The word
‘agreement’ has a unique potency of impact throughout the Uniform Commercial Code. In the same way that section 1-103(b) can
‘change’ a contract through the application of supplemental contract law
principles as in the case of In re Invenux, application
of the concepts contained in section 1-201(b)(3) can do the same thing via the
terms of the agreement. Also of
importance is Section 1-302, ‘Variation by Agreement’, which states the general
freedom of contract principle in subsection (a), as well as certain limitations
on freedom contract under the Code. In
addition, a significant number of Code sections contain the words ‘unless
otherwise agreed’ and of course, we have seen ‘agreement of the parties’ as one
of the underlying purposes and policies upon which the Code is drafted under
Section 1-103(b). The drafters of the Uniform Commercial Code made it
emphatically clear that freedom of contract was a fundamental principle of the
Code not just inferentially through the provisions stated, but in Comment 1 to
Section 1-302.
Subsection (a)
states affirmatively at the outset that freedom of contract is a principle of
the Uniform Commercial Code.
In upcoming
posts, I will share some of the wonderful avenues available for drafting. For now, it is essential to lay the basic
foundation of the contract and the agreement.
As noted in the last post,
the definition of agreement is comprised of five elements:
1. The language used by
the parties;
2. Course of performance;
3. Course of dealing;
4. Usage of trade;
5. Inferences from other
circumstances, in addition to inferences from items noted in # 1-3 above.
1.
The language used by the parties
In gathering the
facts, it is important to remember that anything relevant said, whether
verbally or in writing, is valuable information. While there may be limitations on the use of
some of this language via the parole evidence rule, it is still part of your
client’s story and one never knows where things lead. In addition, there are
certain Code sections which make it possible to introduce oral evidence
provided it is done in a certain manner. In eliciting information from a client
or prospective client, it is very helpful to track the language of the sections
which are referenced in Section 1-201(b)(3).
In so doing, you will have covered the parameters of the parties’
agreement.
2.
Course of Performance
The second
potential element of the contract is ‘course of performance’. The words
‘potential element’ are used because there may not be a course of performance
in a given transaction since certain specific elements are required. Course of performance is defined under
Section 1-303(a):
A "course
of performance" is a sequence of conduct between the parties to a
particular transaction that exists if:
(1)
the agreement of the parties
with respect to the transaction involves repeated occasions for performance by
a party; and
(2)
the other party, with knowledge of the nature
of the performance and opportunity for objection to it, accepts the performance
or acquiesces in it without objection.
Section 1-303(a).
The first
element requires a ‘sequence of conduct’ to a ‘particular transaction’; hence,
other transactions between the parties do not impact ‘course of performance’. The
sequence of conduct in the particular transaction becomes a ‘course of dealing’
if the contract involved ‘repeated occasions’ for performance, the performance
of one of the parties to the contract is non conforming to the contract, and
the nonconforming behavior was accepted overtly or passively by the other
party.
By
way of illustration: Assume Seller and Buyer have a written contract under
which Seller is to deliver 20 carloads of oranges on the first of each month
from April 4, 2014 to April 3, 2017. Shipments
routinely arrived between the 8th and 11th of the
month. For the first 11 months of the
contract, Buyer said nothing. However,
when the March 2015 delivery showed up on March 11th, Buyer rejected
because the ‘delivery was late’.
If
Seller were to litigate the matter with Buyer, Seller would have a very strong
argument that the date of delivery under the contract has been modified by the
course of dealing. The contract had
‘repeated occasions for performance’. Seller’s time of delivery was consistently
in violation of the due date for delivery; Buyer said nothing. In essence, Seller is arguing that Buyer
‘waived’ his or her right to the delivery date originally stated in the
contract by not saying anything about the late deliveries for one year.
3.
Course of dealing
The third
element of the ‘agreement’ is ‘course of dealing’.
A "course
of dealing" is a sequence of conduct concerning previous transactions
between the parties to a particular transaction that is fairly to be regarded
as establishing a common basis of understanding for interpreting their
expressions and other conduct. Section
1-303(b)
Upon a quick
review of the text of Section 1-303(b), it is clear that the situation
envisioned involves ‘previous transactions’ between the parties. A course of dealing will arise when the
‘conduct’ concerning those transactions is at a level which creates a ‘common
basis of understanding for interpreting their expressions and other
conduct’. In other words, what they have
said and done in past transactions will have bearing on what they have said and
done in the transaction under discussion.
The
definition of ‘course of dealing’ was amended with the Article 1
amendments. The earlier version had a ‘course
of dealing’ which could be based upon ‘previous conduct’ between the parties’,
rather than ‘previous transactions’. I
believe the former version is the better of the two. The rationale for the
section lies in the fact that, in the situation envisioned, parties to a
business transaction have reasons for understanding what the other party means
when he or she says or does something.
This increased understanding can occur outside of the business
transaction realm. It could occur in business club; it could occur at a weekly
golf game or many other places. The
point is, if there have been some prior dealings between the parties which shed
light on what they mean in a given transaction, I believe that should be
allowed.
I
would make the argument that interactions outside of the business context should
be within the definition of course of dealing.
I would begin my argument with a favorable dictionary definition of the
word ‘transaction’:
A communicative
activity involving two parties or things that
reciprocally or influence each
other.
Webster’s
Dictionary
Clearly, there is no requirement in that
definition of a business related activity. From there, I would go back to
Section 1-103(a) and fashion an argument through the purposes and
policies. To all listening—Courts
frequently use the dictionary in UCC cases.
The final stated
element of the agreement is ‘usage of trade’, which is one of those extremely
important and pervasive concepts of the Uniform Commercial Code. ‘Usage of trade’ will be discussed in the
next post, but I want to share a thought with you about that as an introduction
to the topic. You may not have a ‘course
of performance’; you may not have a ‘course of dealing’; but there will almost always be a usage of trade. That usage of trade is part of virtually every agreement under the Uniform
Commercial Code.
Learning Suggestion: Try the exercise above. See what policies favor a more inclusive
definition of transaction versus the business transaction limitation. It will
crystallize the process in your mind and lay the foundation for what will
emerge as a general structured approach to the Uniform Commercial Code. When doing so, systematically review the text
of the statute under consideration.
Visual stimulus is a very important part of the process.
For more information on the author and book,
please visit ucc-madeeasy.com.
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