On certification to the Superior Court, Appellate Division.
The opinion of the court was delivered by: Justice Hoens
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
Pomerantz Paper Corporation v. New Community Corporation, et al.
HOENS, J., writing for a unanimous Court.
The Court reviews judgments in favor of plaintiff Pomerantz Paper Corporation against defendant New Community Corporation on a breach of contract claim, and in favor of defendant on its counterclaim against the plaintiff for unconscionable business practices under the Consumer Fraud Act.
Plaintiff is in the business of selling paper, building, and janitorial supplies to institutional and large-scale residential customers. Defendant is a non-profit corporation that provides housing, medical, and senior services to low-income people. Beginning in 1991, plaintiff sold defendant products for use in its residential rental properties. Prices for the products sold by plaintiff to defendant were to be based on industry standards. Defendant filled out a form to order products. Plaintiff accepted the form and used it create a delivery slip by placing check marks beside the products being shipped. The products were delivered to defendant with the delivery slip reflecting plaintiff's check marks. The prices for the products were not provided either before delivery of the products or on the delivery slip accompanying the delivery. After defendant signed for the delivery, plaintiff used the delivery slip to create an invoice to bill the defendant for payment. When defendant unpacked the products, its employees would add check marks to the delivery slip, alongside plaintiff's check marks, to denote the products it had actually received. According to defendant, items regularly were missing from shipments and plaintiff was informed of these omissions by telephone. Plaintiff conceded that this occurred. In 2000, defendant began to question the invoices and prices plaintiff was charging. By 2004, plaintiff claimed that defendant had failed to pay invoices totaling approximately $700,000, and it filed a claim for breach of contract. Defendant filed a counterclaim asserting that plaintiff engaged in unconscionable business practices in violation of the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -20.
Following a trial, the court found that there was a course of dealing between the parties pursuant to which delivery and receipt of goods could be established by double check marks on the delivery slips. The court also found that (1) plaintiff's evidence consisted largely of invoices that bore no check marks or delivery slips showing only the plaintiff's check marks; (2) many of the claimed unpaid items were backordered with no indication they were ever delivered; (3) approximately fifteen percent of ordered products were not delivered; and (4) $15,000 that defendant conceded was owed had not been paid. Using those findings, the trial court determined that, except for the $15,000, plaintiff's breach of contract claim failed. The court's findings and conclusions also relied on testimony by defendant's expert witness, whose proffer was permitted in spite of plaintiff's objection as to timeliness and assertion that it constituted a net opinion. Based on the expert's opinion that all invoices contained overcharges of thirty percent, the judge reduced the conceded $15,000 by that amount and awarded $10,500 in damages on plaintiff's breach of contract claim. With regard to defendant's CFA counterclaim, the court relied on the defense expert's opinion that prices plaintiff had charged did not conform to industry standards. The court also found that plaintiff had substituted an inferior brand of faucets for those ordered, constituting a "bait and switch" practice. Although there was no evidence to quantify those sales, the court used them as examples to find plaintiff had violated the CFA. Applying the expert's mark-up analysis to calculate the overcharges and trebling that amount under the CFA, the court found a total of $214,711.20 in damages. After granting the parties' motions for reconsideration, the trial court acknowledged the lack of evidence to support some aspects of the awards and revised them, again relying on the defense expert's testimony.
In an unpublished opinion, the Appellate Division rejected plaintiff's arguments that the defense expert's opinion was untimely and a net opinion. The panel also rejected plaintiff's claim that defendant was a business entity that was not entitled to recovery under the CFA, deferred to the trial court's findings, and affirmed that court's rulings on the claim. With regard to plaintiff's breach of contract claim, the panel did not defer to the trial court's reasoning based on the parties' course of dealing and instead concluded that the UCC required defendant to alert plaintiff affirmatively and in writing that goods had not been delivered, absent which it had no viable defense to plaintiff's claim for payment. The panel remanded that claim for calculation of the amounts owed by defendant based on the invoices. The Supreme Court granted both parties' petitions for certification. 205 N.J. 16 (2010).
