Ayoob v. Cor-Bon, et al.

• Court: District Court, D. New Hampshire
• Decided: February 4, 1999
• Docket: CV-96-464-B
• Status: Published

Opinion

Ayoob v. Cor-Bon, et a l . CV-96-464-B 02/04/99 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Dorothy Avoob and Massad Avoob

v. Civil No. C-96-464-B

Cor-Bon Custom Bullet Company, and Peter P i , individually

MEMORANDUM AND ORDER

This case arises from a distributorship agreement between

Cor-Bon, Inc., a manufacturer of high performance ammunition, and

Armor of New Hampshire, a sole proprietorship owned and operated

by Dorothy Ayoob. Dorothy Ayoob and her husband, Massad Ayoob,

seek damages and eguitable relief from Cor-Bon and its president,

Peter Pi, claiming that Cor-Bon breached the distributorship

agreement by failing to pay commissions that were due pursuant to

the agreement, and by attempting to unilaterally add terms to the

agreement that the Ayoobs find unacceptable. The Ayoobs also

assert several tort claims, claims for eguitable relief and a

claim based on New Hampshire's Consumer Protection Act arising

from the same course of conduct. Finally, they make a claim for

breach of warranty based on Cor-Bon's alleged failure to deliver

ammunition of an acceptable guality. Cor-Bon and Pi have filed a motion for partial summary

judgment arguing that: (1) Massad Ayoob lacks standing to assert

any claims against defendants; (2) to the extent that plaintiffs'

breach of contract claim is based on violations that accrued more

than three years before the complaint was filed, it is barred by

the statute of limitations; (3) plaintiffs cannot maintain a

breach of contract claim for alleged breaches that accrued after

January 1, 1996, as Cor-Bon lawfully terminated its contract with

Armor on that date; (4) plaintiffs are not entitled to maintain

any guasi-contract claims because the parties' relationship is

governed by an actual contract; (5) plaintiffs' claims for

interference with a contractual relationship fail for several

reasons; (6) plaintiffs' common law claim of unfair competition

and its Consumer Protection Act claim fail to state claims for

relief; and (7) the evidence will not support a breach of

warranty claim. Embedded in this dispute is a choice of law

guestion as to whether plaintiffs' claims are governed by

Michigan or New Hampshire law. I examine this issue first after

sketching out the relevant background facts. I. BACKGROUND1

In 1985, Peter Pi and Massad Ayoob entered into an oral

contract granting Armor the exclusive right to distribute Cor-Bon

ammunition. The parties modified the contract in 1990 when Cor-

Bon added Firearms of Seattle ("FOS") as a second distributor.

Thereafter, Armor and Cor-Bon orally agreed that Armor would

serve as Cor-Bon's exclusive distributor in the United States,

east of the Mississippi River, and that FOS would have the

western part of the United States as its territory. Cor-Bon also

agreed that Armor (1) would retain the exclusive right to

distribute Cor-Bon's products outside the United States, (2)

would be the only buyer entitled to purchase products at

distributor prices, and (3) would continue to have the right to

sell Cor-Bon's products at retail across the country.

The Ayoobs have taken differing positions concerning their

understanding of the term during which the distributorship

agreement would remain in effect. In some statements, the Ayoobs

claim that the parties never discussed the length of the

agreement. At other times, they claim that Cor-Bon agreed that

the agreement would continue in perpetuity. They also contend

1 I describe the background facts in the light most favorable to the plaintiffs.

- 3 - that the parties never discussed the circumstances under which

one party could terminate the agreement over the other party's

obj ection.

The parties orally modified the distributorship agreement in

1992. Under the modified contract. Armor and FOS agreed to serve

as "master distributors." As master distributors, they would

continue to collect commissions on their own sales but they were

also entitled to a 5% commission on sales by "sub-distributors"

within each master distributor's territory. Firearms Academy of

Florida ("FAS") and D&S Enterprises ("D&S") became Armor's sub­

distributors pursuant to the 1992 contract modification.

