MHD-Rockland Inc. v. Aerospace Distributions Inc. (Maryland U.S.D.C.)

Filed:  January 3, 2014

Opinion by Catherine C. Blake

Holdings:  (1) In a transaction between merchants, an acceptance that contains the words “subject to” along with additional terms does not render the acceptance “expressly made conditional on assent to the additional terms” for purposes of Section 2-207(1) of the Commercial Law Article.

(2) In a transaction between merchants, objection to the condition of goods and the return of such goods is not a timely objection of additional terms in an acceptance for purposes of Section 2-207(2) of the Commercial Law Article. 

Facts:  Plaintiff, through use of a purchase order, ordered four airplane wheel assemblies in “overhauled” condition from defendant.  Defendant sent the assemblies and an acknowledgment form representing that the assemblies were in overhauled condition.  The acknowledgment form further stated it was “subject to” the Conditions of Sale printed on the reverse side of the form, which purported to limit liability for consequential damages and disclaim any express or implied warranties.  Plaintiff returned two assemblies allegedly not in overhauled condition, which were therefore defective.  Disagreements arose whether the two returned assemblies were defective. 

Plaintiff alleged, among other claims, breach of contract.  Defendant argued plaintiff should not be allowed to seek lost profits because the contract expressly foreclosed any warranty, including liability for consequential damages.  Plaintiff claimed it rejected the conditions upon return of the assemblies. 

Analysis:  The Court applied Section 2-207 of the Commercial Law Article as the case involved a sale of goods between merchants.  Section 2-207 provides an acceptance containing additional terms is still an acceptance that forms a contract unless the “acceptance is expressly made conditional on assent to the additional or different terms.”  The Court noted that Maryland courts have not decided whether an acceptance “subject to” additional terms amounts to an acceptance “expressly made conditional.”  The Court agreed with cited precedent that concluded the “subject to” language does not make the acceptance expressly conditional on the buyer’s assent to the additional terms.  Accordingly, the Court held that defendant’s acceptance of the purchase order was not expressly made conditional on plaintiff’s assent to the additional terms in the Conditions of Sale.

Section 2-207 further provides that if there is an acceptance, the additional terms become part of the contract between merchants unless: “(a) [t]he offer limits acceptance to the terms of the offer; (b) [t]hey materially alter it; or (c) [n]otification of objection to them has already been given or is given within a reasonable time after notice of them is received.”  The Court noted that the plaintiff did not allege how and when it rejected the additional terms.  The Court stated that plaintiff’s objection to the condition of the assemblies does not amount to a timely objection to the additional terms in the defendant’s acceptance.  The Court dismissed the claim for lost profits from the alleged breach of contract. 

In a lengthy footnote, the Court also discussed an argument that the terms should be excluded from the contract because they materially alter the agreement.  The Court stated that such argument, if raised, would have failed under the applicable Maryland test. 

The full opinion is available in PDF.

Deutsche Bank Nat’l Trust v. Brock (Ct. of Appeals)

Filed: March 22, 2013
Opinion by Judge Glenn T. Harrell, Jr.

Held: Where there is no gap in the indorsements purporting to transfer a negotiable promissory note and the last indorsement, made by a holder, is made in blank, the person in possession of the note is the “holder” of such note and entitled to enforce it without proving how possession of the note was acquired.

Facts: On September 28, 2006, the respondent homeowner executed a promissory note (“Note”), secured by a deed of trust, to her lender in order to finance her purchase of residential real property.  Her lender sold and securitized the loan.  When a loan is securitized, it is sold to an investment bank, which bundles it with other mortgages in a “special purpose vehicle,” usually in the form of a trust, and sells the income rights to investors.  Governed by a pooling and servicing agreement, the trust is maintained by a trustee, who manages the loan assets, and a servicer, who collects the monthly payments from the mortgagors.  The Note in the present case was sold and indorsed three times, with the last indorsement being in blank.  The Note was securitized into a trust managed by the petitioner trustee and servicer.  The petitioner servicer indisputably had possession of the Note. 

In 2009, the respondent homeowner defaulted on the Note and the petitioner servicer initiated foreclosure proceedings.  In response to the foreclosure sale of her home, the respondent homeowner brought a separate action against the substitute foreclosure trustees, the petitioner trustee, and the petitioner servicer, alleging, among other claims, that the petitioner servicer did not have the authority to foreclose the Note.  On December 6, 2010, the Montgomery County Circuit Court granted summary judgment in favor of the petitioners, finding that there was no material fact in dispute that the petitioners had the authority to enforce the Note.  In an unpublished opinion, the Special Court of Appeals reversed the lower court, finding, in pertinent part, that a genuine issue of material fact existed because, under the Court of Appeals’ decision in Anderson v. Burson, 424 Md. 232 (2012), the petitioner servicer, characterized by the Couirt of Special Appeals as a “nonholder” in possession of the Note, was required to prove the transfer history of the Note and that it had the rights of a holder, which it had not done at trial.  The Court of Appeals granted certiorari to determine whether, under Title 3 of the Maryland UCC and the Court of Appeals’ decision in Anderson, an entity in possession of a promissory note indorsed in blank is not a holder and merely a nonholder in possession without the rights of a holder. 

Analysis:  The Court of Appeals first analyzed the UCC to determine the petitioner servicer’s relationship to the Note.  The UCC requires the maker of a promissory note to pay the obligation to “a person entitled to enforce the instrument.”  Md. Code Ann. Com. Law § 3-412.  The instrument may be enforced by “(i) the holder of the instrument, [or] (ii) a nonholder in possession of the instrument who has the rights of a holder.”  Id. at § 3-301.  The Court determined that a holder is a person in possession of a note, which is either specially indorsed to that person or indorsed in blank.  The last indorsement stated:

PAY TO THE ORDER OF:

WITHOUT RECOURSE

IMPAC FUNDING CORPORATION.

Therefore, the Court concluded that the Note was indorsed in blank.  The petitioner servicer, having possession of the Note indorsed in blank, was a holder and was entitled to enforce the Note.

In further analysis, the Court considered whether Anderson applied to this instant case.  In Anderson, the Court held that the possessor of an unendorsed note was only a non-holder of the Note and must prove the proper transfer of the note and the rights of the holder in order to have the authority to enforce the Note. The Court found that here, by contrast, the Court of Special Appeals had improperly applied Anderson because the Note’s indorsements were proper and without any gaps.  The petitioner servicer was in possession of a note endorsed in blank by the last holder. Consequently, the petitioner servicer was not a non-holder in possession but rather the holder of the Note, with authority to enforce it.  The Court of Appeals therefore reversed the Court of Special Appeals.

The full opinion is available in PDF.