HELD: In this dispute between two business entities regarding purchase prices and payment for products, the trial court's findings that were central to its evaluation of the buyer's Consumer Fraud Act counterclaim fail for want of sufficient credible evidence in the record, and the appellate panel erred in deferring to those findings and, by extension, in affirming the trial court's conclusions. Furthermore, the panel erred in its analysis of the seller's breach of contract claim by imposing a duty of written notice of non-delivery on the buyer that is found neither in the Uniform Commercial Code nor in the course of dealing between the parties.
1. With regard to plaintiff's breach of contract claim, the Uniform Commercial Code (UCC) bases a seller's right to payment on its obligation to demonstrate that it delivered goods that fully conformed to those specified in the parties' agreement. The UCC regards a buyer's rejection of delivered goods as ineffective unless the buyer notifies the seller, but it requires only that the form of notice be reasonable in the context of the parties' course of dealing. Here, the parties' course of dealing--the double-check system used to evidence delivery and plaintiff's concession that oral communication was the accepted mode of notification--was reflected in the trial court's findings of fact. Those findings were based on substantial credible evidence in the record and were entitled to deference. (pp. 17- 27)
2. A buyer is not obligated to pay for goods that have never been shipped and therefore have not been tendered. A delivery of goods that does not include some of the items reflected in the purchase order is but a partial delivery or partial tender that does not impose on the buyer an obligation to pay except to the extent the delivery is completed. In reversing the trial court's ruling on the breach of contract claim, the Appellate Division erred in concluding that defendant was obligated to reject affirmatively and in writing any undelivered products and that failure to do so meant that delivery was presumed and payment was due. The panel erred also by failing to defer to the trial court's factual findings as to the course of dealing between the parties that bore on the means of communication about errors in the delivery slips and failure to deliver ordered items. The trial court's findings of fact and conclusions of law concerning the failure of plaintiff's breach of contract claim must be sustained. (pp 27-30)
3. The trial court based its findings on defendant's CFA claim almost exclusively on the opinion of defendant's expert, which plaintiff challenged as being untimely and as representing a net opinion. The Court declines to interfere with the trial court's decision relating to the timeliness of the expert report. However, the Court finds that the expert offered a series of personal views that were net opinions. The expert's two-page summary report is devoid of any clue as to its basis and lacks any suggestion about the expert's support for the conclusions that he intended to offer at trial. At trial, the expert opined about his experiences and impressions, and his testimony about acceptable markups in sales to non-profit purchasers lacked any foundation such as handbooks, manuals, articles, trade publications, price books, or guidelines. The trial court erred by permitting the testimony. (pp. 30-37)
4. The trial court's error in permitting defendant's expert to testify led it to utilize the expert's flawed views throughout its analysis of defendant's counterclaim asserting that plaintiff's prices were commercially unreasonable and unconscionable. Apart from the expert's inadmissible view about what a reasonable price might be, there is no evidence that supports relief on defendant's CFA counterclaim. Because the practices that the trial court identified as CFA violations fail for want of proof, the Court does not address whether the CFA can ever apply to transactions between merchants. Noting that the trial court also calculated the damages owed on the breach of contract claim by relying on the expert's opinion, the Court remands for entry of judgment in favor of plaintiff on that claim in the amount of $15,000, representing unpaid invoices conceded to be due and owing. (pp. 37-41)
The judgment of the Appellate Division is REVERSED, and the matter is REMANDED to the trial court for entry of judgment in favor of plaintiff and against defendant in the amount of $15,000, and for entry of a judgment of no cause of action on defendant's counterclaim.
CHIEF JUSTICE RABNER and JUSTICES LONG, LaVECCHIA, ALBIN, and RIVERA-SOTO join in JUSTICE HOENS's opinion.
