0020 Titles 5A to 12 (2010)

0020 Titles 5A to 12 (2010)

NAVAJO NATION CODE ANNOTATED

Title 5A

Navajo Uniform Commercial Code

Note.

The numbering of Navajo Uniform Commercial Code sections remains as

close to the original Uniform Commercial Code as possible to maintain the

principle of uniformity.

Description of Articles

Article 1

Article 1 of the UCC is a general article which defines terms which are

used throughout the UCC.

(This section of the Navajo UCC has been

substantially unchanged with the exception of the addition of § 1–110 which

excludes certain types of barter transactions from the Navajo UCC.)

Article 2

Article 2 of the UCC governs the sale of personal property ("goods").

Goods means all things which are moveable at the time of their identification

in the contract of sale.

Goods do not include:

(i) intangibles, such as

patent rights; (ii) real property, such as houses and land; or (iii) services

such as legal or accounting work.

Article 2 codifies contract law as applied to the sales of personal

property.

It deals with the four basic questions of contract law:

(1) Is

there sufficient agreement to be a contract?; (2) What are the terms of the

contract?;

(3) Have the parties properly performed their duties under the

contract?; and (4) What are the remedies for breach of those duties? Although

Article 2 establishes some rules which apply to all sales contracts, for the

most part the rules in Articles 2 apply only where the parties themselves have

not made their intentions clear. For example, one rule which applies to all

contracts under Article 2 is that contracts for goods valued at more than five

hundred dollars ($500.00) must be in writing to be enforceable (the Navajo UCC

exempts certain barter transactions from this requirement under § 1–110).

Article 2 governs the formation of the contract, such as when an offer to

sell or purchase has been made, how to change such an offer and how to accept

it. For example, if a business makes an offer by mail to sell shoes and does

not specify how the offer can be accepted, the offer can be accepted by any

"reasonable means".

Thus, the offer could be accepted by mail, telegram or

even a telephone call if those methods were found to be reasonable.

Article 2 governs certain of the terms in a contract if the parties have

not agreed on that term or have failed to provide for a situation. These terms

include price, time of delivery, the point at which the risk of loss passes,

warranties concerning the goods and remedies for failure to perform.

For

example, if the parties fail to agree upon or forget to include the place and

time of delivery for the goods, the UCC states that the goods will be delivered

at the seller's place of business and the time allowed for delivery will be "a

reasonable time" as determined by prior dealings between the parties and

industry custom.

Article 2 also governs the performance of the obligations under the

contract.

The questions which arise in this area concern the seller's

obligation to deliver "conforming" goods, the buyer's obligation to accept

"conforming" goods, the buyer's right to inspect the goods and the buyer's

obligation to pay for the goods.

For example, unless the parties agree

otherwise, the buyer is obligated to pay for the goods at the time and place

the goods are received.

Finally, Article 2 sets out the remedies for either party upon the

failure of the other party to adequately perform its obligations. The remedies

must deal with situations, for the seller, in which the buyer refuses to accept

delivery, cancels the order, refuses to pay or becomes insolvent.

For the

buyer, these situations include those in which the seller has failed to

deliver, has delivered "non-conforming" goods, or has delivered goods which

causes an injury.

For example, unless otherwise agreed by the parties, if

during the course of several shipments the buyer refuses to make a payment when

due:

(i) the seller may withhold future delivery;

(ii) may resell the

remaining goods and sue to recover damages; or (iii) may sue to recover the

full purchase price.

Article 3

Article 3 of the UCC deals with negotiable instruments, which include

drafts, business and personal checks, certificates of deposits and promissory

notes.

Article 3 does not apply to money, documents of title or investment

securities such as stocks and bonds. Commercial paper is frequently used as a

cash substitute. Thus, a check could be used as a medium of payment instead of

cash or a note maybe used as a deferred methods of payment.

Article 3 sets out the obligations and liabilities of the persons who

issue negotiable instruments and those who are involved in their transfer. In

the case of a check, they would include the person who writes the check, his

bank, the banks who process the check, the bank which finally accepts the check

and the person or company to whom the check is written. The type of situations

for which Article 3 sets out rules include those in which the check is drawn on

insufficient funds or the signature is forged.

Article 9

Article 9 of the UCC governs the creation and enforcement of security

interests.

A security interest is an interest of a creditor in specific

property ("collateral") owned by a debtor.

A security interest permits the

secured creditor after default to sell particular collateral and to apply the

proceeds of its sales to the payment of his secured debt.

In contrast to a

secured creditor, an "unsecured" creditor (i.e., a creditor without a security

interest) has only general rights against the property of the debtor after the

secured creditors have been paid, and an unsecured creditor has no rights

against any particular property of a debtor.

The most common examples of a

security interest arise from the purchase of a vehicle such as a car or tractor

by an individual. However, security interests are very important for business

in financing the acquisition of capital equipment, such as machines, as well as

the purchasing of inventory and selling goods on credit.

Article 9 facilitates the purchase of goods by improving the chances of a

creditor's being repaid and thus encouraging him to sell goods on credit or, in

the case of a bank, to lend money.

It represents a comprehensive scheme of

regulation of security interests in personal property.

Article 9 does not

regulate transactions in land or improvements.

The Article establishes a

central filing system so that creditors can determine the extent of the

obligations of a debtor to other creditors and establishes procedures for a

creditor to enforce a security interest in the case of a debtor's failure to

pay. (The enactment of this article does not affect Navajo repossession law.)

A large part of Article 9 is concerned with establishing the priority of

secured parties against each other or other creditors of the debtor.

For

example, if two creditors are depending on the same "collateral" of the debtor

to "secure" their loans, then, generally, the first creditor to "file" a notice

of his interest will have the right to have his loan repaid first from the sale

of the collateral. However, Article 9 establishes special priority rules for

secured parties who loan the money to "purchase" the collateral.

This rule

encourages the purchase of capital equipment by giving priority protection to

loans or credit extended for the initial purchase of goods.

History

CJA–1–86 January 29, 1986.

Note. A "Background and Executive Summary of the Proposed NUCC" which included

"The NUCC Development Process" and "The Purpose of the NUCC" was incorporated

in CJA–1–86.

However, for codification purposes, only the "Description of

Articles 1, 2, 3 and 9" has been provided.

Article 1. General Provisions

Part 1. Short Title, Construction, Application, and Subject Matter of

the Code

§ 1–101. Short title

This Navajo Uniform Commercial Code (5A N.N.C. § 1–101 et seq.) shall be

known and may be cited as the "Navajo Uniform Commercial Code".

History

CJA–1–86, January 29, 1986.

Official Comment

Changes.

The Code makes no substantive change to this section except deleting

references to Articles not adopted by the Navajo Nation.

Commentary. Each Article of the Code (except this article) may also be cited

by its own short title. See §§ 2–101, 3–101 and 9–101.

Special Plain Language Comment

This provision provides a method

Commercial Code (the "Code").

§ 1–102. Purposes;

of

naming

rules of construction;

parts

of

the

Navajo

Uniform

variation by agreement

A. The Code shall be liberally construed and applied to promote its

underlying purposes and policies.

B. Underlying purposes and policies of the Code are:

1. To simplify, clarify and modernize the law governing commercial

transactions;

2. To permit the continued expansion of commercial

through custom, usage and agreement of the parties; and

practices

3. To make uniform the law of commercial transactions throughout

the Navajo Nation.

C. The effect of provisions of this Code may be varied by agreement,

except as otherwise provided in this Code and except that the obligations of

good faith, diligence, reasonableness and care prescribed by this Code may not

be disclaimed by agreement, but the parties may by agreement determine the

standards by which the performance of such obligations is to be measured if

such standards are not manifestly unreasonable.

D. The presence in certain provisions of this Code of the words "unless

otherwise agreed" or words of similar import does not imply that the effect of

other provisions may not be varied by agreement under Subsection (C).

E. In this Code unless the context otherwise requires:

1. Words in the singular number include the plural, and in the

plural include the singular; and

2. Words of the masculine gender include the feminine and the

neuter, and when the sense so indicates words of the neuter gender may

refer to any gender.

F. The "Official Comments" and the "Special Plain Language Comments" are

informational only and not binding on the courts, since they do not purport to

be comprehensive statements of the meaning and effect of the statute to which

they refer.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes.

The Code adds a new section, "Special Plain Language Comments", to

facilitate use of the Code, but new Subsection (F) makes clear that such

comments and the Official Comments are not the law.

Commentary.

1.

Subsections (A) and (B) are intended to make it clear that:

This Code is drawn to provide flexibility so that, since it is intended to be a

semi-permanent piece of legislation, it will provide its own machinery for

expansion of commercial practices. It is intended to make it possible for the

law embodied in this Code to be developed by the courts in the light of

unforeseen and new circumstances and practices.

However, the proper

construction of the Code requires that its interpretation and application be

limited to its reason.

The Code should be construed in accordance with its underlying purposes and

policies. The text of each section should be read in the light of the purpose

and policy of the rule or principle in question, as well as of the Code as a

whole, and the application of the language should be construed narrowly or

broadly, as the case may be, in conformity with the purposes and policies

involved.

2. Subsection (C) states affirmatively at the outset that freedom of contract

is a principle of the Code: "the effect" of its provisions may be varied by

"agreement".

The meaning of the statute itself must be found in its text,

including its definitions, and in appropriate extrinsic aids;

it cannot be

varied by agreement. But the Code seeks to avoid the type of interference with

evolutionary growth found in Manhattan Co. v. Morgan, 242 N.Y. 38, 150 N.E. 594

(1926). Thus, private parties cannot make an instrument negotiable within the

meaning of Article 3 except as provided in § 3–104; nor can they change the

meaning of such terms as "bona fide purchaser", "holder in due course", or "due

negotiation", as used in this Code.

But an agreement can change the legal

consequences which would otherwise flow from the provisions of the Code.

"Agreement" here includes the effect given to course of dealing, usage of trade

and course of performance by §§ 1–201, 1–205 and 2–208;

the effect of an

agreement on the rights of third parties is left to specific provisions of this

Code and to supplementary principles applicable under the next section.

The

rights of third parties under § 9–301 when a security interest is unperfected,

for example, cannot be destroyed by a clause in the security agreement.

This principle of freedom of contract is subject to specific exceptions found

elsewhere in the Code and to the general exception stated here. The specific

exceptions vary in explicitness: the Statute of Frauds found in § 2–201, for

example, does not explicitly include oral waiver of the requirement of a

writing, but a fair reading denies enforcement to such a waiver as part of the

"contract" made unenforceable;

§ 9–501(C), on the other hand, is quite

explicit. Under the exception for "the obligations of good faith, diligence,

reasonableness and care prescribed by this Code", provisions of the Code

prescribing such obligations are not to be disclaimed.

However, the section

also recognizes the prevailing practice of having agreements set forth

standards by which due diligence is measured and explicitly provides that, in

the absence of a showing that the standards manifestly are unreasonable, the

agreement controls.

In this connection, § 1–205 incorporating into the

agreement prior course of dealing and usages of trade is of particular

importance.

3. Subsection (D) is intended to make it clear that, as a matter of drafting,

words such as "unless otherwise agreed" have been used to avoid controversy as

to whether the subject matter of a particular Section does or does not fall

within the exceptions to Subsection (C), but absence of such words contains no

negative implications since under Subsection (C) the general and residual rule

is that the effect of all provisions of the Code may be varied by agreement,

subject to the prior comments.

