UCC For Jewelers

UCC for Sales (Article 1)

Art. 1 General Provisions:
UCC Article 1 deals with definitions as well as the rules of interpretation of the provisions.

Art. 2 Sales:
UCC Article 2 applies to transactions of goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.

Example Case 1:

Not long ago, a client of mine who is a well-known and successful precious stones dealer on 47th street in New York came to me with a serious legal problem.  He was offered a large, expensive Emerald from a broker that he had been dealing with over the course of the past 2 or 3 years at a price that seemed to be a wonderful offer.  He purchased the Emerald and a few weeks after the date of the purchase, another dealer on 47th street knocked on his door and informed him that he was in fact the owner of the Emerald that my client had just purchased, the broker who sold the Emerald was nowhere to be found, demanding the return of the Emerald.  My client was unaware that the broker did not own this Emerald out right, that the broker had acquired the Emerald from its owner on consignment, and had absconded with the payment.

My client was sympathetic to the appeal of the owner, but had paid a considerable amount of money for the Emerald and was not prepared to lose those funds and to release the Emerald to its original owner.

Soon after, I was contacted by the attorney for the original owner who on behalf of his client was demanding the immediate return of the Emerald and a law suit if the return was not forthcoming.  Under the terms of the UCC Article 2 Sales provisions, an innocent purchaser for value who acquires an item from a known individual in the trade, has priority over the original owner in the event of a dispute.

Nevertheless, in order to avoid litigation, and in an effort to resolve the matter in an equitable way, after considerable wrangling between the parties, I was able to negotiate a settlement in which my client returned the Emerald to the original owner in exchange for the full amount that he had paid to the absconding broker.

It takes an experienced Attorney with both legal and business experience to understand the nature of the conflict that his clients may have, and the negotiating skills to be able to reach a settlement, avoiding costly litigation while maintaining the integrity of his client.

Example Case 2:

In another case that happened a few years back, I was contacted by one of my clients who sold some loose diamonds to a customer who paid with a post-dated check that later bounced. I suggested that I first try to send the customer a “lawyer letter” demanding payment for the goods and to see if he will respond positively.  Before I did so however, I asked my client to check whether the purchaser was still conducting business, and seemed to have some assets that could be attached in the event we had to file a lawsuit to a judgment against him.  There is no benefit to one’s client in spending good money for legal services in the event there is little chance of recovering the lost funds.

After numerous follow-up letters to the customer did not result in any positive response, I filed a lawsuit against him and his company in New York Supreme Court, to which the customer did not respond to the Summons and Complaint and after multiple attempts to reach him failed, I was granted a Default Judgment against him and his company on behalf of my client.

With a judgment in hand, having a bounced check in my possession with the name and address and account number of the customer, I proceeded to notify that bank and all of the other banks in the area that I had a judgment against the customer and his company, and that if they were in fact holding any funds belonging to the customer, they were obligated under law to put a hold on them, and prevent the customer from accessing any of the funds until such time as they receive a release from my office.

As luck would have it, the customer had recently concluded and large sale of diamonds which he had received on memo from another dealer, and had deposited the funds from such sale and his bank account.  Once the customer had learned that all of his funds were being held by the bank, and he was unable to pay the owner of the memo goods, he frantically contacted my office asking that his funds be released so that he may pay the memo goods owner.  I demanded that he first pay my client the full amount that he owed him, plus attorney’s fees, and interest for the time payment was due to the time I would receive payment.  He complied immediately and my client received the full amount owed to him, the cost of my legal fees, plus interest on the time it took to pay.

A lawyer’s experience and persistence, and just knowing what to do and having a full understanding of the sales provisions of Article 2 of the UCC, will be the difference between success and failure.

Example Case 3:

I was recently contacted by an attorney referring to me a client of his who was in the wholesale diamond business and was being sued by a customer for the return of her purchase funds and fraud in the inducement.  The case was complex and involved personal as well as business relationships that had gone sour, to the point where a lawsuit was filed against the referred client and his company.  There were numerous events and facts that complicated the issues involved, but essentially the case revolved around the following events:

  1. My newly acquired client who was married at that time had a personal, but non –romantic, relationship with the female customer ; she ,however, appeared to have had unrequited romantic feelings for my client;
  2. She had come into a large sum of money which she transferred to my client’s business account, and asked my client to purchase on her behalf $1,000,000 worth of loose diamonds for her as an investment the next time that he went to Hong Kong;
  3. After initially not wanting to get involved, he eventually agreed to her subsequent, multiple requests, and the next time he went to Hong Kong he negotiated the purchase of a million and a half dollars’ worth of loose goods, and set aside a million of that purchase for the female customer.
  4. By the time the goods arrived in New York from Hong Kong, the wholesale price of diamonds dropped, and when my client called the female customer to pick up her goods, she refused, claiming that my client took the best goods for himself and left the balance, which was no longer saleable, for her.
  5. He insisted that he had done no such thing, that at the time the purchase of the goods took place the price paid was appropriate, and that she must come and collect her goods.
  6. The situation between them deteriorated, and she hired an attorney to pursue legal action against my client for the return of her money and fraud in the inducement.
  7. Legal action was commenced by her attorney, and soon thereafter discussions between myself and the suing attorney commenced.
  8. After long and arduous negotiations, which consisted of many settlement offers and counter offers, my client agreed to return the one million dollars to the female customer in exchange for her dropping the lawsuit and the transfer of all the diamonds purchased to his company.
  9. The key to my client’s agreeing to the final settlement was that I was able to negotiate preferable terms of payment for my client in which he agreed to pay $250,000 upon signing the agreement, and the balance within two years after he had sold the goods in question.

Once again, experience and knowledge of the UCC Article 2 law of Sales combined with an intimate understanding of the practices of the wholesale diamond business were instrumental in reaching the negotiated settlement, which saved my client the cost of enormous extended litigation legal fees, and guaranteed him the assurance of a positive resolution he was able to accept.