Chapter 19



Chapter 20

The Formation of Sales and Lease

Contracts

Case 20.1

Court of Appeals of Kansas.

Steve HAMMER and Ron Howe, Appellants,

v.

Kevin THOMPSON, Roger Morris d/b/a Morris Cattle Company and Auction Service, Nick Hunt d/b/a Clan Farms, Inc., IBP Foods, Inc., and Farm Bureau Management Corporation d/b/a BIC Cattle, Appellees.

No. 93,526.

March 3, 2006.

, J.

Steve Hammer and Ron Howe appeal the district court's decision to grant the summary judgment motions of Roger Morris d/b/a Morris Cattle Company and Auction Service (Morris), Nick Hunt d/b/a Clan Farms, Inc. (Hunt), IBP Foods, Inc., now known as Tyson Fresh Meats (Tyson), and Farm Bureau Management Corporation d/b/a BIC Cattle (BIC) in their action for conversion of cattle and the denial of the appellants' motion for partial summary judgment. The district court found that the entrustment doctrine pursuant to protected these appellees. We affirm the court's denial of Hammer and Howe's motion for partial summary judgment and reverse and remand the summary judgment granted to the appellees.

Steve Hammer and Ron Howe filed a petition in chapter 61, limited actions, against Kevin Thompson, Morris, Hunt, and Tyson. The petition stated that Hammer and Howe placed 150 breeding heifers with Thompson for grazing on pasture land. Hammer and Howe alleged that Thompson transferred the cattle to Morris for $131,750, thus converting the cattle for Thompson's own use and purpose. Morris then transferred the cattle to Hunt who transferred the cattle to Tyson. Hammer and Howe alleged that all defendants were jointly and severally liable for the conversion of the cattle.

Tyson raised the affirmative defenses of the entrustment doctrine and buyer in the ordinary course of business in its answer. Tyson also cross-claimed against Hunt for indemnification.

In his answer, Morris admitted that he gave Thompson $83,188 for 150 head of cattle. Morris specifically denied that he converted the cattle. He claimed he was a buyer in the ordinary course of business and that Thompson was a merchant under the Uniform Commercial Code (UCC). Therefore, the entrustment doctrine barred the claims.

Thompson did not answer the petition, and a default judgment of $131,750 was entered against him.

Hammer and Howe filed an amended petition on January 29, 2004. BIC was added as a defendant. The petition alleged that Morris transferred the cattle to Hunt through BIC and that BIC also converted the cattle.

In his answer, Hunt raised the defense of the entrustment doctrine and buyer in the ordinary course of business. Hunt raised a cross-claim against BIC for indemnification. BIC also raised the defenses of entrustment and buyer in the ordinary course of business. BIC filed a cross-claim against Morris for indemnification.

BIC and Tyson filed a joint motion for summary judgment, arguing that they were protected from liability by the entrustment doctrine found in the UCC. Hunt filed a motion for summary judgment, incorporating BIC and Tyson's memorandum of law and requesting summary judgment pursuant to the entrustment doctrine. Morris also filed a motion for summary judgment based on the entrustment doctrine. Hammer and Howe moved for partial summary judgment against all defendants on the issue of liability.

The district court adopted the uncontroverted facts set forth by the moving defendants and concluded as a matter of law that the entrustment doctrine applied to the case. The district court found that Thompson was a merchant and that Morris was a buyer in the ordinary course of business pursuant to the entrustment doctrine. Therefore, Morris and all subsequent purchasers obtained and passed good title to the cattle. The district court granted the defendants' motions for summary judgment and denied Hammer and Howe's motion for partial summary judgment. The cross-claims were dismissed as moot.

Hammer and Howe timely appeal.

" ' "Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The trial court is required to resolve all facts and inferences which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. In order to preclude summary judgment, the facts subject to the dispute must be material to the conclusive issues in the case. On appeal, we apply the same rules and where we find reasonable minds could differ as to the conclusions drawn from the evidence, summary judgment must be denied." [Citations omitted.]' " .

The filing of cross-motions for summary judgment does not obligate a trial court to enter summary judgment. Rather, the trial court must independently determine whether a genuine issue of material fact exists. .

Hammer and Howe's motion for partial summary judgment

We have jurisdiction to consider the denial of Hammer and Howe's own summary judgment motion because the district court granted the opposing parties' summary judgment motion. See , rev. denied 248 Kan. 997 (1991).

Hammer and Howe argue that they established conversion as a matter of law through the following uncontroverted facts: Thompson did not have title to the cattle; Morris bought the cattle from Thompson for the benefit of Hunt who used BIC as its agent to purchase the cattle; Hunt sold 142 of the 150 cattle to Tyson; and Hammer and Howe did not give authority to Thompson to sell the cattle on the date of sale. Hammer and Howe contend that although the entrustment doctrine provides an exception to the general rule that a thief cannot pass good title, the defendants had the burden to establish each element of their affirmative defense and failed to do so. Conversion is defined as "the unauthorized assumption or exercise of the right of ownership over goods or personal chattels belonging to another to the exclusion of the other's rights." , cert. denied .

Hammer and Howe contend that the defendants were not authorized to exercise the right of ownership as a matter of law. In order to overcome the motion, the appellees must raise a genuine issue of material fact as to their authority to exercise ownership. Appellees argue that authority is provided by the UCC's entrustment doctrine.

There is no dispute between the parties that Article 2 of the UCC applies to this case.

Kansas statutes set forth the UCC entrustment doctrine, applicable in transactions of goods, as follows: "Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in the ordinary course of business." . The statute also provides in part: " 'Entrusting' includes any delivery and any acquiescence in retention of possession...." . Hammer and Howe do not dispute that they delivered possession of the cattle to Thompson.

Case law has defined three steps required for the doctrine to be applicable. "(1) An entrustment of goods to (2) a merchant who deals in goods of that kind followed by a sale by such merchant to (3) a buyer in the ordinary course of business." .

The parties' briefs do not point out that the UCC limits the definition of merchant under the entrustment doctrine to a person who "deals in goods of that kind" even though the definition of merchant in includes those who are merchants because of their knowledge or skill peculiar to the goods involved in the transaction or who hold themselves out as having such knowledge and skill. See , Kansas Comment, 1996, subsection 4 ("Persons who are merchants because of their knowledge of business practices would not qualify under this subsection [entrustment].").

Hammer and Howe rely on the interpretation of the term "merchant" in , and .

In Decatur, the Kansas Supreme Court reviewed the issue of whether a farmer was a merchant pursuant to the UCC in an action where a cooperative sought to obtain possession of wheat purchased under an oral contract with a farmer. If the farmer was a merchant, then the statute of frauds would not apply to the contract. . The opinion found that under the UCC there are three criteria for determining merchant status:

"(1) a dealer who deals in goods of the kind involved, or (2) one who by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction, even though he may not actually have such knowledge, or (3) a principal who employs an agent, broker or other intermediary who by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction." .

The Supreme Court noted that "professionalism, special knowledge and commercial experience" are to be used in the determination. The court found that the farmer was not a merchant because he did not "deal" in wheat and because he did not have any knowledge or skill peculiar to the practices or goods involved in the transaction. Instead, the farmer had special knowledge in raising wheat. .

Musil relied on the Decatur criteria for determining merchant status in a case where the question was whether a hog farmer was a merchant under the UCC for the purpose of applying the implied warranty of merchantability. . This court found that there was no doubt that the appellee was a dealer in hogs since he testified that he had been in the hog business for 30 to 40 years and at the time of the sale at issue, was selling 50 to 100 pigs each month. . This court also found that the appellee's testimony supported a finding that he was a merchant under the second Decatur criteria. Morris distinguishes Decatur and Musil. However, the parties fail to recognize that the definition of merchant under the UCC entrustment doctrine is limited to a person who "deals in goods of that kind." It is this limitation that distinguishes Decatur and Musil which do not interpret merchant solely based on "deals in goods of that kind."

In his brief, Morris says that the appellants concede that an order buyer can qualify as a "merchant"; however, the pleading referred to is a factual assertion that Morris "bought and sold cattle as a dealer in cattle on a regular basis." It does not appear that Hammer and Howe were conceding that Thompson is a merchant. The parties indicate that Thompson was involved in order buying cattle. Thompson described order buying as acting as the middleman between the purchaser and the seller. "I buy the cattle for the man that's purchasing them and try to help the man that's selling them get rid of them or sell them." In order to determine whether the appellees established that entrustment gave them ownership authority, the term "deals in goods of that kind" needs to be interpreted. There are no published Kansas cases on this issue, and the parties did not reach this question since they relied on the broader definition of merchant.

"Deals in goods of that kind" entrusted has been construed as a person who is engaged regularly in selling or leasing goods of the kind. 3A Anderson on the Uniform Commercial Code § 2-403:80 (3d ed.2002 rev.); see also (customs broker was not engaged regularly in selling goods of the kind); (farmer who raised and sold exotic animals for 6 years was regularly engaged in selling goods of the kind); (relevant factual inquiry was whether the entrustee was regularly engaged in selling goods of the kind; conclusory statements in affidavits were not dispositive of the issue).

defines "livestock dealer" as

"any person engaged in the business of buying or selling livestock in commerce, either on that person's own account or as the employee or agent of the seller or purchaser, or any person engaged in the business of buying or selling livestock in commerce on a commission basis and shall include any person who buys or sells livestock with the use of a video. 'Livestock dealer' does not include any person who buys or sells livestock as part of that person's own breeding, feeding or dairy operation, nor any person who receives livestock exclusively for immediate slaughter."

The definition of a livestock dealer would encompass an "order buyer" as defined by Thompson, and an order buyer of cattle would arguably be a merchant who "deals in goods of that kind" under the entrustment statute.

We have found no Kansas cases on the question of whether an order buyer is considered a merchant under the entrustment doctrine. However, in , the court found that it was not necessary for a party to possess an inventory in order to fit within the statutory definition of merchant for the purposes of the entrustment doctrine. . There, the broker/dealer of used cars failed to pay the seller for a vehicle which the broker/dealer sold to a third party. The appellate court upheld the application of the entrustment doctrine and granted replevin of the vehicle to the third-party buyer. However, in reasoning that the broker/dealer was a merchant, the opinion noted that the definition of merchant includes one who holds himself or herself out as having knowledge or skill peculiar to the goods involved in the transaction and that the broker/dealer held himself out as a dealer in automobiles and appeared to be a dealer in automobiles. . To the extent that the court relied on the broader definition of merchant, the reasoning could be considered flawed.

In their brief, BIC and Tyson cite to , as a case involving similar facts to the present case and decided under Kansas law. In Cattle Finance, the defendant was an Iowa corporation in the business of buying and selling cattle. The defendant shipped cattle to a Kansas feedlot. The manager of the feedlot sold the cattle to the debtors of the plaintiff finance company and kept the proceeds for himself, keeping two sets of books on the ownership of the cattle. The defendant opposed a preliminary injunction to escrow the proceeds from the sale of the cattle. The federal court determined that there was a fair ground for litigation under the UCC entrustment doctrine and issued a preliminary injunction.

BIC and Tyson assert that the federal court upheld the superior title of the plaintiff debtors over the defendant who entrusted the cattle to the feedlot. However, the federal court made it clear that its decision was based on the plaintiff's production of evidence in support of its claims, demonstrating a fair ground for litigation on the issue. It was not a determination on the merits. .

The Cattle Finance opinion also discussed the manager of the feedlot's status as a merchant under the entrustment doctrine. The feedlot manager would solicit buyers for cattle and broker deals with the defendant or purchase cattle in the name of the feedlot for retransfer to the purchasers. The federal court noted that this practice was well known to the plaintiffs and defendant at the time and the practice showed that the feedlot manager was a merchant who dealt in goods of the kind entrusted. . However, as stated above, this was not a determination on the merits of whether the merchant element was met for the purposes of the entrustment doctrine.

To support their argument that Thompson was not a merchant, Hammer and Howe argue that Thompson had no intention of being an order buyer of cattle; his intent was only to run growing lots. Hammer and Howe contend there is no evidence that Thompson was running an order buying business in May 2002 when he sold the Hammer/Howe cattle and, therefore, he was not dealing in goods of the kind. Hammer and Howe assert that Thompson's documented sales were in the months of October and November 2002, after the May 2002 sale of Hammer and Howe's cattle to Morris.

Morris argues that Thompson was a merchant, pointing to the following facts: Thompson began an order buying business while working at Greeley Farms, and Hammer sold Thompson 300 head of cattle earlier in the summer. Thompson held himself out as a person with specialized knowledge of pasturing cattle, Thompson had documented purchases and sales of cattle as early as March 2001 and had bought or sold cattle as an order buyer in at least 60 different transactions.

