The Uniform Commercial Code (“U.C.C.”) is a uniform act that applies to certain commercial agreements, including the sale of goods. The U.C.C. addresses issues such as non-conforming goods, acceptance of the goods, and revocation of that acceptance. The Massachusetts Appeals Court recently addressed the issue of revocation in the case of New England Precision Grinding, Inc. vs. Simply Surgical, LLC.
The plaintiff entered into a contract to supply its customer with medical device parts. The plaintiff then contracted with the defendant seller to get the parts from an Indian manufacturer, the defendant manufacturer.
The manufacturer would certify that the parts conformed to the plaintiff’s specifications. Upon receipt, the plaintiff would inspect the parts. If the plaintiff approved them, it would then certify they conformed to its customer’s specifications and ship them on to the customer. The customer then inspected the parts.
The purchase orders between the plaintiff and the defendant seller did not reference the ultimate customer or require the customer’s approval. At one point, the plaintiff notified the owner of the seller that there were issues with conformity, and the defendants worked to fix the issues. When the customer rejected two lots after the plaintiff had approved them, the seller agreed to rework them, but refused to do the same for a third lot. The court noted that the customer’s standards changed in 2006, but the plaintiff did not change its own specifications with the seller.
There were also issues with payment. The plaintiff failed to pay over $100,000 for several months. The plaintiff’s chief financial officer testified that it was company policy not to pay the seller until the customer approved the parts, as a result of previous “quality issues.” The seller ultimately refused to ship a lot until the plaintiff paid the balance and demanded pre-payment for the next lot shipping from India. The plaintiff refused, and the customer cancelled the plaintiff’s contract.
The plaintiff sued the seller on breach of contract, warranty claims, and unfair trade practices, claiming the defendant had provided defective parts resulting in the customer’s cancellation of the contract. The seller filed counterclaims for breach of contract, breach of good faith and fair dealing, unfair trade practices, and quantum meruit. The plaintiff joined the defendant manufacturer and sought a judgment declaring it was not liable to the manufacturer. The two defendants filed claims against each other.
The judge denied the plaintiff’s request for a jury instruction that it had the right to revoke acceptance of the parts under the U.C.C., finding the plaintiff did not give proper notice of its revocation.
The jury found the plaintiff breached its contracts and the implied covenant of good faith and fair dealing with seller. Additionally, the jury found the plaintiff was liable to the seller in quantum meruit. The jury also found the seller breached its contract with the manufacturer and was liable for the unpaid balance on its account. The judge held that neither the plaintiff nor the defendant seller had engaged in an unfair or deceptive act. All three parties appealed.
The plaintiff argued the judge erred in not instructing the jury the plaintiff had the right to revoke acceptance after the customer rejected the parts, pursuant to the Uniform Commercial Code (“UCC”). The appeals court found there was no right of revocation. The plaintiff had accepted the goods, and acceptance generally precludes rejection. A buyer may revoke acceptance where non-conformity of the goods substantially impairs the value of the agreement, but the evidence indicated that the goods conformed to the specifications. The manufacturer certified that they met the plaintiff’s specifications, and the plaintiff had inspected and approved them. The U.C.C. requires the buyer to provide notice of the revocation. The plaintiff did not present any evidence as to the date of revocation, and the appeals court found that the evidence showed that the parties had not treated the nonconforming goods as substantially impairing the contract’s value and breaching the contract as a whole. The plaintiff continued to demand parts from the seller and sent the parts to its customers with certifications that the parts conformed to the customer’s specifications. The appeals court agreed with the trial court that there had been no revocation of the acceptance and found no error in the judge’s decision not to provide the requested jury instruction.
Because there was not a revocation, the plaintiff was required to pay the seller for the goods within the contractually-required thirty days. The appeals court found that the acceptance by the plaintiff was the determinative factor in calculating the time of the payment, not the date the ultimate customer accepted as argued by the plaintiff. The contract did not require the customer’s approval and had to be enforced according to its own terms.
The appeals court found the trial judge had properly denied the plaintiff’s motions for judgment notwithstanding the verdict, a new trial, and a remittitur. The trial judge did not abuse his discretion in denying the motion to reduce the verdict because the jury could have fairly arrived at the award based on the evidence presented. The appeals court affirmed the trial judge’s application of the statutory interest rate from the date of the commencement of the defendant seller’s counterclaim.
This case reflects the importance of including all necessary terms in the agreement. If approval of the ultimate customer is needed, then the agreement should ideally include that requirement. Additionally, if the ultimate customer’s specifications change, the manufacturer or wholesaler can only be held to those specifications if the buyer changes its specifications as well.
If you are facing a business dispute, an experienced Massachusetts business litigation attorney can advise you of whether you have a valid arbitration agreement in place. Contact Law Offices of Richard Mucci at (781) 729-3999.