Efforts were made in 1993 to replace the parties' oral

agreement with a written contract. Toward this end. Pi, on

behalf of Cor-Bon, sent Armor a proposed agreement. The

agreement contained the following pertinent terms:

4. Distributors may not market or solicit customers outside their assigned territories. If a distributor is currently selling a dealer outside of their territory, it may keep that dealer if that dealer prefers to buy from them. . . . 7. In gratitude for being my first distributors and for helping me get started Cor-Bon will issue a five percent credit to its master distributors from the sales of its regional distributors high performance ammunition. This credit can only be applied to advertising invoices. This credit will be valid only for the period of time below: Armor of New Hampshire: Jan 1, 1993 to Dec 31, 1997 (5 years); Firearms Academy of Seattle: Jan 1, 1993 to Dec 31, 1995 (3 years).

14. Credit will be a privilege with Cor-Bon. Cor-Bon must receive payment on all invoices by the due date.

15. A credit ceiling will be established for each distributor. It will be set on an individual basis by Cor-Bon taking into consideration payment history and sales volume.

2-11 Cor-Bon reserves the right to amend this agreement to cover any unforeseen changes in the future business climate.

The 1993 Agreement included no language about duration or

termination.

Taking exception to the language in the proposed agreement

that would have restricted Armor's use of its subdistributor

commissions to payment of advertising invoices. Armor refused to

continue as a Cor-Bon distributor. Dorothy Ayoob informed Pi of

her decision, after which Pi allegedly told her that Armor could

continue its unrestricted use of the subdistributor commissions.

See id. at 158. Further, according to Massad Ayoob, " [m]y understanding as far as the advertising credits was that simply that was a convenience to him [Pi] because of his cash flow situation . . . I had never understood that to be a conditional thing or the only way in which the commissions would ever be delivered. In fact the commissions were delivered in other forms."

Id. The Ayoobs never signed the proposed contract.

The parties orally modified the distributorship agreement

again in 1994, when Cor-Bon added Lew Horton, Inc. ("Horton") as

a new distributor. Horton was a large national distributor

located in the heart of Armor's territory. To address Armor's

concerns that Horton's addition would adversely affect its sales

and the sales of its sub-distributors, the parties agreed that

Armor would receive a 7% commission on Horton's sales of Cor-

Bon' s ammunition.2

Notwithstanding its agreement with Armor, Cor-Bon began

selling ammunition directly to Horton in 1994 without paying

Armor its 7% commission. In 1995, Cor-Bon also began to direct

sales orders received via its toll-free number to the Cor-Bon

factory instead of routing them to the nearest distributor, as

had formerly been Cor-Bon's practice. This allowed Cor-Bon to

avoid paying commissions that it owed Armor under the

2 Massad Ayoob has testified that the parties agreed that the commission paid would vary between 7% and 10%, depending upon whether ammunition was shipped to Horton directly by Cor-Bon or whether it was shipped by Armor.

- 6 - distributorship agreement. In 1995, Cor-Bon also added

Nationwide of Pennsylvania ("NOP") as a new distributor in

Armor's territory, but refused to pay Armor any commissions on

sales by NOP.

By the end of 1995, several of Cor-Bon's distributors had

fallen behind in their invoice payments, resulting in severe cash

flow problems for Cor-Bon. As a result, Cor-Bon became unable to

obtain component parts for its ammunition. At one point, Cor-Bon

was $38,000 overdrawn at the bank as a result of the non-receipt

of promised payments from distributors, and could not afford to

advertise.

Allegedly as the result of these problems, Cor-Bon

unilaterally instituted a new distributor agreement on January 1,

1996 which it called the "1996 Wholesale Program." This new

distributorship agreement eliminated all exclusive territories

for individual distributors and allowed any distributor to market

Cor-Bon products anywhere in the United States. It set a credit

limit for each distributor, and explicitly stated that

outstanding orders would not be released to any distributor with

past due invoices, or any distributor which had exceeded its

credit limit. Advertising credits were also made available to

all distributors who wanted them and could meet the sales volume requirement.

