Finished The Facts: Now What?

We have arrived at our last, and in some ways, most interesting element of ‘agreement’. To fully appreciate this last element, let’s return for a moment to the precise language used in the definition:

"Agreement", as distinguished from "contract”, means the bargain of the parties in fact, as found in their language or inferred from other circumstances, including course of performance, course of dealing, or usage of trade as provided in Section 1-303. Section 1-201(b)(3). [Emphasis added].

Upon a review of the language of Section 1-201(b)(3), it is immediately apparent that ‘course of performance, course of dealing and usage of trade' are illustrative of ‘other circumstances’ from which inferences may be drawn, not the only ones. This expansive reading literally opens up a universe of possibilities from which a creative advocate can draw.

            One circumstance that I always look at in connection with UCC cases is the market at the time any dispute might have arisen.  Did a particular buyer microscopically inspect goods to find defects because the price at which he had contracted to buy the goods is now 40% above the market price for the same goods? What about personal circumstances?  Would a dramatic increase in lifestyle be of any relevance when a party to a contract states that business has become so bad that he can’t supply your clients’ needs?  I have not seen Section 1-201(b)(3) used in that manner, nor have I had the opportunity to do so, but I would not hesitate to do so.  In any event, it is a provision which opens options for a creative attorney. The interpretation suggested would also provide a statutory basis for a wide range of questions during discovery.

            With the addition of ‘other circumstances’, we have completed all the elements of agreement.  The initial impact of this information is explained in Section 1-303(d):

A course of performance or course of dealing between the parties or usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware is relevant in ascertaining the meaning of the parties' agreement, may give particular meaning to specific terms of the agreement, and may supplement or qualify the terms of the agreement…..  Section 1-303(d). [Emphasis added].

That language is extremely powerful, and should be read very carefully. We saw the impact of trade usage in the In re Cotton Yarn Antitrust litigation.  The other elements of agreement can have the same dramatic impact. 

There is a hierarchy of the weight given to course of performance, course of dealing and usage of trade. This is stated in Section 1-303(e):

Except as otherwise provided in subsection (f), the express terms of an agreement and any applicable course of performance, course of dealing, or usage of trade must be construed whenever reasonable as consistent with each other. If such a construction is unreasonable: (1) express terms prevail over course of performance, course of dealing, and usage of trade; (2) course of performance prevails over course of dealing and usage of trade; and (3) course of dealing prevails over usage of trade.

            With all of the elements of agreement in place, relevance established, relative weight in place, we return to the definition of ‘contract’ for it is here that the legal effect of the agreement is determined:

‘Contract’ means the total legal obligation that results from the parties’ agreement as determined by the Act and other applicable rules of law. Section 1-201(b)(12).

Thus, we have returned to our initial inquiry as to what a contract means under the UCC, after a journey through the definition of agreement and the sections connected to agreement. Once the parties ‘agreement’ is in place, there are two steps required to determine the legal impact of that agreement.  First, the application of the text of the Uniform Commercial Code to the facts determined; second, ‘other applicable rules of law’ which impact the agreement—Section 1-103(b).

As of this point, we have discussed the following Code sections:

1.    1-102;

2.    1-103(a)(1)

3.    1-103(a)(2)

4.    1-103(a)(3);

5.    1-103(b);

6.    1-201(b)(12);

7.    1-201(b)(3);

8.    1-302

9.    1-303(a);

10. 1-303(b);

11. 1-303(c);

12. 1-303(d);

13. 1-303(e)

Learning Suggestion:  For those who are learning the Uniform Commercial Code, the best step at this point would be to go over each of the Code sections as many times as necessary to be certain the text of each section is fully understood.  Each time you go over the material, those patterns continue to get stronger in the brain.  Eventually, it will be automatic analysis.  In reviewing these sections, remember that this basic contract analysis will apply to contracts throughout out the UCC.

For more information on the author and book, please visit ucc-madeeasy.com.