The defendant cites section 2-706(3) as requiring the seller to give notice. This section is inapplicable here, however: it deals with the seller's right to recover from the buyer the difference between resale price and contract price after reselling undelivered goods, and merely requires notice of the seller's intention to resell at private sale. The plaintiff did not claim its remedies under this section, and we see no reason why this notice requirement should survive the nonexercise of the other provisions of this elective section.
The defendant has also argued that the notification point must be resolved in its favor because of plaintiff's failure to give it an opportunity to give adequate assurance of performance under § 2-609, which inherently involves the giving of notice. That section provides in part: "when reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return." It is true that comment 1 to § 2-705 states that "where stoppage occurs for insecurity it is merely a suspension of performance, and if assurances are duly forthcoming from the buyer the seller is not entitled to resell or divert." But that comment is present because § 2-705 gives the seller the right to stop delivery of certain large shipments not only for buyer's insolvency, but also, inter alia, "if for any other reason the seller has a right to withhold or reclaim the goods." The latter would include insecurity. The answer to defendant's argument is that the insecurity and insolvency provisions are separate concepts, treated separately by the Code, giving separate grounds for stoppage of delivery. In addition, the right to demand assurance conferred by § 2-609 is stated as permissive, not mandatory.
Defendant also argues that a notice requirement must be read into § 2-712 (buyer's right to cover after non-delivery), pointing out that a buyer cannot cover until he knows there will be no delivery. However, the language of § 2-712(1) makes plain that the buyer's right to cover arises only after a non-delivery in breach of the contract.
The seller did not breach the contract here, the buyer did; hence that section does not apply to this case.
The parties have not cited any cases on the notification point, and we have been unable to find a case, somewhat to our surprise, since this seems hardly a point of insignificant technicality. We turn, therefore, to the general requirement of reasonable commercial standards of fair dealing, which provides a guide to interpretation of the Code.
It appears to us that reasonable commercial standards of fair dealing would, in the circumstances of this case, require plaintiff to notify defendant of its decision to stop delivery. We are particularly influenced by consideration of (1) the ease, simplicity, and minimal expense of giving such notification, (2) the potential benefit to defendant of receiving notification, and the potential harm of not receiving notification, and (3) the absence of any reasons for the plaintiff not to give notification. Accordingly, we withdraw the conclusion stated in our bench opinion that notification is not required, and hold that in the circumstances of this case, Indussa had a legal duty to notify Reliable promptly that it was stopping delivery. This holding does not alter the outcome of the case, however, for defendant proved no damages resulting from breach of the duty to notify, and so is still not entitled to recovery.
Since the duty to notify does not appear in the Code, naturally the Code has nothing to say about measure of damages for failure to notify. We would define the damages as the harm suffered by defendant as a result of the delay in its learning that the goods would not be delivered. Such harm would be the increase, over the period notification was delayed, in the defendant's cost of acquiring substitute goods.
The decision to stop delivery was made on February 28, 1969. Delivery on the sixth contract was due on March 26, 1969; on the seventh contract, part of the delivery was due in late February and part in April. The place of delivery was Philadelphia. Defendant learned of the non-delivery only at the time delivery was due. Hence the delay in notice was about one month on the sixth contract and one to two months on the second part of the seventh contract.
Analogizing remedies from § 2-711, defendant could have bought substitute goods
and claimed a price increase occasioned by the delay of one to two months (the § 2-712 remedy), or else claimed for the price increase without actually buying substitute goods (the § 2-713 remedy).
Defendant claimed that it bought some substitute goods but had no records to substantiate the claim; accordingly, we did not find that it had bought such goods. But more importantly, defendant did not prove that the price of aluminum, either domestic or foreign, increased during the interval in question.
Accordingly, we found no proof of damages to the defendant.
In view of the foregoing opinion, we must deny defendant's motion for new trial and for judgment n.o.v. and thus reaffirm our original judgment in plaintiff's favor on both the claim and counterclaim.
BENCH OPINION (EDITED)
I will make my findings of fact and conclusions of law interspersed with discussion as I go along.
I adopt as findings of fact paragraphs 1 through 14 of the stipulation of uncontested facts. Because those matters are of record, I will not re-recite them now. In accordance with those uncontested facts on the principal claim, I find that the defendant, Reliable Stainless Steel Supply Company, is indebted to the plaintiff, Indussa Corporation, in the sum of $16,850.60 together with interest from the due dates set forth in the stipulation. Indeed, I note that there is no dispute by defendant as to their obligation to the plaintiff on the principal claim. I therefore turn to the counterclaim.
