All posts for the month October, 2011

“Course of Dealing”: Impact

This is third post dealing with one of the most critical and fundamental issues of the Uniform Commercial Code: The agreement of the parties. The first element was the language used by the parties involved; second, is ascertaining if there is a course of performance, a certain type of behavior between the parties to a particular transaction which sheds light on the actual meaning of the agreement. 

One of the three remaining elements to the definition of agreement is course of dealing:

A “course of dealing” is a sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis for interpreting their expressions and other conduct.  Section 1-303(b)

In approaching Section 1-303(b), and Code sections in general, it is important to remember that any given Code section can have up to seven or eight rules or qualifiers.  Every word is important.   A careful look at Section 1-303(b) reveals a number of avenues through which various words can be utilized or attacked.

The conduct which gives rise to a course of performance must:

  1. Be a sequence of conduct;
  2. The conduct must involve transactions which occurred before the particular  transaction;
  3. Conduct must “fairly regarded” as a common basis for interpreting their expressions and other conduct.

Section 1-303(b) makes good sense as it incorporates the realities which attend a history of knowing someone into a particular transaction.

All of the elements are important; however, one bears direct comment and examination.  This arises in connection with the requirement that a course of dealing requires “previous transactions” between parties.  It is clear that conduct which occurs between parties in past business dealings is relevant in understanding what the parties mean in a current transaction and is within the definition of course of dealing.

I think it is also important to integrate non transactional interactions between parties when these relationships give rise to the basis of understanding referred to in the section.  Certainly, one can learn a great deal about someone from knowing them outside a direct transactional basis, and to the extent this sheds light on what the parties meant in a particular transaction, I believe it should be incorporated into ascertaining what the agreement is.

With language, course of performance, and course of dealing having been discussed, the next blog will focus on the final two elements of ‘agreement: usage of trade and inferences from other circumstances.

www.ucc-madeeasy.com

Leave a comment
by learntheucc on October 31, 2011  •  Permalink
Posted in Article 1 - General Provisions, Article 2 - Sales transactions, Learn the UCC
Tagged , , , , ,

Posted by learntheucc on October 31, 2011

https://learntheucc.wordpress.com/2011/10/31/%e2%80%9ccourse-of-dealing%e2%80%9d-impact/

“Course of Performance”: Impact on Contract

The “contract”, or “total legal obligation” between the parties, as defined in Section 1-201(b) (12) is comprised of three elements:

  1. The parties’ agreement;
  2.  The laws of the Uniform Commercial Code;
  3. Other applicable rules of law.

Each of these three variables can have an enormous impact on a sale of goods contract, and any other transaction which occurs under the Uniform Commercial Code.

      1.      The parties’ agreement;

Per section 1-201(b)(3) the parties’ agreement consists of five elements:

  1. Language;
  2. Course of Performance;
  3. Course of Dealing;
  4. Usage of Trade;
  5. Inference from Other Circumstances

Language within the purview of Section 1-201(b)(3) may be written or oral.  While there may be parol evidence issues, the “agreement” is being determined here.  Parol evidence and other laws may affect what the agreement is as a legal reality, but at this stage of the process we are considering all written language and any purported verbal discussions.

      2.      C ourse of Performance

Even if there is a written contract with terms clearly stated, the “course of performance” between parties to an agreement, can dramatically alter the ultimate meaning of the words used.

(a)   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 performance or acquiesces in it without objection.

Patterns of behavior which exist under a “course of performance” may become part of the agreement.  Assume for a moment that Buyer and Seller had a contract whereby Seller was to deliver 40 car loads of tomatoes on the third day of each month.  Further assume that during the first two years of the contract, delivery was made on the 8th, and that Buyer never objected to that date.  Finally, assume that the price of tomatoes dropped by fifty per cent and Buyer purchased  40 carloads in the open market since the deal was “too good to pass on”.

When the forty carloads from the original Seller show up on the 8th, Buyer rejects the tender stating “they were not delivered in accordance with the terms of the contract. Delivery was due on the third”.

