Entering the Uniform Commercial Code: The Contract—Section 1-201(b)(12)

The essence of the previous posts has been to create a mental framework as you enter the text of the Uniform Commercial Code.  You understand that the overall goal in the drafting of the Code was to facilitate commerce.  Further, that the Code was drafted upon some very specific policies including the expansion of commercial practices, recognition of the agreement of the parties, and a general desire to simplify and clarify the law governing commercial transactions’.  Courts have been instructed by the legislatures of their states to ‘liberally construe and apply’ [the Uniform Commercial Code] to implement these policies.  You also enter the UCC knowing that you have, at your disposal, the whole body of American Jurisprudence except where the Code has displaced it.  You are ready!

One of the themes you see throughout the Uniform Commercial Code, particularly in Article 2, is the idea that in interpreting and analyzing the UCC, we should incorporate the meaning of certain words or phrases as that meaning exists in their commercial context, as well as their legal context. I am using this general theme to introduce Section 1-201, General Definitions, for often these definitions contain nuances and elements that we don’t ordinarily associate with those terms.  These definitions, like all of Article 1 apply throughout the Uniform Commercial Code, and should be consulted regularly.  While all of these definitions are important, some of them have special significance.

The first of very important definitions are ‘contract’ and ‘agreement’.  As you entertain these definitions, remember the full reach extends throughout the Code.  Most individuals who think of the word ‘contract’ tend to think of it in a singular manner.  However, contracts exist under all substantive Articles of the Uniform Commercial Code.  By way of illustration, which is by no means exhaustive: the contract of the buyer and seller under Article 2; the contract of the lessor and lessee under Article 2A; the contract of the maker, drawer or acceptor of a draft under Article 3; the contract between a bank and its customer under Article 4; the contract between a bank and its customer under Article 4A; the contract between a bank and its customer under Article 5; the contract between the carrier and the shipper under Article 7; the contract between the debtor and the secured party under Article 9.  There are many more contracts within these Articles.  The main point is, as you take in the definition of contract, try to remember the reach of this definition.  Keeping this reality in mind will create an expansive framework through which to process the definition.

            Contract is defined under Section 1-201(b)(12) as follows:

“Contract” ...means the total legal obligation which results from the parties’ agreement as affected by this Act and any other applicable rules of law.

‘Contract’ therefore is the legal result of the parties’ agreement.  Therefore, in order to ascertain the legal obligations of parties to a contract, one must first know what the terms of the parties’ “agreement” are.

(B) Definition of Agreement

“Agreement”, like contract, is a defined term under the Code. It is defined in Section 1-201(b)(3) as:

...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.

There are thus five variables set forth in Section 1-201(b)(3) which comprise the agreement and thus affect the contract:

1. The language used by the parties;

2. Course of performance;

3. Course of dealing;

4. Usage of trade;

5. Inferences from other circumstances.

The next post will focus in detail on the elements of ‘agreement’. The use and impact of ‘agreement’ throughout the Uniform Commercial Code is of the utmost significance, particularly in the implementation of certain Code based policies.

Learning Suggestion:  Periodically reread earlier blogs—or simply the Code sections discussed in the sequence presented—so that you begin to form a solid foundation for current and long term learning.

Underlying Theory:

Basically, the repetition creates ‘UCC tracks’ in your brain.  This is caused not only by thought, but by the pure visual stimulus of looking at the words.  Returning to the 100,000,000,000 neurons—they are just waiting for you to activate them.  If the same ‘packet’ is activated over and over again the connections start to form.  Over a long period they become strong and automatic.

If you undertake this process, you will find that the time needed to go through the Code sections decreases [no surprise] and the words are easier [no surprise]. You will also find, as your understanding increases, that you are actually enjoying the UCC [surprise!].

For more information, please visit www.ucc-madeeasy.com.