Sid DeLong, A Simple Case

For twenty years I have taught the facts of White v Benkowski 155 N.W. 2d 74 (Wisc. 1967) on the first day of Sales. Factually and legally, it is a simple case. In a written contract, the Benkowskis agreed to sell well-water to their next-door neighbors, the Whites, through interconnected pipes. The Whites furnished a pump placed in the Benkowskis’ well. After a bit, the neighbors quarreled, the Benkowskis deliberately interrupted service, and the Whites sued for breach. The jury found that the breach had been “malicious” and awarded punitive damages. The trial court struck the award and entered judgment for the Benkowskis. In affirming the judgment, the appellate court held that punitive damages are unavailable for malicious but non-tortious breach of contract. As I said, a simple case.

A well, in simpler times

The facts of White can serve as an introduction to the techniques of statutory analysis under the U.C.C. as well as to some of its drafting shortcomings. I offer the following ideas on how to teach this case to achieve these goals.

We begin as always with the scope question: Is the White contract governed by Article 2? The first mystery, why the opinion does not cite Article 2, is quickly answered: The facts of the case arose before Wisconsin enacted the UCC in 1963, although one would have expected a citation to the Uniform Sales Act.

Thus amended, assuming the contract occurs in an Article 2 jurisdiction, is the White-Benkowski contract a “transaction in goods”? § 2-102. “Transaction” is undefined in the Code, but a sale is certainly a transaction. Is this a sale?

A sale is defined as the transfer of title [to the goods] for a price. § 2-106 (1) It seems somehow odd to say that the Benkowskis transferred “title” to the Whites of the water running from their taps. Do I become the new “owner” of the water that flows from my tap? As well ask if it becomes community property. Thinking back to the first year, how did the Benkowskis acquire “title” to the tap water? Was it captured in the well like the unfortunate fox in Pierson v Post?  Or is this not a sale at all but a service, the transportation of unowned water from point to point?

If you don’t teach property, then skip all that and assume that the White transaction is a sale of water, Article 2 will apply only if the water is “goods,” which the statute defines as “things” that are “moveable” at the time of “identification to the contract.”  § 2-105 (1). We all know how much metaphysical space lurks under the surface of the innocent word “things.” Although the term apparently refers to physical objects, why did the drafters of Article 2 feel it necessary to expressly exclude “things in action” (legal claims) from the definition?  I suggest that you duck the issue whether water is a single thing or plural things. Force the students to accept that “things” are physical objects. Still, the plain meaning of the statute implies that water is goods.

Assuming water is a thing, was it “moveable at the time of identification”? “Identification to a contract” is a new concept for Sales students. When if ever was the Benkowskis’ water “identified” to the contract? Under § 2-504, identification occurs when goods are designated by the seller for delivery to the buyer (for discrete goods) or when a contract is made for sale of an undivided interest in a fungible mass (for fungible goods). § 2-105 (4). Before goods are identified to the contract they are “future goods,” if that helps. § 2-105 (2). Whether water is goods depends on what it was like at the moment of identification. Mechanical statutory interpretation.

The question of identification thus depends on how the contract is construed. If Benkowski sold White an undivided interest in an identifiable fungible mass of [surface water on /or subsurface water under] the Benkowskis’ land, then the goods were identified at the time of contracting. § 2-105 (4)§ 2-501 (1) (a). In effect, the Benkowskis would be selling a portion of the water in place, as they would have if it had been stored in a tank or a sealed underground reservoir.

Assume for a moment that the court construes the contract that way. Was the water “moveable” at that time? Using plain language, we would normally think of water as “moveable” at all times in the hydrological cycle, except perhaps in a polar ice sheet or a glacier. But Article 2 applies to the sale of “minerals or the like (including oil and gas) . . to be removed from realty. . . if they are to be severed by the seller. . . .” § 2-107 (1). Apparently, despite their fugacious propensities, oil and gas are not considered by the Code drafters to be “moveable” until they are “removed” or “severed” from realty. Is the same true for water?

