In our
discussion of Article 1, it was noted that the Uniform Commercial Code embodies
freedom of contract as an underlying principle.
Section 1-302 is a codification of this basic principle. Section
1-302(1a) states as follows:
(a) Except as otherwise provided in
subsection (b) or elsewhere in [the Uniform Commercial Code], the effect of
provisions of [the Uniform Commercial Code] may be varied by agreement.
The
limits of the abilities of the parties regarding freedom of contract, as well
as some of the specific freedoms granted are noted in section 1-302(b)
(b) The obligations of good faith, diligence, reasonableness, and care prescribed by [the
Uniform Commercial Code] may not be disclaimed by agreement. The parties, by agreement, may determine the standards by
which the performance of those obligations is to be measured if those standards
are not manifestly unreasonable.
It is my
belief that parties should set standards for good faith, diligence,
reasonableness and care whenever contracts are being drafted. Setting these
standards removes the question from the jury or the court as to the actual
legal question and restricts inquiry to the question of whether or not the fact
standards set by the parties have been met and whether or not the standards set
are manifestly unreasonable. An
excellent example of the importance of setting standards can be found under
Article 7 in connection with the storage of goods.
Section 7-204 deals with the duties
of a warehouse to exercise care with respect to goods it has stored. Subsection (a) to Section 7-204 states as
follows:
A warehouse is liable for damages for loss of or injury to the goods caused by its
failure to exercise care with regard to the goods that a reasonably careful
person would exercise under similar circumstances. However, unless otherwise
agreed, the warehouse is not liable for damages that could not have been
avoided by the exercise of that care.
It is seen that the warehouse must exercise the level of
care which a ‘reasonably careful person’ would exercise under similar
circumstances. This of course, is a
standard and used frequently in many areas of law.
What is or
is not consistent with the standard enunciated however, can be dramatically
different than what one might reasonably believe would meet that standard. This is illustrated in United States Borax and Chemical Company v. Blackhawk Warehousing
and Leasing Company 586 S.W. 2d 248 (Ark. CA, 1979). Borax involved the storage of
goods consisting of agricultural chemicals owned by U.S. Borax pursuant to a
warehousing agreement between the parties. In early 1977 goods belonging to
Borax were stolen from Blackhawk. The goods in question consisted of 288 five
gallon cans of a product known as Cobex.
The court described the burglary as follows:
The burglars entered the building by ripping open one of the
side panels. Then chemicals which had been stored next to the wall were pulled
outside to allow entry into the building. After entry a padlock and chain were
cut to allow a door to be opened. A forklift truck was "hot
wired" since it was locked. Then it was used by burglars to move a sailboat blocking the path to
appellant's stored chemicals. Other chemicals in the way were shoved aside, and
the cans of appellant's stored chemicals were taken from the premises. The loss
sustained by the plaintiff amounted to $23,658.28 and suit was brought for that
amount. at 833-834
Defendant was granted a directed verdict by the trial court,
and Borax appealed, stating that defendant was negligent in not providing the
following specific security measures:
(a) In failing to provide watchmen inside the facility;
(b) In failing to have any burglar alarms or similar systems
installed in the warehouse;
(c) In failing to provide roving patrols outside of the
building;
(d) In failing to place palletized storage directly against
the inside wall at the point of access as was done against other walls to
prohibit any attempt to enter from the outside;
(e) In failing to provide other adequate security measures
which would have prevented the break-in and subsequent loss to the plaintiff;
(f) In failing to be put on notice that extra security
measures were needed after a previous break-in occurred at the warehouse
approximately 7 months before the loss was sustained by the plaintiff. at 836
The court
discussed the security procedures in effect in the context of general
negligence standards. In quoting
Arkansas case law, the court states the question as follows:
The failure to do something which a person of ordinary
prudence would do under the circumstances, or the doing of something that a
person of ordinary prudence would not do under the circumstances. at 836-837
The court reversed
the trial court’s decision concluding that the question of reasonable care
should have gone to the jury.
As a result
of the agreement between the parties, the determination of reasonable care was
placed in the hands of the court. This
worked out favorably for Borax, but the warehouse could have avoided the whole
problem by simply stating the security measures being taken; selecting standards
which are not ‘manifestly unreasonable; and then proving that those standards
were met. I am not an expert in
warehouse security procedures, but it is clear that the burglary in question
required considerable effort to succeed.
It may be that the suggestions made by Borax have merit, but it may also
be that Blackhawk had adequate security in place. If Blackhawk had properly drafted the
warehouse receipt, the problem could have been avoided.
The same
rationale applies to every written contract. Parties who set the standards of conduct to
govern their transaction eliminate the problems which Blackhawk Leasing had to
deal with in the Borax case. In
presenting this approach to the other party, it should be emphasized that
everyone benefits from the certainty of setting standards.
