N. Bloom & Son (Antiques) Ltd. v. Skelly
673 F. Supp. 1260, 1987 U.S. Dist. LEXIS 10819, 1987 WL 4394 (1987)
Rule of Law:
Under the Uniform Commercial Code, a buyer accepts goods if they fail to effectively reject them after a reasonable opportunity to inspect, and this opportunity is waived if the buyer deliberately evades delivery. Additionally, a contractual interest rate is void as a penalty if it is unreasonably large compared to the anticipated or actual harm caused by the breach.
Facts:
- Carolyn Skelly, a U.S. resident, purchased various antique items from N. Bloom & Son in London across three separate transactions.
- In the first transaction (1984), Skelly bought a Cabochon necklace but returned it shortly after; Bloom accepted the return and did not bill her for it for nearly a year.
- In the second transaction (August 1985), Skelly purchased silver candelabras for $45,000 to be delivered to her Newport home.
- Bloom's shipping agent attempted to deliver the candelabras multiple times in September 1985, leaving notices, but Skelly was not home and made no effort to reschedule or authorize receipt.
- Skelly eventually tried to reject the candelabras in October 1985 because an appraiser deemed them worth less than the purchase price.
- In the third transaction (August 1985), Skelly took possession of a Van Cleef necklace and other jewelry on 'approval'; these items were subsequently stolen from her possession.
- Bloom offered to settle the debt for the stolen jewelry at a reduced rate of $36,000 on the condition that Skelly pay immediately upon receiving a returned watch.
- Skelly received the watch but failed to send the check for $36,000, yet kept the watch.
Procedural Posture:
- N. Bloom & Son and Tyler & Co. filed a diversity action against Carolyn Skelly in the U.S. District Court for the Southern District of New York alleging breach of contract.
- The case proceeded to a bench trial before Judge Cedarbaum.
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Issue:
Does a buyer constructively accept goods by evading delivery attempts, and is a pre-printed 24% annual interest clause enforceable as liquidated damages under New York law?
Opinions:
Majority - Cedarbaum
Yes regarding the liability for the candelabras and stolen jewelry, but No regarding the enforceability of the high interest rate. The court ruled that regarding the first transaction (Cabochon necklace), the parties had effectively rescinded the contract by conduct because Bloom accepted the return without objection. Regarding the second transaction (candelabras), the court found Skelly liable for the full price. Under the U.C.C., the seller made a proper tender of delivery. By ignoring the delivery notices and failing to respond, Skelly did not reject the goods within a reasonable time. Her failure to inspect was her own choice, and thus she legally accepted the goods. Regarding the third transaction (stolen jewelry), the court held that the settlement offer of $36,000 was conditioned on immediate payment. Since Skelly failed to perform that condition, Bloom was entitled to the original, higher contract price. Finally, the court struck down the 24% interest rate. Under New York law, liquidated damages must be reasonable. A rate of 11% above the market rate (which was 13% at the time) was disproportionate to any probable loss or collection costs and therefore constituted a void penalty.
Analysis:
This decision highlights the duty of a buyer to cooperate in the receipt of goods under the Uniform Commercial Code. It prevents buyers from avoiding liability by simply hiding from delivery agents to delay 'acceptance.' The court clarifies that the 'opportunity to inspect' is a right that can be waived through inaction or evasion. Furthermore, the case serves as a significant check on liquidated damages clauses in commercial contracts. It reinforces the New York public policy that contractually agreed-upon damages (in this case, high interest rates) must reflect a genuine pre-estimate of harm. If a finance charge is significantly higher than market rates without justification based on collection difficulties, courts will view it as an unenforceable penalty.
