Contracts II Outline
UCC vs. Restatement (Princess Cruises)
· Test to determine if the UCC applies to a contract for goods and services is examining whether the predominant factor of the transaction—the thrust, its purpose—reasonably stated is the rendition of service with goods incidentally involved or is a transaction of sale, with labor incidentally involved
· Factors to Determine:
1. language of the contract
2. nature of the business of the supplier
3. intrinsic worth of the materials supplied
4. whether the gravaman of the complaint arises out of deficient goods or services
Unilateral v. Bilateral Contracts
· Unilateral: the offer proposes not an exchange of promises but an exchange of the offeror’s promise for the offeree’s act. This is a contract in which only one party promises to do something, and the other party is free to act or not as she wishes.
o A unilateral contract can only be accepted by full performance. Usually if the offeree begins to perform, most courts treat the offer as having become temporarily irrevocable.
· Bilateral: a contract which consists of an exchange of promises. Most contracts are bilateral since usually both parties promise to do something.
Trade Usage, Course of Performance, and Course of Dealing
· The UCC always allows evidence of course of performance, course of dealing, and usage of trade to be admitted to interpret the express terms of a contract, even for a final and complete agreement. These sources are thus not affected by the parol evidence rule, which as we have seen ordinarily bars even evidence of “consistent additional terms” where a complete integration exists.
· Express terms>Course of Performance>Course of Dealing>Trade Usage
· Course of Performance: A “course of performance” refers to the way the parties have conducted themselves in performing the particular contract at hand. The idea is that the parties’ own actions in performing the contract are the best indication of what they intended the contract terms to mean.
· UCC 2-208 Course of Performance or Practical Construction
1. Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement.
2. The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever reasonably as consistent with each other; but when such construction is unreasonable, express terms shall control course of performance and course of performance shall control both course of dealing and usage of trade.
3. Subject to provisions of the next section on modification and waiver, such course of performance shall be relevant to show a waiver or modification of any term inconsistent with such course of performance.
1. The parties themselves know best what they have meant by their words of agreement and their action under that agreement is the best indication of what that meaning was.
3. Where it is difficult to determine whether a particular act merely sheds light on the meaning of the agreement or represents a waiver of a term of the agreement, the preference is in favor of “waiver” whenever such construction…is needed to preserve the flexible character of commercial contracts and prevent surprise or other hardship.
· Course of Dealing: A “course of dealing” is also a pattern of performance between the two parties to the contract, but it refers to how they have acted with respect to past contracts, not with respect to the contract in question. Thus if a particular term had been used in previous contracts between the same parties, and had been interpreted by them in a certain manner, this interpretation would be admissible to show how the term should be interpreted in the current contract.
· Usage of Trade: The Code defines “usage of trade as “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 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 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 usage are to be proved as facts.
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 meaning to and supplement or qualify terms of an agreement.
6. Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise to the latter.
Nanakuli Paving Co. v. Shell Oil Co.
· Nanakuli’s two arguments: 1. it should be assumed under the UCC that the parties intended to incorporate price protection into their agreement (trade usage from UCC 1-205) and 2. Shell was obliged to price protect Nanakuli, even if price protection was not part of the contract, because it was the commercially reasonable standard for fair dealing in the asphaltic paving trade (good faith from UCC 1-203)
· Shell argues: 1. the judge erred by expanding the definition of trade to include other suppliers of material to the asphaltic paving trade (defined the relevant trade too broadly) and 2. the instances of price protection in the past were waivers instead of course of performance and 3. price protection was not consistent with the express terms of the contract
· The court uses UCC 1-205(2) to explain that trade can include regularity of observance in a particular place where they are in business. Price protection was probably a universal practice by suppliers of the asphaltic paving trade.
· The court rejects Shell’s argument about waiver and says it is course of performance because the prior occasions were the only two times that would calls for such conduct (consistent) and there was a letter that indicated Shell felt Nanakuli was entitled to price protection
· Nanakuli says that because Shell has the right to set the price, it has the good faith obligation to give us reasonable advanced notice. Under UCC 1-203 (and 2-305(2)), if one party gets to set the price, the party has an obligation of good faith and fair dealing in the performance and enforcement of the contract. Good faith for non-merchants means honesty and fact. Good faith for a merchant additionally includes observance of reasonable commercial standards of fair dealing in the trade if the party is a merchant (comments to 2-305). The reasonable commercial standards incorporate trade usage.
· The 9th circuit is way out on a limb to say that trade usage of price protection is consistent with the express terms (Adams says). The express terms were “shell’s posted price at time of delivery.” However, the good faith requirement certainly requires substantial advance notice at le
obligations placed on him if he does work on her behalf. He has to account to Lucy, apply for trademarks, etc.
· Cardozo says there is consideration so this is not an illusory promise.
· Cardozo looks at both sides and at the deal as a whole. He looks at what their understanding would have to have been for the deal to make business sense. Why would Lucy enter into this business contract if Wood had not agreed to have the obligation to do what Lucy envisaged him doing? This would be an implied-in-fact contract (a contract that the parties presumably intended as their tacit understanding, as inferred from their conduct and other circumstances). Cardozo looks at the facts of the case.
· A South Carolina court looked at whether it was permissible to look at the conduct of the parties and the nature of the deal in order to determine if an implied term should be allowed to be added to the writing. The court cited this case as a basis for adding an implied term that was necessary in order to make sense of the deal.
· Cardozo’s primary argument is that these two sophisticated business parties thought they had made a contract and entered into a binding agreement (they intended to enter into a binding agreement), so we ought to find a contract.
· If current day, UCC 2-306(2) would apply and we would be applying a term in law.
· While an express promise may be lacking, the whole writing may be instinct with an obligation-an implied promise-imperfectly expressed so as to form a valid contract.
Leibel v. Raynor Manufacturing
· Raynor Manufacturing orally contracted with Leibel for Leibel to become an area-exclusive distributor of Raynor’s garage doors. Raynor subsequently became dissatisfied with Leibel and sent Leibel a letter of termination. Leibel sued, contending that reasonable notice was not given prior to termination.
· Is there a statute of frauds issue? Statute of frauds is an affirmative defense. Raynor Manufacturing is admitting the existence of a contract, so 2-201(2)(b) is satisfied. The Statute of Frauds is not an issue.
· The court says that Article 2 of the UCC applies to a contract where a dealer-distributor sells the “goods” of a manufacturer-supplier. Appellant was not a commissioned salesman. They are talking about the sale of goods from the manufacturer to the distributor.
· The court holds “the time has come to recognize that a distributorship agreement must be recognized as an agreement for the sale of goods and subject to the provisions of Article II.”
· Inventory Leibel was stuck with was goods it had bought from Raynor. It is unclear what Leibel is expected to do with this extra merchandise.
If Leibel did not own the merchandise and was merely selling the goods, it is possible that the distributor (Leibel) purchases the goods (often works this way with gasoline) at the moment the customer actually buys the good. One reason the manufacturer would do this is so that if the distributor went belly up (bankrupt), the manufacturer