4. Subsection (F) is intended to clarify the status of the "Special Plain

Language Comments". These comments are only to assist the lay reader and are

not to be used by parties to interpret the Code. The Official Comments have

been adapted from the "Official Comments" of the Commissioners On Uniform State

Laws to the corresponding sections of the Uniform Commercial Code as adopted by

the States. The Official Comments to this Code do not attempt to describe the

respects in which they depart from those other "Official Comments".

Special Plain Language Comment

This section describes the basic principles of the Code and how it relates to

other laws. The section also describes generally the extent to which the Code

may be varied by agreement by the parties to a contract.

Cross References

N.U.C.C. § 1–110.

§ 1–103. Supplementary general principles of law applicable

Unless displaced by the particular provisions of this Code or other

applicable Navajo law, the principles of law and equity, including the law

merchant and the law relative to capacity to contract, principal and agent,

estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy or

other validating or invalidating cause shall supplement its provisions.

The

adoption of the Code does not preempt the consumer protection laws of the

states which continue to apply to appropriate transactions pursuant to 7 N.N.C.

§ 204 to the extent that such laws would be applicable.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. Except as stated in this paragraph, this section is intended to have

the same meaning and effect as § 1–103 of the Uniform Commercial Code as

adopted by the states.

In addition, since the Uniform Sales Code was never

adopted by the Navajo Nation, the Navajo Nation has adopted certain statutory

provisions regarding capacity to contract. The final sentence has been added

to clarify the status of consumer protection laws after the adoption of the

Code.

Commentary.

1. This section indicates the continued applicability to

commercial contracts of all supplemental bodies of law except insofar as they

are explicitly displaced by this Code.

2. The general law of capacity will be limited by any Navajo statute or

ordinance which limits the capacity of a non-complying person to sue.

These

limits are equally applicable to contracts of sale to which such person is a

party.

3. The listing given in this section is merely illustrative; no listing could

be exhaustive. Nor is the fact that in some sections particular circumstances

have led to express reference to other fields of law intended at any time to

suggest the negation of the general application of the principles of this

section.

4. Except as provided in § 1–110, the Code does not preempt the consumer

protection laws of the states which apply to a transaction pursuant to 7 N.N.C

§ 204. However, the application of such state laws to transactions governed by

this Code may be varied or preempted by subsequent Navajo legislation.

Special Plain Language Comment

The Code does not settle all questions in commercial law. A person or a court

must depend on other bodies of law to aid in the interpretation of its

provisions.

§ 1–104. Construction against implicit repeal

This Code being a general act intended as a unified coverage of its

subject matter, no part of it shall be deemed to be impliedly repealed by

subsequent legislation if such construction can reasonably be avoided.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 1–

104 of the Uniform Commercial Code as adopted by the states.

Commentary. This section is intended to express the policy that no Code which

bears evidence of carefully considered permanent regulative intention should

lightly be regarded as impliedly repealed by subsequent legislation.

This

Code, carefully integrated and intended as a uniform codification of permanent

character covering an entire "field" of law, is to be regarded as particularly

resistant to implied repeal.

Special Plain Language Comment

The Code should not be considered repealed by later laws unless no other

interpretation is possible.

§ 1–105. Territorial

applicable law

application

of

the

Code:

parties'

power

to

choose

A. Except as provided hereafter in this section, when a transaction bears

a reasonable relation to the Navajo Nation and also to another state or nation,

the parties may agree that the law either of the Navajo Nation or of such state

or nation shall govern their rights and duties. Failing such agreement, this

Code applies to transactions bearing an appropriate relation to the Navajo

Nation.

B. Where one of the following provisions of this Code specifies the

applicable law, that provision governs and a contrary agreement is effective

only to the extent permitted by the law (including the conflict of laws rules)

so specified:

Rights of creditors against sold goods.

Section 2–402.

Perfection provisions of the Article on Secured Transactions. Section 9–103.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 1–

105 of the Uniform Commercial Code as adopted by the states, except that

deletions were made to conform the Code to the legal status of the Navajo

Nation.

Commentary. 1. Subsection (A) states affirmatively the right of the parties to

a multi-jurisdiction transaction or a transaction involving foreign trade to

choose their own law. That right is subject to the firm rules stated in the

sections listed in Subsection (B), and is limited to jurisdictions to which the

transaction bears a "reasonable relation". In general, the test of "reasonable

relation" is similar to that laid down by the Supreme Court in Seeman v.

Philadelphia Warehouse Co., 274 U.S. 403, 47 S.Ct. 626, 71 L.Ed. 1123 (1927).

Ordinarily, the law chosen must be that of a jurisdiction where a significant

enough portion of the making or performance of the contract is to occur or

occurs. But an agreement as to choice of law may sometimes take effect as a

short-hand expression of the intent of the parties as to matters governed by

their agreement, even though the transaction has no significant contact with

the jurisdiction chosen.

2. Where there is no agreement as to the governing law, the Code is applicable

to any transaction having an "appropriate" relation to the Navajo Nation. Of

course, the Code applies to any transaction which takes place in its entirety

in the Navajo Nation.

But the mere fact that suit is brought in the Navajo

Nation does not make it appropriate to apply the substantive law of the Navajo

Nation.

Cases where a relation to the Navajo Nation is not "appropriate"

include, for example, those where the parties have clearly contracted on the

basis of some other law, as where the law of the place of contracting and the

law of the place of contemplated performance are the same and are contrary to

the law under the Code.

3. Where a transaction has significant contacts with the Navajo Nation and also

with other jurisdictions, the question what relation is "appropriate" is left

to judicial decision.

In deciding that question, the court is not strictly

bound by precedents established in other contexts.

Thus, a conflict-of-laws

decision refusing to apply a purely local statute or rule of law to a

particular multi-jurisdiction transaction may not be valid precedent for

refusal to apply the Code in an analogous situation. Application of the Code

in such circumstances may be justified by its comprehensiveness, by the policy

of uniformity, and by the fact that it is in large part a reformulation and

restatement of the law merchant and of the understanding of a business

community which transcends Navajo Nation, state and even national boundaries.

(Compare Global Commerce Corp. v. Clark–Babbitt Industries, Inc., 239 F.2d 716,

719 (2d Cir. 1956).) In particular, where a transaction is governed in large

part by the Code, application of another law to some detail of performance

because of an accident of geography may violate the commercial understanding of

the parties.

4. Choice of law decisions often appropriately rest on policies of giving

effect to agreements and of uniformity of result, regardless of where suit is

brought. To the extent that such policies prevail, the relevant considerations

are similar in such a court to those outlined above.

5. Subsection (B) spells out essential limitations on the parties' right to

choose the applicable law. Especially in Article 9, parties taking a security

interest or asked to extend credit which may be subject to a security interest

must have sure ways to find out whether and where to file and where to look for

possible existing filing.

6. Section 9–103 should be consulted as to the rules for perfection of security

interests and the effects of perfection and non-perfection.

Special Plain Language Comment

Persons who make a commercial agreement may choose the law of either the Navajo

Nation or another state or nation if their agreement has sufficient connection

to the place they choose. Where the parties do not choose which law to use,

the Code will apply if the transaction has enough contacts with the Navajo

Nation.

What constitutes "reasonable" or "appropriate" relation to a transaction within

the meaning of Uniform Commercial Code § 1–105(1), 63 A.L.R.3d 341 (1975).

§ 1–106. Remedies to be liberally administered

A. The remedies provided by this Code shall be liberally administered to

the end that the aggrieved party may be put in as good a position as if the

other party had fully performed, but neither consequential nor special nor

penal damages may be had except as specifically provided in this Code or by

other rule of law.

B. Any right or obligation declared by this Code is enforceable by action

unless the provision declaring it specifies a different and limited effect.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 1–

106 of the Uniform Commercial Code as adopted by the states.

Commentary.

Subsection (A) is intended to effect three things:

1. First, to negate the unduly narrow or technical interpretation of some

remedial provisions of prior commercial statutes in other States by providing

that the remedies in this Code are to be liberally administered to the end

stated in the section. Second, to make it clear that compensatory damages are

limited to compensation. They do not include consequential or special damages,

or penal damages; and the Code elsewhere makes it clear that damages must be

minimized.

Cf. §§ 1–203, 2–706(A), and 2–217(B).

The third purpose of

Subsection (A) is to reject any doctrine that damages must be calculable with

mathematical accuracy.

Compensatory damages are often at best approximate:

they have to be proved with whatever definiteness and accuracy the facts

permit, but no more. Cf. § 2–204(C).

2. Under Subsection (B) any right or obligation described in this Code is

enforceable by court action, even though no remedy may be expressly provided,

unless a particular provision specifies a different and limited effect.

Whether specific performance or other equitable relief is available is

determined not by this section but by specific provisions and by supplementary

principles. Cf. §§ 1–103, 2–716.

3. "Consequential" or "special" damages and "penal" damages are not defined

terms in the Code, but are used in the sense given them by the leading cases on

the subject.

Cross References

5A N.N.C. §§ 1–103, 1–203, 2–204(C), 2–701, 2–706(A), 2–712(B), and 2–716.

Definitional Cross References

"Action".

Section 1–201.

"Aggrieved party".

Section 1–201.

"Party".

Section 1–201.

"Remedy".

Section 1–201.

"Rights".

Section 1–201.

Special Plain Language Comment

Remedies for breaking an agreement or failing to perform a promise under the

Code should be applied in a way which puts both parties, as much as possible,

in the same position as they would have been if the agreement had not been

breached.

loss.

The Code also limits the ability to recover damages greater than the

§ 1–107. Waiver or renunciation of claim or right after breach

Any claim or right arising out of an alleged breach can be discharged in

whole or in part without consideration by a written waiver or renunciation

signed and delivered by the aggrieved party.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 1–

107 of the Uniform Commercial Code as adopted by the states.

Commentary.

This section makes consideration unnecessary to the effective

renunciation or waiver of rights or claims arising out of an alleged breach of

a commercial contract where such renunciation is in writing and signed and

delivered by the aggrieved party.

Its provisions, however, must be read in

conjunction with the section imposing an obligation of good faith (§ 1–203).

There may, of course, also be an oral renunciation or waiver sustained by

consideration but subject to Statute of Frauds provisions and to the section of

Article 2 on Sales dealing with the modification of signed writings (§ 2–209).

As is made express in the latter Section, this Code fully recognizes the

effectiveness of waiver and estoppel.

Cross References

5A N.N.C.

§§ 1–203, 2–201 and 2–209.

And see 5A N.N.C. § 2–719.

Definitional Cross References

"Aggrieved party".

Section 1–201.

"Rights".

Section 1–201.

"Signed".

Section 1–201.

"Written".

Section 1–201.

§ 1–108. Severability

If any provision or clause of this Code or application thereof to any

person or circumstances is held invalid, such invalidity shall not affect other

provisions or applications of the Code which can be given effect without the

invalid provision or application, and to this end the provisions of this Code

are declared to be severable.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 1–

108 of the Uniform Commercial Code adopted by the states.

Commentary. This is the model severability section recommended by the National

Conference of Commissioners on Uniform State Laws for inclusion in all acts of

extensive scope.

Definitional Cross References

"Person".

Section 1–201

§ 1–109. Section captions

Section captions are parts of the Code.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 1–

109 of the Uniform Commercial Code adopted by the states.

Commentary. To make explicit in all jurisdictions that section captions are a

part of the text of this Code and not mere surplusage.

§ 1–110. Special limitations on application of Code

Notwithstanding any other provision of this Code to the contrary, this

Code shall not apply to any exclusively barter transaction in which the

aggregate market value of all the goods and services involved in the

transaction does not exceed ten thousand dollars ($10,000) at the time of the

transaction. Such transactions shall be governed by the customs and usages of

the Navajo Nation.

History

CJA–1–86 January 29, 1986.