BIC and Tyson argue that the fact Thompson sold and purchased cattle before and after the sale in the present case and the fact the other transactions involved multiple persons and/or business entities, as well as Thompson's testimony about acting as order buyer and cattle trader, show that Thompson was a merchant.

BIC and Tyson provided the district court with 18 exhibits in their motion for summary judgment. Among the exhibits was an excerpt of Thompson's deposition. Thompson testified that he managed a ranch in Greeley, Kansas, from 1996 to 2001. In 2001, Thompson moved to Richmond, Kansas, to "start the cattle business for myself. I was running a starting lot and trying to order buy cattle and trade cattle." He began order buying when he was still working at the ranch in Greeley in 2000. Thompson testified that he did most of his order buying in 2001-2002.

The exhibit also included two charts that list the dates and transaction information for Thompson's cattle sales and purchases in 2002. It appears from the chart of cattle sales that there were eight transactions between October 16, 2002, and November 19, 2002, while the chart of cattle purchases shows there were 18 transactions between October 9, 2002, and November 21, 2002.

Appellee Morris sold cattle to Thompson in the 19 transactions which were dated between May 15, 2002, and August 18, 2002.

In BIC and Tyson's response to Hammer and Howe's motion for partial summary judgment, one of the attached exhibits included an affidavit from Thompson that stated the attached were true and correct documents from his cattle business in 2001.

The attached invoices clearly showed Thompson was involved in 31 transactions between March 15, 2001, and December 20, 2001. There were 25 invoices where Thompson was listed as the buyer and 6 where Thompson was listed as the seller.

Through the above evidence, the appellees showed that there was a material dispute as to the question of whether Thompson was a merchant for the purposes of the entrustment doctrine. We will address the district court's decision that Thompson was a merchant as a matter of law in the second issue. The next question is whether the appellees raised a material dispute as to the buyer in the ordinary course of business element from the entrustment doctrine.

The definition of "buyer in the ordinary course of business" is not limited by the entrustment doctrine. , Kansas Comment, 1996, subsection 4. The UCC defines buyer in the ordinary course of business in relevant part as "a person who in good faith, without knowledge that the sale violates the rights of another person in the goods, and in the ordinary course from a person, other than a pawnbroker in the business of selling goods of that kind." K.S.A.2005 Supp. 84-1-201(9). Under Article 2 of the UCC, a merchant is subject to a higher standard for good faith: "[I]n the case of a merchant [good faith] means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade." K.S.A.2005 Supp. 84-2-103(1)(b). When the buyer is a merchant, the buyer must meet the higher standard for good faith. 3A Anderson on the Uniform Commercial Code § 2-403:34-35.

Hammer and Howe do not contend that Morris had actual knowledge of their ownership rights. Hammer and Howe also concede that Morris has sufficient evidence on the subjective element of good faith--honesty in fact. However, they claim that Morris failed to come forward with material evidence of the objective element of good faith--the observance of reasonable commercial standards. Hammer and Howe point out that the Kansas Comment to K.S.A.2005 Supp. 84-2-103, subsection 3 states: "Usage of trade, course of dealing, and course of performance are relevant in establishing reasonable commercial standards." Because course of dealing and course of performance are not applicable under the facts of the transaction at issue, Hammer and Howe argue that Morris must rely on proof of trade usage to establish that he observed reasonable commercial standards of fair dealing.

Morris argues that Hammer and Howe do not offer any support for their assertion that the appellees needed to show objective good faith through course of dealing. Article 1 of the UCC provides the general definitions for the Code. The definitions are prefaced by the following language: "Subject to additional definitions contained in the subsequent articles of this act which are applicable to specific articles or parts thereof, and unless the context otherwise requires...." (Emphasis added.) K.S.A.2005 Supp. 84-1-201.

Under Article 1, good faith is defined as "honesty in fact in the conduct or transaction concerned." K.S.A.2005 Supp. 84-1-201(19). At oral argument, the appellees pointed out that the 1996 Kansas Comment states: "The definition of 'buyer in ordinary course of business' is a specialized version of the traditional concept of bona fide purchaser, purchasing from one who deals in goods of that kind. 'Good faith' is defined in subsection (19) of this section." , Kansas Comment, 1996, subsection 9.

Therefore, the subjective good faith standard is applicable to a buyer in the ordinary course of business, in general. However, the Comment goes on to state:

"The definition of 'good faith' in this subsection is subjective, and requires only honesty in fact.... In Articles 2 and 2a, the definition of 'good faith' is expanded to include an objective standard of 'reasonable commercial standards of fair dealing in the trade' when the party involved is a merchant." , Kansas Comment, 1996, subsection 19.

Article 2 provides the following definition of good faith. " 'Good faith' in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade." K.S.A.2005 Supp. 84-2- 103(1)(b). Therefore, whenever a merchant is involved in a case under Article 2, the merchant is subject to both the objective and the subjective standard of good faith. The entrustment provision is found in Article 2, at K.S.A. 84- 2-403(3). Further support for the application of the expanded standard is found in the 1996 Kansas Comment to 84-2-103:

"Paragraph (1)(b) defines 'good faith' as applied to merchants (defined in 84-2-104) under Article 2 as containing both a subjective standard ('honest in fact') as well as an additional objective standard of the observance of reasonable commercial standards of fair dealing in the trade. Usage of trade, course of dealing, and course of performance are relevant in establishing reasonable commercial standards.... The general Code definition of 'good faith' is limited to subjective honesty in fact, and applies to non-merchants under Article 2." , Kansas Comment, 1996, subsection 3.

See also 3A Anderson on the Uniform Commercial Code § 2-403:34 ("When the buyer is a merchant, the buyer must meet the requirements of goods [1][b] which require both honesty in fact and observance of 'reasonable commercial standards of fair dealings.' When the buyer is not a merchant the subjective test of good faith found in [19] applies.").

The appellees also argue that this court should rely on . There, the Kansas Supreme Court quoted the definition of "buyer in the ordinary course of business" from the Article 1 definitions section. The opinion then quoted the subjective definition of good faith from Article 1. .

It seems the appellees are arguing that the Supreme Court determined that the subjective standard of good faith applies to a buyer in the ordinary course. However, the Supreme Court did not address the question of whether the buyer was a merchant or discuss the appropriate standard of good faith. The Pagel issue was whether the transaction met the definition of "buying" as found in the "buyer in the ordinary course of business" definition. . The Pagel court did not address the same issue that is raised in the present case--whether a buyer in the ordinary course of business, who is also a merchant, is subject to the Article 2 definition of good faith.

Finally, the appellees argued that there is a split in the jurisdictions as to what standard of good faith applies to a buyer in the ordinary course of business. We did not find anything in our research indicating that there is such a split for Article 2 cases.

However, there are conflicting decisions in other UCC cases. See 1 Anderson on the Uniform Commercial Code § 1-201:88 ("Courts do not seem to be consistent in determining whether a merchant buyer has the duties to observe reasonable commercial standards of the trade.").

The two cases annotated by the treatise were cases that involved Article 9. , determined that the merchant good faith standard from Article 2 is not applicable in Article 9 cases because it found the Article 2 definitions did not control the other UCC articles unless the context otherwise required. , rev'd on other grounds , found that the merchant buyer had to meet the subjective and objective standards of good faith in an Article 9 case. See also (a merchant buyer would be subject to two different standards if the Article 2 standard of good faith were not applied to merchant buyers in Article 9 transactions).

In summary, the Article 2 standard of good faith applies in the current case since there is no dispute that Morris is a merchant.

Hammer and Howe argue that Morris did not establish observance of reasonable commercial standards through trade usage. Morris does not otherwise provide any argument as to the facts in evidence supporting Morris' observance of reasonable commercial standards. Morris also contends that course of performance, course of dealing, and usage of trade are only useful in evaluating good faith when interpreting a contract.

BIC and Tyson seem to acknowledge that Morris is subject to the higher standard of good faith for merchants. They argue that there is no requirement for expert testimony to establish that reasonable commercial standards have been met.

There are no Kansas cases to provide guidance on the determination of whether a merchant has observed reasonable commercial standards. In , the appellate court found that a buyer in the ordinary course of business met the higher good faith standard. There, the plaintiffs sold cattle to an individual who was in the business of buying and selling cattle. Per the buyer's instruction, the plaintiffs shipped the cattle to a feedlot even though the buyer had not paid for the cattle. The buyer failed to pay the plaintiffs for the cattle. Nevertheless, the buyer sold the cattle to the defendant cattle company, which paid for the cattle and took possession of them. The plaintiff sued to recover the cattle and for damages.

Among their arguments, the Cugnini plaintiffs claimed that the defendant cattle company was not a buyer in the ordinary course of business because it did not observe reasonable commercial standards of fair dealing in the cattle trade. The plaintiffs specifically pointed to a failure to acquire a brand inspection certificate and to accepting an inadequate bill of sale as violating the standards. The Colorado Supreme Court reviewed the trial court's findings of fact concerning whether reasonable commercial standards were met and affirmed the trial court's finding that the standards were reasonable and had been met. The Colorado Supreme Court did not set forth any rules in manner of proof but did note that the trial court's findings were supported by testimony in the record from various cattle merchants. .

In , the New Jersey appellate court found that a merchant was not a buyer in the ordinary course of business because he did not meet the higher good faith standard. There, the Canadian defendant entered into a car lease with an individual lessee in Canada. The lessee fraudulently sold the car to a New York automobile wholesaler and retail dealer who then sold the car to another individual. The car was then transferred to a leasing agent. After the car was impounded, the New York wholesaler, leasing agent, and individual buyer filed suit, claiming that the leasing agent had title to the car.

The New Jersey Superior Court found that the New York wholesaler failed to observe reasonable commercial standards in its dealings with the lessee. Specifically, the court found that it was unreasonable for the merchant to fail to inquire how to assure purchasers of receiving good title when purchasing from a nontitle jurisdiction since the automobile wholesaler rarely bought vehicles from Canada. The opinion referred to testimony of the president of the automobile wholesaler and the statutes in New Jersey and Canada concerning the purchase of and passing good title to vehicles. It does not appear that there was any other evidence introduced to establish reasonable commercial standards of fair dealings in the trade.

In BIC and Tyson's opposition to Hammer and Howe's partial summary judgment motion, the appellees argued that there was no need for expert testimony on what reasonable commercial standards are for the purchase of cattle. They contended that there was nothing out of the ordinary about the fact that Thompson sold cattle and Morris bought the cattle. Hammer and Howe had argued that the transaction in this case was suspicious because a check that Thompson wrote to Morris on May 15 bounced, which was 3 days before the sale to Morris in this case. In other words, Morris should have known that there was something suspicious about Thompson. BIC and Tyson countered that Thompson's check to Morris cleared when Morris put it through the bank a second time.

As evidence that Morris was paid, BIC and Tyson attached an excerpt of Thompson's deposition where he said he did not owe Hammer or Hunt any money. Also attached were two bank statements for Morris Cattle Company. There is an affidavit in the record by Morris where he said that the first check was returned for insufficient funds on May 20 and Morris resubmitted the check and it cleared on May 29. The record shows that at the time Morris purchased the cattle at issue in the case, he did not know there was a problem with Thompson's check.

An excerpt of Morris' deposition shows that Morris' friend told him about Thompson. Morris was told that Thompson "moves quite a few cattle over there." Morris had been trying to find a place to sell cattle. Morris then made contact with Thompson and offered to do business with him. At some point, Thompson contacted Morris and purchased some cattle.

Morris testified that Thompson called to ask if Morris could sell 150 black heifers. Morris asked Thompson to describe them, and Thompson said they were good heifers from the north. Morris said that Thompson said the heifers were his and that he had decided to sell the heifers rather than make cows of them. Morris, who is located in Arkansas, had his truck driver look at the heifers and also asked a friend who lives in Kansas to look at them. After the truck driver and friend reported the heifers were good, Morris offered 70 cents per pound for the cattle. Morris was not sure if his friend had made a special trip to see the heifers or if he had just seen the cattle because he lived in the area. After agreeing to purchase the cattle from Thompson, Morris then called Hunt and offered the heifers to him. Morris testified that he never saw the heifers and they went directly to Hunt's farm in Iowa. Hammer and Howe do not contend that Morris is incorrect about how the cattle purchase was conducted.

In Hunt's response to the partial summary judgment motion, Hunt argued that Morris provided sufficient evidence to establish his compliance with reasonable commercial standards. Hunt claims that testimony from Hunt and Morris shows that the transaction was typical and that Hunt and Morris have extensive cattle trading experience.

