Opinion ID: 368331
Heading Depth: 2
Heading Rank: 1

Heading: Does Contractual One Year Period of Limitations Bar Recovery?

Text: 16 The Wisconsin Uniform Commercial Code provides in § 402.725(1): 17 An action for breach of any contract of sale must be commenced within 6 years after the cause of action has accrued. By the original agreement the parties, if they are merchants, may reduce the period of limitations to not less than one year. 2 18 The district court concluded that the sale was controlled by the Wisconsin version of the Uniform Commercial Code, but declined to decide whether the County was a merchant within the meaning of § 402.725(1). The court found it unnecessary to make this interpretation since Wisconsin case law permits parties to negotiate a shorter period of limitations than is provided for by statute. 19 The County agrees that as a general rule under Wisconsin law the parties may bind themselves to a shorter period of limitation (see E. g., State Dept. of Public Welfare v. Le Mere, 19 Wis.2d 412, 120 N.W.2d 695, 699 (1963)), but contends that the rule is now limited in its application by § 402.725(1) and that the County is not a merchant as defined by the U.C.C. Northrop argues that (1) the Wisconsin decisional law that parties to a contract may negotiate a shorter period of limitations than otherwise provided by statute is still applicable under the U.C.C., as the district court concluded; but (2) if the U.C.C. did narrow the application of the rule, the County is a merchant within the meaning of § 402.725(1). 20 (a) Effect of § 402.725(1) 21 The Uniform Commercial Code as drafted and approved by the American Law Institute and National Conference of Commissioners on Uniform State Laws, provides in § 2-725(1): An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it. The Official Comment on this section reads in pertinent part: This Article takes sales contracts out of the general laws limiting the time for commencing contractual actions and selects a four year period as the most appropriate to modern business practice. . . . Subsection (1) permits the parties to reduce the period of limitation. The minimum period is set at one year. The parties may not, however, extend the statutory period. This Official Comment is set forth in the Wisconsin statute following § 402.725. 22 When the U.C.C. was adopted in Wisconsin, in § 402.725(1) the four year period for the commencement of an action was changed to six years, following the period of limitations then in effect for actions on written contracts. The statute provided that the period could not be varied by agreement. A 1969 amendment to § 402.725(1) added the second sentence of the official text, with the insertion of the words if they are merchants. 23 We agree with the County that § 402.725(1), as amended, is controlling and should be given effect over prior case law with respect to contract actions under the U.C.C. The Comment on the 1969 Amendment states that the initial change in the Model Act was to protect the inexperienced buyer from unwittingly reducing his rights to sue for breach of contract. The Comment continues: The 1969 amendment partially restores the code language but would restrict the right to vary periods of limitations to parties who are merchants. 24 Other courts have held that upon the adoption of the Uniform Commercial Code the period of limitations therein prescribed supersedes preexisting statutes. See e.g., Sesow v. Swearingen, 552 P.2d 705 (Okl.1976) 3 and cases there cited. The Supreme Court of Wisconsin recognized in Columbian Banking Co. v. Bowen, 134 Wis. 218, 114 N.W. 451, 452, (1908), that the negotiable instrument statute was enacted for the purpose of furnishing a certain guide in the determination of questions relating to commercial paper, and in the absence of ambiguity was controlling, and reference to case law as it existed prior to the enactment is unnecessary and is liable to be misleading. We think the same reasoning is applicable with respect to the Uniform Commercial Code. We conclude that § 402.725(1) is controlling. Accordingly the one-year limitation is applicable only if the County is a merchant as defined in the Code. 25 (b) County as a Merchant. 26 The definition of merchant in the Wisconsin Statute, § 402.104(1) (set out in note 2), follows verbatim the definition in the Uniform Commercial Code, § 2-104(1). 4 The Official Comment notes that the term merchant as defined in the code roots in the 'law merchant' concept of a professional in business. Merchant as used in the code is given three alternative definitions: (1) a person 5 who deals in goods of the kind involved in the transaction; (2) a person who holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction; or (3) a person to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill. 27 The Official Comment distinguishes professionals from a casual or inexperienced seller or buyer. The comment indicates that code provisions 6 regarding merchants which rest on normal business practices which are or ought to be typical of and familiar to any question in business (such as contract modifications) should be read broadly; almost every person in business would be deemed to be a merchant since the business practices involved are non-specialized. In these business practices banks and even universities may be merchants. 7 But the comment stresses that this applies only to a merchant in his mercantile capacity. 8 28 With specific reference to the third alternative in defining merchant the or to whom such knowledge or skill may be attributed by his employment of an agent the Official Comment states that the definition of merchant means that even persons such as universities, for example, can come within the definition of merchant if they have regular purchasing departments or business personnel who are familiar with business practices and who are equipped to take any action required. 