Official Comment

Changes.

This section does not appear in the Uniform Commercial Code as

adopted by the states.

It has been added in order to prevent the Code from

interfering in the types of transactions found in the traditional Navajo

economy. This section preempts state law, including state consumer protection

statutes, for these transactions which will be governed solely by the customs

and usages of the Navajo Nation. See § 1–103, Comment 4.

Special Plain Language Comment

This section exempts certain transactions in the traditional Navajo economy

from the Code.

§ 1–111. Administration of the NUCC;

regulations

A. The Department of Commerce within the Division of Economic

Development, or its designated successor, shall be charged with the

administration of this Code.

Said Department is authorized to employ such

personnel as may be necessary for the administration of this Code.

B. The Department of Commerce within the Division of Economic

Development, or its designated successor, is authorized to promulgate, upon the

review and approval of the Attorney General and the Economic Development

Committee of the Navajo Nation Council, regulations regarding those matters

designated to be set by regulation herein. Provided, the Department shall set

forth in such regulations the specific section herein to which they relate.

History

CD–61–86, December 11, 1986.

Note.

Slightly reworded for purposes of statutory form.

Part 2. General Definitions and Principles of Interpretation

§ 1–201. General definitions

Subject to additional definitions contained in the subsequent Articles of

this Code which are applicable to specific Articles or Parts thereof, and

unless the context otherwise requires, in this Code:

A. "Action" in the sense of a judicial proceeding including recoupment,

counterclaim, set-off, suit in equity and any other proceedings in which rights

are determined.

B. "Aggrieved party" means a party entitled to resort to a remedy.

C. "Agreement" means the bargain of the parties in fact as found in their

language or by implication from other circumstances including course of dealing

or usage of trade or course of performance as provided in this Code (§§ 1–205

and 2–208). Whether an agreement has legal consequences is determined by the

provisions of this Code, if applicable; otherwise by the law of contracts (§

1–103). (Compare "Contract".)

D. "Bank" means any person engaged in the business of banking.

E. "Barter" means to exchange goods without exchanging money.

F. "Bearer" means the person in possession of an instrument, document of

title, or certificated security payable to bearer or indorsed in blank.

G. "Bill of lading" means a document evidencing the receipt of goods for

shipment issued by a person engaged in the business of transporting or

forwarding goods, and includes an airbill. "Airbill" means a document serving

for air transportation as a bill of lading does for marine or rail

transportation, and includes an air consignment note or air way bill.

H. "Branch" includes a separately incorporated foreign branch of a bank.

I. "Burden of establishing" a fact means the burden of persuading the

triers of fact that the existence of the fact is more probable than its

non-existence.

J. "Buyer in ordinary course of business" means a person who in good

faith and without knowledge that the sale to him is in violation of the

ownership rights or security interest of a third party in the goods, buys in

ordinary course from a person in the business of selling goods of that kind,

but does not include a pawnbroker. All persons who sell minerals or the like

(including oil and gas) at wellhead or minehead shall be deemed to be persons

in the business of selling goods of that kind. "Buying" may be for cash or by

exchange of other property or on secured or unsecured credit and includes

receiving goods or documents of title under a pre-existing contract for sale,

but does not include a transfer in bulk or as security for, or in total or

partial satisfaction of a money debt.

K. "Conspicuous": A term or clause is conspicuous when it is so written

that a reasonable person against whom it is to operate ought to have noticed

it.

A printed heading in capitals (as:

NON–NEGOTIABLE BILL OF LADING) is

conspicuous.

Language in the body of a form is "conspicuous" if it is in

larger or other contrasting type or color. But in a telegram any stated term

is "conspicuous".

Whether a term or clause is "conspicuous" or not is for

decision by the court.

L. "Contract" means the total legal obligation which results from the

parties' agreement as affected by this Code and any other applicable rules of

law. (Compare "Agreement".)

M. "Creditor" includes a general creditor, a secured creditor, a lien

creditor and any representative of creditors, including an assignee for the

benefit of creditors, a trustee in bankruptcy, a receiver in equity and an

executor or administrator of an insolvent debtor's or assignor's estate.

N. "Defendant" includes a person in the position of defendant in a

cross-action or counterclaim.

O. "Delivery" with respect to instruments, documents of title, chattel

paper, or certificated securities means voluntary transfer of possession.

P. "Document of title" includes bill of lading, dock warrant, dock

receipt, warehouse receipt or order for the delivery of goods, and also any

other document which in the regular course of business or financing is treated

as adequately evidencing that the person in possession of it is entitled to

receive, hold and dispose of the document and the goods it covers.

To be a

document of title a document must purport to be issued by or addressed to a

bailee and purport to cover goods in the bailee's possession which are either

identified or are fungible portions of an identified mass.

Q. "Fault" means wrongful act, omission or breach.

R. "Fungible" with respect to goods or securities means goods or

securities of which any unit is, by nature or usage of trade, the equivalent of

any other like unit. Goods which are not fungible shall be deemed fungible for

the purposes of this Code to the extent that under a particular agreement or

document unlike units are treated as equivalents.

S. "Genuine" means free of forgery or counterfeiting.

T. "Good faith" means honesty in fact in the conduct or transaction

concerned.

U. "Holder" means a person who is in possession of a document of title or

an instrument or a certificated investment security drawn, issued, or indorsed

to him or his order or to bearer or in blank.

V. To "honor" is to pay or to accept and pay, or where a credit so

engages to purchase or discount a draft complying with the terms of the credit.

W. "Insolvency proceedings" includes any assignment for the benefit of

creditors or other proceedings intended to liquidate or rehabilitate the estate

of the person involved.

X. A person is "insolvent" who either has ceased to pay his debts in the

ordinary course of business or cannot pay his debts as they become due or is

insolvent within the meaning of the federal bankruptcy law.

Y. "Money" means a medium of exchange authorized or adopted by a domestic

or foreign government as a part of its currency.

Z. "Navajo Indian Country" means the territory defined in 7 N.N.C. § 254.

Certain communities within the exterior boundaries of "Navajo Indian Country"

are excepted from the definition of "Navajo Indian Country" if they are

predominantly non-Indian in character. 7 N.N.C. § 254(D).

AA. A person has "notice" of a fact when:

1. He has actual knowledge of it;

or

2. He has received a notice or notification of it;

or

3. From all the facts and circumstances known to him at the time in

question he has reason to know that it exists.

A person "knows" or has "knowledge" of a fact when he has actual

knowledge of it. "Discover" or "learn" or a word or phrase of similar import

refers to knowledge rather than to reason to know. The time and circumstances

under which a notice or notification may cease to be effective are not

determined by this Code.

BB. A person "notifies" or "gives" a notice or notification to another by

taking such steps as may be reasonably required to inform the other in ordinary

course whether or not such other actually comes to know of it.

A person

"receives" a notice or notification when:

1. It comes to his attention;

or

2. It is duly delivered at the place of business through which the

contract was made or at any other place held out by him as the place for

receipt of such communications.

CC. Notice, knowledge or a notice of notification received by an

organization is effective for a particular transaction from the time when it is

brought to the attention of the individual conducting that transaction, and in

any event from the time when it would have been brought to his attention if the

organization had exercised due diligence.

An organization exercises due

diligence if it maintains reasonable routines for communicating significant

information to the person conducting the transaction and there is reasonable

compliance with the routines.

Due diligence does not require an individual

acting for the organization to communicate information unless he has reason to

know of the transaction and that the transaction would be materially affected

by the information.

DD. "Organization" includes a corporation, government or governmental

subdivision, agency or tribal enterprise, business trust, estate, trust,

partnership or association, two or more persons having a joint or common

interest, or any other legal or commercial entity.

EE. "Party", as distinct from "third party", means a person who has

engaged in a transaction or made an agreement within this Code.

FF. "Person" includes an individual or an organization (see § 1–102).

GG. "Presumption" or "presumed" means that the trier of fact must find

the existence of the fact presumed unless and until evidence is introduced

which would support a finding of its non-existence.

HH. "Purchase" includes taking by sale, barter, discount, negotiation,

mortgage, pledge, lien, issue or re-issue, gift or any other voluntary

transaction creating an interest in property.

II. "Purchaser" means a person who takes by purchase.

JJ. "Remedy" means any remedial right to which an aggrieved party is

entitled with or without resort to a tribunal.

KK. "Representative" includes an agent, an officer of a corporation or

association, and a trustee, executor or administrator of an estate, or any

other person empowered to act for another.

LL. "Rights" includes remedies.

MM. "Security interest" means an interest in personal property or

fixtures which secures payment or performance of an obligation. The retention

or reservation of title by a seller of goods notwithstanding shipment or

delivery to the buyer (§ 2–401) is limited in effect to a reservation of a

"security interest".

The term also includes any interest of a buyer of

accounts or chattel paper which is subject to Article 9. The special property

interest of a buyer of goods on identification of such goods to a contract for

sale under § 2–401 is not a "security interest", but a buyer may also acquire a

"security interest" by complying with Article 9. Unless a lease or consignment

is intended as security, reservation of title thereunder is not a "security

interest" but a consignment is in any event subject to the provisions on

consignment sales (§ 2–326). Whether a lease is intended as security is to be

determined by the facts of each case; however, (1) the inclusion of an option

to purchase does not of itself make the lease one intended for security, and

(2) an agreement that upon compliance with the terms of the lease the lessee

shall become or has the option to become the owner of the property for no

additional consideration or for a nominal consideration does make the lease one

intended for security.

NN. "Send" in connection with any writing or notice means to deposit in

the mail or deliver for transmission by any other usual means of communication

with postage or cost of transmission provided for and properly addressed and in

the case of an instrument to an address specified thereon or otherwise agreed,

or if there be none to any address reasonable under the circumstances.

The

receipt of any writing or notice within the time at which it would have arrived

if properly sent has the effect of a proper sending.

OO. "Signed" includes any symbol executed or adopted by a party with

present intention to authenticate a writing.

PP. "Surety" includes guarantor.

QQ. "Telegram" includes a message transmitted by radio, teletype, cable,

any mechanical method of transmission, or the like.

RR. "Term" means

particular matter.

that

portion

of

an

agreement

which

SS. "Unauthorized" signature or indorsement means

actual, implied or apparent authority and includes forgery.

one

relates

made

to

a

without

TT. "Value".

Except as otherwise provided with respect to negotiable

instruments (§ 3–303), a person gives "value" for rights if he acquires them:

1. In return for a binding commitment to extend credit or for the

extension of immediately available credit whether or not drawn upon and

whether or not a charge-back is provided for in the event of difficulties

in collection; or

2. As security for

pre-existing claim: or

or

in

total

or

partial

satisfaction

of

a

3. By accepting delivery pursuant to a pre-existing contract for

purchase; or

4. Generally, in return for any consideration sufficient to support

a simple contract.

UU. "Warehouse receipt" means a receipt issued by a person engaged in the

business of storing goods for hire.

VV. "Written" or "writing" includes printing, typewriting or any other

intentional reduction to tangible form.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. Except as stated in this paragraph, this section is intended to have

the same meaning and effect as § 1–201 of the Uniform Commercial Code as

adopted by the states. The phrase "tribal enterprise" has been added to the

definition of "Organization".

The word "barter" has been added to the

definition of "Purchase".

The definitions of the words "Barter" and "Navajo

Indian Country" have been added.

Commentary.

A–B.

[Omitted]

C. "Agreement".

As used in this Code the word is intended to include full

recognition of usage of trade, course of dealing, course of performance and the

surrounding circumstances as effective parts thereof, and of any agreement

permitted under the provisions of the Code to displace a stated rule of law.