The excerpt of Hunt's deposition shows that Hunt testified that he had about 10 different cattle deals with Morris over the course of 20 years. Hunt said that he never had a transaction like the one in this case. Hunt testified that what was different about the transaction was that Morris was selling him cattle that were not located in his area. Hunt also testified as to the nature of his own normal buying transaction for feeding cattle.

Hunt attached an affidavit from Morris to his response. The affidavit stated that Morris had been in the cattle business for 32 years and that in his business as an order buyer, he locates farmers and ranchers who have cattle to sell, buys the cattle, and resells them. The affidavit said that it was not unusual to buy and sell cattle from someone who he did not know and that there was nothing unusual about the transactions between Thompson and Morris.

Hunt offered in his response that all of the defendants were experienced in the area of cattle trading and each can offer testimony as to what is commercially reasonable. However, that testimony was not prepared for the response to the partial summary judgment motion.

In Morris' response, he did not offer any additional evidence showing that he followed reasonable commercial standards. However, he did incorporate his arguments and authorities from his motion for summary judgment. In Morris' summary judgment motion, Morris contended that he observed reasonable commercial practices when he negotiated the purchase because he asked several questions about the heifers, had two people look at the heifers before the purchase, and offered what he testified was a fair market value.

It appears that the appellees did come forward with evidence that established there was at least a dispute as to Morris' status as a buyer in the ordinary course of business sufficient to overcome Hammer and Howe's motion for partial summary judgment, based on through the exhibits attached to their motions and the record developed through the cross-summary judgment motions. Hammer and Howe's contention that there was no evidence to show Morris observed reasonable commercial standards is more appropriately dealt with in the next issue concerning whether the district court erred in finding that Morris was a buyer in the ordinary course of business as a matter of law. The pleadings, depositions, and affidavits show that there was a genuine issue as to whether the appellees had authority through the entrustment doctrine to exercise ownership over the cattle. The district court did not err in denying Hammer and Howe's motion for partial summary judgment on the issue of liability.

Appellees' motion for summary judgment

Hammer and Howe argue that the district court failed to apply the proper summary judgment standard of resolving the facts and inferences in favor of the party against whom the motion is made when granting the appellees' summary judgment motion. Hammer and Howe contend that they offered evidence disputing the material fact that Morris and subsequent buyers were buyers in the ordinary course of business and that Thompson was a merchant.

Status as a merchant

Hammer and Howe argue that the district court erred in finding that Thompson was a merchant as a matter of law. They point out in their brief that whether a person is a merchant is a question for the trier of fact and the issue becomes one of law only if reasonable minds could not draw different conclusions from the facts (citing [Colo.App.1991] ). Hammer and Howe argue that reasonable minds could differ as to whether Thompson was a merchant.

Summary judgment is proper where the only questions presented are questions of law. .

There are no published Kansas opinions that address whether the question of a party's status as a merchant under the UCC is a question of law or fact. In the Kansas Supreme Court affirmed a district court's grant of a defendant's summary judgment motion based on the entrustment doctrine without any discussion as to whether a party's status as a merchant was a question of law or fact. . The Supreme Court reviewed the party's status as a merchant.

Some courts find that whether a person is a merchant under the UCC is a question of fact. ("[W]hether a party to a transaction is a merchant is a question of fact."); (status as a merchant is determined according to circumstances of each case).

It has also been held that the status of a person as a merchant is a question of law for the courts to decide by applying the UCC definition of merchant to the facts of the case. See ; .

One court held that it is a mixed question of law and fact. ; see 2 Anderson on the Uniform Commercial Code § 2-104:18-19 (3d ed.2004 rev.).

We agree with those authorities which find the status of merchant is a mixed question of law and fact. Whether there exist circumstances to constitute merchant status is a question of fact. But whether those facts that are determined constitute a person as a merchant is a question of law.

Assuming the question of status as a merchant is initially a question of fact, if there are no disputed material facts, then the issue of whether a party is a merchant under the UCC becomes a question of law and appropriate for summary judgment. See (when there were no disputed facts and there was no other factfinding necessary, the question of whether a contract was breached was a matter of law).

There are three general policies supporting the UCC entrustment provision. First, it protects the innocent buyer who believes the merchant has legal title to the goods because the goods are in the merchant's possession. Second, the entrustment provision is also based on the rationale that the entruster is in a better position than the innocent buyer to protect against the risk of the dishonesty of the dealer. Third, entrustment facilitates the flow of commerce when buyers in the ordinary course of business are involved. See ; 3A Anderson on the Uniform Commercial Code § 2-403:75.

Among the 26 exhibits attached to the motion for partial summary judgment, Hammer and Howe included an excerpt of Thompson's deposition where Thompson said that he did not want to order buy or trade cattle when he left Greeley's ranch. He only wanted to run growing lots. Thompson started order buying because he did not have any income from starting calves.

The evidence concerning Thompson's status as a merchant included invoices that Thompson attested were from his cattle business for calendar year 2001. Between March 15, 2001, and December 20, 2001, there were 25 transactions where Thompson was the buyer and 6 where Thompson was the seller. Additionally, Thompson confirmed at his deposition that charts prepared for the litigation represented his cattle sales and purchases for calendar year 2002. Between October 9, 2002, and November 21, 2002, Thompson was involved in at least one sale and at least 15 purchases as shown by his name listed on the invoices. There were additional invoices in the record where Thompson purchased cattle from Morris in 19 transactions between May 15, 2002, and August 18, 2002.

In the sale at issue, Thompson sold the cattle to Morris on May 18, 2002. There is a lapse in time between December 2001 and May 2002 where there are no records to support that Thompson was involved in order buying cattle. This is consistent with Thompson's testimony that his initial intention was to run growing lots when he moved to Richmond but that he began order buying because he did not have any income. Even if we find that the question of whether a party is a merchant is a question of fact, the undisputed facts in the record support a finding that as a matter of law, Thompson was a merchant who dealt with goods of the kind. The cases we mentioned in the first issue construed a person who deals in goods of the kind as a person who is engaged regularly in selling goods of the kind. However, where an individual is acting as a middleman in the cattle trade, the issue is whether the party is regularly involved in transactions instead of only sales.

Hammer and Howe seem to contend that the low number of sales, instead of purchases, show that Thompson is not a merchant. Even when resolving inferences in favor of Hammer and Howe, Thompson's few months during which he did not conduct order buying do not negate the numerous deals that show he was a merchant. Hammer and Howe do not take the position that Thompson was not an order buyer for those transactions/invoices that are in the record.

The court did not err in finding that Thompson was a merchant as a matter of law.

Buyers in the ordinary course of business

The next question is whether the court erred in finding as a matter of law that Morris was a buyer in the ordinary course of business. As stated earlier, Hammer and Howe only contend that the appellees have not shown that Morris observed reasonable commercial standards and, therefore, cannot show that he acted in good faith as required of a buyer in the ordinary course of business.

Hammer and Howe argued that the transaction was not within the norm because the buyer weighed the cattle instead of the seller. An excerpt of Hunt's deposition confirms that the cattle were weighed on a scale near Hunt's farm. Morris testified in his deposition that in most transactions, he weighs the cattle at the closest scale to the seller, and he goes to the location of the scale. However, Morris went on to explain why the cattle were not weighed near Thompson's place, but that portion of the deposition was not included in the record.

Hammer and Howe also submitted an excerpt of Hunt's deposition where he said that he paid "a little below market value" for the heifers. But he also said that he "always like[s] to buy cattle below the market."

Finally, Hammer and Howe point out that Morris did not plan to provide an expert witness to discuss the industry standards for cattle sales as shown by Morris' notice regarding expert witness testimony. Hammer and Howe claim that Morris' "self-serving" testimony about industry standards is inadequate to establish industry standards as a matter of law. They argue that whether a buyer qualifies as a buyer in the ordinary course of business is an issue of fact that typically cannot be resolved on a motion for summary judgment (citing

The defendants/appellees do not address whether the determination of a buyer in the ordinary course of business is a question of law or fact.

Brasher, cited by Hammer and Howe, found that the issue of whether a merchant observed a commercially reasonable standard was a question of fact. see also (whether a merchant acts in good faith is generally a jury question).

Under Article 3 of the UCC, this court found that whether a bank acted in a commercially reasonable manner was a question of fact. .

From the evidence in the record, we conclude there is a genuine issue of material fact as to whether Morris was a buyer in the ordinary course of business because of the lack of evidence showing that Morris observed reasonable commercial standards of fair dealing in the cattle trade. Basically, Morris says that he followed reasonable standards because his own testimony shows that the transaction was normal. BIC and Tyson argue that there was no testimony showing that there was anything out of the ordinary about the transaction. However, there were no depositions or affidavits in evidence that showed the commercial standards in a typical transaction.

As the appellees argued, there is no authority requiring expert testimony to establish reasonable commercial standards have been met. However, the UCC says that usage of the trade is relevant, not the only means, to show reasonable commercial standards. Of the cases that Hammer and Howe rely on, only , is a UCC case. However, the issue was whether an arbitration clause was a material alteration of a contract. There, the federal court said that a party must usually call on an expert to prove trade usage. .

In , various cattle merchants testified as to the standards of fair dealing. However, in the present case there is not any testimony as to the standards of fair dealing in the trade. On remand, appellees should be required to provide evidence of standards of fair dealing by cattle merchants or other persons with the requisite knowledge or experience. In order for the appellees to show that they did not convert the cattle, they need to show that they had authority through the entrustment doctrine. On their summary judgment motion, the appellees do not show that they are entitled to judgment as a matter of law because they have not shown that they are buyers in the ordinary course of business as a matter of law, an essential element of the entrustment doctrine.

Subsequent buyers

Hammer and Howe's last point is that the district court erred in finding the entrustment doctrine protected the subsequent buyers, BIC, Hunt, and Tyson, before the court determined that Morris was a buyer in the ordinary course of business.

The sale by the entrustee transfers the entruster's title to a buyer in the ordinary course of business. . Once a buyer in the ordinary course of business acquires title by the entrustment doctrine, subsequent purchasers benefit by the buyer's title regardless of whether the subsequent purchasers would qualify as buyers in the ordinary course of business. See 3A Anderson on the Uniform Commercial Code § 2-403:128-29. Therefore, appellees need only establish the status of Morris, the first purchaser from Thompson, as a buyer in the ordinary course of business.

BIC and Tyson argue that all subsequent purchasers were buyers in the ordinary course of business. As stated earlier, subsequent purchasers benefit by the first buyer's title. Therefore, if Morris, the first buyer, is not a buyer in the ordinary course of business, then he could not pass good title to subsequent purchasers. In the context of the court's ruling, its finding that the subsequent purchasers were not liable was not erroneous. The district court erred in finding as a matter of law that Morris was a buyer in the ordinary course of business. Thus, it also erred in absolving the subsequent purchasers of liability. Hammer and Howe are correct that the court first needed to determine the nature of the title that Morris had to transfer.

Denial of plaintiff's motion for partial summary judgment is affirmed. Grant of summary judgment to appellees is reversed and remanded.

Case 20.2

N.J.Super.A.D.,2007.

Superior Court of New Jersey, Appellate Division.

SUN COAST MERCHANDISE CORPORATION, a California corporation, and J.M. Wechter & Associates, Inc., a Connecticut corporation, Plaintiffs-Respondents/Cross-Appellants,

v.

MYRON CORPORATION, a New Jersey corporation, and Myron Manufacturing Corporation, a New Jersey corporation, Defendants-Appellants/Cross-Respondents.

Sun Coast Merchandise Corporation, a California corporation, and J.M. Wechter & Associates, Inc., a Connecticut corporation, Plaintiffs-Appellants,

v.

Myron Corporation, a New Jersey corporation, and Myron Manufacturing Corporation, a New Jersey corporation, Defendants-Respondents.

Argued Dec. 6, 2006.

Decided May 15, 2007.

The opinion of the court was delivered by

FISHER, J.A.D.

*60 Following a thirteen-day jury trial, judgment was entered in the amount of $2,792,603.32, which included $700,000 in punitive damages, in favor of plaintiffs Sun Coast Merchandise Corporation and J.M. Wechter & Associates, Inc., the alleged sellers of certain goods. In this appeal, defendants Myron Corporation and Myron Manufacturing Corporation, the alleged buyers, contend that a number of issues-including whether a binding contract was formed-should have been resolved in their favor as a matter of law, and also that even if there were factual issues to be resolved by the jury, the trial judge failed to provide adequate jury instructions. Although we reject the contention that the chief issues in this case could have been resolved as a matter of law in this factually convoluted matter, we agree that the judge's jury instructions were inadequate, and, thus, reverse and remand for a new trial.

