UCC Contract Law Transamerica Oil

UCC Contract Law

Transamerica Oil Corporation v. Lynes

Case Brief

Procedural History:

Transamerica Oil Corporation v. Laynes is a part of a larger case involving Baker International. They are the parent company of Laynes. In the lower court ruling, Transamerica prevailed. Where, the court determined that the Kansas Universal Commercial Code (UCC) was breached when it came to an expressed warranty. As the court awarded damages to the plaintiff for $196,577.72 (more than they spent on the injector packers that were purchased).This decision is taking into account the statute of limitations and the validity of disclaimers from both sides.

Facts:

Transamerica is a drilling company that is focused on: the exploration / development of oil / natural gas wells and capping them for use at a future date. In a popular trade magazine the company's CEO saw an advertisement for an innovative new product called: production injector packers. This is a device that is used, as a way of effectively sealing off the bore hole on a temporary basis. The company that was selling this product, (Laynes) was claiming that these could be used to permanently seal the well.

They were engaging in these activities through: their sales representatives indirectly discussing the product with perspective customers. As, they will mention how: the device can be successfully used to cap the well on a permanent basis. Yet, in reality they we no more than short to medium term solutions for plugging the well. When the product was being marketed to Transamerica, the company represented it verbally as a permanent way of capping the bore hole. Once Transamerica received the shipment, they were presented with paper work claiming an expressed or implied warranty is not valid. It also prevented the buyer from receiving any kind of cash refund for the product. Instead, they would be eligible to receive an exchange or a credit with Laynes. Transamerica filed a suit, based on the fact that the production injectors failed to perform properly. The plaintiff is asserting that this is a violation of an implied warranty that is in place.

Issue:

Transamerica Oil Corporation v. Lanes is one that is a conflict of the Kansas statute and the uniform commercial code. As, Transamerica is suing based on: the fact that an expressed warranty was in place, before they received the injection packers. However, Laynes is believes that these claims are invalid because the suit was filed based upon the Kansas statute. Under the law, there is a statute of limitations of three years. What makes this case interesting is that the briefs were filed between years three and four. Under UCC guidelines, the plaintiff could proceed with the case. The main issues of contention are: does the plaintiff have a claim under UCC standards or are the Kansas statues relevant. At the same time, how is an expressed warranty applied given the fact that the two standards that are being argued (which have opposing views).

Answer / Holding:

The answer to these issues, the court sided with the plaintiff. Where, they reversed the decision and remanded it back to the lower court for review.

Reasoning:

The appellate court based their decision on the fact that key evidence was withheld at the trial that would have influenced the outcome of the case. What happened is Laynes was not allowed to present a series of documents with the CEO's signature at the time of delivery. The fact that he signed them is acknowledging that he understands and agrees that the terms of the agreement have changed. This negates any possibility of an implied warranty. Second, the defendants were refused to present evidence showing that was no cash refunds. As, Transamerica executives understood that they were able to exchange the devices or receive some type of a credit (prior to delivery). They also found that UCC guidelines are applicable for the terms of the contract. This is significant, because it is showing how two different legal standards were used to make arguments during the appeal. The court determined which one was applicable under the law. Then, they made an interpretation based on the fact that key evidence was omitted during the trial that influenced the outcome of the case.

Disposition:

The appellate court sided with Laynes in the case. This is based on the fact that key evidence was showing that Transamerica accepted the changing terms of the agreement (which was omitted during the trial). This changes the dynamics of the case, as the signed statement of the new terms (at the time of delivery) is an indication that the company knew that these were not permanent seals.

Under UCC guidelines, this means that an expressed warranty did not exist. Instead, it was a limited warranty that was based upon the new terms and conditions that the CEO agreed to. This occurred when he accepted delivery of the product and signed the back of the invoice (where the new terms were listed). When you put both of these facts together, this is an indication that the Transamerica was aware of the changes in warranty and that the injection packers were not a permanent solution to their problems. This is significant, because it is showing how the appellate court would apply case law and precedent differently in comparison with the lower court. Once this happened, it meant that the ruling would change, as they determined that the omission of key evidence were vital facts that influenced the outcome of the case. Therefore, they sent the case back to the lower court for further review based on these guidelines.

Wendling v. Puls & Watson

Procedural History:

This case was heard in the Kansas Supreme Court and was appealed from the Harvey County District Court. The original judgment was in favor of the plaintiff. The damages were calculated based on the differences between: the market prices and the contracted prices on the delivery date that was originally scheduled (subtracting the down payment).

Facts:

This case is based upon: how damages are assessed and what is considered to be an oral contract. What happened was, the defendants agreed to purchase 103 head of cattle from the plaintiff. Where, they reached a consensus on: the date, price and a check was submitted as a down payment. In the memo portion, there was the phrase, "103 cattle" written at the bottom. After delaying the delivery of the cows by one week, the defendants refused to accept the product. As, they agreed to: predetermined dates, when they were suppose to pick up the livestock. Yet, no one would meet the plaintiff to finalize the deal. Frustrated, the plaintiff made numerous attempts to complete the transaction. After he was unable to come to a successful conclusion, he began to search for other buyers to purchase the cattle. At which point, they located another party and the subsequently completed the transaction with the plaintiff.

However, there were added costs from this delay and the price received for the heard was lower. This is because, so much time had elapsed (from the actions of the defendant) that the plaintiffs had lost money in selling their cattle to the highest bidder. As this delay, meant that they could not find another buyer when prices were high. At the same time, there were increased costs of: storing, feeding and transporting the cattle. To the meeting locations that plaintiffs did not attend. After, several failed attempts to make final delivery, is when the costs began to increase to the point that they impacted the plaintiff's profit margins.

Issue:

The defendants appealed the decision of the lower court, claiming that the contract was unenforceable and the way damages were calculated granted excessive awards to the plaintiff.

Answer/Holding:

The judgment of the lower court was affirmed.

Reasoning:

The Kansas Supreme Court believes that the contract is enforceable. This is based upon the fact that the defendants admitted that they were aware of agreement. Furthermore, the written notation at the bottom of the check is proof of them having knowledge of the actions that they were taking.