D–I. [Omitted]

J. "Buyer in ordinary course of business". The definition clarifies the type

of person protected.

Its major significance lies in § 2–403 and in the

Articles on Secured Transactions (Article 9).

The reference to minerals and the like makes clear that a buyer in ordinary

course buying minerals under the circumstances described takes free of a prior

mortgage created by the sellers. See Comment to § 9–103.

A pawnbroker cannot be a buyer in ordinary course of business because the

person from whom he buys goods (or acquires ownership after foreclosing an

initial pledge) is typically an ordinary user and not a person engaged in

selling goods of that kind.

K. "Conspicuous". This is intended to indicate some of the methods of making a

term attention-calling.

But the test is whether attention can reasonably be

expected to be called to it.

L–N. [Omitted]

O. "Delivery" refers to physical possession.

P. "Document of title".

By making it explicit that the obligation of

designation of a third party as "bailee" is essential to a document of title,

this definition clearly rejects any such result which treats a conditional

sales contract as a document of title.

Also the definition is left open so

that new types of documents may be included.

It is unforeseeable what

documents may one (1) day serve the essential purpose now filled by warehouse

receipts and bills of lading. Truck transport has already opened up problems

which do not fit the patterns of practice resting upon the assumption that a

draft can move through banking channels faster than the goods themselves can

reach their destination. There lie ahead air transport and such probabilities

as teletype transmission of what may some day be regarded commercially as

"Documents of Title". The definition is stated in terms of the function of the

documents with the intention that any document which gains commercial

recognition as accomplishing the desired result shall be included within its

scope.

Fungible goods are adequately identified within the language of the

definition by identification of the mass of which they are a part.

The goods must be "described", but the description may be by marks or labels

and may be qualified in such a way as to disclaim personal knowledge of the

issuer regarding contents or condition. However, baggage and parcel checks and

similar "tokens" of storage which identify stored goods only as those received

in exchange for the token are not covered by this article.

The definition is broad enough to include an airway bill.

Q. [Omitted]

R. "Fungible".

and accuracy.

Fungibility of goods "by agreement" has been added for clarity

S. [Omitted]

T. "Good faith". "Good faith", whenever it is used in the Code, means at least

what is here stated.

In certain Articles, by specific provision, additional

requirements are made applicable. See, e.g., § 2–103(A)(2). To illustrate, in

the Article on Sales, § 2–103, good faith is expressly defined as including in

the case of a merchant observance of reasonable commercial standards of fair

dealing in the trade, so that throughout that Article wherever a merchant

appears in the case an inquiry into his observance of such standards is

necessary to determine his good faith.

U–W. [Omitted]

X. "Insolvent". The three tests of insolvency—"ceased to pay his debts in the

ordinary course of business", "cannot pay his debts as they become due", and

"insolvent within the meaning of the federal bankruptcy law"—are expressly set

up as alternative tests and must be approached from a commercial standpoint.

Y. "Money".

The test adopted is that of sanction of government, whether by

authorization before issue or adoption afterward, which recognizes the

circulating medium as a part of the official currency of that government. The

narrow view that money is limited to legal tender is rejected.

Z. "Navajo Indian Country".

the Code.

This definition was added to clarify the scope of

AA. "Notice". Under the definition a person has notice when he has received a

notification of the fact in question. But by the last sentence the Code leaves

open the time and circumstances under which notice or notification may cease to

be effective. Therefore, such cases as Graham v. White–Phillips Co., 296 U.S.

27, 56 S.Ct. 21, 80 LEd. 20 (1935), are not overruled.

BB. "Notifies". This is the word used when the essential fact is the proper

dispatch of the notice, not its receipt. Compare "Send". When the essential

fact is the other party's receipt of the notice, that is stated. The second

sentence states when a notification is received.

CC. This makes clear that reason to know, knowledge, or a notification,

although "received" for instance by a clerk in Department A of an organization,

is effective for a transaction conducted in Department P only from the time

when it was or should have been communicated to the individual conducting that

transaction.

DD. "Organization".

This is the definition of every type of entity or

association, excluding an individual, acting as such.

The definition of

"organization" given here includes a number of entities or associations not

specifically mentioned in prior definition of "person", namely, government,

governmental subdivision (including tribal enterprise) or agency, business

trust, trust and estate.

EE. "Party". Mention of a party includes, of course, a person acting through

an agent.

However, where an agent comes into opposition or contrast to his

principal, particular account is taken of that situation.

FF. "Person". See Comment to definition of "Organization".

1–102 is to Subsection (E) of that section.

The reference to §

GG. [Omitted]

HH. "Purchase" includes acquisition of property by barter. Barter transfers of

property within the "traditional economy" of the Navajo People are purchases

under this Code. See also § 1–110.

II. [Omitted]

JJ. "Remedy". The purpose is to make it clear that both remedy and rights (as

defined) include those remedial rights of "self help" which are among the most

important bodies of rights under this Code, remedial rights being those to

which an aggrieved party can resort on his own motion.

KK. [Omitted]

LL. "Rights".

See Comment to "Remedy".

MM. "Security Interest".

The present definition is elaborated, in view

especially of the complete coverage of the subject in Article 9. Notice that

in view of the Article the term includes the interest of certain outright

buyers of certain kinds of property. The last two sentences give guidance on

the question whether reservation of title under a particular lease of personal

property is or is not a security interest.

NN. "Send".

Compare "notifies".

OO. "Signed".

The inclusion of authentication in the definition of "signed" is

to make clear that as the term is used in this Code a complete signature is not

necessary.

Authentication maybe printed, stamped or written;

it maybe by

initials or by thumbprint.

It may be on any part of the document and in

appropriate cases may be found in a billhead or letterhead.

No catalog of

possible authentications can be complete and the court must use common sense

and commercial experience in passing upon these matters. The question always

is whether the symbol was executed or adopted by the party with present

intention to authenticate the writing.

PP–RR. [Omitted]

SS. "Value". Commercial usage has tended to define value as any consideration

sufficient to support a simple contract, including the taking of property in

satisfaction of or as security for a pre-existing claim. Subsections (A), (B)

and (D) in substance continue the definitions of "value" in such commercial

usage.

Subsection (C) makes explicit that "value" is also given in a third

situation:

where a buyer by taking delivery under a pre-existing contract

converts a contingency into a fixed obligation.

This definition is not applicable to Article 3.

A bank or other financing

agency which in good faith makes advances against property held as collateral

becomes a bona fide purchaser of that property even though provision may be

made for charge-back in case of trouble.

Checking credit is "immediately

available" within the meaning of this section if the bank would be subject to

an action for slander of credit in case checks drawn against the credit were

dishonored, and when a charge-back is not discretionary with the bank, but may

only be made when difficulties in collection arise in connection with the

specific transaction involved.

TT. "Warehouse receipt".

Receipts issued by a field warehouse are included,

provided the warehouseman and the depositor of the goods are different persons.

Special Plain Language Comment

When reading any sections in this Code, it is very important to check to see if

any of the terms are defined and to read the definitions of those terms.

Unless one reads the definitions, the full meaning of a statute may not be

understood.

§ 1–202. Prima facie evidence by third party documents

A document in due form purporting to be a bill of lading, policy or

certificate of insurance, official weigher's or inspector's certificate,

consular invoice, or any other document authorized or required by the contract

to be issued by a third party shall be prima facie evidence of its own

authenticity and genuineness and of the facts stated in the document by the

third party.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 1–

202 of the Uniform Commercial Code as adopted by the states.

Commentary.

1. This section is designed to supply judicial recognition for

documents which have traditionally been relied upon as trustworthy by

participants in commercial dealings.

2. This section is concerned only with documents which have been given a

preferred status by the parties themselves, who have required their procurement

in the agreement, and for this reason the applicability of the section is

limited to actions arising out of the contract which authorized or required the

document.

The documents listed are intended to be illustrative and not all

inclusive.

3. The provisions of this section go no further than establishing the documents

in question as prima facie evidence and leave to the court the ultimate

determination of the facts where the accuracy or authenticity of the documents

is questioned.

In this connection the section calls for a commercially

reasonable interpretation.

Definitional Cross References

"Bill of lading".

Section 1–201.

"Contract".

Section 1–201.

"Genuine".

Section 1–201.

Special Plain Language Comment

Certain types of documents have special meaning and are presumed to be what

they look like.

Reliance on such documents is generally presumed to be

reasonable.

§ 1–203. Obligation of good faith

Every contract or duty within this Code imposes an obligation of good

faith in its performance or enforcement.

History

CJA–1–86 January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 1–

203 of the Uniform Commercial Code as adopted by the states.

Commentary. This section sets forth a basic principle running throughout this

Code. The principle involved is that in commercial transactions good faith is

required in the performance and enforcement of all agreements or duties.

Particular applications of this general principle appear in specific provisions

of the Code such as the option to accelerate at will (§ 1–208), the right to

cure a defective delivery of goods (§ 2–508), the duty of a merchant buyer who

has rejected goods to effect salvage operations (§ 2–603), substituted

performance (§ 2–614), and failure of presupposed conditions (§ 2–615).

The

concept, however, is broader then any of these illustrations and applies

generally, as stated in this section, to the performance or enforcement of

every contract or duty within this Code. It is further implemented by § 1–205

on course of dealing and usage of trade.

It is to be noted that under the Sales Article definition of good faith (§ 2–

103), contracts made by a merchant have incorporated in them the explicit

standard not only of honesty in fact (§ 1–201), but also of observance by the

merchant of reasonable commercial standards of fair dealing in the trade.

Cross References

Sections 1–201,

1–205,

1–208,

2–103,

2–508,

2–603,

2–614, and 2–615.

Definitional Cross References

"Contract".

Section 1–201.

"Good faith".

Section 1–201;

2–103.

§ 1–204. Time;

reasonable time;

"seasonably"

A. Whenever this Code requires any action to be taken within a reasonable

time, any time which is not manifestly unreasonable maybe fixed by agreement.

B. What is a reasonable time for taking any action depends on the nature,

purpose and circumstances of such action.

C. An action is taken "seasonably" when it is taken at or within the time

agreed or if no time is agreed at or within a reasonable time.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 1–

204 of the Uniform Commercial Code as adopted by the states.

Commentary. 1. Subsection (A) recognizes that nothing is stronger evidence of

a reasonable time than the fixing of such time by a fair agreement between the

parties. However, provision is made for disregarding a clause which whether by

inadvertence or overreaching fixes a time so unreasonable that it amounts to

eliminating all remedy under the contract. The parties are not required to fix

the most reasonable time but may fix any time which is not obviously unfair as

judged by the time of contracting.

2. Under the section, the agreement which fixes the time need not be part of

the main agreement, but may occur separately.

Notice also that under the

definition of "agreement" (§ 1–201) the circumstances of the transaction,

including course of dealing or usages of trade or course of performance may be

material. On the question what is a reasonable time these matters will often

be important.

Definitional Cross References

"Agreement".

Section 1–201.

§ 1–205. Course of dealing and usage of trade

A. 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.

B. 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 are to be proved as facts.

If it is established that such a usage is embodied in a written trade code or

similar writing, the interpretation of the writing is for the court.

C. 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.

D. The express terms of an agreement and an applicable course of dealing

or usage of trade shall be construed wherever reasonable as consistent with

each other, but when such construction is unreasonable express terms control

both course of dealing and usage of trade and course of dealing controls usage

of trade.

E. An applicable usage of trade in the place where any part of

performance is to occur shall be used in interpreting the agreement as to that

part of the performance.

F. 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.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 1–

205 of the Uniform Commercial Code as adopted by the states.

