Contracts II Lumen Mulligan Spring 2016
Scope of Article 1
§1-303(a): Course of Performance (used to be 2-208 )
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.
The parties repeated opportunity to perform tell us what the agreement means
1-303(b): Course of Dealing (used to be 1-205)
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.
MULT AGREEMENTS is course of dealings
§1-303(c): Usage of Trade (used to be 1-205)
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.
What is normal in the industry
Hierarchy Among Sources of Terms
1-303(e) – Construe as consistent, but if you cannot
Express terms of agreement
Course of performance
Course of dealing
Usage of trade
All these terms can be used to opt out of default rules. See eg 1-303 cmt 3.
1-304 Good Faith (used to be 1-203)
Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement
1-201(20) “Good faith” … means honesty in fact and the observance of reasonable commercial standards of fair dealing. [subjective + objective test]
Article 2: Sale of Goods
Scope of Article 2
Article 2 vs. Common Law
• § 1-103 allows for common law to supplement the UCC provisions (so long as the provisions don’t displace)
Person who deals in goods of the kind or by occupation holds himself out as having knowledge or skill peculiar to the practices/goods involved in the transaction; or
to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.
Cmt 2 to 2-104;
2-104 Between Merchants:
any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants.
Cmnt 2 But even these sections only apply to a merchant in his mercantile capacity; a lawyer or bank president buying fishing tackle for his own use is not a merchant.
Art. 2 applies to transactions in goods (§ 2-102)
• § 2-105(1) defines goods as all things which are movable at the time of identification to the contract for sale (including specially manufactured goods)
Sale of minerals generally considered “goods” (see § 2-107(1))
Sale of custom machines considered “goods”
Services, future interests and rights, security transactions, sale of intellectual property (aside from retail sales of CDs and the like) not goods.
• Transactions is broader than sales (includes bailments).
• Predominant Purpose Test (Majority): Determine whether the predominant purpose of the transaction is to sell goods or services, and apply Art. 2 to the entire transaction if goods are predominant (look to amount paid for goods vs. services as one factor).
• Gravaman of the Action Test (Minority): Determine whether the source of the complaint lies with the goods or the services portion of the contract, and apply Art. 2 if lies with the goods.
2. Article 2 As Default Rules
Article 2 generally applies in providing default terms for such issues as warranties, delivery modes, and remedies, unless otherwise “agreed.”(§ 1-201(3))
Express terms always go first
Course of performance of the present contract if not objected to (§ 2-208(1)
repeated occasions for performance
knowledge of the nature of performance
opportunity for objection
[only includes K’s involving repeated performance] Course of dealing (§ 1-205(1))
sequence of previous conduct between parties
establishing a common basis for understanding
[must have previous contracts with same parties] [mult agreements] Usage of Trade (§ 1-205(2))
regular practice or method of dealing in that trade
that justifies an expectation that it will be observed in this particular transaction [industry customs] Scope of CISG
Adopted by over 60 countries
notable non-participants: England and Japan
CISG applies to transnational sale of goods.
sales of goods where contracting parties have places of business in different contracting states.
If CISG does NOT apply:
for contracts cases, law of place where contract is formed or performed will govern.
Does NOT apply to distributorship agreements – don’t contain definite terms regarding price, quantity
but UCC does cover this sort of arrangement.
Article 1 –
applies to sales of goods between parties whose places of business are in different states
CISG does not apply if party doesn’t know other party has place of business in another State – (2)
Article 2 –
CISG does NOT apply to sales of goods for personal, family or household use, unless seller doesn’t and shouldn’t know they’re for personal use. B to B only.
Article 3 –
If buyer supplies most of the materials, then CISG doesn’t apply
indicates that most of the work to be done is a service, not sale of a good.
(1) Contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production.
specially manufactured goods are “goods” for these purposes
This Convention governs o
ime operates as an acceptance even though it states additional or different terms, unless acceptance is expressly made conditional on assent to these terms.
“definite and seasonable” requires agreement on the bargained for terms
usually involves an initial purchase order, and a subsequent acknowledgment letter
Additional (not different?) terms are to be construed as proposals for addition to the contract.Between merchants (broad definition in § 2-104) such terms become part of the contract UNLESS
offer expressly limits acceptance to the terms of the offer
they materially alter it and so result in surprise and hardship if incorporated without express awareness
delivery terms generally “materially alter”, while arbitration clause may or may not (depends on usage of trade)
see Cmt 4 & 5 (hardship, surprise, negate warranties, merch. fitness.)
notification of objection to them has already been given or is given within a reasonable time after notice of them is received
note that “different” terms are inherently objected to, and therefore either the original terms always apply (minority view) or “knock-out” rule applies (majority view: UCC)
by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. The terms of such contracts (by conduct) are the ones in which the parties’ writings agree, supplemented by provisions of UCC. Different/additional replaced by UCC.
– applies only when no initial formation (agreed upon bargained for terms)
-no need to argue over which is offer/acceptance, the only question is what terms are included in the K
(4) 2-207 only comes into play if there are 2 or more documents purporting to contain contractual terms.
Only 1 such document, then it controls 2-206
2-207(1) repudiates mirror image rule
2-207(2) determines terms for contracts formed by formal offer and acceptance
2-207(3) determines terms for contracts formed by performance
The cases – when do I have 2 or more documents
§ 2-207 Official Comment 1: two typical situations.
-one: written confirmation,
oral or by informal argeement through correspondence between the parties sending formal memoranda embodying the terms so far as agreed upon and adding terms not discussed.
-Two: offer and acceptance