Trade Terms (new 1-303)
Prof. Bill Long 2/8/05
Understanding the Full Scope of the Bargain
When we speak of "trade" terms we mean three things: course of performance, course of dealing and usage of trade. These three phrases are extremely important for the Code in adding unspoken meaning to each contract under Article 2. The concepts are relatively easy to understand, but it takes a moment to comb through the definitions in order to get our bearings.
These three trade terms were discussed in old 1-105 and 2-208 but are helpfully combined in one section in the new Article 1. Other than the fact of rearrangement, there are no differences between old and new. We will look at the new Article 1. Second, in order fully to understand the use of trade terms, you need to have fixed in your mind the difference between a contract and an agreement under the Code. Note the definitions in new 1-201.
(3) "'Agreement,' as distinguished from 'contract,' means the bargain of the parties in fact, as found in their language or inferred from other circumstances, including....1-303."
(12) "'Contract,' as distinguished from 'agreement,' means the total legal obligation that results from the parties' agreement as determined by the UCC as supplemented by any other applicable laws."
Thus, a contract is a broader concept that an agreement, and it will be the item that a court passes on when breach is alleged.
Finally, by way of introduction, the Code is adamant in getting rid of the CL term "custom" in defining the relationship between parties in an Article 2 transaction. "The ancient English tests for 'custom' are abandoned in this connection. Therefore it is not required that a usage of trade be 'ancient or immemorial,' 'universal,' or the like." 1-303 Cmt. 4.
The Statute (1-303)
The three terms that concern us are "course of performance" (CP), "course of dealing" (CD) and "usage of trade (UT)." They are hierarchical terms, and so you need to know not simply the definition of the terms but how they are arranged vis-a-vis each other. In each contract under Article 2 these terms, if they fit the facts of the case, are implied. Let's turn to each one:
(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...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 crucial phrases are "particular transaction" and "repeated occasions for performance." That is, you can invoke CP only if you are talking about repeated performance of the one contract under consideration. It is the "highest" in the hierarchy of the three terms, trumping the other two when they are in conflict with each other.
(b) "A 'course of dealing' is a sequence of conduct concerning previous transactions between that parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct."
As Cmt. 2 says, "'CD' is restricted, literally, to a sequence of conduct between the parties previous to the agreement." Note that the operative terms are "fairly to be regarded as establishing a common basis of understanding. I will give an example in class to try to get to this phrase. This is the distinction between CD and CP, then. In CD you are trying to show that the pattern of your dealing with the person ought to define the (unspoken) contours of your dealings with them on this occasion. CP trumps CD but CD will trump UT.
(c) "A 'usage of trade' is any practice or method of dealing having such regularity and observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question."
Cmt. 4 helps define the concept more precisely. "Under the requirement of (c) full recognition is thus available for new usages and for usages currently observed by the great majority of decent dealers, even though dissidents ready to cut corners do not agree." So, we are really interested here in "decent dealers" and what they do "with regularity" that will "justifiy an expectation" that such a practice will also apply to the transaction under consideration.
You also need to know your hierarchy of terms in (e) ,which I will not quote here, but is quite easy to memorize. It should be noted that if you have an express term, that term will trump even a CP. Thus, trade terms are in fact supplementary terms to the express terms of a contract. And, you can't "spring it" on a person at trial without giving them notice that you will use that defense (1-303(g)). Remember, the Code is pro-commerce. One of the features of being pro-commerce is that terms are clear or should be clearly understood by both sides to the bargain.
Copyright © 2004-2007 William R. Long