UCC 1-303 priority ladder
Interpretation · Jan 25
Floor. ~40 min: R2d § 202 + UCC § 1-303 + Nanakuli. The doctrine the next class assumes you have covered.
Target. ~75 min: Floor + the three forms in detail + Wood v. Lucy + § 2-306 worked example + synthesis.
(1) Words and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight.
(2) A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together.
(3) Unless a different intention is manifested,
(a) where language has a generally prevailing meaning, it is interpreted in accordance with that meaning;
(b) technical terms and words of art are given their technical meaning when used in a transaction within their technical field.
(4) Where an agreement 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 is given great weight in the interpretation of the agreement.
(5) Wherever reasonable, the manifestations of intention of the parties to a promise or agreement are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade.
(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 the performance or acquiesces in it without objection.
(b) 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 of understanding for interpreting their expressions and other conduct.
(c) 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 must be proved as facts. If it is established that such a usage is embodied in a trade code or similar record, the interpretation of the record is a question of law.
(d) A course of performance or course of dealing between the parties or usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware is relevant in ascertaining the meaning of the parties' agreement, may give particular meaning to specific terms of the agreement, and may supplement or qualify the terms of the agreement. A usage of trade applicable in the place in which part of the performance under the agreement is to occur may be so utilized as to that part of the performance.
(e) Except as otherwise provided in subsection (f), the express terms of an agreement and any applicable course of performance, course of dealing, or usage of trade must be construed whenever reasonable as consistent with each other. If such a construction is unreasonable:
(1) express terms prevail over course of performance, course of dealing, and usage of trade;
(2) course of performance prevails over course of dealing and usage of trade; and
(3) course of dealing prevails over usage of trade.
(f) Subject to Section 2-209, a course of performance is relevant to show a waiver or modification of any term inconsistent with the course of performance.
(g) Evidence of a relevant usage of trade offered by one party is not admissible unless that party has given the other party notice that the court finds sufficient to prevent unfair surprise to the other party.
Extrinsic evidence does two jobs: it clarifies ambiguity and it supplements gaps. UCC § 1-303 sorts it into three forms, ranked by how tightly each is tied to these parties:
664 F.2d 772 (9th Cir. 1981)
United States Court of Appeals for the Ninth Circuit
Rule. Under the UCC, trade usage and course of performance may be used to explain or supplement express terms unless the express terms cannot reasonably be construed to be consistent with them. A trade practice of 'price protection' may inform a posted-price contract for asphalt.
222 N.Y. 88, 118 N.E. 214 (1917)
New York Court of Appeals
Rule. An exclusive agency agreement carries an implied promise by the agent to use reasonable efforts to bring profits and revenues into existence. The whole writing may be instinct with an obligation, imperfectly expressed, sufficient to support a contract.
177 Pa. Super. 359 (1955)
Superior Court of Pennsylvania
Facts. A congregation advertised in a Yiddish newspaper for a rabbi-cantor and signed a written contract with Rabbi Fisher to officiate at six High Holiday services for $1,200. The writing was silent on seating. From its founding the congregation had always followed the Orthodox practice of separate seating by sex; just before the Holidays it switched to mixed seating. Fisher, an Orthodox rabbi, refused to officiate and sued for the contract balance.
Holding. Judgment for the rabbi. The contract included an implied term that services be conducted according to Orthodox law, including separate seating, even though no such term was written.
Rule. When a custom or usage is established, in the absence of an express provision to the contrary, it is read into the contract and binds the parties though not mentioned, the presumption being that they knew of and contracted with reference to it.
Courts agree extrinsic evidence is sometimes admissible; they split on when.
451 F.2d 3 (4th Cir. 1971)
United States Court of Appeals for the Fourth Circuit
Facts. Columbia agreed to buy stated minimum quantities of phosphate from Royster at set prices over three years. When the market price collapsed, Columbia ordered far less than the stated minimums. Royster sued. Columbia offered evidence of a trade usage and course of dealing under which stated quantities and prices in the fertilizer industry were treated as projections subject to adjustment, not firm commitments.
Holding. The trial court erred in excluding the usage and course-of-dealing evidence. Under UCC § 2-202, such evidence is admissible to explain or supplement even an apparently complete writing unless the writing carefully negates it; the express quantity terms and the trade usage could be read consistently.
Rule. Trade usage and course of dealing are admissible to explain or supplement a written contract for the sale of goods unless they cannot reasonably be construed as consistent with the express terms. Mere silence or apparent completeness does not exclude them.
Facts. Cardboard Co. and Toaster Co. sign a five-year requirements contract: Cardboard supplies "all of Toaster''s requirements for corrugated boxes" at $0.45/box. In year three, Toaster shifts to ceramic packaging and orders zero boxes. Cardboard sues for lost profits.
Question. Does UCC § 2-306(1) allow Toaster to drop its requirements to zero in good faith? What evidence determines the answer?
Answer. UCC § 2-306(1) — a requirements quantity means "such actual requirements as may occur in good faith." Toaster''s shift to ceramic must be a genuine business change, not a pretextual move to avoid the price. Course of performance (prior order volumes), course of dealing (whether Toaster previously dropped or shifted), and trade usage (industry norms for shifting packaging materials) inform good faith. If the shift is a real business decision Cardboard could not have prevented by performance, good faith is satisfied. If it is timed to avoid the rising market value of the supply commitment, it is not.
Facts. Baker promises to sell "all output" of his bakery to Grocer for one year at $3/loaf. Mid-year, a celebrity endorsement triples Baker''s demand. Baker ramps output 400% and demands Grocer take it all at $3.
Question. Does UCC § 2-306(1)''s good-faith requirement constrain the output side as well as the requirements side?
Answer. Yes: § 2-306(1) reads "actual output or requirements as may occur in good faith," and the "unreasonably disproportionate" comment limits both. Sudden ramping to multiples of prior output, timed to a price-favorable moment, may exceed the good-faith ceiling. Trade usage and the parties'' prior course of performance set the baseline; the celebrity bump is foreseeable supply-side volatility only if industry custom treats it as such.
Compare with Wood v. Lucy: there the court read in an effort obligation to prevent the agent from sitting on his hands. Here the court reads in a moderation obligation to prevent the supplier from flooding the buyer. Both are good-faith corrections.
Extrinsic-evidence fights are rarely neutral. The party whose literal reading of the writing loses wants the context in; the party the writing favors wants it out.
Also available: Problem 16.2 — Requirements for Corrugated Paper Boxes (Fort Wayne Paper v. Anchor Glass).
Walk through the analysis on the board. Hit the rule, the elements, the line of authority, the answer.
Rules. R2d § 202, UCC § 1-303.
Cases. Nanakuli Paving & Rock Co. v. Shell Oil Co. · Wood v. Lucy.
Open question. Extrinsic evidence opens the door wide. What keeps the door from swinging off its hinges? Next class: the parol evidence rule and the integration doctrine that constrains what evidence enters.
Next class: Parol Evidence Rule, Part I
_Interpretation_ · Jan 26
Read Gianni v. R. Russell & Co. and UAW-GM v. KSL Recreation. A tenant signed a lease and claims the landlord also orally promised him an exclusive on selling soft drinks. The writing said nothing about it. When the parties write it down, what happens to what they said before they wrote it down? Come ready to answer. You may be called.