Armor found the terms of this new agreement "highly

objectionable." Nevertheless, because Armor's customers were

still clamoring for Cor-Bon ammunition and the parties were

continuing to negotiate. Armor placed another order with Cor-Bon

after Cor-Bon instituted the 1996 Wholesale Program. Because

Cor-Bon claimed that Armor was in arrears on its invoice

payments, however, it told Armor that it would only ship the

ammunition to Armor C.O.D. Armor disagreed with Cor-Bon's

suggestion that it was behind on its invoice payments, insisting

instead that Cor-Bon owed Armor unpaid commissions. Cor-Bon

then, apparently for the first time, denied that it owed Armor

anything. Negotiations between the parties subsequently broke

down, and the Ayoobs brought suit against Cor-Bon and Peter Pi on

September 5, 1996.

II. STANDARD OF REVIEW

Summary judgment is appropriate if the "pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, 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." Fed. R. Civ. P. 56(c). "On a motion for summary judgment, [I] recite the facts

in a light most favorable to the nonmovant." Thomas v.

Contoocook Valiev School District, 150 F.3d 31, 33 (1st Cir.

1998) .

III. DISCUSSION

Plaintiffs bring an eight-count complaint against Cor-Bon

and Peter Pi seeking a variety of contract and tort remedies

arising from the parties' distributorship agreement. Counts 1,

2, 3, and 7, assert claims for breach of contract and guasi-

contractual relief. Counts 4, 5, and 6, allege that defendants

tortuously interfered with Armor's existing and prospective

business relations and engaged in deceptive or fraudulent

business practices. Count 8 alleges that Cor-Bon breached the

implied warranty of merchantability and/or fitness by selling

Armor defective and/or mislabeled ammunition.

Although the Ayoobs have lived and worked in New Hampshire

for several years, Cor-Bon was incorporated in Michigan and was

based there when the events giving rise to the complaint

occurred. Accordingly, I must first determine whether the

Ayoobs' claims are governed by New Hampshire or Michigan law. A. Choice of Law

I apply the forum state's choice of law rules when, as in

this case, federal jurisdiction is based on diversity of

citizenship. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S.

487, 496 (1941); American Title Ins. Co. v. East West Fin. Corp.,

959 F .2d 345, 348 (1st Cir. 1992).

The New Hampshire Supreme Court uses slightly different

choice of law tests for contract and tort claims. With respect

to contract claims, the court has determined that "in the absence

of an express choice of law validly made by the parties, the

contract is to be governed, both as to validity and performance,

by the law of the state with which the contract has its most

significant relationship." Currier v. Tuck, 112 N.H. 10,11

(1972)(quoting Consolidated Mut. Cas. Co. v. Radio Foods Co., 108

N.H. 494, 496, (1968)); see also Glowski v. Allstate Ins. Co.,

134 N.H. 196, 197 (1991). In tort actions, in contrast, the New

Hampshire Supreme Court applies the "Leflar" test first

enunciated in Clark v. Clark, 107 N.H. 351, 353-55 (1966) . See

Keeton v. Hustler Magazine, Inc., 131 N.H. 6, 14 (1988) . I

examine each class of claims in turn.

- 10 - 1. Contract Claims

According to the Restatement (Second) of Conflicts of Law,

adopted by the New Hampshire Supreme Court to govern choice of

law guestions presented by contract claims,

"In the absence of an effective choice of law by the parties, the contacts to be taken in to account . . . to determine the law applicable to an issue include: (a) the place of contracting, (b) the place of negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties. These contacts are to be evaluated according to their relative importance with respect to the particular issue."

