to $23,658.28 and suit was brought for that amount.  at 833-834
Defendant was granted a directed verdict by the trial court, and Borax appealed, stating that defendant was negligent in not providing the following specific security measures:
(a) In failing to provide watchmen inside the facility;
(b) In failing to have any burglar alarms or similar systems installed in the warehouse;
(c) In failing to provide roving patrols outside of the building;
(d) In failing to place palletized storage directly against the inside wall at the point of access as was done against other walls to prohibit any attempt to enter from the outside;
(e) In failing to provide other adequate security measures which would have prevented the break-in and subsequent loss to the plaintiff;
(f) In failing to be put on notice that extra security measures were needed after a previous break-in occurred at the warehouse approximately 7 months before the loss was sustained by the plaintiff. at 836
            The court discussed the security procedures in effect in the context of general negligence standards.  In quoting Arkansas case law, the court states the question as follows:
The failure to do something which a person of ordinary prudence would do under the circumstances, or the doing of something that a person of ordinary prudence would not do under the circumstances.  at 836-837
The court  reversed the trial court’s decision concluding that the question of reasonable care should have gone to the jury. 
            As a result of the agreement between the parties, the determination of reasonable care was placed in the hands of the court.  This worked out favorably for Borax, but the warehouse could have avoided the whole problem by simply stating the security measures being taken; selecting standards which are not ‘manifestly unreasonable; and then proving that those standards were met.  I am not an expert in warehouse security procedures, but it is clear that the burglary in question required considerable effort to succeed.  It may be that the suggestions made by Borax have merit, but it may also be that Blackhawk had adequate security in place.  If Blackhawk had properly drafted the warehouse receipt, the problem could have been avoided.
            The same rationale applies to every written contract.  Parties who set the standards of conduct to govern their transaction eliminate the problems which Blackhawk Leasing had to deal with in the Borax case.  In presenting this approach to the other party, it should be emphasized that everyone benefits from the certainty of setting standards.

Friday, March 11, 2016

Year End Evaluation: Going Forward

This post concludes one year of continuous posting on the UCC-Made Easy blog.  It has been fun, educational and highly productive.  When the blog was first suggested by and discussed with Conner, we agreed to evaluate at this point to determine a strategy for going forward.  The blog cannot be valued in a standalone context, but must be viewed in a larger one.  There are other matters which must be attended to.  For example, in two weeks I will be presenting a presentation entitled: Juveniles, Detention and Freedom to the Missouri Juvenile Justice Association and members of the Missouri State Bar Association.  Time spent writing about bills of lading must be viewed not just in the context of this blog, and the positives, but also what it takes from other areas. In October, I will be doing the most important empowerment presentation for professionals I have ever done.  This takes months to prepare.
            Upon evaluation, I have decided to keep doing the blog, but not on a weekly basis. The blog has demonstrated my core philosophies and approach to the Uniform Commercial Code, as well as the manner in which I approach litigation and drafting.  But it is extremely tedious and linear writing—both of which, not incidentally—have benefitted me greatly.  That stated, it is highly inefficient in a teaching context as opposed to vertically integrated fact patterns that provide information on many levels.   By way of illustration, I have done between 55-60 posts. The earlier posts were short, but the majority of them averaged 1200-1400 words.  If we choose the midway of 1300, the posts generated 78,000 words, and covered most of Article 1, a good portion of Article 3 and a small introduction to Article 2 and  Article 7.  The reason this is so many words is because it is written on a linear level—basically, this is what this section means in this context.  I would estimate that at this rate it would take well over a millions words to get to a satisfactory level of content.
The Uniform Commercial Code Made Easy by way of comparison has a total of 115,569 and covers an overwhelming majority of the Code. Many of the words are contained in the detailed indexes of the book, so the actual number is even shorter. While writing The UCC Made Easy required a great deal of discipline, it provided the opportunity to operate at a much higher level during the process. The book is written at, and operates at multiple levels at the same time.  Much like the text of the Code, which is not surprising since the book is predicated upon many factual assumptions upon which the Code was written.  From my perspective, the efficiency of the book is exponentially higher than a linear text.  That is not to say one can’t learn from a linear text; indeed, it may be more efficient for a certain type of mind. 
By way of analogy, linear instruction is like an enormous warehouse covering hundreds of thousands of square miles.  Multilayered and Multidimensional instruction is like a massive skyscraper.  Depending on which floor you exit, you will be presented with multilayered Code discussions and sections. It requires inferential reading and effort, but the net effect is mastering the book, and achieving an extremely high level of Code knowledge and success.
The point of all this is that I must move some of the 7-10 hours spent each week on the blog to other areas.  Productivity is not an option; direction can be in some situations.  Right now I am traveling, and will not be doing a UCC content post during March.  Thank you for reading, and I look forward to communicating with you in the near future.