I believe that the “course of performance” between the parties for the two years in question, resulted in effectively changing the delivery date to the 8th of the month.

www.ucc-madeeasy.com

Leave a comment
by learntheucc on October 20, 2011  •  Permalink
Posted in Article 1 - General Provisions, Article 2 - Sales transactions, Learn the UCC, Twitter
Tagged , , , , , , , ,

Posted by learntheucc on October 20, 2011

https://learntheucc.wordpress.com/2011/10/20/%e2%80%9ccourse-of-performance%e2%80%9d-impact-on-contract/

What IS a Contract

Most people visualize a sales contract as a written legal document embodying a sale of goods by a seller to a buyer, and executed by both parties. A contract for the sale of goods is much, much more than that.  In this Blog, and several which follow, we will discuss and analyze what a contract for the sale of goods under the Uniform Commercial Code really entails.

At the outset, it must be noted, that a valid contract can be created even if there is no written contract.  As noted in Section 2-204(1):

  • A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by the parties which recognizes the existence of such a contract.

Even if there is a written legal document, a contract for the sale of goods under the Uniform Commercial Code embodies a tremendous amount of content beyond the four corners of the document.  A look at the definition of “contract” under the Uniform Commercial Code gives insight into this proposition:

  • “Contract”…means the total legal obligation that results from the parties agreement as determined by [the Uniform Commercial Code] as supplemented by any other applicable rules of law.  Section 1-201(b) (12)

It is immediately apparent that in order to understand what the contract really means, one must initially determine the agreement of the parties.  Agreement is defined in Section 1-201(3) as:

  • …[T]he bargain of the parties in fact, as found in their language or inferred from other circumstances, including course of performance, course of dealing, or usage of trade as provided in Section 1-303.

As we will see in subsequent discussions, the elements of Section 1-201(b) (3) can have a dramatic impact on what otherwise appears to be a clear written agreement.  

www.ucc-madeeasy.com

 

Leave a comment
by learntheucc on October 16, 2011  •  Permalink
Posted in Article 1 - General Provisions, Article 2 - Sales transactions, Learn the UCC
Tagged , , ,

Posted by learntheucc on October 16, 2011

https://learntheucc.wordpress.com/2011/10/16/what-is-a-contract/

Monopoly and the UCC

Monopoly and the UCC

There are millions of businesses and hundreds of millions Americans who are impacted by the Uniform Commercial Code every day.  Some of these entities interact with the UCC hundreds or thousands of times per day.  Regardless of the volume of transactions, if you are in business, you need to know the meaning and operations of the Uniform Commercial Code.

I have often analogized various aspects of life to a board game.  When playing a board game, it is very helpful, if not essential, to understand the rules of the game.  Moreover, the better one understands the rules of the game, the greater the likelihood of winning.  Take Monopoly for example.  People who understand the rules: which properties pay the most in rent; how to get a monopoly, and then how to build houses and hotels, are ready to play the game and ready to win.

If you compare the foregoing individual to someone who has no clue what the rules of Monopoly are, it is quickly apparent the latter has virtually no chance of winning.  The reason is simple: he doesn’t’ know what to do.  He knows to select a piece for the game, and how to roll the dice, but has no understanding of how to succeed.  He may be able to move around the board for a long time.  But eventually, he will lose.

The same is true in business.  You need to know the rules.  You need to understand the legal structure of the world you have entered, and particularly how to avoid a mistake that can cost you everything.  Like the uninformed Monopoly player, without sufficient understanding of the rules of the game, you may be able to move around the board, but the risks you take every day by being uninformed can cost you everything.

Nowhere is this more evident than in the Reply Doctrine of the Statute of Frauds contained in  Section 2-201(2).  The basic Statute of Frauds rule contained in Section 2-201(1) requires sales contracts with a value of $500 or more “must be signed by the party against whom enforcement is sought…”.  Assume for example, that Seller agrees to sell Buyer 1000 tables worth $500.00 per table.  That is a great deal for buyer and he is excited about the deal.  A week later, Seller meets Buyer #2 who offers seller $750.00 per table. Seller accepts and sells the tables to Buyer #2.  If Buyer #! Brings a cause of action against Seller and there is no written contract, Seller will prevail.