The defendant's counterclaim is predicated on defendant's contention that the plaintiff breached its obligation to defendant in failing to deliver the aluminum ordered by the defendant on Contracts 8976 and 9082. The plaintiff, on the other hand, contends that it was not obligated to make delivery and that it was justified in stopping delivery on those two contracts because within the provisions of the Uniform Commercial Code (which I find applies in this case), and more specifically Sections 2-702 and 2-705, the defendant was insolvent.
Section 2-702 of the Code provides that "where the seller discovers the buyer to be insolvent he may refuse delivery except for cash including payment for all goods theretofore delivered under the contract, and stop delivery under this Article."
Section 2-705 provides "the seller may stop delivery of goods in the possession of a carrier . . . when he discovers the buyer to be insolvent . . . ."
The threshold question, therefore, is whether the buyer was insolvent at the relevant time. Insolvency is defined by the Uniform Commercial Code in Section 1-201(23) as follows:
A person is "insolvent" who either has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due or is insolvent within the meaning of the federal bankruptcy law.
I do not find that Reliable Stainless Steel Supply Company, hereinafter referred to as Reliable, was insolvent within the meaning of the federal bankruptcy law. It may well have been, but there is no evidence of that.
I do find, however, that at the time that the plaintiff exercised its remedy under Sections 2-702 and 2-705 of the Uniform Commercial Code [Feb. 28, 1969 -- see Memorandum Opinion and Order] the following situations obtained [and plaintiff knew each of these facts -- see Memorandum Opinion and Order]:
First, defendant was indebted to plaintiff in the sum of $16,850 plus interest.
Secondly, obligations due from defendant to plaintiff had been overdue by as much as four months, and almost four and a half months. Specifically, a September 19, 1968, obligation had not been paid until January 27, 1969. An October 30, 1968, obligation had not been paid at all. A December 18, 1969, obligation had not been paid at all. And with the $16,850 past due, plaintiff was confronted with the fact that a shipment of $50,000 was on the high seas destined for the defendant.
[Thirdly, plaintiff had a Dun & Bradstreet report indicating that Reliable was delinquent in payments to other vendors -- see Memorandum Opinion and Order.]
The Court has heard the testimony of Mr. Rosenberg as to the basis for non-payment, but does not credit that testimony. The Court finds that the action of Indussa, the plaintiff, was in good faith in that in addition to its course of dealings the plaintiff sought a Dun & Bradstreet report to obtain further information as to the financial status of the defendant.
The Court finds that as of February 28, 1969, Reliable, the defendant, could not pay its debts as they became due and was, therefore, insolvent within the meaning of the Uniform Commercial Code.
Insofar as Defendant's Exhibit 4 is concerned, the Court considers that it corroborates the Court's conclusion rather than controverts it. However, the finding that the defendant was insolvent does not end our inquiry and is not dispositive of the defendant's counterclaim in plaintiff's favor because the defendant contends that there was a modification of the payment provisions in the two contracts, to which I have adverted, which obviated any claim that defendant was in breach as of February 28, 1969. Defendant's claim in this regard is predicated on the testimony of Mr. Rosenberg which, of course, is controverted by the testimony of Mr. Fielo, and by D-4, a letter purportedly sent by Mr. Rosenberg to Mr. Fielo.
I hold that it is not necessary to reach the question whether there was, in fact, a conversation between Mr. Fielo and Mr. Rosenberg, to which Mr. Straus was also a party, and the question whether or not D-4 was ever sent. For I also find that the parties in their agreement became bound by Clause 18 of the standard conditions, which provides that the contract constitutes the entire agreement between the parties and no modification shall be effective unless agreed to in writing. Section 2-209 of the Uniform Commercial Code provides that this modification -- if it existed -- was ineffective to alter the party's obligations. Section 2-209 states that "a signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded." The plaintiff's position in this regard is supported by the case of C.I.T. Corporation v. Jonnet, 419 Pa. 435, 214 A.2d 620 (1965), where Mr. Justice Musmanno stated:
This specific condition [a no oral modification provision] stands as a stone wall in the path of the defendants' contention.
The opinion recognized, however, that an oral attempt at modification or rescission in the face of a no oral modification provision may constitute a waiver under section 2-209(4). I note that while the parties have agreed that the case is governed by New York law, the Court perceives no difference between New York and Pennsylvania law on this Code issue. Mr. Justice Musmanno wrote:
"'Even where the written contract prohibits a nonwritten modification, it may be modified by subsequent oral agreement. ' This is true but there must first be a waiver of the requirement which has been spelled out in the contract. Otherwise, written documents would have no more permanence than writings penned in disappearing ink. If this, the defendant's argument, were to prevail, contractual obligations would become phantoms, solemn obligations would run like pressed quicksilver, and the whole edifice of business would rest on sand dunes supporting pillars of rubber and floors of turf. Chaos would envelop the commercial world."