WSPP-UCC ISSUES (2-28-05)
In Enron Power Marketing, Inc. v. Nevada Power Co,2004 US Dist. LEXIS
20351 (Oct. 12, 2004), the Southern District of New York concluded that the UCC
applies to sales of power under the WSPP Agreement. The purpose of this document is
to compare provisions of the WSPP Agreement to provisions of the UCC to identify
potential conflicts or areas in which the UCC has a provision but not the WSPP
Agreement. In this document, we do not propose any revisions to the WSPP Agreement
but merely point the areas in which issues may arise.
In addition, under the UCC (1-102), the parties may by agreement vary the terms
of the UCC as it applies to a transaction. There may be issues as to whether specific
language in the WSPP Agreement is sufficient to vary the terms of the UCC under this
provision, however, in the absence of revisions to the WSPP Agreement. The UCC also
contains numerous terms that make little sense in the context of electricity sales in that
the UCC, for example, allows for inspections, testing, and returns of goods.
Article One
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1-106 - “The remedies provided by this Act shall be liberally administered
to the end that the aggrieved party may be put in as good a position as if
the other party had fully performed.” There is nothing like this in the
WSPP Agreement. It sets out specific remedies, however.
1-203 - “Every contract or duty within this Act imposes an obligation of
good faith in its performance or enforcement.” The WSPP Agreement
does not contain an express statement like this.
1-205 - Provides that the terms of agreement should be construed in a
manner consistent with course of dealing and usage of trade. The WSPP
Agreement does not contain an express statement like this.
1-208 - A term providing that a party may accelerate payment or
performance or require collateral or additional collateral at will or when he
deems himself insecure or in words of similar import “shall be construed
to mean that he shall have power to do so only if he in good faith believes
that the prospect of payment or performance is impaired.” The WSPP
Agreement allows acceleration of payment in the event of default, which
is not so limited. Section 27 of the WSPP Agreement also addresses
requirements for additional collateral but uses somewhat different words
(“reasonably exercised discretion”).
Article Two
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2-201 - Relationship of statute of frauds to the use of oral agreements
under WSPP. Requires a writing for the sale of goods in excess of $500
“unless there is some writing sufficient to indicate that a contract for sale
has been made between the parties.” WSPP Agreement allows oral
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confirmations in some instances but the base contract and the procedures
for the oral confirmations are set forth in a written document.
2-202 - Terms which are in final confirmation over-ride oral evidence and
may not be “contradicted by evidence of any prior agreement or of a
contemporaneous oral agreement” but may be explained or supplemented
by course of dealing or by evidence of consistent additional terms. The
current WSPP Agreement contains language similar to the first part (i.e.
not contradicted by evidence of any prior agreement) but it does not
contain language addressing course of dealing or evidence of consistent
additional terms (though there is language of an integrated contract).
2-207 - Considers a Party as having accepted an offer even if Party
includes additional terms and places affirmative obligation on other Party
to agree or disagree. Inconsistent with WSPP Agreement on NonStandard Confirmation Provisions which requires express agreement to
changes.
2-209 - Statute of Frauds applies to modifications. The WSPP Agreement
allows some oral modifications.
2-210 - Allows performance through a delegate. Section 14 of the WSPP
Agreement sets out certain requirements before assignments are valid with
consent necessary in some instances. While this UCC section does not
relieve the party delegating “of any duty to perform or any liability for
breach”, in some instances WSPP members may want to have a particular
party supply the power. This UCC provision does recognize this
possibility in that it allows delegation “unless the other party has a
substantial interest in having his original promisor perform or control the
acts required by the contract.”
2-305 - If price is left unstated, this section provides a mechanism to fill in
the price term. It states that the price at the time of delivery is a
reasonable price. The WSPP Agreement assumes that price is agreed to as
part of the confirmation process. This provision could result in a contract
even when a material term such as price is missing.
2-308 - If fail to specify a delivery point, the delivery point would be
Seller’s place of business. This would allow a contract even without the
specification of another material term; i.e. the delivery point. Also,
delivery at the seller’s place of business is a problem in that the seller’s
place of business may not be the point on the transmission grid where the
power needs to be delivered. For example, the seller’s place of business in
some instances arguably could be New York for a transaction that takes
place in the West.
2-313 - Express warranties are created if a seller makes a promise (e.g.
any “affirmation of fact or promise made by the seller to the buyer” or
“[a]ny description of the goods which is made part of the basis of the
bargain”). The WSPP Agreement in 33.3 (good title) and in 37 (necessary
authority, solvency) specifies the warranties and states that all other
warranties are disclaimed (33.3).