Section 2-201(2) can change that result in a very dramatic way.  Assume Seller and Buyer are discussing a sale of the tables for $500.00 per table, and the parties agree to the sale of the 1000 tables at that price.  Three days later, on October 1, 2011 Buyer writes Seller and states the following:  “Pursuant to our phone conversation on September 28, 2011, I hereby agree to buy 1000 tables from you for $350.00 per table.”   Seller reads the letter, tears it up and throws it away.  He doesn’t’ want to waste any more time dealing with this Buyer..

What Seller should have done is immediately write Buyer back and state that “there was no deal at $350.00 per table.  The deal was for $500.00.”  Seller’s failure to reply to Buyer’s “confirmation of the contract” within ten days, results in a waiver of the Statute of Frauds rule of 2-201(1).  Translation: Buyer can sue Seller for Seller’s alleged breach of contract to sell the tables at $350.00 per chair.  While Buyer would still have to prove his case, Seller would not be able to use the basic Statute of Frauds rule as a defense, and would face the costs of litigation, as well as the risk of losing.

Obviously, it is far better to answer  your mail in a timely manner in a situation such as this, and eliminate the possibility of the result faced by not taking timely and appropriate action.  This is an example of a single instance where not knowing the appropriate provisions of the UCC can result in a potential disaster. Conversely, understanding the law, and proceeding accordingly, will result in ultimate protection for your business.

www.ucc-madeeasy.com

 

Leave a comment
by learntheucc on October 9, 2011  •  Permalink
Posted in Article 1 - General Provisions, Article 2 - Sales transactions, Article 3 - Negotiable Instruments, Article 4 - Bank Deposits, Article 5 - Letters of Credit, Article 7 - Documents of Title, Article 9 - Secured Transactions, Learn the UCC, Twitter
Tagged , , , ,

Posted by learntheucc on October 9, 2011

https://learntheucc.wordpress.com/2011/10/09/monopoly-and-the-ucc/

Commitment to Learning

The decision to undertake the challenge of learning any major area, regardless of the discipline, is itself a major decision.  Success is predicated upon a lot of discipline and hard work.  A lot of time and energy is expended in pursuit of the highest knowledge possible.   Each of us must choose how to best improve our minds, which I consider critically important www.2ptpe.com.

Therefore, the initial question is:  What do I gain by learning this material?  Does the gain justify the commitment?  This is true regardless of the area under consideration.  For purposes of the Uniform Commercial Code, there are distinct groups with varying needs.

If for example, you are a law student, you absolutely, unequivocally, must know the UCC, in the first instance to graduate from law school, and in the second instance to pass the Bar Exam.  Whatever it takes, however much you need to study, you need this information.

One of the things that has not changed during my time in the legal community is the fact that there are so few UCC specialists in law firms.  By specialist, I mean someone who understands the totality of the Code, and who deals with the UCC as a designated specialty like other areas of the law,  Obviously, there are many highly intelligent and knowledgeable people who do a great job in a particular UCC area;  generally, however,  they do not move outside those boundaries.  An attorney who has reached a high level of understanding of the overall meaning and structure of the UCC—has created for him or herself a unique position of particular significance in today’s Society.

That attorney is in a position not only to provide quality service to clients impacted by the Code, but also to make certain that the facts of any situation are filtered through the whole UCC.  Second, this attorney is in a position to attract clients.  There are numerous critically important provisions that any business should know what they mean and how they apply.

www.ucc-madeeasy.com

Leave a comment
by learntheucc on October 1, 2011  •  Permalink
Posted in Learn the UCC, Twitter
Tagged , , , ,

Posted by learntheucc on October 1, 2011

https://learntheucc.wordpress.com/2011/10/01/commitment-to-learning-the-ucc/