article 1 and 1-103 and trinidad v. frosh and nebraska and supplementation and sheerbonnet

We return to the friendly confines of Article 2 for an illustration of this (second) principle. Though the case of Trinidad v. Frosh (494 NW2d 347 (Neb Ct App 1992)) leaves a few loose ends in its analysis, it illustrates the "broad principle displacement" approach nicely. Trinidad (buyer) entered into a contract with Frosh (seller) in April 1988 to purchase 1,875 hundredweight of dried, edible navy beans from the 1988 harvest (beans are harvested about mid-October in NE). Payment options were either to pay $16.25 per hundredweight by January 1989 or a lesser price by the end of 1988. Tax considerations affect which option a buyer chooses. The contract between Trinidad and Frosh, however, didn't specify which option Trinidad selected. In May 1988 Frosh said (though this was controverted) that he ordered the (yet unsigned) contract to be torn up. Perhaps he was aware that the price of navy beans was rising or would soon rise because of drought; in any case, he wanted out. He communicated this also in August and September. However, Trinidad waited until Harvest time (mid-October) to "cover," i.e., to buy beans from another supplier. By this time the price had risen to $32 per hundredweight. Thus, Trinidad sued Frosh for breach of contract, arguing that the date that performance was due was the date from which damages were calculated. Frosh argued that there was no contract, but that even if there was, the damages would be those at the point of his repudiation, allegedly in early May. Frosh also wanted an instruction on "mitigation of damages," which, under the common law, would have required Trinidad to cover immediately. Trinidad argued, however, that the UCC Art. 2 provisions on "anticipatory repudiation" (2-610) allowed it a commercially reasonable time after repudiation by frosh to "cover." Thus, one of the questions posed to the NE Ct of Appeals was whether anticipatory repudiation under Art. 2 displaced the common law remedy of mitigation of damages. We saw earlier that in an "explicitly displace" case, common law set-off was replaced by Article 2 set-off, but here you have different doctrines at issue.

The court is maddeningly unclear as to the practical effect of a possible holding that the UCC doctrine of anticipatory repudiation would trump the common law mitigation of damages, but I think it would be as follows. If the common law doctrine was permitted, Trinidad would have been required to cover (get other beans) on the day of contract breach. If, however, the common law doctrine was supplanted by anticipatory repudiation, Trinidad may have had additional time (a "commerically reasonable time"--cf. 2-610(a)(a)) to "cover"--thus protecting them. Since the price of beans was rising so rapidly, the application of the doctrine of mitigation might cost Trinidad thousands of dollars.

The court held that the Code doctrine of anticipatory repudiation (and the damages available under it--2-713) supplanted the common law doctrine of mitigation. The court held, "to the extent it is commerically unreasonable to cover on the date of repudiation, an aggrieved buyer has a commercially reasonable time after repudiation within which to cover. The common-law doctrine of mitigation of damages would be inconsistent with the statutory scheme and with the rule we have stated. Therefore, it was error for the court to instruct the jury on mitigation of damages," 494 NW2d at 355.

The Supplementation Approach

The case that really got the Code drafters mad, however, was a 1995 New York case construing the newly-enacted Article 4A, regarding wire transfers (Sheerbonnet v. American Express Bank, 951 FSupp 403 (SD NY, 1995)). Plaintiff was a British trading company which contracted in 1990 to sell troop carriers to Hady, a Saudi Arabian company. These carriers would be used by Allied forces in the first Gulf War. For payment, Hady received an irrevocable $14,080,000 letter of credityfrom Banque Scandanave in Geneva. It paid 10% to Sherbonnet as downpayment, but Sherbonnet expected the other 90% to be paid on July 5, 1991. Arrangements were made to transfer the money to Sheerbonnet's account at BCCI (International bank) in London. Because payment was to be made in American dollars, the money had to be routed through American Express Bank ("AEB"). The money would go to AEB on July 5 and then immediately be transferred into Sheerbonnet's BCCI account on July 5. However, early in the morning of July 5 regulators in England and Luxembourg suspended operations of a faltering BCCI. The money, therefore, was "stopped" at AEB and never made it to Sheerbonnet's account. Hence, Sheerbonnet's suit against AEB to recover its $12.6 million ($14 million -10% downpayment).

Article 4A, which was new in the 1990s, deals with "funds transfer" or "wire transfers." It had not been interpreted very extensively by the time of the Sheerbonnet case. The court recognized that before Article 4A there was a "pastiche of laws--statutory, administrative and judicial" which applied to fund transfers (951 FSupp at 407). It had to decide how those other laws related to 4A. Sheerbonnet didn't argue for a recovery under 4A, and AEB thus moved to dismiss for failure to state a claim. The court recongized that "on their face, the above passages (commentary on 4A) fail to establish a legislative intent to preclude any and all funds transfer actions not based on Article 4-A. A desire to start on a 'clean slate' implies only that in drafting the Article, the legislature was neither borrowing from related UCC regulations, such as Article 4 or Article 3 nor from principles of common law and equity" (Id.). Concluding that Article 4A is not a "hermetic seal" over fund transfers, the court said that "Article 4-A of the NY UCC is not the exclusive means by which a plaintiff can seek to redress and alleged harm arising from a funds transfer" (Id. at 409).

Conclusion

Because of this seemingly aberrant decision, the revisers of Article 1 felt they needed to rewrite the Comment to 1-103. Thus, it is clear that, in the drafters minds, the second approach above is the way in which to read the Code. Give the Code as wide an application as possible. Thus, certain common law remedies are still permitted, such as punitive damages, but in other cases, where the text or the principles of Article 2 conflict with the common law, Article 2 triumphs. I would say that not everything is clear now, but the direction of the drafters/revisers of Article 2 is clearer. And, that is no small accomplishment.

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