Commentary.

1. This Code rejects both the "lay-dictionary" and the

"conveyancer's" reading of a commercial agreement. Instead, the meaning of the

agreement of the parties is to be determined by the language used by them and

by their action, read and interpreted in the light of commercial practices and

other surrounding circumstances. The measure and background for interpretation

are set by the commercial context, which may explain and supplement even the

language of a formal or final writing.

2. Course of dealing under Subsection (A) is restricted, literally, to a

sequence of conduct between the parties previous to the agreement.

However,

the provisions of the Code on course of performance make it clear that a

sequence of conduct after or under the agreement may have equivalent meaning (§

2–208).

3. "Course of dealing" may enter the agreement either by explicit provisions of

the agreement or by tacit recognition.

4. This Code deals with "usage of trade" as a factor in reading the commercial

meaning of the agreement which the parties have made. The language used is to

be interpreted as meaning what it may fairly be expected to mean to parties

involved in the particular commercial transaction in a given locality or in a

given vocation or trade. By adopting in this context the term "usage of trade'

" this Code expresses its intent to reject those cases which see evidence of

"custom" as representing an effort to displace or negate "established rules of

law". A distinction is to be drawn between mandatory rules of law such as the

Statute of Frauds provisions of Article 2 on Sales whose very office is to

control and restrict the actions of the parties, and which cannot be abrogated

by agreement, or by a usage of trade, and those rules of law (such as those in

Part 3 of Article 2 on Sales) which fill in points which the parties have not

considered and in fact agreed upon.

The latter rules hold "unless otherwise

agreed" but yield to the contrary agreement of the parties.

Part of the

agreement of the parties to which such rules yield is to be sought for in the

usages of trade which furnish the background and give particular meaning to the

language used, and are the framework of common understanding controlling any

general rules of law which hold only when there is no such understanding.

5. A usage of trade under Subsection (B) must have the "regularity of

observance" specified. 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.

Under the requirement of

Subsection (B), 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. There is room also for proper

recognition of usage agreed upon by merchants in trade codes.

6. The policy of this Code controlling explicit unconscionable contracts and

clauses (§§ 1–203, 2–302) applies to implicit clauses which rest on usage of

trade and carries forward the policy underlying the ancient requirement that a

custom or usage must be "reasonable". However, the emphasis is shifted. The

very fact of commercial acceptance makes out a prima facie case that the usage

is reasonable, and the burden is no longer on the usage to establish itself as

being reasonable.

But the anciently established policing of usage by the

courts is continued to the extent necessary to cope with the situation arising

if an unconscionable or dishonest practice should become standard.

7. Subsection (C), giving the prescribed effect to usages of which the parties

"are or should be aware", reinforces the provision of Subsection (B) requiring

not universality but only the described "regularity of observance" of the

practice or method.

This Subsection also reinforces the point of Subsection

(B) that such usages may be either general to trade or particular to a special

branch of trade.

8. Although the terms in which this Code defines "agreement" include the

elements of course of dealing and usage of trade, the fact that express

reference is made in some sections to those elements is not to be construed as

carrying a contrary intent or implication elsewhere. Compare § 1–102(D).

9. In cases of a well established line of usage varying from the general rules

of this Code where the precise amount of the variation has not been worked out

into a single standard, the party relying on the usage is entitled, in any

event, to the minimum variation demonstrated.

The whole is not to be

disregarded because no particular line of detail has been established. In case

a dominant pattern has been fairly evidenced, the party relying on the usage is

entitled under this section to go to the trier of fact on the question of

whether such dominant pattern has been incorporated into the agreement.

10. Subsection (F) is intended to insure that this Code's liberal recognition

of the needs of commerce in regard to usage of trade shall not be made into an

instrument of abuse.

Cross References

Point 1:

Sections 1–203, 2–104 and 2–202.

Point 2:

Section 2–208.

Point 4:

Section 2–201 and Part 3 of Article 2.

Point 6:

Sections 1–203 and 2–302.

Point 8:

Sections 1–102 and 1–201.

Point 9:

Section 2–204(C).

Definitional Cross References

"Agreement".

Section 1–201.

"Contract".

Section 1–201.

"Party".

Section 1–201.

"Term".

Section 1–201.

Special Plain Language Comment

This section recognizes that words in a contract acquire meaning from the way

the parties have acted toward each other as well as by how people in that type

of situation usually deal with each other.

§ 1–206. Statute of Frauds for kinds of personal property not otherwise covered

A. Except in the cases described in Subsection (B) of this section, a

contract for the sale of personal property is not enforceable by way of action

or defense beyond five thousand dollars ($5,000) in amount or value of remedy

unless there is some writing which indicates that a contract for sale has been

made between the parties at a defined or stated price, reasonably identifies

the subject matter, and is signed by the party against whom enforcement is

sought or by his authorized agent.

B. Subsection (A) of this section does not apply to contracts for the

sale of goods (§ 2–201) nor to security agreements (§ 9–203).

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 1–

206 of the Uniform Commercial Code as adopted by the states.

Commentary. To fill the gap left by the Statute of Frauds provisions for goods

(§ 2–201) and security interests (§ 9–203). The principal gap relates to sale

of the "general intangibles" defined in Article 9 (§ 9–106) and to transactions

excluded from Article 9 by § 9–104.

Typical are the sale of bilateral

contracts, royalty rights or the like.

The informality normal to such

transactions is recognized by lifting the limit for oral transactions to five

thousand dollars ($5,000). In such transactions there is often no standard of

practice by which to judge, and values can rise or drop without warning;

troubling abuses are avoided when the dollar limit is exceeded by requiring

that the subject matter be reasonably identified in a signed writing which

indicates that a contract for sale has been made at a defined or stated price.

Definitional Cross References

"Action".

Section 1–201.

"Agreement".

Section 1–201.

"Contract".

Section 1–201.

"Contract for sale".

Section 2–106.

"Goods".

Section 2–105.

"Party".

Section 1–201.

"Sale".

Section 2–106.

"Signed".

Section 1–201.

"Writing".

Section 1–201.

§ 1–207. Performance or acceptance under reservation of rights

A party who with explicit reservation of rights performs or promises

performance or assents to performance in a manner demanded or offered by the

other party does not thereby prejudice the rights reserved.

Such words as

"without prejudice", "under protest" or the like are sufficient.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 1–

207 of the Uniform Commercial Code as adopted by the states.

Commentary.

1. This section provides machinery for the continuation of

performance along the lines contemplated by the contract despite a pending

dispute, by adopting the mercantile device of going ahead with delivery,

acceptance, or payment "without prejudice", "under protest", "under reserve",

"with reservation of all our rights", and the like.

All of these phrases

completely reserve all rights within the meaning of this section. The section

therefore contemplates that limited as well as general reservations and

acceptance by a party may be made "subject to satisfaction of our purchaser",

"subject to acceptance by our customers", or the like.

2. This section does not add any new requirement of language of reservation

where not already required by law, but merely provides a specific measure on

which a party can rely as he makes or concurs in any interim adjustment in the

course of performance.

It does not affect or impair the provisions of this

Code such as those under which the buyer's remedies for defect survive

acceptance without being expressly claimed if notice of the defects is given

within a reasonable time. Nor does it disturb the policy of those cases which

restrict the effect of a waiver of a defect to reasonable limits under the

circumstances, even though no such reservation is expressed.

The section is not addressed to the creation or loss of remedies in the

ordinary course of performance but rather to a method of procedure where one

party is claiming as of right something which the other feels to be

unwarranted.

Cross References

Section 2–607.

Definitional Cross References

"Party".

Section 1–201.

"Rights".

Section 1–201.

Special Plain Language Comment

If there is a dispute about a deal, the person who wants to object will not

lose the right to do so, if he states that he makes payment or otherwise

performs "without prejudice" or "under protest".

§ 1–208. Option to accelerate at will

A term providing that one party or his successor in interest may

accelerate payment or performance or require collateral or additional

collateral "at will" or "when he deems himself insecure" or in words of similar

import shall be construed to mean that he shall have power to do so only if he

in good faith believes that the prospect of payment or performance is impaired.

The burden of establishing lack of good faith is on the party against whom the

power has been exercised.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 1–

208 of the Uniform Commercial Code as adopted by the states.

Commentary.

The increased use of acceleration clauses either in the case of

sales on credit or in time paper or in security transactions has led to some

confusion in the cases as to the effect to be given to a clause which seemingly

grants the power of an acceleration at the whim and caprice of the party. This

section is intended to make clear that despite language which can be so

construed and which further might be held to make the agreement void as against

public policy or to make the contract illusory or too indefinite for

enforcement, the clause means that the option is to be exercised only in the

good faith belief that the prospect of payment or performance is impaired.

Obviously, this section has no application to demand instruments or obligations

whose very nature permits call at any time with or without reason.

This

section applies only to an agreement or to paper which in the first instance is

payable at a future date.

Definitional Cross References

"Burden of establishing".

"Good faith".

Section 1–201.

Section 1–201.

"Party".

Section 1–201.

"Term".

Section 1–201.

Special Plain Language Comment

Some contract forms provide that one party has the power to demand that the

other act or pay quicker than normally contemplated, relying upon words like

those used in the statute. This section somewhat limits that right to avoid

abuse of that power.

§ 1–209. Subordinated obligations

An

obligation

may

be

issued

as

subordinated

to

payment

of

another

obligation of the person obligated, or a creditor may subordinate his right to

payment of an obligation by agreement with either the person obligated or

another creditor of the person obligated. Such a subordination does not create

a security interest as against either the common debtor or a subordinated

creditor. This section shall be construed as declaring the law as it existed

prior to the enactment of this section and not as modifying it.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 1–

209 of the Uniform Commercial Code as adopted by the states.

Commentary. 1. Billions of dollars of subordinated debt are held by the public

and by institutional investors.

Commonly, the subordinated debt is

subordinated on issue or acquisition and is evidenced by an investment security

or by a negotiable or non-negotiable note. Debt is also sometimes subordinated

after it arises, either by agreement between the subordinating creditor and the

debtor, by agreement between two creditors of the same debtor, or by agreement

of all three parties. The subordinated creditor may be a stockholder or other

"insider" interested in the common debtor; the subordinated debt may consist

of accounts or other rights to payment not evidenced by any instrument. All

such

cases

are

included

in

the

terms

"subordinated

obligation",

"subordination", and "subordinated creditor".

2. Subordination agreements are enforceable between the parties as contracts;

and in the bankruptcy of the common debtor dividends otherwise payable to the

subordinated creditor are turned over to the superior creditor.

This

"turn-over" practice has on occasion been explained in terms of "equitable

lien", "equitable assignment", or "constructive trust", but whatever the label

the practice is essentially an equitable remedy and does not mean that there is

a transaction "intended to create a security interest", a "sale of accounts,

contract rights or chattel paper", or a "security interest credit by contract",

within the meaning of § 9–102.

On the other hand, nothing in this section

prevents one creditor from assigning his rights to another creditor of the same

debtor in such a way as to create a security interest within Article 9, where

the parties so intend.

3. The last sentence of this section is intended to negate any implication that

the section changes the law. It is intended to be declaratory of pre-existing

law. Both the history and the test of Article 9 make it clear that it was not

intended to cover subordination agreements.

The provisions of § 9–203 for

signature by the "debtor" would be entirely unworkable if read to require

signature by public holders of subordinated investment securities.

The

priorities, filing provisions and remedies on default provided by Article 9

would also be largely inappropriate in many situations.

The precautionary

language § 9–316 preserving subordination of priority by agreement between

secured parties points to the conclusion that similar arrangements among

unsecured lenders are not covered unless otherwise within the scope of the

Article.