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2-314 - Implied warranty of merchantability. Among other things this
provision requires that goods “pass without objection in the trade under
the contract description.” Section 33.3 of the WSPP Agreement disclaims
all implied warranties.
2-315 - Implied warranty if seller at the time of contracting “has reason to
know any particular purpose for which the goods are required and that the
buyer is relying on the seller’s skill or judgment to select or furnish
suitable goods.” Section 33.3 of the WSPP Agreement disclaims all
implied warranties including any warranty of merchantability or fitness for
a particular purpose.
2-325 - Failure to provide an agreed letter of credit is a breach. Under
WSPP this may be a default which could lead to a termination. WSPP
does not use breach.
2-401 - This section includes provisions stating that: “any retention or
reservation by the seller of the title (property) in goods shipped or
delivered to the buyer is limited in effect to a reservation of a security
interest” and that a rejection or other refusal by the buyer to receive
revests title to the goods in the seller. The WSPP Agreement merely
contains a provision stating that title passes at the delivery point.
2-508 - Allows seller to cure any improper tender. In the power context,
this may allow a seller to fail to deliver but to later start delivery. WSPP
Agreement does not address this issue.
2-509 - Re shipping of goods by carrier. If delivery point is specified, the
risk of loss passes to buyer once the goods are tendered. Section 10 of the
WSPP Agreement specifies how interruptions in transmission are to be
resolved.
2-601 - If goods fail in any respect to conform to the contract, buyer may
reject the good in whole or in part. WSPP Agreement does not really
directly address this, most likely because we do not know how this could
be implemented for power. Once power is delivered, it is delivered and
cannot reject it.
2-602 - Allows rejection of goods after the fact. Not provided for under
the WSPP Agreement but there are issues as to applicability to power.
2-606 - Describes what constitutes acceptance including indication of
acceptance after reasonable opportunity for inspection or takes any action
inconsistent with seller’s ownership. WSPP Agreement does not have a
comparable provision but assumes that acceptance occurs upon delivery.
2-609 - Right to adequate assurance of performance-General provision
allowing requests for assurances when reasonable grounds for insecurity
arise. Allows suspension of performance if do not receive adequate
assurances.
The reasonableness of grounds for insecurity “shall be
determined according to commercial standards.” Currently, the WSPP
Agreement does not allow suspension. It addresses the right to adequate
assurances in somewhat greater detail in Section 27. Aside from
suspension appears to be largely consistent.
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2-610 - Details provisions for anticipatory repudiation including allowing
suspension of performance by the non-repudiating party. Not addressed in
WSPP Agreement.
See also 2-611 on retraction of anticipatory
repudiation.
2-614 - If the carrier becomes unavailable, then use commercially
reasonable substitute. WSPP Section 10 addresses what happens if there
is a transmission issue.
2-616 - If the buyer receives notification as to a material delay in delivery
or a reduced delivery, it can terminate and discharge any unexecuted
portion of the contract. The WSPP Agreement does not provide for
termination in such circumstances, just damages.
2-702 - Allows non-delivery if buyer is insolvent. WSPP does not allow
this unless liquidation and termination occurs.
2-703 - Allows seller among other things to not make delivery if buyer
fails to make payments. WSPP does not go this far. Would need to
terminate and liquidate. See also 2-705 (allows seller to stop delivery of
goods in transit in the event of buyer’s insolvency).
2-706 - Allows incidental damages to be paid to seller associated with
resale. Goes beyond the damages in WSPP Agreement.
2-708 - Allows incidental damages to be paid to seller associated with
non-acceptance or repudiation. Beyond what is in WSPP.
2-709 - Incidental damage issue again.
2-712 - Allows Buyer to recover incidental and consequential damages
which goes beyond WSPP.
2-713 - Buyer’s damages for non-delivery. The damages are the
difference “between the market price at the time when the buyer learned of
the breach and the contract price together with any incidental and
consequential damages. . . but less expenses saved in consequence of the
seller’s breach.” Section 21.3 allows damages between the market price
and contract price but does not specify that the damages are calculated at
the time when the buyer learned of the breach. Also, only limited
incidental damages; i.e. those from FERC tariffs such as imbalance
charges.
2-716 - Allows specific performance which goes beyond WSPP. The
WSPP Agreement allows specific performance of the non-delivery related
terms but not of the delivery related terms. 2-716 would allow specific
performance of the delivery obligation in some instances.
2-718 - Limits liquidation damages to “an amount which is reasonable in
the light of the anticipated or actual harm caused by the breach”. The
WSPP Agreement contains a formula in Section 22 and does not contain a
reasonableness standard.
2-723 - Allows market price to be calculated at time party learned of
repudiation. Not addressed in WSPP and has been the subject of past
discussion.
wspp/ucc issues
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