Also known as: U.C.C. § 1-303 · Uniform Commercial Code § 1-303 · course of performance · course of dealing · usage of trade
Written by attorneys — see sources below.
A statutory rule under which course of performance accepted or acquiesced in without objection receives great weight in interpreting an agreement. Manifestations of intention are construed as consistent with any relevant course of performance, course of dealing, or usage of trade whenever reasonable. Express terms control over course of performance, which in turn controls over course of dealing and usage of trade, when consistency is unreasonable.
Upstream Petroleum delivers crude oil monthly to United Bank under a long-term supply contract. United Bank accepts each shipment despite minor variations in sulfur content and never objects. When a later dispute arises over quality standards, the repeated acceptances establish the parties' practical understanding of acceptable performance.
Ulysses Maritime agrees to transport containers for Utopia Pharmaceuticals on a recurring basis. Both parties schedule and accept deliveries within a four-hour window for six months. When a timing dispute surfaces, the pattern of mutual conduct supplies the operative benchmark for reasonable performance.
Umar Usmani contracts with Upstream Petroleum for fuel at a fixed posted terminal price. Industry practice allows surcharges for delivery costs, and Upstream begins invoicing them. Umar pays several invoices without protest, yet the written price clause still governs because express terms prevail when inconsistency cannot be reconciled.
Wisconsin Knife Works orders custom metal parts from National Metal Crafters under a requirements contract. National delivers late on multiple occasions. Wisconsin accepts the parts without reservation for months before claiming breach, so the course of performance undercuts any later insistence on strict timeliness.
In 1981 Wisconsin Knife Works, a division of Black & Decker (U.S.), Inc., a Maryland corporation whose headquarters is in Maryland, sought to manufacture spade bits for its parent and therefore needed a supply of spade bit blanks. National Metal Crafters, a division of Keystone Consolidated Industries, Inc., a Delaware corporation with its principal place of business in Illinois, agreed to supply the blanks. Wisconsin Knife Works issued six purchase orders, each containing printed conditions stating that no modification of the contract would be binding on the buyer unless made in writing and signed by the buyer's authorized representative. National Metal Crafters acknowledged the first two purchase orders, placed August 21, 1981, by letters listing delivery dates; Wisconsin Knife Works inserted those dates into the orders. The remaining four orders, placed September 10, 1981, were accepted by performance after National Metal Crafters supplied oral delivery dates that Wisconsin Knife Works wrote into the forms. All deliveries were due in October and November 1981. National Metal Crafters missed the scheduled delivery dates. Wisconsin Knife Works did not cancel the contract or seek damages for delay; instead, on July 1, 1982, it issued a new set of purchase orders that were later rescinded. By December 1982 National Metal Crafters was producing adequate quantities of blanks, yet only 144,000 of the more than 281,000 blanks ordered had been delivered when Wisconsin Knife Works notified National Metal Crafters on January 13, 1983, that the contract was terminated. Wisconsin Knife Works sued National Metal Crafters in federal district court for breach of the delivery terms. National Metal Crafters counterclaimed for damages, including $30,000 stipulated as the amount owed for breach of a separate oral agreement concerning expenses of maintaining machinery used to fulfill the contract. The district court held that a contract existed. It submitted to the jury the question whether the contract had been modified. The jury found modification and no breach, resulting in dismissal of the complaint and judgment for National Metal Crafters on the counterclaim. Wisconsin Knife Works appealed to the United States Court of Appeals for the Seventh Circuit. The court first examined whether diversity jurisdiction existed, noting that the complaint alleged the plaintiff's corporate parent was a Maryland citizen but failed to state its principal place of business. The record and argument confirmed the headquarters was in Maryland.
View caseEastern Air Lines purchases jet fuel from Gulf Oil under a requirements contract. Both parties track purchases against historical volumes for years without objection. When market conditions shift, the established purchase pattern supplies the benchmark for determining whether later demands are unreasonably disproportionate.