4. The enforcement of subordination agreements is largely left to supplementary

principles under § 1–103.

If the fact of subordination is noted on a

negotiable instrument, a holder under §§ 3–302 and 3–306 is subject to the term

because notice precludes him from taking free of the subordination. Section 3–

302(C)(1) and 3–306 severely limit the rights of levying creditors of a

subordinated creditor in such cases.

Definitional Cross References

"Agreement".

Sections 1–201.

"Creditor".

Section 1–201.

"Debtor".

Section 9–105.

"Person".

Section 1–201.

"Rights".

Section 1–201.

"Security interest".

Section 1–201.

Special Plain Language Comment

This section recognizes that two or more creditors may agree among themselves

who should be paid first, who has first rights to collateral, and who should

have the greatest risk of loss, if the debtor is unable to pay all of them.

Such agreements are not subject to regulation under Article 9 as security

interests.

Article 2. Sales

Part 1. Short Title, General Construction, and Subject Matter

§ 2–101. Short title

This article shall be known and may be cited as the Navajo Uniform

Commercial Code—Sales.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 2–

101 of the Uniform Commercial Code adopted by the states.

Commentary. The arrangement of the present Article is in terms of contract for

sale and the various steps of its performance.

The legal consequences are

stated as following directly from the contract and action taken under it

without resorting to the idea of when property or title passed or was to pass

as being the determining factor.

The purpose is to avoid making practical

issues between practical men and women turn upon the location of an intangible

something, the passing of which no man or woman can prove by evidence and to

substitute for such abstractions proof of words and actions of a tangible

character.

§ 2–102. Scope;

article

certain security and other transactions excluded from this

Unless the context otherwise requires, this article applies to

transactions in goods; it does not apply to any transaction which although in

the form of an unconditional contract to sell or present sale is intended to

operate only as a security transaction nor does this article impair or repeal

any statute regulating sales to consumers, farmers or other specified classes

of buyers.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 2–

102 of the Uniform Commercial Code adopted by the states. Certain federal and

Navajo statutes regulating trade with Indians should be reviewed to determine

their applicability.

Transactions with Indians or Indian tribes may also

require approval under certain federal and tribal statutes. See 25 U.S.C. §§

81, 196, 261, 396 et seq. (1976); 25 C.F.R. § 162 (1984); 7 N.N.C. § 204;

and titles 3, 5, 18, and 24 of the Navajo Nation Code. "Security transaction"

is used in the same sense as in the Article on Secured Transactions (Article

9).

Cross References

NUCC, Article 9.

Definitional Cross References

"Contract".

Section 1–201.

"Contract for sale".

"Present sale".

"Sale".

Section 2–106.

Section 2–106.

Section 2–106.

Special Plain Language Comment

This section limits the scope of this article to transactions in "goods" (see §

2–105 for the definition of "goods") and distinguishes it from Article 9 which

governs "secured transactions" or contracts for services.

It also clearly

states that special statutes relating to consumers and other groups are not

repealed by the Code although the Code may effect such transactions governed by

such statutes in areas not regulated by specific statutes.

§ 2–103. Definitions and index of definitions

A. In this article unless the context otherwise requires:

1. "Buyer" means a person who buys or contracts to buy goods.

2. "Good faith" in the case of a merchant means honesty in fact and

the observance of reasonable commercial standards of fair dealing in the

trade.

3. "Receipt" of goods means taking physical possession of them.

4. "Seller" means a person who sells or contracts to sell goods.

5. "Consignee" means the person named in a bill to whom or to whose

order the bill promises delivery.

6. "Consignor" means the person named in a bill as the person from

whom the goods have been received for shipment.

B. Other definitions applying to this article or to specified parts

thereof, and the sections in which they appear are:

"Acceptance".

Section 2–606.

"Banker's credit".

Section 2–325.

"Between merchants".

"Cancellation".

Section 2–104.

Section 2–106(D).

"Commercial unit".

Section 2–105.

"Confirmed credit".

Section 2–325.

"Conforming to contract".

"Contract for sale".

"Cover".

Section 2–106.

Section 2–712.

"Entrusting".

Section 2–403.

"Financing agency".

"Future goods".

"Goods".

Section 2–106.

Section 2–104.

Section 2–105.

Section 2–105.

"Identification".

Section 2–501.

"Installment contract".

"Letter of Credit".

Section 2–612.

Section 2–325.

"Lot".

Section 2–105.

"Merchant".

Section 2–104.

"Overseas".

Section 2–323.

"Person in position of seller".

"Present sale".

"Sale".

Section 2–707.

Section 2–106.

Section 2–106.

"Sale on approval".

"Sale or return".

"Termination".

Section 2–326.

Section 2–326.

Section 2–106.

C. The following definitions in other Articles apply to this article:

"Check".

Section 3–104.

"Consumer goods".

"Dishonor".

"Draft".

Section 9–109.

Section 3–507.

Section 3–104.

D. In addition, Article 1 contains general definitions and principles of

construction and interpretation applicable throughout this article.

History

CJA-1–86, January 29, 1986.

Official Comment

Changes. The Definitions of "consignee" and "consignor" have been added to the

definitions in this section since they are used in Article 2, but normally

defined in Article 7 of the Uniform Commercial Code which has not been adopted

by the Navajo Nation.

Commentary. 1. The phrase "any legal successor in interest of such person" is

not included in the definition of buyer and seller since § 2–210 of this

article, which limits some types of delegation of performance on assignment of

a sales contract, makes it clear that not every such successor can be safely

included in the definition. In every ordinary case, however, such successors

are as of course included.

2. "Receipt" must be distinguished from delivery particularly in regard to the

problems arising out of shipment of goods, whether or not the contract calls

for making delivery by way of documents of title, since the seller may

frequently fulfill his obligations to "deliver" even though the buyer may never

"receive" the goods. Delivery with respect to documents of title is defined in

Article 1 and requires transfer of physical delivery.

Otherwise the many

divergent incidents of delivery are handled incident by incident.

Cross References

Point 1:

See Section 2–210 and Comment thereon.

Point 2:

Section 1–201.

Definitional Cross References

"Person".

Section 1–201.

§ 2–104. Definitions:

"merchant";

"between merchants";

"financing agency"

A. "Merchant" means a person who deals in goods of the kind or otherwise

by his occupation holds himself out as having knowledge or skill peculiar to

the practices or goods involved in the transaction or to whom such knowledge or

skill maybe attributed by his employment of an agent or broker or other

intermediary who by his occupation holds himself out as having such knowledge

or skill. The definition of merchant shall not include individual artists.

B. "Financing agency" means a bank, finance company or other person who

in the ordinary course of business makes advances against goods or documents of

title or who by arrangement with either the seller or the buyer intervenes in

ordinary course to make or collect payment due or claimed under the contract

for sale, as by purchasing or paying the seller's draft or making advances

against it or by merely taking it for collection whether or not documents of

title accompany the draft.

"Financing agency" includes also a bank or other

person who similarly intervenes between persons who are in the position of

seller and buyer in respect to the goods (§ 2–707).

C. "Between merchants" means in any transaction with respect to which

both parties are chargeable with the knowledge or skill of merchants.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 2–

104 of the Uniform Commercial Code adopted by the states except that individual

artists are not considered merchants.

The official comments establish

standards for determining whether a farmer or rancher is a merchant.

Commentary. 1. This article assumes that transactions between professionals in

a given field require special and clear rules which may not apply to a casual

or inexperienced seller or buyer. It thus adopts a policy of expressly stating

rules applicable "between merchants" and "as against a merchant", wherever they

are needed instead of making them depend upon the circumstances of each case as

in the statutes cited above. This section lays the foundation of this Policy

by defining those who are to be regarded as professionals or "merchants" and by

stating when a transaction is deemed to be "between merchants".

2. The term "merchant" as defined here roots in the "law merchant" concept of a

professional in business. The professional status under the definition may be

based upon specialized knowledge as to the goods, specialized knowledge as to

business practices, or specialized knowledge as to both and which kind of

specialized knowledge may be sufficient to establish the merchant status is

indicated by the nature of the provisions.

The special provisions as to merchants appear only in this article and they are

of three kinds.

Sections 2–201(B), 2–205, 2–207 and 2–209 dealing with the

Statute of Frauds, firm offers, confirmatory memoranda and modification rest on

normal business practices which are or ought to be typical of and familiar to

any person in business. For purposes of these sections almost every person in

business would, therefore, be deemed to be a "merchant" under the language,

"who ...

by his occupation holds himself out as having knowledge or skill

peculiar to the practices ... involved in the transaction ... ", since the

practices involved in the transaction are non-specialized business practices

such as answering mail. In this type of provision, banks or even universities,

for example, well may be "merchants". But even these sections only apply to a

merchant in his mercantile capacity; a lawyer or bank president buying fishing

tackle for his own use is not a merchant.

On the other hand, in § 2–314 on the warranty of merchantability, such warranty

is implied only "if the seller is a merchant with respect to goods of that

kind". Obviously this qualification restricts the implied warranty to a much

smaller group than everyone who is engaged in business and requires a

professional status as to particular kinds of goods. Similarly in § 2–312(C)

the warranty that the goods are delivered free of any rightful claim of a third

party is limited to those who are dealing in the goods of that kind.

The

exception in § 2–402(B) for retention of possession by a merchant-seller falls

in the same class;

as does § 2–403(B) on entrusting of possession to a

merchant "who deals in goods of that kind".

A third group of sections includes § 2–103(A)(2), which provides that in the

case of a merchant, "good faith" includes observance of reasonable commercial

standards of fair dealing in the trade;

§§ 2–327(A)(3), 2–603 and 2–605,

dealing with responsibilities of merchant buyers to

follow seller's

instructions, etc.; 2–509 on risk of loss, and 2–609 on adequate assurance of

performance. This group of sections applies to persons who are merchants under

either the "practices" or the "goods" aspect of the definition of merchant.

3. Individual artists generally do not have the familiarity with business

customs such as firm offer (§ 2–205) and confirmatory memorandum (§ 2–207)

which is assumed by § 2–104(A).

Accordingly, individual artists are not

considered merchants.

The determination of whether a farmer (or a rancher) is a merchant under the

Code should consider the following factors: quantity and dollar amount of the

transactions, the frequency and length of time which the farmer (or rancher)

had engaged in selling the crops (or livestock) in the transaction, whether it

was his principal crop (or type of livestock), and the farmer's (or rancher's)

familiarity with the market in which the crop (or livestock) is sold. A farmer

(or rancher) shall not be considered a merchant under the Code if the

transaction involves the isolated sale of his own crops (or livestock).

See

Fear Ranches, Inc. v. Berry, 470 F.2d 905 (10th Cir. 1972).

4. The "or to whom such knowledge or skill may be attributed by his employment

of an agent or broker ... " clause of the definition of merchant means that

even persons such as universities, for example, can come within the definition

of merchant if they have regular purchasing departments or business personnel

who are familiar with business practices and who are equipped to take any

action required.

Cross References

Point 1:

See Sections 1–102 and 1–203.

Point 2: See Sections 2–314, 2–315 and 2–320 to 2–325, of this article, and

Article 9.

Definitional Cross References

"Bank".

Section 1–201.

"Buyer".

Section 2–103.

"Contract for sale".

Section 2–106.

"Document of title".

Section 1–201.

"Draft".

Section 3–104.

"Goods".

Section 2–105.

"Person".

Section 1–201.

"Purchase".

"Seller".

Section 1–201.

Section 2–103.

