Creating and Applying a Systematic Approach

         

            As of this post we have worked through Parts 1 and 2 of Article 2, the former dealing with scope and Article 2 definitions, the latter with the general formation of a contract. This content should be considered in the context of the definitions of ‘contract’ and ‘agreement’ contained in Article 1.   For those who are interested in laying a strong foundation for approaching all Uniform Commercial Code matters, I suggest going back to the first post on March 5, 2015 and reading and learning subsequent posts through May 5, 2015. 

            As stated in an earlier post, contracts exist throughout all Articles of the Uniform Commercial Code.  We looked at many under Article 3: the contracts of the maker; drawer; indorser, acceptor and accommodation parties.  In each of these situations, as well as Article 2 and the other Articles of the Code, a basic contract analysis will yield an enormous amount of information.  Piecing together the agreement between the parties will yield any writings which exist; what was stated between the parties; what information can be inferred from other circumstances, such as any course of performance or course of dealing which may exist between the parties.  Trade usage, as has been repeatedly stated throughout these posts, is almost always going to be relevant, for the overwhelming majority of commercial transactions are conducted within an established trade.

            Also referenced in an earlier post is the importance of a systematic approach to Uniform Commercial Code problems.  Understanding that the Code is like a major highway with many side roads, it is very important to stay focused and on track.  My personal approach to all UCC problems is exactly as stated above. Over time my mind has been trained to process information through this medium, and hence has increased efficiency in the process. 

            Once the basic agreement is in place, we turn to the contract.  This, simply stated, is the application of The Uniform Commercial Code as applied to the facts of the agreement as supplemented by all law not specifically displaced by the Code per 1-103(b).

            Once your facts are in place and diagrammed, you move to the index in front of whatever Articles are involved.  At this point, you look to the head notes in the index and process it through the facts of your case to see if any content is relevant.  By way of illustration, let’s take a look at the index to Part 2 of Article 2:

       

       

            The simple system I am proposing essentially involves creating a factual prism through which to process the content within the head notes.  This of course, requires a sufficient grasp of content, but as I have stated all along, this level of expertise is available for anyone who puts in the effort. It does not require complete mastery of the Code, which is also available with sufficient effort, but it does require enough knowledge to look at the head notes and have the content in the section come to mind.  More detailed analysis of the sections will occur later; for now, the basics are being put in place.

            As the facts are processed through the head notes, certain areas within the text will be activated.  For example, if there is no final written agreement, the Statute of Frauds will be activated; Section 2-204 regarding formation in general will also be activated, and of course, if writings are in confirmation of an offer, Section 2-207 will be activated.  This process is applied to each Part of each relevant Article, again yielding activated sections.  At the end of this process, you may have 40-50 sections activated, which when placed in proper sequence tell the ‘UCC story’.  Areas where more information is needed will reveal themselves, and sections of particular importance will become apparent.  These sections are dissected word by word and this process involves the application of the purposes and policies of the Code as stated in Section 1-103(a)(1)(2)(3).

            Part 3 of Article 2 deals with General Obligation and Construction of Contract  and should be read in connection with Part 5 which deals with Performance.  If you recall, Section 2-204(1) provides that the parties can consummate a contract ‘by any means sufficient to show agreement including conduct.’  This is elaborated upon in Section 2-207(3) which discusses what happens when an acceptance in confirmation of an offer results in a contract by conduct with writings insufficient to form a contract.  In that situation Section 2-207(3):

…In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

Part 3 of Article 2 will supply many of the contract terms which may not be contained in the writings.

            If for example, the parties intended to enter into a contract but had not agreed on a price, Section 2-305 provides a mechanism for determining price. As discussed in a previous post, Part 3 also provides for delivery terms regarding single or multiple lot deliveries where no such provision is made in the contract under Section 2-307; place of delivery where none is provided under 2-308; timeliness of action required under Section 2-309; authorization for a seller to make shipment under reservation under Section 2-310; certain options regarding the goods such as assortment of goods and specification of goods under Section 2-311.  In addition, various implied warranties and disclaimer of warranties are created by Section 2-314; 2-315 and 2-316 respectively. 

            Most of us are familiar with the importance of warranties and disclaimers of warranties; however, there is tremendously important content in each of the provisions noted, and, if in undertaking the analysis noted above, certain terms are missing from the terms of the contract, Part 3 will often provide the missing content.  Part 5, on the other hand, will detail what the parties are required to do to perform properly under the contract.  For example, requirements for proper shipment of goods; proper tender of goods; payment responsibilities; inspection rights and cure options are all dealt with in Part 5 of Article 2.

            The next series of posts will work through Parts 3 and 5 of Article 2.