JUSTICE HOENS delivered the opinion of the Court.
This appeal began as a dispute between two corporations that had been doing business with each other for more than fifteen years. At the outset, it was a rather ordinary claim by one, a seller, that the other, a buyer, had failed to pay for goods and supplies that had been sold and delivered, and it therefore was commenced as a book account. The matter became far more complicated, however, when the buyer interposed a counterclaim asserting that the seller had engaged in unconscionable business practices and demanded that treble damages be awarded pursuant to the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -20.
Following a lengthy bench trial during which the parties presented evidence about the long course of their business relationship as well as factual and expert proofs about the claims, the court issued two written opinions setting forth its findings of fact and conclusions of law. In large measure, the trial court found that the evidence did not support the seller's claims that it had delivered goods for which it had not been paid, thus exonerating the buyer from liability on most of the breach of contract claim. However, the trial court found merit in the buyer's claims that the seller had engaged in unconscionable business practices, including "bait and switch" transactions and overcharging for goods. Based on that finding, the trial court concluded that the buyer was entitled to the benefit of, and had proven its allegations that the seller violated, the CFA.
The Appellate Division agreed with the trial court that the buyer's claim was governed by the CFA, but disagreed with the trial court's evaluation of the seller's breach of contract claim. In considering the evidence relating to the seller's cause of action, the appellate panel concluded that the trial court had misapplied the statutory requirements imposed on merchants, see Uniform Commercial Code (UCC), N.J.S.A. 12A:1-101 to :10-106, and that the court's rejection of the seller's proofs as insufficient was in error.
The parties' cross-petitions for certification raise a number of questions about the meaning and application of the CFA and about the statutory framework embodied in the UCC. The seller, for example, asserts that the Appellate Division's decision about the applicability of the CFA to commercial transactions threatens to interfere with a merchant's ordinary right to set prices. In particular, the seller contends that the appellate panel's approach will artificially limit prices that can be charged to a purchaser organized as a non-profit corporation and that the panel improperly permitted a garden variety dispute between commercial entities about reasonableness of prices to be transformed into a CFA claim. Moreover, the seller raises arguments about the proofs on which the trial court relied, asserting that the Appellate Division erred in its analysis of the sufficiency of the expert evidence that formed the essential basis for the trial court's findings of fact.
The buyer of the goods, on the other hand, asserts that the Appellate Division improperly expanded the statutory duties imposed on buyers by the UCC and erred by requiring purchasers to affirmatively advise a seller in writing that goods were not delivered. Furthermore, the buyer argues that the appellate court erred by failing to recognize that the question of whether a seller delivered goods is vested in the trier of fact and by failing to defer to the trial court's determination on that factual dispute.
Our consideration of this appeal rests upon an evaluation of the legal and factual issues developed in the lengthy trial and appellate proceedings. In the end, we need not address directly the question, implicit in the parties' arguments, about whether the CFA applies to transactions between merchants or whether the rights of sellers and buyers like these parties instead are limited to those established in the UCC.
Rather, we conclude that the trial court's findings that were central to its evaluation of the buyer's CFA counterclaim fail for want of sufficient credible evidence in the record and that the appellate panel erred in deferring to those findings and, by extension, in affirming the trial court's conclusions based thereon. Moreover, we conclude that the appellate panel erred in its analysis of the seller's breach of contract claim by imposing a duty of written notice of non-delivery on the buyer. Because the written notice requirement that the appellate court concluded was essential is found neither in the UCC nor in the course of dealing between the parties, the panel's evaluation of the seller's breach of contract claim cannot be sustained.
The facts that are relevant to this dispute were presented during a lengthy bench trial and the trial court's findings of fact and conclusions of law were embodied in two written opinions. Because those findings of fact and conclusions of law are at the core of the dispute on appeal, we set them forth in detail.