Special Plain Language Comment

This section defines merchants as those who are either:

(i) familiar with

general business practices;

or (ii) familiar with a particular good because

they deal in it regularly. Merchants are generally held to higher standards of

conduct. A person's status as a merchant depends on the type of transaction

and the goods involved.

§ 2–105. Definitions:

"commercial unit"

"transferability";

"goods";

"future goods";

"lot";

A. "Goods" means all things (including specially manufactured goods)

which are movable at the time of identification to the contract for sale other

than the money in which the price is to be paid, investment securities and

things in action.

"Goods" also includes the unborn young of animals and

growing crops and other identified things attached to realty as described in

the section on goods to be severed from realty (§ 2–107).

B. Goods must be both existing and identified before any interest in them

can pass. Goods which are not both existing and identified are "future" goods.

A purported present sale of future goods or of any interest therein operates as

a contract to sell.

C. There may be a sale of a part interest in existing identified goods.

D. An undivided share in an identified bulk of fungible goods is

sufficiently identified to be sold although the quantity of the bulk is not

determined.

Any agreed proportion of such a bulk or any quantity thereof

agreed upon by number, weight or other measure may to the extent of the

seller's interest in the bulk be sold to the buyer who then becomes an owner in

common.

E. "Lot" means a parcel or a single article which is the subject matter

of a separate sale or delivery, whether or not it is sufficient to perform the

contract.

F. "Commercial unit" means such a unit of goods as by commercial usage is

a single whole for purposes of sale and division of which materially impairs

its character or value on the market or in use.

A commercial unit maybe a

single article (as a machine) or a set of articles (as a suite of furniture or

an assortment of sizes) or a quantity (as a bale, gross, or carload) or any

other unit treated in use or in the relevant market as a single whole.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 2–

105 of the Uniform Commercial Code adopted by the states.

In certain

circumstances goods attached to the land may be considered trust property and

thus subject to certain trusteeship obligations of the federal government.

Commentary.

1. The definition of "goods" is based on the concept of

movability.

It is not intended to deal with things which are not fairly

identifiable as moveables before the contract is performed.

Growing crops are included within the definition of goods since they are

frequently intended for sale. The young of animals are also included expressly

in this definition since they, too, are frequently intended for sale and may be

contracted for before birth.

The period of gestation of domestic animals is

such that the provisions of the section of identification can apply as in the

case of crops to be planted. The reason for this definition also leads to the

inclusion of a wool crop or the like as "goods" subject to identification under

this article.

The exclusion of "money in which the price is to be paid" from the definition

of goods does not mean that foreign currency which is included in the

definition of money may not be the subject matter of a sales transaction.

Goods is intended to cover the sale of money when money is being treated as a

commodity but not to include it when money is the medium of payment.

As to contracts to sell timber, minerals, or structures to be removed from the

land § 2–107(A) controls.

The use of the word "fixtures" is avoided in view of the diversity of

definitions of that term. This article in including within its scope "things

attached to realty" adds the further test that they must be capable of

severance without material harm thereto. As between the parties any identified

things which fall within that definition become "goods" upon the making of the

contract for sale.

"Things attached to realty" may be considered, in some

instances, trust property and thus subject to certain limitations on transfer

by the federal government. See 25 U.S.C. §§ 81, 196, 261, 396, 406, 407, 635,

2101 (1984) See also F. Cohen, Handbook of federal Indian Law (1982).

"Investment securities" are expressly excluded from the coverage of this

article.

It is not intended by this exclusion, however, to prevent the

application of a particular section of this article by analogy to securities

when the reason of that section makes such application sensible and the

situation is not governed by Article 8 of the Uniform Commercial Code (Article

8 of the Uniform Commercial Code has not been adopted by the Navajo Nation);

the rights of parties which would be governed under Article 8 are governed by

Navajo law pursuant to 7 N.N.C. § 204.

2. References to the fact that a contract for sale can extend to future or

contingent goods and that ownership in common follows the sale of apart

interest have been omitted here as obvious without need for expression; hence

no inference to negate these principles should be drawn from their omission.

3. Subsection (D) does not touch the question of how far an appropriation of a

bulk of fungible goods may or may not satisfy the contract for sale.

4. Subsections (E) and (F) on "lot" and "commercial unit" are introduced to aid

in the phrasing of later Sections.

5. The question of when an identification of goods takes place is determined by

the provisions of § 2–501 and all that this section says is what kinds of goods

may be the subject of a sale.

Cross References

Point 1:

Section 2–107, 2–201 and 2–501.

Point 5:

Section 2–501.

See also Section 1–201.

Definitional Cross References

"Buyer".

Section 2–103.

"Contract".

Section 1–201.

"Contract for sale".

Section 2–106.

"Fungible".

"Money".

Section 1–201.

Section 1–201.

"Present sale".

"Sale".

Section 2–106.

Section 2–106.

"Seller".

Section 2–103.

Special Plain Language Comment

This section defines "goods", which are the subject of Article 2.

The

definition is based on the "movability" of the goods. The Code distinguishes

between goods presently in existence and identifiable and those either not

presently in existence or not identifiable;

the latter, "future" goods, are

not insurable and may not be claimed by the buyer upon the seller's insolvency.

§ 2–106. Definitions: "contract"; "agreement"; "contract for sale"; "sale";

"present sale"; "conforming to contract"; "termination"; "cancellation"

A. In this article, unless the context otherwise requires "contract" and

"agreement" are limited to those relating to the present or future sale of

goods.

"Contract for sale" includes both a present sale of goods and a

contract to sell goods at a future time. A "sale" consists in the passing of

title from the seller to the buyer for a price (§ 2–401).

A "present sale"

means a sale which is accomplished by the making of the contract.

B. Goods or conduct including any part of a performance are "conforming"

or conform to the contract when they are in accordance with the obligations

under the contract.

C. "Termination" occurs when either party pursuant to a power created by

agreement or law puts an end to the contract otherwise than for its breach. On

"termination" all obligations which are still executory on both sides are

discharged but any right based on prior breach or performance survives.

D. "Cancellation" occurs when either party puts an end to the contract

for breach by the other and its effect is the same as that of termination

except that the cancelling party also retains any remedy for breach of the

whole contract or any unperformed balance.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 2–

106 of the Uniform Commercial Code adopted by the states.

Commentary.

1. Subsection (A):

"Contract for sale" is used as a general

concept throughout this article, but the rights of the parties do not vary

according to whether the transaction is a present sale or a contract to sell

unless the Article expressly so provides.

See § 2–501.

2. Subsection (B):

It is in general intended to continue the policy of

requiring exact performance by the seller of his obligations as a condition to

his right to require acceptance.

However, the seller is in part safeguarded

against surprise as a result of sudden technicality on the buyer's part by the

provisions of § 2–508 on seller's cure of improper tender or delivery.

Moreover usage of trade frequently permits commercial leeway in performance and

the language of the agreement itself must be read in the light of such custom

or usage and also, prior course of dealing, and in a long term contract, the

course of performance.

3. Subsections (C) and (D): These Subsections are intended to make clear the

distinction carried forward throughout this article between termination and

cancellation.

Cross References

Point 2:

Sections 1–203, 1–205, 2–208 and 2–508.

Definitional Cross References

"Agreement".

"Buyer".

Section 1–201.

Section 2–103.

"Contract".

Section 1–201.

"Goods".

Section 2–105.

"Party".

Section 1–201.

"Remedy".

Section 1–201.

"Rights".

Section 1–201.

"Seller".

Section 2–103.

Special Plain Language Comment

The definition of agreement and contract limit the application of Article 2 to

contracts involving goods, rather than all contracts.

The next definition,

"conforming goods", expresses the rule that sellers must provide the goods

exactly as ordered (although certain exceptions are later found in the Code).

§ 2–107. Goods to be severed from realty:

recording

A. A contract for the sale of minerals or the like (including oil and

gas) or a structure or its materials to be removed from realty is a contract

for the sale of goods within this article if they are to be severed by the

seller but until severance, a purported present sale thereof which is not

effective as a transfer of an interest in land is effective only as a contract

to sell.

B. A contract for the sale apart from the land of growing crops or other

things attached to realty and capable of severance without material harm

thereto but not described in Subsection (A) or of timber to be cut is a

contract for the sale of goods within this article whether the subject matter

is to be severed by the buyer or by the seller even though it forms part of the

realty at the time of contracting, and the parties can by identification effect

a present sale before severance.

C. The provisions of this section are subject to the trust

responsibilities of the federal government. The provisions of this section are

also subject to any third party rights provided by the law relating to realty

records.

The contract for sale may be executed and recorded as a document

transferring an interest in land and shall then constitute notice to third

parties of the buyer's rights under the contract for sale.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 2–

107 of the Uniform Commercial Code adopted by the states. Contracts relating

to this type of goods may require approval by the federal government as part

its trust responsibilities.

Commentary.

1. Notice that Subsection (A) applies only if the minerals or

structures "are to be severed by the seller". If the buyer is to sever, such

transactions are considered contracts affecting land and all problems of the

Statute of Frauds and of land rights apply to them. Therefore, the Statute of

Frauds section of this article does not apply to such contracts though they

must conform to the Statute of Frauds affecting the transfer of interests in

land.

2. "Things attached" to the realty which can be severed without material harm

are goods within this article regardless of who is to effect the severance.

The word "fixtures" has been avoided because of the diverse definitions of this

term, the test of "severance without material harm" being substituted. In some

cases fixtures may be considered trust property and, thus, subject to the trust

obligation and regulations of the federal government. The federal government

may have to approve certain contracts relating to such goods.

(For minerals

see 25 U.S.C. §§ 396–400a, 635 and 2101 et seq., and 18 N.N.C. § 1 et seq.;

for timber see 25 U.S.C. §§ 196, 406 and 407) See generally 25 U.S.C. §§ 81,

261 (1976) See also § 9–313 and F. Cohen, Handbook of federal Indian Law

(1982).

The provision in Subsection (C) for recording such contracts is within the

purview of this article since it is a means of preserving the buyer's rights

under the contract of sale.

3. The security phases of things attached to or to become attached to realty

are dealt with in the Article on Secured Transactions (Article 9) and it is to

be noted that the definition of goods in that Article differs from the

definition of goods in this article.

However, both Articles treat as goods

growing crops and also timber to be cut under a contract of severance.

Cross References

Point 1:

Section 2–201.

Point 2:

Section 2–105.

Point 3:

Articles 9 and 9–105.

Definitional Cross References

"Buyer".

Section 2–103.

"Contract".

Section 1–201.

"Contract for sale".

Section 2–106.

"Goods".

Section 2–105.

"Party".

Section 1–201.

"Present sale".

Section 2–106.

"Rights".

Section 1–201.

"Seller".

Section 2–103.

Special Plain Language Comment

This section provides that only minerals severed by the seller are subject to

this article, but that timber and growing crops are subject to this article

whether severed by the seller or buyer.

Part 2. Form, Formation and Readjustment of Contract

§ 2–201. Formal requirements;

Statute of Frauds

A. Except as otherwise provided in this section a contract for sale of

goods for the price of five hundred dollars ($500.00) or more is not

enforceable by way of action or defense unless there is some writing sufficient

to indicate that a contract for sale has been made between the parties and

signed by the party against whom enforcement is sought or by his authorized

agent or broker. A writing is not insufficient because it omits or incorrectly

states a term agreed upon, but the contract is not enforceable under this

paragraph beyond the quantity of goods shown in such writing.

B. Between merchants if within reasonable time a writing in confirmation

of the contract and sufficient against the sender is received and the party

receiving it has reason to know its contents, it satisfies the requirements of

Subsection (A) against such party unless written notice of objection to its

contents is given within 10 days after it is received ..

