As of this post,
we have looked at some of the basic concepts in the formation of a contract
under Article 2 including: the Statute of Frauds under Section 2-201; the
importance of the distinction between a merchant and non merchant under Article
2; battle of the forms under Section 2-207; parol evidence under Section 2-202;
recovery of attorneys’ fees as consequential damages under Section 2-607(5)(a);
right to adequate assurance of performance under Section 2-609, and the failure
of presupposed conditions under Section 2-615.
All of this is
supplemented with all of the posts on Article 1 starting with the Purposes and
Policies of the UCC as stated in Section 1-102, and the mandate to the courts
to ‘liberally construe and apply’ the Code to further these policies. The policies stated in Article 1 create a
macro framework through which to process all of the Uniform Commercial Code. These blend with the policies of a particular
Article in the interpretation process. Supplemental rules of law under Section
1-103(b) is another section which allows facts to be uniquely applied to the
supplemental area of law which applies to the case. For those of you seeking to learn Article 2,
it would be helpful to review the earlier posts on Article 1, followed by the
Article 2 posts. The more thorough your
knowledge of Article 1, the better your foundation for everything that follows.
As we go forward
with Article 2, several things should be stated. First—and this is my opinion—sales
transactions are the least formalized transactions under the Uniform Commercial
Code. By that I mean it is less likely
that there will be a finalized, integrated document which has been formally
executed than in any of the other Articles.
Sales transactions often involve a phone call, some correspondence, a
shipping document and conduct which recognizes the existence of the
contract. As a result, terms supplied by
the Code have greater significance.
Second, the
Article 2 expectation is that in the event of a dispute the parties will work
it out through negotiation. This is a
reflection of how these matters are handled in reality, and is reflected in the
general structure and content of Article 2. Hence, comment 4 to Section 2-607,
which deals with a buyer’s duty to notify a seller of a breach with respect to
accepted goods states:
The notification which saves the buyer’s rights
under this Article need only be such as informs the seller that the transaction
is claimed to involve a breach, and thus opens the way for normal settlement
through negotiation.
The ‘looseness’ of Article 2 in this regard
is to be contrasted with the specificity of other Articles. Under Article 9,
for example, you are more likely to find a definitive answer to a problem than
you would under Article 2. Secured
lenders want certainty when enforcement of a secured obligation must take
place. Thus, the policy of certainty is
expressed in the text of Article 9 and the policy of ‘keep the deal alive’ is
expressed in the structure and text of Article 2.
Third,
the definitions of ‘contract’ and ‘agreement’ as defined under Article 1 have
particular significance under Article 2.
This follows from the lack of formality referred to above. Thus, course of performance, course of
dealing and usage of trade need to be carefully examined in each instance to
see how a particular concept might impact the contract. As noted in an earlier post, a particular
transaction may not involve a ‘course of performance’ or ‘course of dealing’
since parties may be dealing with one and other for the first time, and the
contract may not call for ‘repeated occasions for performance’ with
objectionable behavior. However,
virtually all sales transactions occur within some trade or industry which has
its own rules and protocols. Absent
limiting contract provisions, these rules and protocols become part of the
contract. Trade journals are a potential source of incredibly valuable
information.
Part 3 of Article 2 deals with General
Obligations of the Parties: Among other
things, Part 3 supplies certain terms that the parties may not have included in
their written agreement or writings. For
example, in certain circumstances parties to a contract can conclude a binding
deal without have explicitly agreed on a price; the Code will supply a place of
delivery if none has been stated; and where action is required by no timeline
stated, the Code requires that action be taken within a ‘reasonable time’. This ties into a Section 2-204(3) discussed
in an earlier post:
A contract does not fail for indefiniteness if the
parties intended a contract and there is a reasonably certain basis for giving
an appropriate remedy.
Section 2-301
states the obligations of the buyer and seller in very general terms:
The obligation of the seller is to transfer and
deliver and that of the buyer is to accept
and pay in accordance with the contract.
The
comment to Section 2-301 explains this as follows:
In order to determine what is in ‘accordance with
the contract’ under this Article usage of trade, course of dealing and
performance, and the general background of circumstances must be given due
consideration in conjunction with the lay meaning of the words used to define
the scope of the conditions and duties.
Section 2-301 thus forms the foundation for
going forward in litigation; implicitly emphasizes the importance of drafting;
and explicitly recognizes ‘usage of trade, course of dealing and performance’
as critical elements in determining the terms and interpretation of a
contract. These concepts, the drafting
style of Article 2, and the overall purposes and policies of the Code should be
incorporated in the process of analyzing Article 2 transactions.