Data General Corp. v. Communications Diversified, Inc.

728 P.2d 469, 105 N.M. 59

• Court: New Mexico Supreme Court
• Decided: November 21, 1986
• Docket: 16015
• Status: Published

Opinions

OPINION

RIORDAN, Chief Justice.

Data General Corporation (Data General) brought this action for “bill backs” owed on a discount agreement with Communications Diversified, Inc. (Communications). Communications was awarded summary judgment by the trial court on the ground that the agreement was a contract for the sale of goods controlled by NMSA 1978, Section 55-2-725, and the statute of limitation had run before the complaint was filed. Data General appeals and we reverse.

On March 21, 1978, Data General and Communications entered into an agreement providing for scheduled discounts dependent upon future purchase by CDI. The specified term of the discount contract was fifteen months, which expired June 21, 1979. The contract specified that Communications was to purchase a minimum of eleven computers within the fifteen months to receive the calculated discount it received. The contract states:

[i]f Buyer fails to * * * purchase and take delivery during the Delivery Period [eighteen months] of the minimum number of system units associated with the level specified [eleven to fifteen] * * *, [Data General] will recalculate the discounts previously granted in accordance with * * * the number of system units actually delivered * * *.

At the expiration of the ordering period, Communications had purchased one computer. Data General recalculated the discount and on December 18,1979, it invoiced Communications for the unearned discount. Communications did not pay the invoice and on September 22, 1983, Data General filed suit to recover.

Two issues raised on appeal are whether the trial court erred in:

A. The calculation of when the “breach” occurred; and

B. the application of Section 55-2-725 instead of NMSA 1978, Section 37-1-3 for the period of limitation in which an action may be brought.

Date of Breach

It is undisputed that the contract is for a term that is to last fifteen months beginning March 21, 1978, and extending until June 21, 1979. Since the contract is for a specified term, the parties would know when the contract expires and whether there is a breach. And accordingly, “[w]hen an agreement is absolute and unconditional the general rule is that no demand for performance is necessary.” In re Independent Distillers of Kentucky, 34 F.Supp. 708 (W.D.Ky.1940). See also NMSA 1978, § 56-5-3 (Repl.Pamp.1986).

Data General argues that the amount due on bill-backs is unknown until it invoices the buyer as required by the contract. Thus, it alleges that notice was given of the amount due on December 18, 1979, and the breach occurred then.

However, at the end of the ordering period, which was June 21, 1979, both parties knew that CDI had not ordered eleven computers and that it had breached the discount agreement. CDI signed the contract with full knowledge of the minimum order requirement for the discount percentage it was given. However, CDI stated it did not know it would be held to this breach because it was told it did not have to order any minimum number of computers and that the minimum number clause was never enforced.

The unambiguous contract governs. See Albuquerque National Bank v. Albuquerque Ranch Estates, 99 N.M. 95, 645 P.2d 548 (1982). The breach occurred the day after the contract expired, June 22, 1979. Since the suit was brought September 22, 1985, the suit was brought more than four and less than six years after the breach.

Limitation Statute

The trial court applied Section 55-2-725, which is part of the New Mexico Uniform Commercial Code, which states: “An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued.” Since the breach occurred on June 22, 1979, under this section the action would be barred by the statute of limitations, presuming a contract for sale is involved.

We must determine whether this is a contract for the sale of goods which the limitation period in the Uniform Commercial Code would govern. NMSA 1978, Section 55-2-106(1) states in pertinent part that a “ ‘[c]ontract for sale’ includes both a present sale of goods and a contract to sell goods at a future time. A ‘sale’ consists in the passing of title from the seller to the buyer for a price.” Looking carefully at the discount agreement, it states that the “terms and conditions of sale (Form 100) prevailing at the time a purchase order is accepted by [Data General] will apply to all purchases____” This requires that another form, contract or invoice be used at the time of actual purchase. Further, there is no specific computer equipment to be purchased under this agreement. The agreement requires that a certain number must be purchased by a certain time, including five percent of the minimum contract amount at the time of contracting, in order for the discount to apply. No title is passed for a price by this agreement, and there is no requirement to purchase even one computer. Therefore, it is not a contract for sale.

CDI argues that a warranty is given in the agreement for the equipment and thus the contract is for the sale of computers. Since this warranty applies to all the equipment sold by Data General and not just specific pieces bought by CDI, it would not bring it within the contract for sale, as defined previously by Section 55-2-106(1).

Sale, as defined by the U.C.C., is the passing of title for a price. Section 55-2-106(1). Since there was no specific exchange of equipment with this agreement, no title passed. 1 A. Squillante & J. Fonseu; Williston on Sales, § 5-7 at 106 (1973).

The court in Dynamics Corp. of America v. International Harvester Company, 429 F.Supp. 341 (S.D.N.Y.1977), stated that in determining whether a contract is for the sale of goods and thus covered by the U.C.C., it is necessary to look to the main objective or intent of the parties’ agreement. The dominant objective in the present case was to provide a discount schedule, if sales were made.

We conclude that Section 55-2-725 would not govern this agreement. NMSA 1978, Section 37-l-3(A), with the limitation of six years would control this written contract. Thus, summary judgment on the grounds that the statute had run would be improper and the holding by the trial court is reversed. This case is remanded to the trial court for trial.

IT IS SO ORDERED.

SOSA, Senior Justice, and FEDERICI and WALTERS, JJ., concur. STOWERS, J., dissents.