Restatement (Second) of Conflicts of Law § 108; see also,

Glowski, 134 N.H. at 197 ("Our post-Clark decisions, particularly

in contracts cases, have relied upon the approach taken by the

Restatement (Second) of Conflict of Laws. . ."). Further, since

the most significant relationship test is intended to "give

effect to the intention of the parties and their reasonably

justified expectations, the court applying it must examine the

jurisdiction/contract relationship at the time the contract was

executed." Ferrofluidicse Corp. v. Advanced Vacuum Components,

Inc., 968 F.2d 1463, 1468 (1st Cir. 1992) (internal citation

omitted).

- 11 - While good arguments can be made for the application of

either New Hampshire or Michigan law to plaintiffs' contract and

guasi-contract claims, I apply New Hampshire law because I

conclude that New Hampshire has the most significant relationship

to the contract at issue. First, Dorothy Ayoob, the sole

proprietor of Armor, lives in New Hampshire. Second, it appears

hat the Ayoobs negotiated the distributorship agreement with Cor-

Bon from New Hampshire. Third, Armor distributed Cor-Bon's

products from its base of operations in New Hampshire. Thus, it

is reasonable to characterize New Hampshire as (1) the place of

plaintiff's domicile; (2) one of the places of contracting; (3)

the primary place where the contract was performed; and (4) the

principal place where the subject matter of the contract was

located. While the fact that Cor-Bon was based in Michigan when

the contract was formed favors the application of Michigan law,

this fact is not sufficiently important to outweigh the other

factors favoring the application of New Hampshire law.

Accordingly, I conclude that plaintiff's contract and guasi-

contract claims are governed by New Hampshire law.

2. Tort Claims

The factors that a court must consider in resolving a choice

of law guestion concerning a tort claim are: (1) the

- 12 - predictability of results; (2) the maintenance of reasonable

orderliness and good relationships among the states in the

federal system; (3) simplification of the judicial task; (4)

advancement of the governmental interest of the forum; and (5)

the court's preference for what it regards as the sounder rule of

law. See Clark, 107 N.H. at 353-55. Here, the only factor that

significantly affects the analysis is the strong governmental

interest that New Hampshire has in protecting a resident from

torts committed by an out-of-state defendant. As none of the

other factors suggest that Michigan law should govern plaintiffs'

tort claims, I conclude that these claims are also governed by

New Hampshire law.

B. Massad Avoob's Standing to Sue

Both constitutional and prudential considerations

potentially constrain a plaintiff's standing to sue in federal

court. See Bennett v. Spear, 117 S. Ct 1154, 1161 (1997) . The

Supreme Court has determined that the "irreducible constitutional

minimum of standing" consists of three reguirements: (1) the

plaintiff must have personally suffered an "injury in fact" which

is (a) concrete and particularized and (b) actual or imminent,

not conjectural or hypothetical; (2) the cause of the plaintiff's

alleged injury must be "fairly . . . traceable" to the defendant;

- 13 - and (3) the injury must be "redress[able] by a favorable

decision." Id. at 1163 (internal citations omitted)(quoting

Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)).

The plaintiff bears the burden of meeting these requirements.

See Berner v. Delahantv, 129 F.3d 20, 23-24 (1st Cir. 1997),

cert. denied, 118 S. C t . 1305 (1998).

Armor is a sole proprietorship owned by Dorothy Ayoob.

Although Massad Ayoob is authorized to speak and act on Armor's

behalf, he has no ownership interest in Armor, was never an

"employee" of Armor, and spent less than five percent of his time

between 1985-95 on Armor business. See Dep. of Massad Ayoob at

30. His primary activity on behalf of Armor was to use his

expertise as an ammunitions expert to answer technical questions

regarding Cor-Bon ammunition for Armor customers. See id. at CI­

SC. As a non-owner, non-employee of Armor, Massad Ayoob has not

alleged that he has personally suffered any particularized,

actual or imminent "injury in fact" to give him Article III

standing in this case. See e.g. Sierra Club v. Morton, 405 U.S.

727, 739 (1972)("a mere 'interest in a problem,' no matter how

long standing the interest . . . is not sufficient" injury to

confer standing); New Hampshire Bankers Ass'n v. Nelson, 113 N.H.

