Commercial Law Reporter
A Publication Devoted to Commercial Law and Intellectual Property Issues
September 2010

Managing Editor: Karen Libertiny Ludden
Co-Editors: Robert D. Goldstein and Mark Shreve

• Special considerations for cases involving the sale of international goods.
• What you need to know about…serving lawsuits on foreign companies.
• Commercial law update: Uniform Commercial Codes do not apply to contract primarily forservices; claim for “lifetime employment” rejected when not supported by documentary evidence or testimony.

Special considerations for cases involving the sale of international goods by: Alan G. Davis

Many times construction litigation involves not only claims of defective workmanship, but also claims of defective materials. With increasing frequency, those materials are being purchased from foreign countries.Because the manufacturer is aware that its goods are being sold and used in the United States, attorneys on both sides often just assume that the laws of the particular state will govern the liability of the manufacturer. While that may be true for cases involving personal injuries, it is not true where only property damage is involved.

In 1988, the United States ratified The United Nations Convention on Contracts for the International Sale of Goods (CISG). Under the Supremacy Clause of the U.S.Constitution, the CISG preempts all state common law and statutory law on any issue to which it applies.Zschernig v. Miller, 389 U.S. 429, 88S. Ct. 664, 19 L. Ed. 2d. 683 (1968).The Convention states that it applies to contracts for sale of goods between parties whose places of business arein different countries, thereby making it the applicable law for commercial purchases of windows, doors, roofing materials, steel beams, plumbing fixtures, electrical fixtures, caulking and the rest of building components which may be purchased from foreign manufacturers.In many ways the CISG follows the Uniform Commercial Code (UCC) adopted by most states to cover contracts involving the sale of goods. However,there are some significant differences which can create major problems for the unwary.

There is no statute of frauds or parole evidence rule.The CISG does not require that there be writing to prove contracts and in fact states that contracts may be proven by any means. The result is that, even in the faceof a clearly written contract, an opponent can claim that there was an oral agreement to ignore provisions, or that certain provisions and even common words do not mean what they seem to clearly state. Used by a devious opponent, this could preclude many summary disposition motions.

There are fewer implied warranties, and they can be more easily disclaimed.There is no implied warranty of“merchantability” as set forth in the UCC, but rather a warranty that the goods are fit for the purposes for which goods of the same description would ordinarily be used.The CISG says that the seller is liable for lack of conformity at the time of delivery and thereafter if there is a guarantee that they will remain fit for some period of time. A written warranty is therefore extremely important,otherwise the buyer’s only warranty is that the product will be functional at the time of delivery. As most items at least briefly function appropriately,the lack of any further implied warranty as imposed in cases applying the UCC can be shocking and devastating.

The functional statute of limitations is one half as long as the UCC.Both the UCC and the CISG require the purchaser to provide notice of the discovery of a non conformity within a reasonable time and both impose a four year statute of limitations from the date of sale.However, a second paragraph in the CISG states that the buyer loses the right to claim a lack of conformity if it does not notify the seller about the non-conformity within two years from the date of delivery. This effectively cuts in half the maximum time within which the buyer must discover and give notice of the deficiency. This can be of great significance in major projects where items may be purchased well in advance of installation and not used until the project is completed, leaving only a short time for a problem to appear, be recognized and notice to be given. The CISG only provides for extension where the contract provides for a longer warranty period.

There is no one Supreme Court to provide ultimate guidance.The courts of all the signator countries can hear cases involving the CISG, however,no country’s court is bound by a previous interpretation of the CISG by the courts of another country.Additionally, application of the CISG is not as easy as under the UCC, since not as much written detail is provided. All of this creates plenty of room for interpretation favoring a resident business over its foreign opponent.

Avoiding the CISG is not as easy as it might seem.It is now very typical for contracts to specify that any dispute resolution method will apply the laws of some particular jurisdiction, such as the State of Michigan. However, courts have made the determination that if the jurisdiction whose laws are to be used is a signator or subdivision of a signator to the CISG, then the CISG is in fact a law of the jurisdiction, and theCISG will be applied. This means that simply saying that the laws of Michigan will apply is not enough. To avoid the CISG, the contract needs to also say that the CISG will not apply.

Final Comments The CISG has many other nuances besides those mentioned above, and because the courts of many nations are deciding cases under that law, research is not as simple as under the U.S. system of jurisprudence.However, consideration and application of its provision may well prove of great benefit to a party and their insurance carrier. In fact, it may even reverse the outcome. Therefore, where litigation involving foreign products is involved, legal analysis should be undertaken

to determine whether the CISG can and should be asserted to provide a more favorable legal position than what may be available under state law.Mr. Davis is an attorney in the Troy office of Garan Lucow Miller who handles commercial litigation cases. You can reach him by telephone, at(248)641-7600/(800)875-7600, oradavis@garanlucow.com

What you need to know about…serving lawsuits on foreign companies
by: Thomas P. Christy

Are you doing business with foreign companies? Have you ever considered what would happen if you ended up in a dispute with them? Suing U.S. companies is routine. Suing foreign companies may not be.Companies that do business regularly in an American state are required to maintain what is known as a “resident agent” whom you can serve with legal papers. However, not all foreign companies will have one. If the foreign company does not have one, you will need to serve the company in its home country, and, depending on the country involved, you may have to proceed through diplomatic channels, which can be a slow and expensive process.Furthermore, even if you successfully serve the foreign company and then obtain a judgment, you may need the assistance of foreign courts to enforce the judgment and collect. This can be cumbersome, and the foreign courts may not cooperate.