I

Plaintiff Sun Coast Merchandise Corporation, a California corporation, is in the business of designing various products, which are manufactured in factories in China, and sold to entities who then offer them as promotional items or gifts to clients or potential clients. Plaintiff J.M. Wechter & Associates, Inc., a Connecticut corporation, is one of Sun Coast's largest distributors. Wechter's involvement included the identification of potential clients in the marketplace and relaying their needs to Sun Coast, which then attempted to design and create the product.

Defendants Myron Corporation and Myron Manufacturing Corporation, both New Jersey corporations, are engaged in the business of marketing such products to small and medium-sized *61 companies through the internet and by sampling programs, which involved sending small samplings of personalized products to potential customers.

The claims asserted by Sun Coast and Wechter (hereafter often collectively referred to as “sellers”) against the Myron corporations (hereafter “Myron”) largely revolve around the submission by Myron of purchase orders to the sellers for small calculators with flip-tops. Myron's intention was to engrave the names of its customers on the calculators so that the customers could distribute them as gifts to their clients. At a meeting on June 15, 2000, Myron indicated to sellers its interest in a flip-top calculator if it could be produced in a small enough size to fit into its mailings and at the right price.

A. Version I Calculators

In pursuing these intentions, Myron first entered into a series of transactions regarding what the parties have referred to as the “Version I calculators.” Between December 2000 and May 2001, Myron purchased nearly 400,000 Version I calculators. With the exception of a May 8, 2001 order for 100,000 calculators, there were no disputes regarding Myron's other purchases of Version I calculators.

**786 Myron received the goods referred to in the May 8, 2001 purchase order but withheld payment, contending that the sellers breached the warranty against infringement, N.J.S.A. 12A:2-312(3), and also that it was entitled to withhold payment as an offset against damages it claimed to have suffered as a consequence of the sellers' actions regarding the Version II calculators.

Evidence was adduced during the trial that, on January 23, 2001, the United States Patent and Trademark Office granted a patent to CCL Products Enterprises, Inc. (CCL), a Sun Coast competitor, for a flip-top calculator similar to the Version I calculator. Sun Coast learned about this a few days after the patent was granted, when CCL representatives approached a Sun Coast representative at a trade show and asserted that the *62 “flipping mechanism” on the Version I calculators infringed on CCL's patent. The next day, Sun Coast sued CCL in the United States District Court for the Central District of California, seeking a declaratory judgment that the Version I calculators did not infringe and that CCL's patent was invalid.

Within a day or so of issuing the February 12, 2001 purchase order for 70,000 Version I calculators, sellers informed Myron of CCL's patent infringement claim. According to Myron, sellers advised that they could nevertheless continue to sell the Version I calculators, but would have to pay a “royalty,” which would cause an increase in the purchase price by six cents per calculator. Myron contended at trial and provided evidence to suggest that this additional payment was a “royalty.” Sellers disputed this, providing testimony that it only advised Myron that this “upcharge” represented a payment toward “potential royalties” and litigation costs regarding the suit with CCL, and that such a charge was not unusual in this industry.

Myron claimed that it understood from these communications that the patent problem regarding the calculators would be “resolved” with this additional payment per calculator and, therefore, agreed to the upcharge. A revised purchase order regarding the February 12, 2001 purchase was sent by Myron to sellers on March 2, 2001.

On May 23, 2001, Myron representatives attended a trade show in New York City. At that time they spoke with the president of CCL, who said he had heard Myron was selling flip-top calculators and warned Myron to be careful because CCL was suing all those who violated its patent. According to Myron, these discussions generated concern about whether sellers were authorized to sell the Version I calculators.

An e-mail sent from sellers to Myron on June 1, 2001 provided an explanation for what Myron claims was represented as a “royalty,” and for what sellers claim was represented as a cost toward “potential royalties” and litigation expenses in the CCL lawsuit:

*63 When we first sold this calculator ... your cost was $.60 cents F.O.B. [Hong Kong]. Then what happened is that someone (not us) was issued a patent on the flipping device. We then had to increase the unit by 10% (making it $.66 cents each) so that there were royalties built in to each calculator. At that point, [we] began to design, and patent, [our] own flipping mechanism. That is why, with the new molds being made for your larger quantities, your cost is down to $.57 cents F.O.B. [Hong Kong].

Myron also provided testimony that it received confirmation from CCL through a telephone conversation on June 4, 2001 that sellers were not authorized by CCL to sell the Version I calculators and should not have been charging a “royalty.” As indicated, sellers provided competing evidence**787 that this upcharge was only for “potential royalties” and litigation costs in defending the product, and that Myron should have understood that it was not a royalty per se because of the pending lawsuit, of which Myron was aware. The jury resolved this dispute by concluding that sellers had negligently misrepresented that the 10% upcharge on the Version I calculators was a “royalty” payment when in fact it was not.

B. Version II Calculators

As the patent infringement issues arose during the final purchases of Version I calculators, sellers agreed to attempt a redesign, leading to the creation of what the parties have referred to as the Version II calculators. Prior to the issuance of any purchase order for Version II calculators, Sun Coast represented to Myron that the goods “would not infringe the CCL patent.”

In March or April 2001, Myron indicated its desire to purchase a very large quantity of Version II calculators. The sellers offered a discounted price of $.57 per unit, three cents less than that paid for Version I calculators before the “royalty/potential royalty” upcharge was added. By April 22, 2001, Sun Coast had completed its re-design work for the Version II calculators, and representatives of the parties met in Hong Kong on either April 24 or 25, 2001. Sellers claimed at trial that Myron was then provided with a sample of the Version II calculator; Myron *64 disputed this, providing evidence and arguing that it did not receive a sample until June 1, 2001.

In either event, on April 25, 2001, Myron issued a purchase order for 1,216,000 Version II calculators, providing both shipping dates and delivery dates. Sellers sent an e-mail on April 30, 2001, which approved a delivery schedule compatible with the schedule contained in the first purchase order.

In early May, Myron communicated its intent to make an even larger purchase, requiring the production of a total of 4,000,000 Version II calculators. A Myron representative sent an e-mail to sellers on May 7, 2001, questioning whether 4,000,000 calculators could be manufactured and shipped by November 1, 2001:

We are now trying to work out a schedule to deliver [4,000,000] units by the first of December.... [We] had a conference call and looked at the current schedule based on [2,200,000]. We pretty much figured out that with adding the [sixth] mold, we could deliver [3,000,000] units in time (confirming everything this week). My question is if we add a [seventh] and possibly an [eighth mold]-can the factory get to the [4,000,000] pieces-shipping by November 1?

Sellers responded by e-mail on May 8, 2001 with a revised delivery schedule, which would bring the last shipment of Version II calculators “in by mid-December.” FN1 Sellers also emphasized that the schedule was “based on confirming everything by this Thursday, May 10th.” Myron expressed its satisfaction with this schedule on May 8, 2001.

FN1. This schedule indicated that shipments would begin in early July.

By the time of the early May discussions regarding the delivery of the last of the 4,000,000 units by mid-December, Myron had not yet issued its second, third and fourth purchase orders, and the only extant purchase order was the initial April 25, 2001 order for 1,216,000 units. On May 16, 2001, sellers sent an e-mail advising that “if an order is confirmed today, the factory has stated that they can manufacture [4,000,000] units based on the schedule” provided on May 8, 2001; Myron **788 responded that it was in the process of revising its purchase orders to conform to that schedule.

*65 The second, third and fourth purchase orders bear the date May 17, 2001; the second purchase order, for 1,000,000 calculators, was faxed to sellers on May 18. By Monday, May 21, 2001, Myron still had not delivered its third and fourth purchase orders; instead, an e-mail to sellers indicated that on that day and the next, Myron would be “inputting those final numbers into the system.” Myron also then indicated that the third and fourth purchase orders “are printed and awaiting authorization,” which was expected to occur on Wednesday, May 23, 2001. Notwithstanding that Myron had not delivered the third and fourth purchase orders for the last 1,750,000, this May 21, 2001 e-mail requested that sellers “not stop the making of the molds” for the 4,000,000 units and that, “[i]f necessary,” Myron would “put in writing that we will be responsible for the molds, if we do not indeed order the 4,000,000.” Sun Coast's chief operating officer testified that he agreed to Myron's May 21, 2001 request and that he informed his supplier to continue with the manufacturing of the molds.FN2 Despite the indication in the May 21 e-mail that authorization for the issuance of the third and fourth purchase orders was expected by Wednesday, May 23, the purchase orders were not issued until Friday, May 25, 2001.FN3

FN2. Sellers asserted at trial that even if a binding contract for the purchase of any of the 4,000,000 Version II calculators was not formed, Myron was responsible for the cost of the molds based on the promises contained in this May 21, 2001 e-mail.

FN3. As mentioned earlier, a discussion between CCL and Myron representatives at a trade show in New York City on May 23 allegedly caused Myron to question whether Sun Coast was authorized to sell the Version I calculators.

On May 29, 2001, two business days after receiving the third and fourth purchase orders, sellers e-mailed to Myron a revised delivery schedule, which called for delays in the original schedule anywhere from seven to twenty-eight days from what was originally indicated. As a result, the last delivery date contained in the May 8 schedule, i.e., November 11, 2001, would not, according to the May 29 schedule, occur until December 9, 2001. In this e-mail,*66 sellers requested that Myron forward “revised purchase orders reflecting” these new shipping dates.

Either that day or the next, Myron advised sellers that it would be reducing its order from 4,000,000 to 3,500,000 Version II calculators. By way of an e-mail on May 31, 2001, which incorporated a letter dated June 1, 2001, sellers provided a revised shipping schedule, which reflected the elimination of the final 500,000 calculators. Therein, sellers also stated:

We can proceed with the current order under condition that you sign the revised delivery schedule that I have attached and fax it to me. Please understand that your purchase order reflects dates that the factory cannot meet. If I accept this order as is, I am obligated by this contract to deliver based upon what is printed.... Please sign and fax the attached revised schedule to me today so that I can give the factory the go ahead to proceed with this order.

Following this, e-mails were exchanged on June 1, 2001. A Sun Coast representative indicated that day that Myron should have received “the new samples of the calculator” that morning, and expressed a “need [for] your approval of the calculator today and the revised schedule signed and returned today in order to meet the schedule submitted earlier this week.” He further indicated that “the factory is ready to **789 start producing tomorrow” and that “[i]f everything is not confirmed by today, all schedules will change.” In response, a Myron representative advised that the samples had been received and were “given ... to the appropriate people here to evaluate,” but that, “[a]t this time, I cannot sign the revised schedule letter” because certain Myron representatives were not then available to make that ultimate decision.

There was also testimony from Sun Coast's chief operating officer that a Myron representative expressed concern that the Version II calculators might infringe the CCL patent. In addition, the record reveals that Myron provided the samples to its attorney, who immediately opined that the flip-top mechanism might infringe the CCL patent.

On June 4, 2001, Myron communicated with CCL to determine whether CCL might be interested in supplying calculators; CCL declined and again stated that sellers were not authorized to sell *67 Version I calculators. Testimony suggested that Myron then arranged for a conference with sellers' representatives because of its concerns about the modification of the delivery schedule and the patent infringement issue.

At meetings over the course of June 5 and 6, 2001, Myron indicated its continued desire to purchase calculators but was concerned that the Version II calculators infringed the CCL patent and indicated that it was not willing to purchase Version II calculators unless they could be redesigned. Sellers agreed to attempt a redesign but ultimately concluded that its efforts were unsuccessful, and, on June 14, proposed that Myron either: accept “the spring mechanism as per the sample sent to you over the last two days,” or “wait for additional samples with a new spring mechanism,” even though “as advised there will not be much difference,” or “go back” to the samples provided on June 1 and consider getting a second opinion from another attorney regarding Myron's infringement concerns.

On June 15, 2001, Myron suggested that it might be willing to proceed with the transaction if sellers provided an acceptable indemnification agreement buttressed by a standby letter of credit to protect Myron in the event it was drawn into litigation. On June 18, 2001, the parties exchanged e-mails regarding the scope and content of an indemnification agreement, as well as a revised delivery schedule. Sellers memorialized these discussions in an e-mail circulated on June 22, 2001, indicating that Myron “would be comfortable proceeding with this order if” sellers signed an indemnification agreement and put up a standby letter of credit for $.25 per unit ordered in case of patent litigation, and Myron would open a letter of credit for the purchase of the calculators. This e-mail also stated that sellers “need[ed] to have the final purchase orders faxed to us,” and that they could “start producing the units” as soon as “we all are comfortable with” these terms.

The record indicates that the parties unsuccessfully attempted to negotiate a mutually acceptable indemnification agreement and letter of credit terms between mid-June and mid-July 2001.

