Procyon Corp. v. Components Direct, Inc.

Citations: 203 Cal. App. 3d 409; 249 Cal. Rptr. 813; 6 U.C.C. Rep. Serv. 2d (West) 655; 1988 Cal. App. LEXIS 763Docket: G004646

Court: California Court of Appeal; July 29, 1988; California; State Appellate Court

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Procyon Corporation initiated a lawsuit against Components Direct, Inc. for breach of contract due to Components' failure to deliver 1,000 computer memory chips as per an oral agreement, which was backed by an irrevocable letter of credit. The trial court found the letter of credit satisfied the statute of frauds, making Components liable for Procyon's lost profits. Components contended that the letter did not meet the statute's requirements and argued that performance was impossible, but both arguments were rejected.

The agreement, made on August 30, 1984, involved Components guaranteeing delivery within six weeks, contingent upon Procyon securing an irrevocable letter of credit, which was issued on September 7, 1984. The letter detailed the transaction terms, yet Components failed to deliver the chips by the agreed date, prompting Procyon to seek damages based on the price difference on the breach date, October 10, 1984.

Components claimed the oral contract was unenforceable under the statute of frauds, specifically asserting the letter of credit did not fulfill the writing requirement. However, the trial court ruled that the letter met the criteria of the statute, which mandates a written confirmation for contracts involving goods priced at $500 or more. The statute allows for a relaxed writing requirement among merchants, stipulating that a writing confirming the contract is sufficient unless the recipient raises a written objection within ten days. The court concluded that while Components argued the letter lacked Procyon's authorized agent's signature, it still constituted adequate confirmation of the oral contract, as the statute does not explicitly require a signature. The ruling was affirmed on appeal.

Interpreting the term 'sufficient against the sender' to necessitate a signature undermines the efficiency of informal business confirmations and is unsupported by the California Commercial Code. The Uniform Commercial Code states that merchants failing to respond to a written confirmation within ten days effectively create a binding agreement. No case establishes that an irrevocable letter of credit meets the writing requirement under the merchant exception to the statute of frauds; however, prior cases have defined 'sufficient against the sender' in relation to UCC requirements. 

In this case, Procyon is deemed to have 'signed' the irrevocable letter of credit by directing its issuance and providing contract terms, making the bank an agent acting on its behalf. This letter not only memorializes the oral contract but also guarantees payment upon delivery, thereby fulfilling the writing requirement of section 2201, subdivision (2). The UCC aims to balance the interests of both parties and prevent one from taking advantage of market fluctuations. Components requested the letter of credit to ensure Procyon's commitment, especially after previous order cancellations, indicating that it was meant to bind Procyon.

The trial court appropriately concluded that the letter of credit met the criteria of section 2201, subdivision (2). Components also raised an argument regarding section 2201, subdivision (3)(c), but since the requirements of subdivision (2) were satisfied, this argument was unnecessary. Components' claim of excuse due to impossibility was introduced for the first time on appeal and lacked evidentiary support, rendering it waived.