If the company has a U.S. affiliate, you are usually better off doing business with the U.S. company.Even then, you should consider carefully whether the U.S. affiliate is collectible if you need to sue. If the U.S.affiliate is undercapitalized, even that may not help you.In the end, the same rule applies to foreign companies as to any company: Know who you’re doing business with. Do your homework.Mr. Christy is an attorney in the Troy office who handles business transactions and litigation. You can reach him at (248) 641-7 6 0 0 / ( 8 0 0 ) 8 7 5 – 7 6 0 0 o rtchristy@garanlucow.com

Commercial Law Update by Karen Libertiny Ludden
UNIFORM COMMERCIAL CODE NOT APPLICABLE TO CONTRACT INVOLVING PRIMARILY SERVICES WHEN SALE OF GOODS WAS ONLY INCIDENTAL

In July, the Court of Appeals ruled in an unpublished decision that a contract involving primarily the sale of services, with only incidental sale of goods,was not governed by the Uniform Commercial Code.In C& S Electric Services, Inc. v. Acemco Inc., a catastrophic failure of an electrical conduit system installed by plaintiff in defendant’s plant caused approximately 260 feet of a 1,000-amp electrical conduitto fall 35 feet onto the production floor. C& S Electrical Service, Inc. v. Acemco, Inc., 2010 WL 2793539 (Mich.App.)

Pursuant to the economic loss doctrine, when a plaintiff seeks to recover for economic loss caused by a defective product purchased for commercial purposes,the Uniform Commercial Code provides the exclusive remedy. See Quest Diagnostic, Inc. v. MCI World Com,Inc., 254 Mich. App. 372, 2002). The UCC, however,limits lawsuits to a four-year time period commencing after the cause of action has accrued. In C&S Electric Services, the four years had already passed, so if the Court had found that the economic loss doctrine applied,the suit would have been barred.

Instead, the Court held that, while the parties’ contract was a mixed contract for the sale of goods and services, the contract was primarily for electrical construction, installation, maintenance, and repair

services, while the sale of goods was only incidental. Asa result, the Court held that the economic loss doctrine did not apply and thus the four-year statute of limitations contained in the UCC did not apply.

CLAIM FOR BREACH OF “LIFETIME” EMPLOYMENT CONTRACT REJECTED WHEN LENGTH OF CONTRACT AND MANNER OF TERMINATION NOT SPECIFIED IN DOCUMENTARY EVIDENCE OR TESTIMONY he Court of Appeals has recently rejected a breach of employment contract case involving a plaintiff who suedon the grounds that he believed he had been unequivocally offered a lifetime position as exclusive garage builder for a umber company. Kozma v. Chelsea Lumber Co, 2010 WL2836327 (Mich. App.)

In Kozma, the plaintiff testified that,based on oral discussions with the defendant lumber yard, he maintained a contract of employment that was renewable on a yearly basis, but was perpetual from the moment it was reached. The Court found that there was insufficient documentary evidence or testimony in support of plaintiff’s argument.

The Court also held that, since the length of a contract and the manner of termination are not essential terms of a contract, when a contract is silent regarding both of these issues, it is implied that the contract is terminable at will. On this basis, the Court ruled that the breach of contract failed.The Court also rejected the plaintiff’s promissory estoppel claim that the alleged oral promise be enforced and also rejected the claims of tortious interference with a business contract and intentional infliction of emotion distress. The Court did, however, find that a question of fact existed as to whether the defendant had fraudulently misled plaintiff into thinking that he was receiving all garage construction work so as to induce his reliance.Ms. Ludden is an attorney in the Troy office who handles commercial litigation concerning the Uniform Commercial Code and breach of contract claims. You can contact her at (248)6 4 1 – 7 6 0 0 / ( 8 0 0 ) 8 7 5 – 7 6 0 0 , o rkludden@garanlucow.com

Breaking News

The Sixth Circuit Court of Appeals recently has clarified interpretation of the“ensuing loss” provision in an exclusion for any “loss caused by or resulting from(including the cost of making good)workmanship defects” in an all-risk policy.The Court of Appeals interpretation allows full effect of the exclusion, while preserving coverage for losses that may arise from a peril that is not a natural or foreseeable consequence of the exclusion.TMW v. Federal Ins. Co., ___ F.3d ___ 2010. An article regarding this decision will follow in the October 2010 issue of Commercial Law Reporter. The case was handled in the Federal trial court by C. David Miller and by Megan Cavanagh on appeal.Mr. Miller is an attorney in the Detroit office who handles commercial coverage cases. You can contact him at (313) 446-1530/(800) 875-1530., or dmiller@garanlucow.com.

Ms. Cavanagh is an attorney in the Detroit office who handles commercial coverage appeals. You can contact her at (313)446-1530/(800)875-1530 or mcavanagh@garanlucow.com.SAVE THE DATE

Garan Lucow Miller is pleased to provide advance notice of its upcoming seminars:Buckeye Seminar Wednesday, October 13, 2010Greater Columbus Convention Center Columbus, Ohio.Windy City Seminar Thursday, November 4, 2010Double Tree Hotel Arlington Heights, Illinois.If your company is interested in receiving a free in-house seminar on any commercial law topic, please contactkludden@garanlucow.com