127, 128-29 (1973)(third party's injury must be direct, not

- 14 - derivative - no legally cognizable interest found where a third-

party' s claim for monetary damages derived from the plaintiff's

alleged injuries and would not exist independent of the

plaintiff's claim).3

In light of these findings, I have reconsidered my bench

order of November 2, 1998, and now dismiss Massad Ayoob as a

party plaintiff.

C. Contract Claim

1. Statute of Limitations

Defendants argue that Ayoob's breach of contract claim is

barred by New Hampshire's three-year statute of limitations to

the extent that her claim accrued prior to September 6, 1993. I

decline to address the merits of this contention as the current

record does not contain sufficient information for me to

determine whether plaintiff has asserted a claim for breach of

3 Massad Ayoob has alleged no connection to the contract or tort claims brought in this case to make him an interested party for purposes of standing. Although he did state that he had been "defamed, slandered, and falsely accused" in his deposition, see Dep. of Massad Ayoob at 119, no defamation or other reputational claim is included in this action. Instead, his pecuniary damages are realized only through his wife's loss of income from her solely-owned business. As such, even if this case were brought in state court beyond the reach of Article III standing doctrine, Massad Ayoob has not identified any facts which would permit his recovery on any of the claims presently in the case under state law. Accordingly, I dismiss these claims with prejudice.

- 15 - contract that accrued prior to September 1993.

The record contains ample evidence to support Ayoob's claim

that Cor-Bon breached its oral distributorship agreement with

Armor in 1994 when it began selling ammunition directly to Horton

without paying Armor the 7 percent commission it was owed under

the agreement. I have not been presented with sufficient

evidence, however, to support a conclusion that Cor-Bon breached

the distributorship agreement prior to this date. As the record

does not contain such evidence, I decline to address defendants'

statute of limitations defense.

2. Defendants' Claim that the Agreement Was Terminated on January 1, 1996

Defendants argue that Armor cannot maintain any claim for

breach of contract after January 1, 1996 because Cor-Bon lawfully

terminated the contract on that date when it unilaterally

replaced the oral distributorship agreement with the "1996

Wholesale Program." Ayoob responds by arguing that Cor-Bon

lacked the authority to unilaterally terminate the agreement.

New Hampshire law recognizes that "[b]rokerage or agency

agreements for indefinite, unspecified periods are terminable by

either party at will, subject to the reguirement of good faith."

Badr Export and Import, Inc. v. Groveton Papers Co., 122 N.H.

101, 103 (1982). Good faith simply reguires that a party, in the

- 16 - exercise of the discretion afforded to it by the contract, must

"observe reasonable limits in exercising that discretion,

consistent with the parties' purpose or purposes in contracting"

[and measured by] community standards of honesty, decency, and

reasonableness. Centronics Corp. v. Genicom Corp., 132 N.H. 133,

143-44 (1989) .

The record in this case contains no evidence suggesting that

Cor-Bon instituted its 1996 Wholesale Program in bad faith.

Accordingly, if Cor-Bon can establish at trial that the oral

distributorship contract was for an undefined term, it will be

entitled to bar Armor from asserting any breach of contract claim

that accrued after the 1996 Wholesale Program was instituted. I

cannot award Cor-Bon summary judgment on this issue now, however,

because a genuine factual dispute exists as to whether the

distributorship contract was a contract for an undefined term as

defendants claim, or a contract in perpetuity. Dorothy Ayoob

testified that "Peter [Pi] said we had it [the distributorship

agreement] forever . . . . Peter told me on the phone . . . way

back in the early beginning when we first started . . . he said

it was an exclusive distributorship and it would go on forever."

Dep. of Dorothy Ayoob at 164-65. If Ayoob is able to prove this

contention at trial, the distributorship agreement would not be

- 17 - an agreement for an undefined term that is terminable at will.4

Accordingly, I deny defendants' motion for summary judgment on

this issue.