*68 C. The Fall Out

Ultimately, in light of their final communications, sellers never produced the Version II calculators, but instead commenced an action for damages against Myron in California in August 2001.FN4 On October **790 25, 2001, Myron advised sellers that it was revoking its acceptance of 100,000 Version I calculators.

FN4. That action was dismissed, and the sellers commenced the suit at hand on October 31, 2002.

In addition, Myron asserted that it was withholding payment on other transactions. As the record reveals, Myron had ordered and received from sellers shipments of flashlights, pocketknives, travel alarm clocks and stainless steel mugs. Myron has not disputed that it did not pay for these items as payment became due on various dates in July and August 2001, but instead asserted that it was entitled to withhold payment as an offset against the damages it claims to have incurred as a consequence of the allegedly wrongful “royalty” charges and as a consequence of the Version II calculator dispute. Myron's refusal to pay for these goods formed the basis for sellers' claim that these goods were converted. The jury determined that Myron did indeed convert these goods, and awarded $102,554.14 in damages and prejudgment interest. The jury also awarded punitive damages against both Myron corporations in the total amount of $800,000; the judge reduced that amount to $700,000-$350,000 as to each Myron corporation.

Sellers also asserted that damages should have been awarded for Myron's alleged spoliation of evidence. That claim was based on the statement in Myron's counsel's October 25, 2001 setoff letter that approximately 80,000 Version I calculators had been “disposed of as garbage.” Myron, however, later retracted its statement that these calculators had been discarded, claiming that the calculators had actually been sold, used as samples, or otherwise expended in the course of its business. The jury found in favor of Myron on this spoliation claim.

*69 Myron asserted a number of causes of action in its counterclaim, including constructive fraud, fraudulent concealment, equitable fraud, negligent misrepresentation, breach of warranty, and an entitlement to an offset against any damages to which sellers might be entitled. As mentioned earlier, the jury found in favor of Myron on its negligent misrepresentation claim and awarded $58,840; the judge vacated that award.

II

Following the entry of judgment in favor of sellers, Myron appealed, arguing that: (1) the trial judge erred in denying its motion for a directed verdict, or for judgment notwithstanding the verdict, on sellers' breach of contract claims regarding the Version II calculator purchase orders, or, in the alternative, that the jury charge regarding these claims was inadequate; (2) the trial judge erred in refusing to set aside the verdict on sellers' conversion claims, or, in the alternative, that the charge regarding the conversion claim was inadequate; (3) the trial judge erred in refusing to set aside the punitive damage award because it exceeded the statutory maximum, N.J.S.A. 2A:15-5.14,FN5 and was predicated on a conversion claim that had no merit; (4) the trial judge erred in setting aside the verdict entered in Myron's favor on its negligent misrepresentation claim; and (5) the verdict, on the whole, **791 was the product of passion, prejudice or partiality, and should have been set aside.

FN5. The judge reduced the punitive damage awards from $400,000 per defendant to $350,000 per defendant, ostensibly bringing the judgment in line with the requirements of N.J.S.A. 2A:15-5.14 (“[n]o defendant shall be liable for punitive damages in any action in an amount in excess of five times the liability of that defendant for compensatory damages or $350,000, whichever is greater”). Myron argues that to the extent an award of punitive damages was permitted, it should have been limited to a total of $350,000 because the Myron corporations should have been viewed as a single entity for purposes of this lawsuit.

Sellers argued in their cross-appeal and separate appeal that the trial judge erred: (1) in failing to award attorneys' fees in *70 their favor, alleging that fees should have been awarded (a) based on the Consumer Fraud Act, N.J.S.A. 56:8-1 to -20, FN6 (b) because of Myron's alleged failure to admit facts in response to sellers' request for admissions, R. 4:23-3, (c) because they believed that Myron's opposition to a motion for summary judgment was in bad faith, R. 4:46-6, and (d) based on the frivolous litigation statute, N.J.S.A. 2A:15-59.1; (2) in reducing the punitive damages award; (3) in reducing the prejudgment interest award; and (4) in failing to include certain expenses in the costs taxed against Myron.

FN6. N.J.S.A. 56:8-19 defines the scope of legal and equitable relief permitted by the Consumer Fraud Act and indicates that “[i]n all actions under this section the court shall also award reasonable attorneys' fees, including filing fees and reasonable costs of suit.”

After careful consideration, we reject Myron's arguments that whether a contract was formed regarding the Version II calculators and whether the warranty against infringement was breached should have been resolved as a matter of law. These questions were so mired in factual disputes and uncertainties that they could not have been decided by motion. We nevertheless reverse and remand for a new trial because we conclude that the jury instructions with respect to these chief contentions were inadequate.

A. Contract Formation

[1] We reject Myron's contention that the contract formation dispute should have been decided by the judge and not the jury, and conclude that the trial judge correctly denied Myron's motions for a directed verdict and for a judgment notwithstanding the verdict.

[2] A judge is required to direct a verdict or grant a judgment notwithstanding the verdict only if, upon accepting as true all the evidence that supports the opponent's position, and upon providing the opponent with all reasonable inferences, reasonable minds could not differ. See, e.g., Estate of Roach v. TRW, Inc., 164 N.J. 598, 612, 754 A.2d 544 (2000); Sons of Thunder, Inc. v. Borden, Inc., 148 N.J. 396, 415, 690 A.2d 575 (1997). As described by the *71 Court in Ferdinand v. Agricultural Ins. Co., 22 N.J. 482, 494, 126 A.2d 323 (1956), where the evidence and uncontradicted testimony is “plain and so complete that disbelief of the story could not reasonably arise in the rational process of an ordinary intelligent mind, then a question has been presented for the court to decide and not the jury.” See also Frugis v. Bracigliano, 177 N.J. 250, 269, 827 A.2d 1040 (2003). Whether a contract regarding the Version II calculators was formed was a question mired in factual disputes and uncertainties.

The era when a valid, binding contract could only come into existence when a party's acceptance mirrored the other party's offer ended with the adoption of the Uniform Commercial Code (UCC). The UCC altered the common law approach, finding it to be inconsistent with the modern realities of commerce. As cogently explained by Professors White and Summers, Article 2 of the UCC “radically altered sales law” and “expand[ed] our conception of a contract.” White and Summers, Uniform Commercial Code (5th ed.) § 1-2 at page 51. The heart of this revolutionary change in contract law can be found in N.J.S.A. 12A:2-207(1), which declares that “[a] definite and seasonable expression of acceptance or a written confirmation**792 which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms” (emphasis added). No longer are communicating parties left to debate whether an acceptance perfectly meets the terms of an offer, but instead the existence of a binding contract may be based on words or conduct, which need not mirror an offer, so long as they reveal the parties' intention to be bound. In other words, as stated in N.J.S.A. 12A:2-207(3):

Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract.

If there is conduct that reveals an intent to establish a contract, then the contract will include those terms “on which the writings *72 of the parties agree, together with any supplementary terms incorporated under any other provisions” of the UCC. Ibid.

Considering that the UCC permits the formation of a contract by way of conduct that reveals the parties' understanding that a contract exists, and notwithstanding the suggestion of additional or even non-conforming terms, the complex of communications between these parties demonstrates that neither can the formation of a contract be confirmed or foreclosed without a resolution of the existing factual disputes and the weighing of the significance of the parties' convoluted communications. To generalize about the parties' conduct and communications, we observe that there were preliminary discussions about sellers' ability to produce the so-called Version II calculators, which may have been colored by their experiences with the Version I calculators. In addition, a shadow was cast over their conduct by a brooding concern as to whether sellers could manufacture calculators consistent with Myron's requirements without infringing CCL's patent. With this history as a backdrop, on April 25, 2001, Myron forwarded a purchase order for 1,216,000 Version II calculators, with a firm price of $.57 per unit, and with shipping dates ranging from July 23, 2001 to September 9, 2001. The three other purchase orders were not submitted until after numerous additional discussions and communications between the parties.

Sellers contend that a binding contract was formed upon their oral acceptance of each of Myron's purchase orders. Myron, on the other hand, argues that the parties' intention to contract must be informed by an alleged course of conduct whereby the parties, according to Myron, understood that any modification of the terms of the purchase orders could only occur through the issuance of new purchase orders. In this regard, Myron refers to the purchase orders themselves, which indicate that, to be binding, any modification of their terms would have to be in a writing signed by Myron:

No other agreement in any way modifying any said terms and conditions will be binding upon [b]uyer unless made in writing and signed by [b]uyer's authorized representative.

*73 Myron contends that this provision was not empty verbiage. As support, Myron has referred to prior transactions during which the parties had conducted themselves in a manner consistent with this provision. For example, when a change in price was discussed during the Version I transactions, there was an insistence upon the issuance of new purchase orders to memorialize the upcharge.

Here, too, Myron argues that the discussion regarding shipping dates that followed **793 the issuance of the first purchase order meant that the parties did not intend to be bound until new purchase orders reflecting the revised shipping dates were executed and forwarded. In this regard, Myron cites sellers' e-mail of May 29, 2001, in which sellers urged that what was then “need[ed] is revised purchase orders reflecting the shipping dates listed above,” thus posing the rhetorical question: if there was already a binding contract, and if the shipping dates were matters that could be modified through words or conduct, then why did sellers request-as necessary-new revised purchase orders? In short, Myron urges that all that occurred up until the time the parties failed to agree on an indemnification agreement was merely executory or contingent upon both parties' firm and complete agreement on these terms. Myron summarizes the parties' communications in the following way: (1) “Myron made offers in the form of the four Version II purchase orders”; (2) sellers did not accept the purchase orders, “but instead made a counteroffer with new delivery dates”; and (3) as this counteroffer was pending, “the patent infringement issue was re-exposed, resulting in [sellers'] unsuccessful attempt at a further redesign of the Version II calculators to avoid the infringement issue,” and “[w]hen that failed, several proposals and counterproposals” regarding an indemnification and a letter of credit bore no fruit.

Myron forcefully argues that these facts and circumstances reveal that a binding contract was never formed. Myron's contention that sellers' response was not an acceptance but a counteroffer*74 could ultimately be found accurate depending upon how the facts and circumstances are interpreted by the factfinder.

But, sellers have also presented a colorable argument that their oral acceptance of Myron's purchase orders formed a binding contract, and that their subsequent discussions were merely offers to modify or add to the terms of the binding contract, which, whether accepted or rejected, would not undermine the contract that had formed. In that circumstance, the terms proposed by sellers-here, a delivery schedule different from what was contained in Myron's purchase orders-would become “part of the contract unless”:

(a) the offer expressly limits acceptance of the terms of the offer;

(b) they materially alter it; or

(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

[N.J.S.A. 12A:2-207(2) ]

Certainly, the general facts and circumstances outlined earlier might but do not necessarily compel a conclusion-as argued by Myron-that it demanded strict and timely compliance with the delivery schedule contained in its purchase orders or that strict and timely compliance was material to the contract. Myron's initial purchase order called for the purchase of 1,216,000 calculators to be shipped on various dates from July 23, 2001 to September 1, 2001, with arrival at Myron's New Jersey facility on various dates between August 27, 2001 and October 2, 2001. Myron's intent was to have these calculators available prior to the Christmas season, and not necessarily on the precise dates indicated in the purchase order. In addition, it appears that Myron understood that sellers were still finishing their design work on the Version II calculators, and that Myron had not yet determined the ultimate size of its entire purchase of Version II calculators.

As a result, in early May 2001, Myron inquired whether sellers could manufacture 4,000,000 units and ship them by November 1. It is arguable that this request **794 placed the overall timing of delivery of all units in flux, or at least demonstrated that so long as received in time for the Christmas season, that the particular *75 dates contained in the first purchase order were not material. Within a few days, sellers responded by providing a shipping schedule for 4,000,000 units, with November 11, 2001 as the last shipment date. Sellers expressly stated that “[t]o keep this schedule,” Myron would have to approve the samples that had been provided and “confirm[ ] everything by this Thursday, May 10th.” Although Myron confirmed on May 8, 2001 that this schedule was acceptable, it did not issue its second, third and fourth purchase orders by May 10, 2001. In a further communication on May 16, 2001, sellers indicated that if “an order is confirmed today,” the 4,000,000 units could be manufactured and shipped based upon the May 8 schedule. Still, the second, third and fourth purchase orders were not forwarded until May 25, 2001, allegedly causing an alteration of the prior delivery schedule.

