As we all know it is not uncommon for a buyer to withhold payment from its seller. In a recent case such a seller was brought to court to “prove” that its dedication was legitimate.

This case arose when a distributor and a mill parted company. Although the relationship was terminated, the reason is not really relevant here. However, it should be noted that at the time of the breakup the distributor owed the mill $336,592.67 for carpet “sold and delivered” within the previous six months or so.

Since the balance owed was past due, the mill sued the distributor in Federal Court for the entire amount plus interest. The distributor in its answer to the lawsuit put in separate counterclaims against the mill. In its first counterclaim the distributor said the supposed amount owed contained excessive freight overcharging. The second counterclaim was based upon the distributor’s allegations that the rolls shipped were short in length, and the third alleged that the delivered carpet was underweight. Finally the distributor claimed that the mill had substituted a less expensive yarn than originally represented in some of the carpet.

According to the distributor, the actions upon which these counterclaims were based resulted in various damages, expenses, etc., for which the mill was responsible. In its counterclaim, the distributor relied on a section of the U.C.C., “The buyer, on notifying the seller of his intentions to do so may deduct all or any part of the damages resulting from any breach of the contract from any part of the price still due under the same contract.” It noted the section clearly gave the right to withhold the amount due at least until after a trial to determine the claim.

The mill, obviously unhappy with the distributor’s position, made a motion for summary judgment. In the motion, the mill asked the judge to find the distributor’s claims to have no basis in reality. The judge agreed and threw out all the distributors defenses and counterclaims. He did this, he said, because after reviewing all the affidavits and papers submitted both in support and in opposition to the motion, he found that there was no “genuine factual issues” for him to put before the jury.

In other words, the judge said the distributor had absolutely no basis for its counterclaims and so also had no basis to withhold the money. Keep in mind this judge was not making any determinations as to whether the goods were short, underweight or made from the wrong yarn. That could only be done after a trial at which evidence would be presented. In this case the judge was able to dismiss the counterclaim before trial because in its opposition to the motion for summary judgment, the distributor did not and presumably could not show it had actually been monetarily “damaged” by the alleged acts of the mill.

The judge’s decision was in part due to various procedural “admissions” by the distributor prior to the motion for summary judgment. These “admissions” resulted from the distributor’s failure to deny—in writing and under oath—the mill’s written statements saying: 1) none of the disputed carpet had been returned by the distributor’s customers, 2) the distributor had received no written complaints from its customers, and 3) the distributor had not issued any credits or refunds for the disputed carpet.

Under the law, a failure to properly deny a formal “request to admit” is the same as an admission. Since according to this admission there were no actual damages, the counterclaim, even if the allegations of defects were true, had no meaning.