CONTRACTS II OUTLINE
CHAPTER 6; CONTENTS OF THE CONTRACT
v CONDITIONS – IMPLIED TERMS – UNSPOKEN UNDERSTANDING AND EXPECTATIONS (TRADE USAGE, COURSE OF PERFORMANCE AND COURSE OF DEALING)
Implied in law – look to the actual law
Implied in fact – determined by the conduct of the party, community norm, conduct and good faith
Implied Terms – an agreement which is found to exist based on the circumstances when to deny a contract would be unfair and/or results in unjust enrichment to one of the parties. An implied contract is distinguished from an “express contract.” Implied terms can come from trade practices.
Authority of contractual terms
1. Express terms
2. Course of performance
3. Course of dealings
4. Trade practices – only applies if both are in the same industry or if common knowledge
a. Definitions: there are three special sources which are used in interpreting the terms of a contract. These are especially important in sales contracts, since the UCC gives these sources specific treatment:
1.Course of Performance: A course of performance refers to the way the parties have conducted themselves in performing the particular contract at hand. (Ex – the contract calls for repeated deliveries of the highest grade oil. Evidence as to the quality of oil delivered and accepted in the first installments would be admissible as a course of performance to help determine whether oil delivered in a later installment met the contract standard.)
2.Course of dealing: A course of dealing refers to how the parties have acted with respect to past contracts.
3.Usage of trade: A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. UCC § 1-205(2). Thus the meaning attached to a particular term in a certain region, or in a certain industry, would be admissible. Also know as; Trade Practices – custom of industry, both parties should be accustomed to the practice even if they have never worked together before. Both parties should expect this custom in a specific industry and locality. Trade practices might not apply to new comers or parties of different traders who interact.
b. Used to interpret even a complete integration: course of dealing, course of performance and usage of trade may be introduced to help interpret the meaning of writing even if the writing is a complete integration. That is, these sources are not affected by the parol evidence rule – even though a writing is found to be the finial and exclusive embodiment of the agreement, it may still be explained by evidence from these three sources.
1.Contradiction of express terms: But these customs may not be used to contradict the express terms of a contract. UCC §2-208(2). However, if these customs can reasonably be harmonized with the writing, then the customs may be shown and may become part of the contract.
c. Priorities: Where more than one of these types of customs is present, the most specific pattern controls. Thus an express contractual provision controls over a course of performance, which controls over a course of dealing, which controls over a trade usage. § 2-208 1-205
UCC 1-205 – Course of Dealing and Usage of Trade
(1) A course of dealing is a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.
(2) A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage are to be proved as facts. If it is established that such a usage is embodied in a written trade code or similar writing the interpretation of the writing is for the court.
(3) A course of dealing between parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meani
ation of the sexes and the hired rabbi insisted on that tradition. After the Δ denied the traditional seating the Π sued for the balance of the contract price and refused to complete the contract. Before entering into the contract Δ had adhered to separate seating. During negotiations it was agreed that defendant would continue to require separate seating, which the court held were admissible statements bearing on plaintiff’s intent and state of mind in entering into the contract. ISSUE; when not mentioned in a contract should custom dictate the unspoken terms? HOLDING; yes, when a custom or usage is once established, in absence of express provision to the contrary it is considered a part of a contract and binding on the parties though not mentioned therein, the presumption being that they knew of and contracted with reference to it. RATIONALE; the judge used the advice of three rabbi’s and concluded that separate seating was customary and Δ should have expect the Π to want to abide by it. CONCLUSION; The court held that the parties contracted on the common understanding that defendant would continue to observe the mandate of Jewish law as to separate seating. Thus, the court held that separate seating was implicit in the contract and affirmed judgment in favor of plaintiff.
· BEST EFFORTS, GOOD FAITH, AND SIMILAR COMMUNAL NORMS (OMITTED TERMS SUPPLIED BY COURT)
Generally: courts will generally supply a missing term (that is, a term as to which the contract documents are silent) if it is apparent that the parties wanted to bind themselves, and there is a reasonable way for the court to go about formulating the missing term. Her are some examples:
