Article

Note: Wings Manufacturing Corp. (Seller) contracted to sell garments for US$89,724 to a broker, Lawson Sales Company (Buyer), intended for resale to Cracker Barrel Corp. (Retailer). The contract specified that Buyer could return the garments to Seller for late delivery or defects. Buyer's obligation to pay for the apparel was secured in part by a domestic commercial LC for US$50,000.

Buyer/Applicant returned some of the shipments with Seller/Beneficiary's permission because they did not conform to the contract. Other non-conforming garments that Beneficiary did not give its permission to return were sold by Applicant on a secondary market at a considerable discount.

Beneficiary then drew on the LC for its full value, and sued Applicant and Applicant's owner, Roy D. Lawson (Owner), for the remaining price of all goods shipped. Owner and Applicant filed an answer and a counter-complaint, claiming that Beneficiary had improperly drawn on the LC. Owner and Applicant asked for damages for lost profits and for the destruction of Buyer/Applicant's contractual relationship with Retailer.

The Chancery Court for Coffee County, Tennessee, Johnson, J., entered judgment for Owner and Applicant, ordering Beneficiary to return to Applicant the amount drawn under the LC with an additional US$32,890 in damages under the sales contract. Beneficiary appealed, claiming error in the failure to calculate the cost of manufacture.

The Court of Appeals of Tennessee, at Nashville, Cottrell, J., Koch, J., and Clement, J., affirmed the decision of the Chancery Court. The court noted that Applicant had rightfully rejected the goods, and therefore was not liable for their price. The court employed its discretion to award Owner and Applicant the legal costs incurred as a result of Beneficiary's appeal.

Comments by James E. BYRNE:

1. While the opinion does not state the date that the LC was issued, it indicates that "most of the orders were taken in the summer of 1999". Nor does it indicate the location of the issuer but it is reasonable to suppose that it is located in Tennessee, the location of the Applicant.

If this supposition is true, the Applicant and counsel may have overlooked an opportunity. Revised UCC Article 5 became effective in Tennessee on 1 July 1998. If the LC was issued in Tennessee after that date, Applicant could have stated a claim under revised UCC Section 5-110 for breach of an LC warranty. While the result would not have been different than that obtained in this contract action, it would have entitled Applicant to attorney's fees under Revised UCC Section 5-111(e), a result otherwise not available in the US absent statutes or express agreement.

[JEB/dgd]

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