article 1 and 1-103 and explicitly displace and conflicts

Carlisle v. Uresco (823 FSupp 271 (MD PA, 1993) gives one approach to 1-103. Plaintiff, a manufacturer of roofing materials, contracted with defendant, a WA corporation (Kent) in 1985 to serve as distributor/manufacturer's rep for Carlisle in the Pacific NW. As a result of the original contract, Carlisle entered into other contracts with Uresco for sale of the materials. In 1992 Carlisle terminated the agreement and threatened suit for nonpayment of invoices. Suits by both followed, with venue established in PA. Carlisle sued for the price of the goods delivered and not paid for (under the UCC) and Uresco countered with a breach of the original (representation) contract. Uresco argued that its damages must be set off against the amount it owed Carlisle. It argued its theory of set off under two approaches: (1) under 2-717 of the UCC and (2) under the common law of set-off.

The court considered each of Uresco's approaches. First it examined the language of 2-717, the UCC's set-off statute. 2-717 provides:

"The buyer on notifying the seller of his intentions to do so may deduct all or any part of the damages resulting from any breach of the contract from any part of the price still due under the same contract."

The court concluded that Uresco could not get a set-off under this section because it was suing on the original distributorship or representation contract, but Carlisle was suing for the price under individual roofing supply contracts. Thus, Uresco's counterclaim was not "under the same contract." But then, the court also decided that Uresco couldn't sue under the common law of set-off because the UCC, with an explicit set-off statute, preempted the common law of set-off. Thus, if Uresco wanted to sue on the representation agreement, it would have to do so in a separate suit. The UCC provision on set-off explicitly displaced any common law approach to set-off which may have been in effect before the UCC. Quoting the court's actual language:

"This section indicates that common law principles, to the extent that they are not specifically displaced by the Code, remain applicable. The converse, then, is that the common law is displaced by specific provisions in the UCC. To put this another way, Code sections “occupy the legal field” except insofar as they do not “particularly” displace pre-existing legal principles," 823 FSupp. at 275.

An "Explicitly Displace" Case From Article 4

I will more briefly consider another such case--more briefly because it relates to Article 4 (on bank checks). In Roy Supply v. Wells Fargo (46 Cal Rptr2d 309 (1995)), both Mr. Roy and his secretary Moore had to sign checks in order to make deposits or withdrawals from the company account. However, Moore forged Roy's signature on many occasions and the bank allowed other withdrawals without both signatures. The company lost more than $3 million in this way, as the money went into Moore's pocket. When Mr. Roy realized what was happening, he sued the bank under various theories, including common law negligence [In a situation like this you generally don't sue your secretary because you assume, probably rightly, that the money has been spent and that the person is judgment-proof. Wells Fargo has the deep pockets]. The bank countered by appealing to 4-406 of the Code, which provides, in relevant part:

"Without regard to care or lack of care of either the customer of the bank, a customer who does not within one year after the statement or items are made available to the customer...discover and report the customer's unauthorized signature on or any alteration on the item is precluded from asserting against the bank the unauthorized signature or alteration" (4-406(f)).

Under CA law, however (Civil Procedure Code Sec. 338), the plaintiff had three years after discovery of negligence to brings a claim. As you can see, it would make quite a difference as to which provision applied in this case. The court concluded that the "particular provisions of the Code are applicable here and that, for the most part, they preclude recovery for negligent payment of forged checks in the circumstances of this case" (36 Cal Rptr2d at 312-13). Roy, therefore, had very few checks on which he could successfully sue.

Conclusion

The two cases just reviewed show that the "explicitly displace" theory is not necessarily pro-plaintiff or pro-defendant. It is a way of reading the Code, however, which says that in the sections where there is explicit "overlap," the Code trumps. I will close this essay with mention of one other case, which was also brought under 4-406(f) as well as a section in Article 3. In this case, however, plaintiff brought an action for negligence, consequential damages and punitive damages against the bank for allowing checks to be improperly cashed (Flavor-Inn v. NCNB Nat'l Bank of SC, 424 SE2d 534 (SC Ct App 1992)). The court dismissed the negligence claim (because it was precluded by the Code), as well as the consequential damages claim (same reason), but allowed the punitive damages claim to go forward because the Code doesn't expressly deal with punitive damages in Articles 3 and 4.

The next essay discusses the other two theories.

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