The record reveals that plaintiff, Pomerantz Paper Corporation, is in the business of selling paper, building, and janitorial supplies to institutional and large-scale residential customers. Defendant New Community Corporation*fn1 is a federally- funded non-profit corporation that provides housing, medical, and senior services to low-income people in Essex and Hudson Counties. According to the trial court's factual findings, the course of dealing between the parties had been established over the span of some fifteen years. From 1991 through 2004, plaintiff sold defendant paper goods, janitorial supplies, and items suitable for use in its residential rental properties, all of which were purchased for and used in defendant's apartment buildings and related facilities. Those items were purchased from plaintiff based upon representations from plaintiff's Vice President that they would be sold at reasonable prices, consistent with industry standards.
The actual prices that plaintiff planned to charge were not specified in advance and were not listed on the paperwork that accompanied deliveries. Instead, the practice of the parties was that defendant would send plaintiff a printed purchase order form that would identify the description and quantity of items that were needed. That form would then be used by plaintiff's personnel to fill the order and to create a delivery slip. The delivery slips were multi-part forms that had detachable carbon copies.
Plaintiff's employees would use the delivery slip to assemble the items that defendant had ordered and, as each item was placed onto plaintiff's delivery truck, an employee would place a check mark on the delivery slip next to that item. Once the order had been assembled, the goods were often shrink-wrapped in plastic and transported on pallets to defendant's Environmental Services Department parking lot. The entire shipment, which could consist of parts of multiple purchase orders, would be accompanied by the delivery slip and would be delivered by plaintiff's truck.
After a shipment of goods was delivered and unloaded from the truck, plaintiff's truck driver would have one of defendant's employees sign the delivery slip, leaving a copy with that employee. Plaintiff would then use the signed delivery slip to create an invoice, which would show a delivery date consistent with the signed slip and would list all of the items that plaintiff's delivery slip indicated had been loaded onto the truck. Defendant would not learn what prices were being charged until it received the invoice from plaintiff.
Although one of defendant's employees would sign the delivery slip, the shipment would not be unpacked until plaintiff's driver had left defendant's premises. Defendant's employees would use a copy of the delivery slip that had been left by plaintiff's driver to check what was received. Defendant's employees would then place their own check mark next to each of the items as the goods were unpacked to indicate receipt. Defendant's Director of Environmental Services testified that there were "items missing . . . on a regular basis" and that he regularly telephoned plaintiff's Vice President to alert him about items that had been ordered but had not been received. Plaintiff's Vice President conceded that he received telephone calls from defendant about items that were missing from shipments.
In 2000, defendant began to question the invoices and the prices that plaintiff was charging. From that point onward, the business relationship deteriorated, finally coming to an end in 2004 when plaintiff accused defendant of failing to pay invoices totaling approximately $700,000. That was the genesis of plaintiff's lawsuit asserting that defendant had breached its contract by failing to pay for goods sold and delivered and it eventually spawned defendant's counterclaim for CFA relief.
Based on the evidence and testimony adduced at trial, the court issued a written opinion, dated November 14, 2007, expressing its findings of fact and conclusions of law. Beginning with plaintiff's breach of contract claim, the trial court found that: (1) the parties engaged in a course of dealing pursuant to which delivery and receipt of goods could be proven by the existence of double check marks on the delivery slips;
(2) plaintiff's documentary evidence offered in support of its claim that it was owed nearly $700,000 consisted largely of invoices that bore no check marks or delivery slips showing only the single check marks affixed by plaintiff's personnel; (3) many of the invoices plaintiff claimed were unpaid included charges for backordered items with no indication of delivery;
(4) defendant offered credible testimony that approximately fifteen percent of all items ordered were never delivered; (5) the allegedly unpaid invoices approximated fifteen percent of all purchase orders; and (6) defendant conceded that invoices in the total amount of $15,000 had not been paid because of the parties' dispute. Utilizing those factual findings, the trial court concluded that, except for the ...