It may be argued from these communications that Myron's offer to purchase represented by the first purchase order, as well as the other three, did not “expressly limit[ ] acceptance” to its terms. N.J.S.A. 12A:2-207(2)(a). The subsequent communications might be interpreted as suggesting the contrary; indeed, it was Myron that suggested an alteration of the overall delivery schedule by questioning, following the submission of its first purchase order, whether and when sellers could ship a total of 4,000,000 units. On the other hand, it is not at all clear from these communications whether or when an agreement regarding the delivery schedule was reached.

The parties' disagreements regarding the materiality of the precise schedule and whether an agreement was reached about an altered delivery schedule raised questions of fact that could not be resolved by motion. Moreover, it is not at all clear that these circumstances may only be interpreted in a way that requires a finding that a binding contract was not formed.

In short, it is conceivable-and the jury could find-that the parties' inability to agree on certain terms reveals the lack of an intent to be bound; in other words, that their communications constituted mere negotiations that never ripened into a contract. *76 By the same token, the jury could find that a contract was formed despite a failure or an inability to agree on all terms. N.J.S.A. 12A:2-207(2) provides that an acceptance coupled with the proposal of new or different terms does not necessarily preclude the formation of a contract. In such a circumstance, either the new or different terms proposed by the offeree would become part of the contract or those terms could be provided by the gap-filling provisions of the UCC. See, e.g., Richardson v. Union Carbide Indus. Gases, Inc., 347 N.J.Super. 524, 532-33, 790 A.2d 962 (App.Div.2002).

All these questions required that the factfinder analyze the meaning and significance of the parties' communications based upon the legal framework provided by the UCC. As a result, we cannot agree with Myron that the trial judge should have resolved these fact-sensitive matters by granting either a motion for a directed verdict or judgment notwithstanding the verdict.

B. Warranty Against Infringement

We likewise reject Myron's argument that the trial judge should have held, as a matter of law, that sellers breached the warranty against infringement that attached to the alleged contract for the sale of Version II calculators. This argument requires consideration of **795N.J.S.A. 12A:2- 312(3), an infrequently litigated section of the UCC, which declares that “[u]nless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with the specifications” (emphasis added). As with the competing arguments concerning whether a contract was formed, this claim of a breach of the warranty against infringement requires consideration of the UCC's many interlocking parts and, ultimately, the jury's resolution of the applicable and relevant facts.

The obvious intent underlying N.J.S.A. 12A:2-312(3) is to protect the buyer against patent and trademark claims that may be *77 asserted against the goods purchased. Such a warranty, however, does not extend to all circumstances in which the goods infringe a third party's patent or trademark. Indeed, as Professors White and Summers have stated, this provision is “unique in imposing a warranty on the buyer,” White and Summers, supra, § 9-16 at page 688, as when the buyer furnishes the seller with the specifications for the goods manufactured and sold. Although it has not been argued that this aspect of N.J.S.A. 12A:2-312(3) has application here, its existence suggests that the warranty against infringement should be viewed practically, not rigidly.

One of the difficult questions posed by the application of N.J.S.A. 12A:2-312(3) is pinpointing when a “claim” by a third party of infringement, whether or not disputed by the seller, ripens into a breach of the warranty against infringement. In short, it is not every “claim” but, in the words of the statute, only a “rightful claim” of infringement that constitutes a breach of this warranty.

In American Container Corp. v. Hanley Trucking Corp., 111 N.J.Super. 322, 268 A.2d 313 (Ch.Div.1970), Judge Herbert considered a dispute between the buyer and seller of an allegedly stolen truck. There, the court attempted to define the scope of the warranty of title imposed by N.J.S.A. 12A:2-312(1), stating:

The purchaser of goods warranted as to title has a right to rely on the fact that he will not be required, at some later time, to enter into a contest over the validity of his ownership. The mere casting of a substantial shadow over his title, regardless of the ultimate outcome, is sufficient to violate a warranty of good title.

[American Container Corp., supra, 111 N.J.Super. at 331, 268 A.2d 313 (emphasis added).]

This “substantial shadow” description is as apt as any other in describing what constitutes a “rightful” claim of infringement by a third party,FN7 and although in many cases its application regarding a title dispute may be soluble by motion, its application in a warranty against infringement dispute will doubtless often require *78 resolution by the factfinder after weighing the nature and facts of the third party's claim.

FN7. Some commentators have not entirely embraced this approach. See White and Summers, supra, § 9-16 at page 687.

In Yttro Corp. v. X-Ray Marketing Assoc., Inc., 233 N.J.Super. 347, 352, 559 A.2d 3 (App.Div.1989), we embraced Judge Herbert's “substantial shadow” approach in determining when a warranty against infringement has been breached. Again, this does not mean that any shadow causes **796 a breach. Instead, as observed by Professors White and Summers in discussing the reach of the warranty of title, “there is some point at which the third party's claim against the goods becomes so attenuated that we should not regard it as an interference against which the seller has warranted”; in short, the ultimate problem “lies in defining that point.” White and Summers, supra, § 9-16 at page 687. In observing that “the courts have yet to work out this problem,” these commentators have suggested “at least two plausible alternatives”:

A court might hold a seller liable for expenses incurred in successfully defending against an inferior claim only if the seller knew or had reason to know that such a claim was likely to be asserted. Or a court could analogize to the standards used to determine whether title to real property is marketable, specifically, whether the claim is of such a substantial nature to subject the buyer to serious litigation. While this statement of the standard is vague, it at least makes clear that frivolous claims or those arising only long after sale should not give rise to warranty of title liability, and it provides reference to a well-developed body of case law[ FN8].

FN8. The body of case law alluded to, which the commentators referred to as informing the manner in which the warranty of title should be viewed, includes the concept that “[e]very purchaser of land has a right to demand a title which shall put him in all reasonable security, and which shall protect him from anxiety, lest annoying, if not successful suits be brought against him.” Dobbs v. Norcross, 24 N.J.Eq. 327, 331 (Ch. 1874). This rule, however, does not mean that any alleged cloud on title triggers a breach of the warranty; only “[i]f it is reasonably probable that the purchaser would be exposed to litigation not of a frivolous nature concerning the title, or would have to bring an action to quiet title,” will the title be considered unmarketable. Keown v. West Jersey Title & Guaranty Co., 161 N.J.Super. 19, 23, 390 A.2d 715 (App.Div.1978).

[Ibid.]

Although these comments were directed toward defining the contours of the warranty of title imposed by N.J.S.A. 12A:2-312(1), we agree that the substance of the shadow cast over goods must *79 be similarly viewed when determining whether the third party's claim of infringement is “rightful.” White and Summers, supra, § 9-16 at page 687.

One of the few courts to have considered this issue acknowledged the difficulties in defining what constitutes “a rightful claim” of infringement:

If claims of patent infringement are seen as marks on a continuum, whatever a “rightful claim” is would fall somewhere between purely frivolous claims, at one end, and claims where liability has been proven, at the other.

[84 Lumber Co. v. MRK Technologies, Ltd., 145 F.Supp.2d 675, 680 (W.D.Pa.2001).]

While declining to “decide precisely what constitutes a rightful claim of patent infringement,” the district judge in 84 Lumber observed that the question could not be addressed without inquiring into the nature of the infringement claim, and “without comparing the scope of the patents at issue with the allegedly infringing products.” Ibid.

[3][4][5] We agree that a frivolous infringement claim does not generate a breach of the warranty described in N.J.S.A. 12A:2-312(3) any more than a buyer is obligated to prove the seller's liability for infringement to succeed in demonstrating a breach of this warranty. A third party's claim of infringement-to be “rightful” within the meaning of N.J.S.A. 12A:2-312(3)-must cast a “substantial shadow” on the buyer's ability to **797 make use of the goods in question, in order to constitute a breach of the warranty against infringement. In this context, we agree with the holding in 84 Lumber that resolution of this question requires the factfinder's analysis of the patent and the claim of infringement. Again, this does not mean that Myron would have to actually prove the validity of the infringement claim to succeed on this warranty argument, only that CCL's claim had sufficient substance to unduly disturb Myron's ownership and disposition of the goods in question. In other words, to prove that a seller breached a warranty because goods were the subject of a third party's rightful claim of infringement, a buyer must establish that the infringement claim is of a substantial nature that is reasonably likely to subject the buyer to litigation, and has a significant and *80 adverse effect on the buyer's ability to make use of the goods in question. The uncertainty about the substance of CCL's claim was not so free from question as to permit the disposition of this contention by the judge as a matter of law. As a result, we conclude that, in light of the record presented at trial, the judge correctly denied Myron's motions and permitted the matter to be decided by the jury.FN9

FN9. We should add that the parties have referred us to decisions rendered by the federal courts in the patent infringement suit between sellers and CCL. In arguing that the infringement claim lying at the heart of Myron's claim of the breach of warranty was without substance, sellers referred to the November 22, 2004 written decision of the district court included in the appendix, which granted summary judgment in sellers' favor. Two days before oral argument in this appeal, Myron forwarded to us a copy of the decision of the United States Court of Appeals for the Federal Circuit rendered on April 21, 2006-more than seven months earlier. By way of that unpublished opinion, the court of appeals reversed the summary judgment and remanded for further proceedings. The next day, sellers forwarded to us a copy of a memorandum order entered by the district court on October 11, 2006, which considered the issues remanded to it by the court of appeals and again entered summary judgment in sellers' favor, finding there was “no literal infringement” of CCL's patent by sellers' “original or modified” designs. Other than to advise us of these decisions, the parties have not briefed the significance of the determinations made by these federal courts on the breach of warranty claim. We also have not been informed whether CCL has appealed the district court's October 11, 2006 decision, which summarily determined that the Version I and II calculators do not literally infringe CCL's patent. As we have observed, the substance of CCL's claim is a factor to be determined in resolving Myron's claim of a breach of the warranty against infringement. And its substance-when considered against the record produced at the trial in this matter-raised fact questions to be decided by the jury. Now that the rulings of these federal courts-all decided after the trial in this case-are available, we do not foreclose the trial court's consideration of the warranty claim by way of motion. In other words, we do not preclude either party from seeking a ruling on the merits of the warranty contentions from the judge as a matter of law if the entry of summary judgment in favor of sellers in the federal infringement suit demonstrates that the CCL claim of infringement had insufficient weight to support a breach of the warranty against infringement. We caution, however, that what constitutes a “substantial shadow” over goods is fact-sensitive.

We observe that the parties have expended some effort disputing the bona fides of their attempts to reach an agreement about CCL's infringement claim, and the significance of their failure to *81 ultimately reach an agreement. These facts are not without relevance. Part of determining the length of the shadow cast over these proposed transactions by CCL's infringement claim is the degree to which the sellers would accommodate Myron's concerns about the CCL claim.

Sellers contend that they were amenable to resolving any doubts in this regard, but that Myron refused to accede to what sellers**798 claim were highly favorable accommodations as a means for avoiding Myron's obligation on its purchase orders. When this matter is retried, the jury should consider whether the CCL claim was significant or insignificant by additionally weighing whether sellers were ready, willing and able to fully indemnify Myron from any damage or inconvenience that Myron might have suffered if it had fulfilled its part of the alleged bargain. Indeed, in conjunction with this evidence, the jury may also consider whether Myron acted reasonably, or in keeping with the implied covenant of good faith and fair dealing, in rejecting as inadequate sellers' proposals regarding indemnification.

In reaching our conclusion that the trial judge properly permitted, on this record, the breach of warranty contention to go to the jury, we also state our disagreement with sellers' contention that the breach of warranty claim should be rejected as a matter of law. Sellers argue that the warranty against infringement does not attach until delivery of the goods, citing the language of N.J.S.A. 12A:2-312(3) (emphasis added) in this regard: “a seller ... warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like....” We reject the argument that Myron had no legal recourse regarding these goods and the potential infringement claim until such time as the goods were delivered.

Moreover, implicit in the parties' communications in and around May and June 2001 was their shared concern that the process of *82 designing and manufacturing 4,000,000 calculators would not be pursued in vain. To generalize what the parties might have been thinking about the proposed transaction, it seems likely, among other things, that sellers sought assurance that Myron would actually perform its part of the bargain, and Myron was concerned that sellers could manufacture the product it desired and in a timely fashion. It is probably fair to conclude that the last thing either party wanted was litigation, let alone litigation plus a warehouse full of unwanted calculators. We think it represents an overly technical and impractical view of N.J.S.A. 12A:2-312(3) to suggest that because sellers did not go to the trouble and expense to manufacture and ship 4,000,000 calculators from Asia to New Jersey, when it already knew Myron would reject these goods and not willingly pay for them, that Myron was foreclosed from claiming a breach of the warranty against infringement.

