In February 2014, defendant Ibrahim M. Shihadeh, d/b/a Creative Designs Kitchen and Baths, agreed to purchase 25% of his anticipated natural gas needs at a fixed price for the 2014–15 and 2015–16 winters. On June 18 and 20, 2014, the February 2014 agreement was confirmed by email without protest (February agreement). On June 27, 2014, the parties agreed that plaintiff would provide defendant an additional 50% of his anticipated natural gas needs at a fixed price for the same time periods (June agreement).
On February 2, 2015, Plaintiff received a letter from defendant terminating Plaintiff’s services, effective April 30, 2015. Plaintiff warned Defendant that, if he insisted on terminating services, Plaintiff would be forced to “unwind” Defendant’s fixed-price positions. Defendant, however, insisted on terminating, and Plaintiff alleged that it incurred damages as a consequence. Following Defendant’s refusal to pay those damages, plaintiff filed suit. Count I alleged breach of the February agreement, and count II alleged breach of the June agreement. Plaintiff did not allege the existence of any written confirmation of the June agreement.
Defendant filed a motion to dismiss the breach-of-contract claims set forth in counts I and II pursuant to Section 2-619(a)(7) of the Code. Defendant argued that the oral agreements alleged in both counts were barred by the statute of frauds contained in Section 2-201(1) of the UCC. The trial court agreed and dismissed both counts. Plaintiff timely appeals, contending that the trial court erred in granting Defendant’s Section 2-619(a)(7) motion to dismiss.
However, under Illinois law, if the defendant were a merchant, then an exception would apply and the defendant could be liable, unable to use the statute of frauds as a defense. Hence the question for the court: is the defendant buyer here a merchant?
Decision The statute of frauds exempts contracts between merchants under the following limited circumstances: “[I]f within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1)
[(requiring a contract for a sale of goods for $500 or more to be in writing)] against such party unless written notice of objection to its contents is given within 10 days after it is received.” 810 ILCS 5/2-201(2) (West 2014). Plaintiff contends that plaintiff and defendant are merchants and that, because the e-mail confirmation it sent with respect to the February 2014 agreement set forth in count I was not objected to within 10 days, it was exempt from memorializing the agreement in writing.
The question we must determine first is whether defendant is a merchant. HN5[ ] The term “merchant” is defined in the UCC as “a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction.”
The trial court followed the interpretation of this definition set forth in which the appellate court held that a mere consumer of goods who does not resell the goods cannot be considered a merchant. [P]laintiff does not argue that defendant has knowledge or skill in the goods sold as part of the transaction. Rather, plaintiff asserts that defendant is a merchant because defendant, “as a person engaged in business, has the knowledge or skill to engage in business communications.” In its reply brief, plaintiff notes that defendant “involves the nonspecialized practice of answering mail, something everyone in the business world is expected to be able to do.” Plaintiff highlights the e-mail confirmation sent to defendant’s agent, which plaintiff believes “demonstrates Defendant’s ability to engage in business communications.” In other words, plaintiff appears to argue that, because defendant is engaged in business activities, he has the knowledge or skill peculiar to the “practices” involved in the transaction.
Plaintiff ignores the plain language of the statute, which clearly and unambiguously expresses the legislature’s intent. In defining the term merchant, the legislature intended that the knowledge or skill of the purchaser is specifically related to the “knowledge or skill peculiar to the practices or goods involved in the transaction.” (Emphasis added.) 810 ILCS 5/2-104(1) (West 2014). Here, the transaction involved the purchase of natural gas to heat defendant’s building.
Plaintiff makes no allegation that defendant has any knowledge or skill specifically related to the natural gas industry. Had the legislature intended to include all business persons in this exception, as the UCC comment intimates, it certainly could have said as such.
CRITICAL THINKING:
In Chapter 1, you learned of the importance of a particular set of facts in determining the outcome of a case. If you could change one fact in this case to make it more likely that the judge would rule in favor of the plaintiff, which fact would you change? Explain.
ETHICAL DECISION MAKING:
In the Vanguard Energy case, the court relies on the statutory interpretation of the definition of merchant. Does this pose an ethical issue since this is a contract between two businesses?