In other words, is water is “minerals or the like (including oil and gas)”? Finally, a question on which the entire class may opine without risk. Make two lists on the whiteboard “Ways water is like oil and gas” and “Ways water is not like oil and gas.” Write carefully, although the lists will be irrelevant to the issue. If a troublesome student asks why natural gas is referred to as a mineral, the best response is “It is neither animal or vegetable.”

A classic move in statutory interpretation arises when you ask what the drafters intended to do in drawing this distinction. Begin this discussion by asking why water is not mentioned in the severed-from-realty statute. The answer evokes two beautifully equally valid, symmetrical, arguments:

1. If the drafters had meant to include sales of water in Article 2, they would have mentioned it. They didn’t, so they didn’t.

2. If the drafters had meant to exclude sales of water from Article 2, they would have mentioned it. They didn’t, so they didn’t.

After despairing of solving the problem by plain language, statutory interpretation, analogies, and maxims of interpretation, the class reaches what video gamers might call the top level:  purposive analysis. The professor may now disclose that the mysterious phrase “minerals or the like (including oil and gas)” is a familiar term in real estate conveyancing, in which the party who severs is critical. If I sell you minerals that you are to sever from my land, I have granted mineral rights, which constitute an interest in real property with extensive implications. The contract is governed by real property law.

If I sell you minerals that I am to sever from my land, I am not selling you mineral rights and the contract is governed by Article 2. The entire purpose of § 2-107 is to identify and exclude from Article 2 the sale of interests in real property. A purposive reading of “minerals or the like” would exclude a sale of water from Article 2 only if the sale is a transaction in real property under local law. The answer cannot be determined from the text of Article 2.

The struggle with § 2-107 (1) provides at least one clear lesson about statutory drafting. Regardless of whether the drafters intended a sale of water to be governed by Article 2, the statute should have said so explicitly. We can only guess as to why they were so coy: it is equally unfortunate if their omission was intentional or inadvertent.

If you have the class time to continue the analysis under § 2-107 (1), assume that the court finds that water is “minerals or the like (including oil and gas).” If so, which party “severs” the water: the seller, by drilling the well and installing a pump, or the buyer, by turning on the tap and triggering the pump? Analogy to oil leases might be instructive but the lack of statutory guidance is again perplexing..

Although one must infer it from silence in § 2-107, buyer-severed interests in minerals or the like are interests in real property, which is the entire point of the section. The reader must infer that they are excluded from Article 2 because § 2-107 (1) does not say. This oversight (?) could be damaging because § 2-107 (2) applies Article 2 to contracts for the sale of “other things attached to realty . . . but not described in subsection (1).” If buyer-severed water is “not described in subsection (1),” then it is dragged back into Article 2, an anomalous result that is bolstered if the omission of “water” from subsection (1) is thought to be intentional. Altogether a statutory mess, and one that most students can appreciate on the first day of class.

But this has been an exercise in an improbable hypothetical. If the White-Benkowski contract is not construed as a sale of “water in place” or an undivided interest in an identified fungible mass but as a sale of such water as may find its way through the pipes when the Whites turn on the taps, which is the most likely construction of the contract, then the water is “identified” only when it is drawn up by the pump and sent on its way next door. At that moment it is not only moveable but moving and the contract is governed by Article 2.

So that is the secret to teaching sales successfully: give them a simple case to start with.

To summarize the statutory techniques available to any effort to construe Article 2:

• Precedent: What other courts have ruled on this issue?
• Plain meaning: This contract is a “sale of goods” in ordinary understanding.
• Statutory definition: Water is a “thing” that is “moveable” when “identified.”
• Analogy: Whether water should be treated like oil and gas depends on whether it is importantly similar to oil and gas.
• Statutory Interpretation: If the drafters had intended this rule to apply to water, they would have said so.
• Policy: Applying Article 2 to this contract would produce desirable consequences.
• Statutory Purpose: The Code differentiates sales of “minerals and the like” from sales of other goods attached to realty in order to exclude traditional interests in real property from interests in personal property.