McGlinchey's Commercial Law Bulletin is a biweekly update of recent, unique, and impactful cases in state and federal courts in the area of commercial litigation.
Banks v. Shark Auto Sales LLC, 11th Dist. Trumbull, No. 2022-Ohio-3489
In this appeal, the Eleventh Appellate District reversed the trial court's judgment in favor of the plaintiff on her vehicle warranty claims, finding that she was not entitled to rescind her motor vehicle purchase.
The Bullet Point: A used motor vehicle is a "good" for purposes of Ohio's UCC.
The sale of goods in Ohio may entail both express and implied warranties, including the implied warranty that the goods "are fit for the ordinary purposes for which such goods are used." "[U]nless the circumstances indicate otherwise all implied warranties are excluded by expressions like 'as is', 'with all faults', or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty."
Additionally, "when the buyer before entering into the contract has examined the goods * * * as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him." Thus, as the court held, "[i]n situations like the present one, where there has been a repudiation of warranties, revocation based on non-conformity has not been allowed"
Rainy Day Rentals v. Net Gen. Prop., 7th Dist. Mahoning No. 2022-Ohio-3530
On appeal, the Seventh Appellate District affirmed the trial court's decision, finding that the parties' rental agreement was not void and was not against public policy.
The Bullet Point: "[I]t is the policy of the law to encourage freedom of contract, and that the courts should not interfere with this right unless it clearly appears that the execution of the contract will prejudice the public interest.'" "'The power of courts to declare a contract void as being against public policy is a delicate and undefined one, and, like the power to declare a statute unconstitutional, should be exercised only in cases free from doubt.'
A "void contract" is a "contract that is of no legal effect, so that there is no contract in existence at all." As the Seventh District noted, "[c]ontracts found void as in violation of law and contrary to public policy are void because the law disapproves of the purpose of the contract, consideration contemplated, or the terms of the agreement by which the parties seek to achieve their contractual purpose. Courts have voided certain agreements when the substance of the contract or the consideration is malum in se, meaning wrong in its very nature because the matter or thing contracted for violates the natural or moral norms of society."
Land Installment Contract
Hamilton v. Barth, 1st Dist. Hamilton, No. 2022-Ohio-3451
In this appeal, the First Appellate District affirmed the trial court's decision granting summary judgment to the defendant on various claims related to a land installment contract.
The Bullet Point: A land installment contract is "an executory agreement which by its terms is not required to be fully performed by one or more of the parties to the agreement within one year of the date of the agreement and under which the vendor agrees to convey title in real property located in this state to the vendee and vendee agrees to pay the purchase price in installment payments, while the vendor retains title to the property as security for the vendee's obligations."
The minimum provisions and requirements for a land installment contract are outlined in R.C. 5313.02. The statute lists 16 minimum provisions that a land installment contract must contain. It requires the vendor to record the land installment contract within 20 days of the contract being signed and that every land installment contract conforms to the same formalities required by law for the execution of deeds and mortgages. The failure to adhere to these formalities can, and will, invalidate a land installment contract.
Relevant Discovery in FCCPA Actions
Babani v. Broward Auto. Inc. No. No. 4D21-2694 (Fla. 4th DCA Sept. 30, 2022)
The Fourth District concluded that the trial court's grant of summary judgment in an action for damages under the Florida Consumer Collection Practices Act (the FCCPA) was premature because outstanding discovery remained as to the defendant's policies and procedures.
The Bullet Point: Section 559.77(3), Florida Statutes provides that no person can be held liable under the FCCPA "if the person shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error, notwithstanding the maintenance of procedures reasonably adapted to avoid such error." In this case, the trial court granted summary judgment in an action for damages under the FCCPA, while discovery regarding the defendant's policies and procedures was outstanding. The trial court concluded that this discovery was irrelevant to the issue of the defendant's actual knowledge that it violated the FCCPA. The Fourth District disagreed, holding that the discovery was relevant to the bona fide error defense. Because outstanding discovery remained a disputable issue of knowledge and error by the defendant, the trial court's grant of summary judgment was premature. Accordingly, the case was reversed and remanded for discovery to be completed.
Perfection of a Security Interest
1944 Beach Blvd., LLC v. Live Oak Banking Co., No. 21-11742 (11th Cir. Sept. 29, 2022)
The Eleventh Circuit concluded financing statements that contained a minor error in the spelling of the debtor's name were seriously misleading and, therefore, ineffective to perfect a security interest.
The Bullet Point: To perfect a security interest under Florida law, a creditor must file a financing statement with the Florida Secured Transactions Registry that provides: (1) the name of the debtor; (2) the name of the secured party; and (3) a description of the collateral covered by the financing statement. There is zero tolerance for a financing statement that fails to sufficiently provide the debtor's name. Even a minor error or omission will render the financing statement seriously misleading and, therefore, ineffective to perfect a security interest.
In this appeal, the Eleventh Circuit concluded that the appellee failed to properly perfect its security interest in the appellant's assets because it filed financing statements that identified the appellant as "1944 Beach Blvd., LLC" instead of "1944 Beach Boulevard, LLC." This is because there is zero tolerance under Florida law for a financing statement that fails to sufficiently provide the name of the debtor, given the Florida Supreme Court's recent determination that the statutory safe harbor exception for financing statements is unavailable until the Florida Secured Transactions Registry employs a standard search logic. Accordingly, because the financing statements contained a minor error in the spelling of the appellant's name, they were seriously misleading and, therefore, ineffective perfect a security interest in the appellant's assets.
Waiver of Contractual Obligations
Smith v. Carlton, No. 5D21-1383 (Fla. 5th DCA Sept. 23, 2022)
The Fifth District concluded that there was no substantial evidence supporting the trial court's ruling that the appellants waived the appellee's contractual obligations.
The Bullet Point: Under Florida law, any contractual right can be waived. The elements of waiver are: (1) the existence at the time of the waiver of a right, privilege, advantage, or benefit which may be waived; (2) the actual or constructive knowledge of the right; and (3) the intention to relinquish the right. A trial court's finding of waiver must be supported by competent substantial evidence.
In this case, the appellees contracted to sell their horse farm to the appellants and agreed to clear out any trash on the ground and to ensure that all fixtures remained on the property as of closing. After discovering shortly after closing that some gates and fencing had been removed and that there was still a vast amount of trash on the property, the appellants provided written complaints to the appellees and ultimately filed a breach of contract action against them. The trial court ruled that while the appellees breached the contract, the appellants waived all remedies by closing on the property and delaying the enforcement of their contractual rights. On appeal, the Fifth District concluded there was no competent substantial evidence supporting the trial court's ruling that the appellants waived the appellees' contractual obligations and their right to seek monetary damages for the breach of contract. Accordingly, the judgment in favor of the appellees was reversed.
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