D. Quasi-Contract Claims

Ayoob cannot maintain claims for guasi-contractual relief if

her claims are governed by an express contract. See Tentindo v.

Locke Lake Colony Ass'n, 120 N.H. 593, 597 (1980); 17 C.J.S.

Contracts § 6 (1963). I cannot grant defendants' motion for

summary judgment with respect to Ayoob's guasi-contract claims,

however, because Ayoob may be entitled to assert a claim for

guasi-contractual relief if I later determine that her contract

claim is barred by the statute of frauds. See State v. Halev, 94

N.H. 69, 69 (1946). Accordingly, I deny defendants' motion for

summary judgment with respect to Ayoob's guasi-contract claims.

E. Tort Claims

1. Tortuous Interference Claim

To prove a claim for tortuous interference with current or

4 If the distributorship contract is deemed to be a contract that was intended to exist in perpetuity, it is likely that the contract would be unenforceable because of the statute of frauds. See N.H. Rev. Stat. Ann. § 506:2; Davis v. Grimes, 87 N.H. 133, 135 (1934); Phillips v. Verax Corp., 138 N.H. 240, 245 (1994); Lago & Sons Dairy, Inc. v. H.P. Hood, CV-92-200 (D.N.H. June 20, 1995) at 4. I do not reach the merits of the statute of frauds guestion, however, as it has not been briefed by the parties.

- 18 - prospective contractual relations, Ayoob must establish (1) that

Armor had an economic relationship with a third party; (2) that

Cor-Bon knew about this relationship; (3) that Cor-Bon

intentionally and improperly interfered with the relationship

between Armor and the third-party; and (4) that plaintiff was

damaged by such interference. See Demetracopoulos v. Wilson, 138

N.H. 371, 373 (1994); Roberts v. General Motors Corp., 138 N.H.

532, 539 (1994) .

Ayoob alleges that the defendants intentionally and

improperly interfered with her prospective economic relationships

by unilaterally and without notice rerouting telephone calls

intended for Armor to the defendants' factory and keeping the

business generated by these calls for itself. Under the

previously operational toll-free switching system instituted by

Cor-Bon, dealers and customers seeking to purchase Cor-Bon

ammunition called a single, nationally-advertised 800-number, and

the system automatically routed the calls to the nearest

distributor. Without warning, telephone sales and inguiries

dropped precipitously, and Ayoob noticed that the 800-number

which accessed the switching system was absent from Cor-Bon's

national advertising.

- 19 - This claim merely attempts to recharacterize Ayoob's

contract claim as a tort claim. To the extent that Armor had an

exclusive contractual right to service a particular geographic

area, Ayoob will be entitled to recover damages from Cor-Bon for

breach of contract. Under New Hampshire law, however, a tort

claim cannot arise merely from an alleged breach of contract.

See Lawton v. Great Southwest Fire Ins. Co., 118 N.H. 607, 613

(1978). In order to impose tort liability, the defendant's

actions must "constitute a breach of a duty owed by the defendant

to the plaintiff independent of the contract . . . ." Id. Here,

Armor's right to any commissions was purely contractual.

Accordingly, no cause of action lies against defendants in tort

on this claim.

2. Deceptive/Fraudulent Business Practice Claims

Armor suggests that, on at least three occasions, it

received shipments of ammunition from Cor-Bon that had reportedly

been back-ordered but which had been manufactured by Cor-Bon

months before Armor's orders were placed, as indicated by the

date stamp placed on the ammunition at the factory. Armor also

alleges that on several other occasions, Cor-Bon told Armor that

certain products were back-ordered and unavailable while at the

same time, other distributors were receiving regular delivery of

- 20 - these "back-ordered" products. Armor alleges that this behavior

constitutes a deceptive and fraudulent business practice, but

cites no statute or case law in support of its claim.

Under New Hampshire law, the tort of unfair competition

requires proof that the defendant did something to "deceive[ ] .

. . the general buying public." Optical Alignment Svs. and

Inspection Serv. Inc. v. Alignment Serv. of North America, 909 F.