Eastern Air Lines, Inc. and Gulf Oil Corporation maintained a business relationship spanning several decades involving the sale and purchase of aviation fuel. On June 27, 1972, following months of arm's length negotiation, the parties executed a contract under which Gulf agreed to supply Eastern's requirements of jet fuel at specified cities in the Eastern system through January 31, 1977. The agreement was Gulf's standard form aviation fuel contract and incorporated a price escalation clause tied to the average of the posted prices for West Texas sour crude oil 30.0-30.9 gravity as listed for Gulf, Shell, and Pan American in Platt's Oilgram Crude Oil Supplement. The contract price mechanism operated against the backdrop of U.S. government price controls in effect from 1972 through the fall of 1973. In late 1973 the Arab oil embargo occurred. OPEC unilaterally increased the price of their crude to the world market some 400% between September, 1973, and January 15, 1974. This triggered implementation of two-tier price controls under which old oil remained frozen at controlled levels while new and released oil prices rose from approximately $5 to $11 per barrel. Platt's continued publishing only the controlled old oil postings for West Texas Sour, and Eastern paid contract prices that rose from 11 cents to 15 cents per gallon. On March 8, 1974, Gulf demanded that Eastern accept a price increase or face cutoff of jet fuel supplies within fifteen days. Eastern filed its complaint in the United States District Court for the Southern District of Florida alleging breach and seeking preliminary and permanent mandatory injunctions. By agreement of the parties a preliminary injunction preserving the status quo was entered on March 20, 1974, requiring Gulf to continue performance and Eastern to pay according to contract terms pending final disposition. Gulf answered and asserted that the contract lacked mutuality, was not a binding requirements contract, and was commercially impracticable. At trial the parties presented evidence concerning Eastern's fuel liftings at Gulf stations, which varied daily, weekly, and monthly due to weather, schedules, aircraft loads, and fuel freighting practices that Gulf had accepted without objection over thirty years of dealing. Gulf introduced evidence of its increased crude oil costs, including intra-company transfer prices that incorporated profits from its overseas and domestic production subsidiaries, while the record showed Gulf recorded net profits after taxes of approximately $800 million in 1973 and more than $1.065 billion in 1974.
View caseTransatlantic Financing agrees to carry cargo for the United States on a stated route. Suez Canal closure forces a longer voyage. The parties' prior dealings and industry usage of alternative routes determine whether the deviation was commercially reasonable under the circumstances.
Transatlantic Financing Corporation, the operator of the SS CHRISTOS, entered into a voyage charter with the United States on October 2, 1956, for the carriage of a full cargo of wheat from a United States Gulf port to a safe port in Iran. The charter specified the points of origin and destination but did not indicate the route to be taken. On July 26, 1956, the Government of Egypt nationalized the Suez Canal Company. During the ensuing international crisis, on October 27, 1956, the SS CHRISTOS sailed from Galveston on a course that would have taken her through the Suez Canal. Israel invaded Egypt on October 29, 1956, followed by invasions of the Suez Canal Zone by Great Britain and France on October 31, 1956. On November 2, 1956, the Egyptian Government closed the Suez Canal to traffic by obstructing it with sunken vessels. After the closure, Transatlantic's representative contacted an employee of the United States Department of Agriculture on or about November 7, 1956, to request instructions on the cargo and to seek additional compensation for a voyage around the Cape of Good Hope. The ship changed course and arrived in Bandar Shapur, Iran, on December 30, 1956. Transatlantic later filed a libel against the United States in the District Court seeking recovery of the costs attributable to the diversion around the Cape of Good Hope. The District Court dismissed the libel, and Transatlantic appealed to the United States Court of Appeals for the District of Columbia Circuit.
View caseExpress terms receive greater weight than course of performance. When the two cannot reasonably be reconciled, the express terms control. Course of performance is relevant only to interpret or supplement the agreement when consistency is possible.
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Repeated occasions for performance with knowledge and opportunity to object, when accepted without protest, receive great weight in determining the meaning of the agreement. The conduct supplies objective evidence of the parties' practical understanding.
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Yes. Unless otherwise agreed, a usage of trade in the vocation or trade in which the parties are engaged, or of which they know or have reason to know, gives meaning to or supplements or qualifies their agreement. The same principle applies to course of dealing.
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Express terms control over course of performance, course of dealing, and usage of trade. Course of performance controls over course of dealing and usage of trade. Course of dealing controls over usage of trade. The hierarchy applies only when reasonable consistency cannot be achieved.
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