29 The question whether a county may be a merchant as that term is used in the U.C.C. is a question of law for the courts to decide by applying the U.C.C. definition of merchant to the facts in the case. See Nelson v. Union Equity Cooperative Exchange, 548 S.W.2d 352, 354 (Texas 1977); Decatur Cooperative Assoc. v. Urban, 219 Kan. 171, 547 P.2d 323, 328 (1976); Sierens v. Clausen, 60 Ill.2d 585, 328 N.E.2d 559 (1975). 30 Applying the definitions of merchant to the facts of this case, it is clear that the first definition is inapplicable. Milwaukee County does not deal in computers. The second definition is not so easily rejected. Milwaukee County prepared the specifications for the design, manufacture, and installation of a computerized laboratory information system. Arguably this is hold(ing) (itself) out as having knowledge or skill peculiar to the practices (or goods) involved in the transaction because the bid itself indicates knowledge peculiar to the goods being solicited by the County. The County would appear to be more of a professional than a casual or inexperienced buyer. Because the negotiations for the modification of the applicable period of limitations in the contract is a normal business practice which is typical of and familiar to business the merchant definition might be read broadly to include the County. 31 But the third definition of a merchant under the U.C.C. makes it clear that the County is a merchant in this case. The reasoning under which the County might be found to be a merchant under the second definition is incorporated into the application of the third definition. The County's use of an agent who holds himself out as having knowledge and skills peculiar to the goods or practices involved in the transaction allows the attribution of his knowledge to the County. 32 The County, through its agents, solicited the contract bids in conformity with specifications which the County had prepared. BSL's bid was accepted and contract negotiations began between BSL and the County. The County was represented in the contract negotiations by Ronald Bruni, Associate Hospital Administrator of Milwaukee County Complex, James Cox, Manager of Administrative Services of the County's Department of Administration, and James Walters, then Planning and Research Administrator. Mr. Bruni was primarily responsible for the negotiations. He is a certified public accountant whose responsibilities as an employee of the hospital include management of the finances, business operations, and systems of the hospital. The contract was extensively negotiated over the fourteen months between acceptance and execution. The final contract was executed by the Purchasing Administrator of the County Procurement Division and Mr. Bruni. The County's use of these agents who had special skill and knowledge as to the practices involved in contract negotiations and to the specification of the computer (the goods) involved in the transaction bring Milwaukee County within the third alternative U.C.C. definition of a merchant. 9 The County comes within this definition of merchant just as the university cited in the Official Comments might be found to be a merchant because it employed business personnel who were familiar with business practices and who were equipped to take any action required. 10 33 The County's argument that it is a consumer because it is not engaged in the manufacture, sale or marketing of a laboratory systems or other products, but is engaged only in the procurement of supplies, materials and equipment for the operation of the hospital ignores the broad U.C.C. definition of a merchant. The purchase of a laboratory systems computer is sufficiently related to the County's operation of the hospital as a professional enterprise that the contract should not be treated as a casual consumer transaction. 11 34 II. Did the County's Agent Lack Authority to Bind the County to a Shorter Period of Limitations? 35 Milwaukee County contends that reduction of the period of limitations could be accomplished only by action of the County Board, not by its Purchasing Administrator, and thus the reduction of the period of limitations is ineffective. 36 The district court properly rejected this argument. It found that the Purchasing Administrator is supervisor of the Division of Procurement which is given broad powers in the County Ordinances to enter into contracts for the purchase of authorized items. Because the County sued for breach of contract, the court presumed the Administrator had power to enter into the contract for the purchase of the computer equipment. The court refused to allow the County to select out portions of the contract as being ineffective for failure to follow the appropriate procedure while leaving the remainder of the contract intact. The court found that in light of the broad powers outlined in the County Ordinances for the purchasing agent, the purchasing agent had the power to contract for a one-year period of limitations. 37 The County created the appearance of apparent authority for its Purchasing Administrator to contract for the purchase of the computer. During the contract negotiations the County directed that the signature line for Milwaukee County be revised to read Milwaukee County By its Department of Administration, Procurement Division. The applicable county ordinance gives the Administrator broad powers to contract. There is no restriction of the Administrator's authority to negotiate a shorter period of limitations. 12 The contract period of limitations is valid. 38