Supp 58 (D.N.H. 1995) (quoting Salomon S.A. v. Alpina Sports Co.,

737 F. Supp. 720, 722-23 (D.N.H. 1990)). Causes of action under

this tort are limited to claims where the ultimate consumer of a

product is misled. See Pacamor Bearings, Inc. v. Menebea Co.,

918 F. Supp. 491 (D.N.H. 1996). Armor has not alleged any

instances of consumer confusion, and thus, fails to state a cause

of action for common law unfair competition.

Cor-Bon argues that the New Hampshire Consumer Protection

Act ("the Act"), RSA 358-A et seq. , is likewise inapplicable to

Armor's unfair competition claims. I agree. While the Act is to

be broadly construed, it is not unlimited in scope. In order to

establish a valid claim under the Act, the conduct in issue must

at least be analogous to the categories of behavior barred by the

Act. See N.H. Rev. Stat. Ann. 358-A:2 ("unfair or deceptive act

or practice shall include, but it not limited to" the delineated

- 21 - offenses); Roberts, 138 N.H. at 538. Armor's allegations against

Cor-Bon for misleading Armor about the status of back-ordered

products are not cognizable under the Act.

F. Breach of Warranty Claims

In New Hampshire, breach of warranty claims are statutory.

See Brescia v. Great Road Realty Trust, 117 N.H. 154, 157

(1977)(there is no common law cause of action for breach of

warranty). Claims for breach of the implied warranty of

merchantability are governed by RSA 382-A:2-314, which states, in

pertinent part,

(1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. . . .

(2) Goods to be merchantable must be at least such as . . . (a) pass without objection in the trade under the contract description; and . . . (c) are fit for the ordinary purposes for which such goods are used; and (e) . . . are adeguately contained, packaged, and labeled . . . and (f) conform to the promises or affirmations of fact made on the container or label

Cor-Bon argues that the implied warranty of merchantability

reguires only that the goods be merchantable, and does not

reguire the goods to be perfect. See Xerox Corp. v. Hawkes, 124

N.H. 610, 616 (1984)("RSA 382-A:2-314 generally provides that a

seller impliedly warrants that his goods are merchantable or

- 22 - generally fit for the 'ordinary purposes' for which the goods are

used. . . 1 White and Summers, Uniform Commercial Code § 9-8

at 523 (1995)(the goods need not "fulfill [the] buyer's every

expectation"). Cor-Bon further suggests that this warranty

applies,

only to the ordinary purpose for which the goods are made and are to be used without regard to any special need of the buyer for these goods. If the goods are fit for their ordinary purpose and the buyer attempts to use them for some other purpose outside of their ordinary use and cannot so use them, the buyer cannot be heard to say that there was a breach of the warranty of merchantability.

3 Bender's Uniform Commercial Code Service: Sales and Bulk

Transfers, § 7.02[3] at 7-54. Accordingly, Cor-Bon argues that

Armor cannot claim that high muzzle flash prevented the

ammunition from functioning as ammunition and, as a result, that

Armor's claim for breach of the warranties of merchantability

and/or fitness must fail as a matter of law. I disagree.

Cor-Bon manufactures high-performance ammunition. Its

ammunition was designed to satisfy a demand, particularly among

law enforcement and other professionals, left by the inadeguacies

of regular ammunition. The ordinary purpose of high performance

ammunition, then, is based on its special, distinctive

characteristics, which include low muzzle flash and superior

dependability. Armor raises a number of factually-based claims.

- 23 - supported by deposition testimony, that Cor-Bon's high-

performance ammunition exhibited exceptionally high muzzle flash

and was occasionally defective or mislabeled. This is a

sufficient showing to establish an issue of material fact as to

the applicability of the implied warranty of merchantability

and/or the warranty of fitness.