III

Having concluded that the trial judge correctly determined that the contract formation and warranty against infringement contentions raised fact questions to be decided by the jury, we nevertheless conclude that the instructions regarding contract formation, the warranty against infringement and conversion were fundamentally flawed; that the charge was complicated by the judge's unnecessary inclusion of equitable claims and defenses; and that, on the whole, the charge was inadequate and provided insufficient guidance for the jury's resolution of the issues presented.

A

[6] Appropriate and correct jury instructions are essential for a fair trial. As the Court said in Velazquez v. Portadin, 163 N.J. 677, 688, 751 A.2d 102 (2000) (quoting Jurman v. Samuel Braen, Inc., 47 N.J. 586, 591-92, 222 A.2d 78 (1966)), jury charges “must outline the function of the jury, set forth the issues, correctly state the applicable law in understandable language, and plainly spell out how the jury should apply the legal principles to **799 the facts as it *83 may find them.” It would not be helpful to our determination of whether the judge's charge met this standard to review it line-by-line. The instructions were erroneous in a number of key respects. In addition, examination of the entire charge-and it is on the whole that a charge must be judged, Jurman, supra, 47 N.J. at 592, 222 A.2d 78-reveals that the judge did not provide the jury with sufficient guidance in this difficult case because he failed to relate the applicable legal principles to the parties' specific contentions.

B

In describing for the jury what it takes for the parties to form a binding contract, the judge stated:

A proposal to accept an offer on any different terms is not an acceptance of the original offer. If any new or different terms are proposed in response to the offer, the response is not an acceptance, but rather a counteroffer. A counteroffer is a new offer by the party making that proposal. The new offer must in turn be agreed to by the party who made the original offer for there to be an acceptance.

[7] As we have already explained, the UCC does not require that a party's response mirror an offer to result in a binding contract. The offeree may propose additional or different terms without necessarily having the response viewed as a non-binding counteroffer. Instead, an offeree's proposal of additional or conflicting terms may be found to constitute an acceptance, and the other or different terms viewed as mere proposals to modify the contract thus formed. See N.J.S.A. 12A:2-207(1) and (3).

The judge's misstatement in this regard was hardly harmless even though it constituted a brief passage in a lengthy charge and even though it created a more stringent standard for determining the existence of a binding contract than required by the UCC, which would have benefited Myron, not sellers. Nevertheless, the point is that contract formation was one of the chief issues to be decided and a linchpin to the resolution of many of the other issues. In describing when the law recognizes that a contract was formed, the judge provided the jury with erroneous instructions that struck directly at the heart of the case.

Myron has also argued that the judge's instructions regarding the tort of conversion were erroneous. We agree and, in fact, conclude that the conversion claim must be dismissed.

The judge instructed the jury on conversion in the following way:

Let me tell you about conversion. To constitute a conversion of goods there must be some act by the defendant in derogation of the owner's right to the goods or some exercise of dominion over them by the defendant inconsistent with the owner's right thereto, or some act done which has the effect of destroying the quality of the goods.

Where a sale calls for a cash payment, it is a conditional sale. In a conditional sale, unless or until the goods are paid for, the title to the goods remains with the seller.

Myron objected, arguing that the description of the parties' rights in that circumstance was inconsistent with N.J.S.A. 12A:2-401(2). We agree.

[8][9] “Conversion consists of the wrongful exercise of dominion and control over property owned by another inconsistent with the owners' rights.” **800Port-O- San Corp. v. Teamsters Local Union No. 863 Welfare & Pension Funds, 363 N.J.Super. 431, 440, 833 A.2d 633 (App.Div.2003) (quoting Commercial Ins. Co. of Newark v. Apgar, 111 N.J.Super. 108, 114-15, 267 A.2d 559 (Law Div.1970)). Therefore, the property allegedly converted “must have belonged to the injured party.” Commercial Ins. Co. of Newark, supra, 111 N.J.Super. at 115, 267 A.2d 559. In the context of a sale of goods, the viability of a conversion claim turns on which party holds title when the purported conversion takes place.

N.J.S.A. 12A:2-401(2) provides that:

Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place; and in particular and despite any reservation of a security interest by the bill of lading

(a) if the contract requires or authorizes the seller to send the goods to the buyer but does not require him to deliver them at destination, title passes to the buyer at the time and place of shipment; but

(b) if the contract requires delivery at destination, title passes on tender there.

*85 [Emphasis added.]

[10] As the Uniform Commercial Code Comment indicates, N.J.S.A. 12A:2-401(2)“actually base[s] the test [of whether title passes] upon the time when the seller has fully committed himself in regard to specific goods.” The seller thus commits itself by making the shipments in a “shipment” contract. For example, in Nopco Chem. Div. of Diamond Shamrock Chem. Corp. v. Blaw-Knox Co., 59 N.J. 274, 278-79, 281 A.2d 793 (1971), the plaintiff agreed to purchase a piece of machinery from the defendant; the contract called for delivery to the plaintiff “F.O.B. Buffalo, New York,” which meant that “passage of title and risk of loss to the plaintiff occurred when [the defendant] delivered the machine to plaintiff's carrier at its Buffalo factory.” Or, as we stated in State v. Lamb, 125 N.J.Super. 209, 216, 310 A.2d 102 (App.Div.1973), “under the Uniform Commercial Code, N.J.S.A. 12A:2-401(2), title to goods pass to the buyer upon delivery unless otherwise specifically agreed.”

The sale of Version I calculators called for delivery in Asia. There was no dispute that the goods were so delivered, but not paid for. We agree with Myron that the disputes regarding these goods and Myron's withholding of payment could only give rise to a breach of contract claim and could not generate a viable conversion cause of action. Because the goods were delivered, title passed to Myron; there is nothing in the record to suggest otherwise. Accordingly, Myron could not be held to have converted property to which it held title.

D

[11] The trial judge also charged the jury on various equitable concepts. Many of these principles-most of which sellers urged in response to Myron's counterclaim-if at all relevant in this case were matters to be decided by the judge, not by the jury.

[12] The fact that a single civil action may contain both legal and equitable claims and defenses is hardly unusual. The ramifications*86 of this circumstance are most acute when, unlike here, the equitable nature of the action predominates, and appended legal claims are merely ancillary to the equitable claim lying at the **801 heart of the dispute. In that event, our courts occasionally are required to determine whether the equitable issues are dominant or whether the issues are so intertwined “that the legal issues fell within the [chancery] court's power to adjudicate them without a jury.” Boardwalk Properties, Inc. v. BPHC Acquisition, Inc., 253 N.J.Super. 515, 528, 602 A.2d 733 (App.Div.1991). When presented with such a conflict, the “jurisdiction of a chancery court is to be exercised with a sensitive regard for the right to trial by jury,” because it is “not an ‘inflexible rule’ that chancery, having once acquired jurisdiction, should retain the case ‘to settle all the rights of all the parties.’ ” Lyn-Anna Properties, Ltd. v. Harborview Dev. Corp., 145 N.J. 313, 329-30, 678 A.2d 683 (1996) (quoting Shaw v. G.B. Beaumont Co., 88 N.J.Eq. 333, 336, 102 A. 151 (E. & A.1917)). In short, “it is not true, by any means, that when a court of conscience has acquired cognizance for one purpose, it thereby acquires cognizance over the entire controversy for all purposes.” Lyn-Anna, supra, 145 N.J. at 330, 678 A.2d 683 (internal quotations omitted).

[13] By the same token, when a suit is lodged in the Law Division because the principal relief sought is legal, a demand for trial by jury does not envelope any equitable claims also pleaded and does not mandate that the jury exercise the court's equity jurisdiction. When equitable claims or defenses are lodged in what is predominantly a dispute at law, and when the claims may be viewed separately without fear of inconsistent determinations, the court must parse the equitable issues from the legal issues presented to the jury. We would expect that in many cases the path toward the resolution of these ancillary equitable issues may well be blazed by the jury's resolution of the legal issues, which ought normally to be resolved first. See Dairy Queen, Inc. v. Wood, 369 U.S. 469, 479, 82 S.Ct. 894, 900-01, 8 L.Ed.2d 44, 52 (1962); *87Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 508, 79 S.Ct. 948, 955, 3 L.Ed.2d 988, 996 (1959). But, regardless of the ordering of the proofs, the ultimate determination of equitable matters is for the judge alone to decide, see GEI Intern. Corp. v. St. Paul Fire and Marine Ins. Co., 287 N.J.Super. 385, 393, 671 A.2d 171 (App.Div.1996) (holding that “[i]t is the court which is the instrumentality intended to utilize equitable factors ”), aff'd, sub nom. Ciba-Geigy Corp. v. Liberty Mut. Ins. Co., 149 N.J. 278, 693 A.2d 844 (1997); 1 John N. Pomeroy, Equity Jurisprudence § 116 (5th ed., 1941) (observing that “a jury is clearly incompetent to frame and deliver a decree according to the doctrines and methods of equity”).

As is clear here, not only did the trial judge cede his equity jurisdiction to the jury, but he also further burdened the jury with questions and concepts that it need not have heard.

When the matter is retried, the judge should not charge the jury on equitable issues and concepts that have no bearing on the legal issues presented. Instead, once the jury renders its verdict on the legal claims, to the extent necessary the judge should resolve any lingering, relevant equity issues.

E

We should add that the judge's charge regarding the warranty of infringement is not consistent with what the law required. Therein, the trial judge stated that “a seller of goods has a duty to make certain that no claim of infringement will cloud or mar the buyer's title ...” (emphasis added). It is not any claim of infringement but only a “rightful claim” that will generate a breach of the warranty against infringement. N.J.S.A. 12A:2-312(3).

**802 The jury should have been instructed on the legal principles we discussed more thoroughly earlier in this opinion. Proper instructions would have required that the judge inform the jury that it was required to consider the substance of the third party's claim of infringement and whether that claim was of a substantial nature reasonably likely to subject the buyer to litigation, and whether *88 that claim has a significant and adverse impact on the buyer's ability to make use of the goods.

F

We need not consider further whether other legal principles described by the judge were accurately stated. In light of the material errors recounted above, we would also simply conclude that the charge was inadequate because of the failure of the judge to explain the applicable legal principles to the particular claims of the parties. To explain, it is helpful to generally outline the contents of the charge.

The trial judge first correctly and thoroughly described for the jury their role, as well as his and the attorneys' roles. He then advised the jury that the evidence before them consisted of the testimony of the witnesses, which he listed by name, the more than 100 exhibits, which he referred to solely by their identification numbers, and any answers to interrogatories and deposition testimony that may have been read to them.

Following this, the judge described for the jury the claims and contentions of the parties by briefly summarizing the legal theories alleged in the pleadings without further elaboration. In comparison to the summary of the claims that we briefly recited earlier in the opinion, the trial judge's description of all the claims and defenses asserted by the parties was contained in less than three transcript pages. Sandwiched into the judge's definitions of the burden of proof, and what it means to prove something by a preponderance of the evidence and by clear and convincing evidence, were the judge's instructions regarding which burden of proof applied to each of the numerous legal theories asserted by the parties. Following his further defining of when evidence preponderates and when evidence is clear and convincing, the judge then correctly described for the jury direct and circumstantial evidence, credibility, and the manner in which a witness's credibility may be assessed.

*89 At this point, the trial judge recited for the jury black letter definitions and descriptions of a blizzard of contract law concepts without explaining how they bore on the parties' factual contentions. The judge advised the jury on: what constitutes a bilateral contract; when a contract may be expressed or implied; when and what types of implied terms may be encompassed by a contract; what is meant by an offer and what is meant by an acceptance of an offer; what constitutes adequate consideration; what constitutes a course of performance and how it might modify or otherwise impact upon expressed and implied terms; what is the definition of the implied covenant of good faith and fair dealing, and its relationship to other contractual terms; how an agreement may be modified or rescinded, or when performance may be waived; what circumstances represent a material breach of contract; when a contracting party has substantially performed; what the non-breaching party's rights are when the other party breaches a contract; and what constitutes an anticipatory breach of a contract. The judge also provided, verbatim, various provisions of the Uniform Commercial Code, including: the definition of course of dealing; the three circumstances that represent an acceptance of goods; what it means to accept goods; what constitutes**803 the rejection of goods; what the parties' rights and obligations are when goods have been rejected; when is a reasonable time for rejection and what is a seasonable time for rejection; what a party must do to revoke acceptance and when must revocation occur; what is meant by the right to adequate assurance of performance; under what circumstances will a breach of warranty occur; when warranties may be excluded or modified; and what is meant by the warranty of title and the warranty against infringement. The judge also defined: fraud and all its elements; what constitutes a statement of opinion as opposed to a statement of fact; the meaning and elements of fraudulent concealment; equitable fraud; the defense of misrepresentation; what constitutes negligent misrepresentation; what is privity of contract and its relationship to agency concepts; waiver; estoppel; laches; unclean*90 hands; rescission; and conversion. The judge further defined what constitutes a conditional sale; and when a spoliation of evidence has occurred. He also defined negligence and proximate cause. As with all these legal concepts, the judge-without relating the legal principles to the factual circumstances of this case-defined what constitutes compensatory damages, consequential damages, damages for non-acceptance of goods, incidental damages, loss of profits, fair market value, and the obligation to mitigate damages. And the judge also explained what damages might be awarded if it was found that Myron converted any goods or spoliated any evidence.

