American Trading Co. v. Fish, 42 N.Y.2d 20 (1977)

A guarantee of a sales contract is a separate undertaking from the sales arrangement itself, and the statute of limitations applicable to contracts generally (CPLR 213(2)), rather than the UCC statute of limitations for sales contracts (UCC 2-725(1)), applies to the guarantee.

Summary

American Trading Co. sued Leonard Fish, the guarantor of Kinematix, Inc.’s obligations under a contract to purchase goods from American. Kinematix failed to pay for the goods, and American sued Fish on his guarantee more than four years after the last trade acceptance was dishonored, but within six years. The lower courts dismissed the action, holding it was barred by the UCC’s four-year statute of limitations for sales contracts. The New York Court of Appeals reversed, holding that Fish’s guarantee was a separate undertaking subject to the general six-year statute of limitations for contracts, even though it related to a sales agreement. The court also noted the guarantee covered the trade acceptances themselves, making the action timely.

Facts

American Trading Co. and Kinematix, Inc., entered into a written agreement where Kinematix would purchase materials from American. Leonard Fish, Kinematix’s sole shareholder, guaranteed Kinematix’s performance of all terms of the agreement. Kinematix executed trade acceptances and bills of exchange to American, but all were dishonored. American obtained judgments against Kinematix, which proved uncollectible. American then sued Fish on his guarantee more than four years after the last trade acceptance but within six years of the breach.

Procedural History

Special Term granted Fish’s motion to dismiss, finding the action barred by the UCC’s four-year statute of limitations. The Appellate Division affirmed, reasoning that Fish’s liability could not exceed that of Kinematix, and the essence of the transaction was a sale of goods. The New York Court of Appeals reversed the lower courts’ decisions.

Issue(s)

Whether the four-year statute of limitations under UCC 2-725(1) bars an action by a seller of goods against a guarantor to recover amounts due on dishonored trade acceptances issued pursuant to a contract for the purchase of such goods.

Holding

No, because the guarantee of a sales contract is a separate undertaking from the sales arrangement itself, and the six-year statute of limitations applicable to contracts generally under CPLR 213(2) applies to the guarantee. Alternatively, the guarantee covered the trade acceptances themselves, making the action timely.

Court’s Reasoning

The court reasoned that while the agreement involved a contract for the sale of goods, Fish’s guarantee was a separate undertaking. It rejected the argument that Fish was a co-obligor of the contract of sale, finding his obligations as guarantor and branch manager were different from those of Kinematix. The court distinguished Matter of Cheesman v. Cheesman, 236 N.Y. 47 (1923), stating its language should not be read as creating an immutable rule that a guarantor is automatically discharged if the action against the principal is time-barred. The court stated, “While ordinarily the liability of a guarantor will not exceed in scope that of his principal, the guarantee is a separate undertaking and may impose lesser or even greater collateral responsibility on the guarantor.” The court stated that Article 2 of the UCC does not expressly or by implication apply to guarantees of sales contracts, and there is no statutory directive requiring its provisions to supersede the CPLR. Therefore, the guarantee should be treated as an obligation separate and distinct from the underlying contract of sale, subject to the six-year statute of limitations. As an alternative ground, the court held that the guarantee, apart from the underlying sales contract, covered the trade acceptances, meaning the action was timely since it was commenced within the six-year period for bringing an action on such acceptances.