Cor-Bon argues, however, that proper notice is a pre-

reguisite to bringing warranty claims. See RSA 382-A:2-

607(3)(a); Town of Hooksett School District v. W.R. Grace and

C o ., 617 F. Supp 126, 132 (D.N.H. 1984) . The purpose of this

reguirement is to enable the seller to cure the breach by

providing adeguate replacement merchandise. See RSA 382-a:2-508;

Town of Hooksett, 617 F. Supp. at 131. Cor-Bon insists that in

all instances when it was given notice by Armor, Cor-Bon provided

replacement ammunition in accordance with its statutory right to

cure. Armor admits that it cannot recall an occasion when Cor-

Bon failed to provide replacement ammunition after receiving

notice of a complaint.

Ayoob, however, argues that mere replacement was

insufficient to cure the breaches of warranty. According to

Ayoob, because of the potentially life threatening nature of the

defects in Cor-Bon's ammunition, any indication that its

- 24 - ammunition is defective jeopardizes the reputation and the

integrity of the product in a market that expects and demands

precision. According to Ayoob, defective ammunition can result

in death, either from the product itself, or by placing a law

enforcement officer in the position of being unable to defend

himself or others in a life-threatening situation. Such

potentialities, Ayoob notes, greatly affect the reputation of a

product in the marketplace and leave the breaches of warranty

uncured by replacement.

Under New Hampshire law, damage to a product's reputation

can render a breach of warranty incurable by replacement.

According to the New Hampshire Supreme Court,

"testimony that the continuing problem undermined . . . confidence in the . . . [product] and destroyed its value . . . should not be ignored. . . . the guestion of whether a defect has substantially impaired the value of the . . .[product] to the plaintiffs is one of fact to be determined by a jury . . . . The jury could find that the series of defects and problems that the plaintiffs experienced with the . . . [product] reasonably destroyed their confidence in the integrity and reliability of the . . . [product].

Welch v. Fitzqerald-Hicks Dodge, Inc, 121 N.H. 358, 364 (1981).

See also N.H. Rev. Stat. Ann. 382-A:2-315 (warranty of fitness);

- 25 - N.H. Rev. Stat. Ann. 382-A:2-608 (damages).5 The applicability

of these warranties to Armor's case is properly a question of

fact for the jury. See id. Accordingly, Cor-Bon's motion for

summary judgment on this claim is denied.

V. CONCLUSION

All of Ayoob's claims except her breach of warranty claims

derive from her contention that Cor-Bon breached the parties'

oral distributorship agreement. Her contract claim assumes that

Cor-Bon breached an enforceable contract to pay Armor commissions

that were owed under the agreement. I cannot rule on defendants'

statute of limitations defense to the contract claim because the

record is not sufficiently developed with respect to claims that

arose prior to September, 1993. I also have denied the motion to

the extent that it seeks to bar claims that accrued after January

1, 1996, as a genuine factual dispute exists as to whether the

distributorship agreement is a contract for an indefinite term or

a contract that was intended to exist in perpetuity. Although

5 Proving damages under this theory may be difficult, however. By statute, damages for breach of the warranty of merchantability are measured by the difference in value between the goods delivered and the value of conforming goods. Damages under the warranty of fitness might include return of any unsold product for a refund, and potentially, lost profits deriving therefrom.

- 26 - New Hampshire law ordinarily bars quasi-contract claims in a case

like this where the parties' obligations are governed by a

contract, I have denied defendants' motion for summary judgment

with respect to Ayoob's quasi-contract claims to permit Ayoob to

assert them in the event that her contract claim is later

determined to be barred by the statute of frauds. Plaintiff's

interference with contract claim is merely a restatement of her

contract claim. Accordingly, I have granted the motion for

summary judgment with respect to this claim. I also have granted

the motion for summary judgment with respect to plaintiff's

remaining tort claims. Finally, I have denied the motion for

summary judgment with respect to the plaintiff's breach of

warranty claims.

SO ORDERED.

Paul Barbadoro Chief Judge February 4, 1999

cc: Robert Johnson, II, Esq. James Bassett, Esq. Mark J. Connot, Esq.

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