Following additional instructions regarding the jury's obligation to decide the case fairly and impartially, without any sympathy, bias, passion or prejudice, and other instructions regarding jury deliberations, the judge then read to the jury all the questions contained in an eighteen-page verdict form.

[14] We have provided a few instances in which the judge gave incorrect instructions. Many of the other instructions constituted correct statements of law. But the judge simply recited these legal definitions and principles without linking them to the factual controversy that the jury was charged with deciding. He did not “plainly spell out how the jury should apply the legal principles to the facts as it may find them.” Jurman, supra, 47 N.J. at 592, 222 A.2d 78.

It would be hard to find a case more in need of a careful explanation of how the appropriate legal principles should be applied to a particular set of factual contentions. The jury was burdened with the obligation of sorting through the various factual contentions, and the meaning of the parties' numerous communications; it required the judge's explanation of the application of the legal concepts to the claims, counterclaims and defenses to those factual disputes. Although, as we have mentioned, there are many statements contained in the charge which are correct on *91 their face, the complete absence of an analysis of the statements of law to the parties' contentions left the jury without the guidance it required in this perplexing dispute.

[15] We are not insensitive to the fact that charging the jury in this case in a clear and helpful manner certainly constituted a considerable challenge. The contract principles that the jury was required to apply to the fact disputes are not easily grasped by a jury of lay persons. Regardless of the difficulty, a judge's failure to provide a jury with clear and accurate instructions regarding the material aspects of a case, as occurred here, mandates a new trial.

**804 We assume that the judge's reading of the charge spanned nearly two hours, and the inclusion of explanations throughout the charge as to how the jury should apply each legal standard would have greatly added to this lengthy charge. Such a charge would place a considerable burden on a jury already saddled with the task of applying difficult legal concepts to a convoluted set of facts. We suggest that when the matter is retried, the judge consider breaking up the charge by first instructing the jury, and obtaining a verdict, on the contract formation issues. Upon the rendering of a verdict on those issues, the judge could then instruct the jury on the remaining issues in light of its finding on the formation issues. We only commend and do not mandate such an approach; we leave it to the judgment and discretion of the trial judge. The judge may also consider providing the jury with a written copy of all or part of his charge in this complex matter. R. 1:8-8(a).

IV

[16] At trial, sellers also presented a spoliation of evidence claim. This claim should have been dismissed. Although Myron's counsel sent a letter to plaintiffs on October 25, 2001, which indicated that Version I calculators had been discarded, the record reflects no dispute that other Version I calculators were available to the extent that a physical examination of these items had *92 relevance to the lawsuit. Even though it may be true that those Version I calculators which were actually delivered to Myron were no longer available, sellers failed to demonstrate how they were damaged by this fact. We agree that there was no merit to sellers' claim in this regard and that, even though the jury also rejected it, the claim should have been dismissed at the close of evidence. As a result, we direct that the spoliation of evidence claim be dismissed following our remand.

V

To summarize, the trial judge correctly denied Myron's various motions for a directed verdict and for judgment notwithstanding the verdict regarding the disputes relating to the Version II calculators, but we conclude that the trial judge's jury instructions in this regard were inadequate and require a new trial. We agree with Myron that the judge should have granted a directed verdict on sellers' conversion claim, and that, as a result of that determination, the punitive damage award should have been set aside. There being no other basis for an award of punitive damages, that aspect of sellers' bundle of claims must be stricken following our remand. And we also hold that the spoliation of evidence claim should have been dismissed and must be dismissed by the trial judge following our remand.

We need not reach Myron's remaining argument, i.e., that the trial judge erred in remitting the jury's award in favor of Myron on its counterclaim for negligent misrepresentation. Because we have concluded that the judge's charge was inadequate as to all the issues to be resolved by the jury, we conclude that this claim must also be retried.

Sellers asserted in their cross-appeal and separate appeal that the trial court erred (1) by failing to award attorneys' fees, (2) in reducing the punitive damage award, (3) in choosing the date from which prejudgment interest would run on the damage award, and (4) in failing to include various expenses in the costs taxed against Myron. The second argument has been rendered moot by our *93 mandate that the claim for punitive damages be stricken; **805 we need not resolve the other three arguments in light of our determination that a new trial is required.

Reversed and remanded for a new trial.

Case 20.3

298 N.Y.S.2d 264

59 Misc.2d 189

Clifton JONES and Cora Jones, Plaintiffs,

v.

STAR CREDIT CORP., Defendant.

Supreme Court, Special Term, Nassau County, Part III.

March 18, 1969.

SOL M. WACHTLER, Justice.

On August 31, 1965 the plaintiffs, who are welfare recipients, agreed to purchase a home freezer unit for $900 as the result of a visit from a salesman representing Your Shop At Home Service, Inc. With the addition of the time credit charges, credit life insurance, credit property insurance, and sales tax, the purchase price totalled $1,234.80. Thus far the plaintiffs have paid $619.88 toward their purchase. The defendant claims that with various added credit charges paid for an extension of time there is a balance of $819.81 still due from the plaintiffs. The uncontroverted proof at the trial established that the freezer unit, when purchased, had a maximum retail value of approximately $300. The question is whether this transaction and the resulting contract could be considered unconsionable within the meaning of Section 2-302 of the Uniform Commercial Code which provides in part:

(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconsionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconsionable result.

(2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination. L.1962, c. 553, eff. Sept. 27, 1964.

There was a time when the shield of "caveat emptor' would protect the most unscrupulous in the marketplace-a time when the law, in granting parties unbridled latitude to make their own contracts, allowed exploitive and callous practices which shocked the conscience of both legislative bodies and the courts.

The effort to eliminate these practices has continued to pose a difficult problem. On the one hand it is necessary to recognize the importance of preserving the integrity of agreements and the fundamental right of parties to deal, trade, bargain, and contract. On the other hand there is the concern for the uneducated and often illiterate individual who is the victim of gross inequality of bargaining power, usually the poorest members of the community.

Concern for the protection of these consumers against overreaching by the small but hardy breed of merchants who would prey on them is not novel. The dangers of inequality of bargaining power were vaguely recognized in the early English common law when Lord Hardwicke wrote of a fraud, which "may be apparent from the intrinsic nature and subject of the bargain itself; such as no man in his senses and not under delusion would make.' The English authorities on this subject were discussed in Hume v. United States, 132 U.S. 406, 411, 10 S.Ct. 134, 136, 33 L.Ed. 393 (1889) where the United States Supreme Court characterized (p. 413, 10 S.Ct. p. 137) these as "cases in which one party took advantage of the other's ignorance of arithmetic to impose upon him, and the fraud was apparent from the face of the contracts.'

The law is beginning to fight back against those who once took advantage of the poor and illiterate without risk of either exposure or interference. From the common law doctrine of intrinsic fraud we have, over the years, developed common and statutory law which tells not only the buyer but also the seller to beware. This body of laws recognizes the importance of a free enterprise system but at the same time will provide the legal armor to protect and safeguard the prospective victim from the harshness of an unconscionable contract.

Section 2-302 of the Uniform Commercial Code enacts the moral sense of the community into the law of commercial transactions. It authorizes the court to find, as a matter of law, that a contract or a clause of a contract was "unconscionable at the time it was made', and upon so finding the court may refuse to enforce the contract, excise the objectionable clause or limit the application of the clause to avoid an unconscionable result. "The principle', states the Official Comment to this section, "is one of the prevention of oppression and unfair surprise'. It permits a court to accomplish directly what heretofore was often accomplished by construction of language, manipulations of fluid rules of contract law and determinations based upon a presumed public policy.

There is no reason to doubt, moreover, that this section is intended to encompass the price term of an agreement. In addition to the fact that it has already been so applied (State by Lefkowitz v. ITM, Inc., 52 Misc.2d 39, 275 N.Y.S.2d 303; Frostifresh Corp. v. Reynoso, 52 Misc.2d 26, 274 N.Y.S.2d 757, revd. 54 Misc.2d 119, 281 N.Y.S.2d 964; American Home Improvement, Inc. v. MacIver, 105 N.H. 435, 201 A.2d 886, 14 A.L.R.3d 324), the statutory language itself makes it clear that not only a clause of the contract, but the contract in toto, may be found unconscionable as a matter of law. Indeed, no other provision of an agreement more intimately touches upon the question of unconscionability than does the term regarding price.

Fraud, in the instant case, is not present; nor is it necessary under the statute. The question which presents itself is whether or not, under the circumstances of this case, the sale of a freezer unit having a retail value of $300 for $900 ($1,439.69 including credit charges and $18 sales tax) is unconscionable as a matter of law. The court believes it is.

Concededly, deciding the issue is substantially easier than explaining it. No doubt, the mathematical disparity between $300, which presumably includes a reasonable profit margin, and $900, which is exorbitant on its face, carries the greatest weight. Credit charges alone exceed by more than $100 the retail value of the freezer. These alone, may be sufficient to sustain the decision. Yet, a caveat is warranted lest we reduce the import of Section 2-302 solely to a mathematical ratio formula. It may, at times, be that; yet it may also be much more. The very limited financial resources of the purchaser, known to the sellers at the time of the sale, is entitled to weight in the balance. Indeed, the value disparity itself leads inevitably to the felt conclusion that knowing advantage was taken of the of choice essential to the making of a contract, can be negated of choice essential to the by a gross inequality of bargaining power. (Williams v. Walker-Thomas Furniture Co., 121 U.S.App.D.C. 315, 350 F.2d 445.)

There is no question about the necessity and even the desirability of instalment sales and the extension of credit. Indeed, there are many, including welfare recipients, who would be deprived of even the most basic conveniences without the use of these devices. Similarly, the retail merchant selling on instalment or extending credit is expected to establish a pricing factor which will afford a degree of protection commensurate with the risk of selling to those who might be default prone. However, neither of these accepted premises can clothe the sale of this freezer with respectability.

Support for the court's conclusion will be found in a number of other cases already decided. In American Home Improvement, Inc. v. MacIver, supra, the Supreme Court of New Hampshire held that a contract to install windows, a door and paint, for the price of $2,568.60, of which $809.60 constituted interest and carrying charges and $800. was a salesman's commission was unconscionable as a matter of law. In State by Lefkowitz v. ITM, Inc., supra, a deceptive and fraudulent scheme was involved, but standing alone, the court held that the sale of a vacuum cleaner, among other things, costing the defendant $140 and sold by it for $749 cash or $920.52 on time purchase was unconscionable as a matter of law. Finally, in Frostifresh Corp. v. Reynoso, supra, the sale of a refrigerator costing the seller $348 for $900 plus credit charges of $245.88 was unconscionable as a matter of law.

One final point remains. The defendant argues that the contract of June 15, 1966, upon which this suit is based, constitutes a financing agreement and not a sales contract. To support its position, it points to the typed words "Refinance of Freezer A/C #6766 and Food A/C #56788' on the agreement and to a letter signed by the plaintiffs requesting refinance of the same items. The request for "refinancing' is typed on the defendant's letterhead. The quoted refinance statement is typed on a form agreement entitled "Star Credit Corporation-Retail Instalment Contract'. It is signed by the defendant as "seller' and by the purchasers as "buyer'. Above the signature of the buyers, they acknowledge "receipt of an executed copy of this RETAIL INSTALMENT CONTRACT' (capitalization in original). The June 15, 1966 contract by defendant is on exactly the same form as the original contract of August 31, 1965. The original, too, is entitled "Star Credit Corporation-Retail Instalment Contract'. It is signed, however, by "Your Shop At Home Service, Inc.' Printed beneath the signatures is the legend "Duplicate for Star'. In substance and effect, the agreement of June 25, 1966 constitutes a novation and replacement of the earlier agreement. It is, in all respects, as it reads, a Retail Instalment Contract.

Having already paid more than $600 toward the purchase of this $300 freezer unit, it is apparent that the defendant has already been amply compensated. In accordance with the statute, the application of the payment provision should be limited to amounts already paid by the plaintiffs and the contract be reformed and amended by changing the payments called for therein to equal the amount of payment actually so paid by the plaintiffs.

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