C. A contract which does not satisfy the requirements of Subsection (A)

but which is valid in other respects is enforceable:

1. If the goods are to be specially manufactured for the buyer and

are not suitable for sale to others in the ordinary course of the

seller's business and the seller, before notice of repudiation is

received and under circumstances which reasonably indicate that the goods

are for the buyer, has made either a substantial beginning of their

manufacture or commitments for their procurement; or

2. If the party against whom enforcement is sought admits in his

pleading, testimony or otherwise in court that a contract for sale was

made, but the contract is not enforceable under this provision beyond the

quantity of goods admitted; or

3. With respect to goods for which payment has been made and

accepted or which have been received and accepted (§ 2–606).

D. This section does not apply to certain types of transactions involving

solely barter (see § 1–110).

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 2–

201 of the Uniform Commercial Code adopted by the states.

Commentary. 1. The required writing need not contain all the material terms of

the contract and such materials terms as are stated need not be precisely

stated. All that is required is that the writing afford a basis for believing

that the offered oral evidence rests on a real transaction. It may be written

in lead pencil on a scratch pad. It need not indicate which party is the buyer

and which the seller.

The only term which must appear is the quantity term

which need not be accurately stated but recovery is limited to the amount

stated. The price, time and place of payment or delivery, the general quality

of the goods, or any particular warranties may all be omitted.

Special emphasis must be placed on the permissibility of omitting the price

term in view of the insistence of some courts on the express inclusion of this

term even where the parties have contracted on the basis of a published price

list. In many valid contracts for sale the parties do not mention the price in

express terms, the buyer being bound to pay and the seller to accept a

reasonable price which the trier of fact may well be trusted to determine.

Again, frequently the price is not mentioned since the parties have based their

agreement on a price list or catalogue known to both of them and this list

serves as an efficient safeguard against perjury. Finally, "market" prices and

valuations that are current in the vicinity constitute a similar check. Thus

if the price is not stated in the memorandum it can normally be supplied

without danger of fraud.

Of course if the "price" consists of goods rather

than money the quantity of goods must be stated.

Only three definite and invariable requirements as to the memorandum are made

by this Subsection. First, it must evidence a contract for the sale of goods;

second, it must be "signed", a word which includes any authentication which

identifies that party to be charged; and third, it must specify a quantity.

2. "Partial performance" as a substitute for the required memorandum can

validate the contract only for the goods which have been accepted or for which

payment has been made and accepted.

Receipt and acceptance either of goods or of the price constitutes an

unambiguous overt admission by both parties that a contract actually exists.

If the court can make a just apportionment, therefore, the agreed price of any

goods actually delivered can be recovered without a writing or, if the price

has been paid, the seller can be forced to deliver an apportionable part of the

goods. The overt actions of the parties make admissible evidence of the other

terms of the contract necessary to a just apportionment.

This is true even

though the actions of the parties are not in themselves inconsistent with a

different transaction such as a consignment for resale or a mere loan of money.

Part performance by the buyer requires the delivery of something by him that is

accepted by the seller as such performance. Thus, part payment may be made by

money or check, accepted by the seller. If the agreed price consists of goods

or services, then they must also have been delivered and accepted.

3. Between merchants, failure to answer a written confirmation of a contract

within 10 days of receipt is tantamount to a writing under Subsection (B) and

is sufficient against both parties under Subsection (A).

The only effect,

however, is to take away from the party who fails to answer the defense of the

Statute of Frauds; the burden of persuading the trier of fact that a contract

was in fact made orally prior to the written confirmation is unaffected.

Compare the effect of a failure to reply under § 2–207.

4. Failure to satisfy the requirements of this section does not render the

contract void for all purposes, but merely prevents it from being judicially

enforced in favor of a party to the contract. For example, a buyer who takes

possession of goods as provided in an oral contract which the seller has not

meanwhile repudiated is not a trespasser.

Nor would the Statute of Frauds

provisions of this section be a defense to a third person who wrongfully

induces a party to refuse to perform an oral contract, even though the injured

party cannot maintain an action for damages against the party so refusing to

perform.

5. The requirement of "signing" is discussed in the comment to § 1–201.

6. It is not necessary that the writing be delivered to anybody. It need not

be signed or authenticated by both parties but it is, of course, not sufficient

against one who has not signed it.

Prior to a dispute no one can determine

which party's signing of the memorandum may be necessary but from the time of

contracting each party should be aware that to him it is signing by the other

which is important.

7. If the making of a contract is admitted in court, either in a written

pleading, by stipulation or by oral statement before the court, no additional

writing is necessary for protection against fraud. Under this section it is no

longer possible to admit the contract in court and still treat the statute as a

defense.

However, the contract is not thus conclusively established.

The

admission so made by a party is itself evidential against him of the truth of

the facts so admitted and of nothing more; as against the other party, it is

not evidential at all.

8. Most transactions within the traditional Navajo culture are based on oral

agreements.

To maintain this tradition, certain barter transactions are

exempted from the Code.

Cross References

See Sections 1–201, 2–202, 2–207, 2–209 and 2–304.

Definitional Cross References

"Action".

Section 1–201.

"Between merchants".

"Buyer ".

Section 2–104.

Section 2–103.

"Contract".

Section 1–201.

"Contract for sale".

Section 2–106.

"Goods".

Section 2–105.

"Notice".

Section 1–201.

"Party".

Section 1–201.

"Reasonable time".

"Sale".

Section 1–204.

Section 2–106.

"Seller".

Section 2–103.

Special Plain Language Comment

This section is meant to reduce disputes over the existence of oral agreements

by requiring that certain types of agreements be in writing to be enforceable

in court. All contracts for the sale of goods with a price greater than five

hundred dollars ($500.00) must have three characteristics to be enforceable in

court:

(1) they must be in writing, (2) they must be signed by the party

against whom enforcement is sought, and (3) they must include the quantity of

goods sold. The section also sets up a special rule to confirm transactions

between merchants and two exceptions to the requirement of writing: (1) where

there is partial performance of the contract and, (2) where goods have been

"specially manufactured". Because of the oral traditions of the Navajo Nation,

transactions involving only barter are not subject to this restriction.

§ 2–202. Final written expression:

parol or extrinsic evidence

Terms with respect to which the confirmatory memoranda of the parties

agree or which are otherwise set forth in a writing intended by the parties as

a final expression of their agreement with respect to such terms as are

included therein may not be contradicted by evidence of any prior agreement or

of a contemporaneous oral agreement but may be explained or supplemented:

A. By course of dealing or usage of trade (§ 1–205) or by course of

performance (§ 2–208); and

B. By evidence of consistent additional terms unless the court finds the

writing to have been intended also as a complete and exclusive statement of the

terms of the agreement.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 2–

202 of the Uniform Commercial Code adopted by the states.

Commentary.

1. This section definitely rejects:

A. Any assumption that because a writing has been worked out which is final on

some matters, it is to be taken as including all the matters agreed upon;

B. The premise that the language used has the meaning attributable to such

language by rules of construction existing in the law rather than the meaning

which arises out of the commercial context in which it was used; and

C. The requirement that a condition precedent to the admissibility of the type

of evidence specified in Subsection (A) is an original determination by the

court that the language used is ambiguous.

2. Subsection (A) makes admissible evidence of course of dealing, usage of

trade and course of performance to explain or supplement the terms of any

writing stating the agreement of the parties in order that the true

understanding of the parties as to the agreement may be reached. Such writings

are to be read on the assumption that the course of prior dealings between the

parties and the usages of trade were taken for granted when the document was

phrased. Unless carefully negated they have become an element of the meaning

of the words used. Similarly, the course of actual performance by the parties

is considered the best indication of what they intended the writing to mean.

3. Under Subsection (B), consistent additional terms not reduced to writing may

be proved unless the court finds that the writing was intended by both parties

as a complete and exclusive statement of all the terms.

If the additional

terms are such that, if agreed upon, they would certainly have been included in

the document in the view of the court, then evidence of their alleged making

must be kept from the trier of fact.

Cross References

Point 3:

Sections 1–205, 2–207, 2–302 and 2–316.

Definitional Cross References

"Agreed" and "agreement".

"Course of dealing".

"Parties".

"Term".

Section 1–201.

Section 1–205.

Section 1–201.

Section 1–201.

"Usage of trade".

Section 1–205.

"Written" and "writing".

Section 1–201.

Special Plain Language Comment

A written agreement which is agreed to be "final" will supersede any evidence

of simultaneous oral agreements.

This section also provides that written

contracts will be interpreted in light of the customs or practices of the

particular industry.

§ 2–203. Seals inoperative

The affixing of a seal to a writing evidencing a contract for sale or an

offer to buy or sell goods does not constitute the writing a sealed instrument

and the law with respect to sealed instruments does not apply to such a

contract or offer.

History

CJA–1–86, January 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 2–

203 of the Uniform Commercial Code adopted by the states.

Commentary. 1. This section makes it clear that every effect of the seal which

relates to "sealed instruments" as such is wiped out insofar as contracts for

sale are concerned.

However, the substantial effects of a seal, except

extension of the period of limitations, may be had by appropriate drafting as

in the case of firm offers (see § 2–205).

2. This section leaves untouched any aspects of a seal which relate merely to

signatures or to authentication of execution and the like.

Thus, a statute

providing that a purported signature gives prima facie evidence of its own

authenticity or that a signature gives prima facie evidence of consideration is

still applicable to sales transactions even though a seal may be held to be a

signature within the meaning of such a statute.

Similarly, the authorized

affixing of a corporate seal bearing the corporate name to a contractual

writing purporting to be made by the corporation may have effect as a signature

without any reference to the law of sealed instrument.

Cross References

Point 1:

Section 2–205.

Definitional Cross References

"Contract for sale".

"Goods".

Section 2–106.

Section 2–105.

"Writing".

Section 1–201.

§ 2–204. Formation in general

A. A contract for sale of goods maybe made in any manner sufficient to

show agreement, including conduct by both parties which recognizes the

existence of such a contract.

B. An agreement sufficient to constitute a contract for sale may be found

even though the moment of its making is undetermined.

C. Even though one or more terms are left open a contract for sale does

not fail for indefiniteness if the parties have intended to make a contract and

there is reasonably certain basis for giving an appropriate remedy.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 2–

204 of the Uniform Commercial Code adopted by the states.

Commentary.

1. Subsection (A) continues without change the basic policy of

recognizing any manner of expression of agreement, oral, written or otherwise.

The legal effect of such an agreement is, of course, qualified by other

provisions of this article.

2. Under Subsection (A) appropriate conduct by the parties may be sufficient to

establish an agreement. Subsection (B) is directed primarily to the situation

where the interchanged correspondence does not disclose the exact point at

which the deal was closed, but the actions of the parties indicate that a

binding obligation has been undertaken.

3. Subsection (C) states the principle as to "open terms" underlying later

Sections of the Article.

If the parties intend to enter into a binding

agreement, this Subsection recognizes that agreement as valid in law, despite

missing terms, if there is any reasonably certain basis for granting a remedy.

The test is not certainty as to what the parties were to do nor as to the exact

amount of damages due the plaintiff. Nor is the fact that one or more terms

are left to be agreed upon enough in itself to defeat an otherwise adequate

agreement. Rather, commercial standards on the point of "indefiniteness" are

intended to be applied, this Code making provision elsewhere for missing terms

needed for performance, open price, remedies and the like.

4. The more terms the parties leave open, the less likely it is that they have

intended to conclude a binding agreement, but their actions may be frequently

conclusive on the matter despite the omissions.

Cross References

Subsection (A):

Sections 1–103, 2–201 and 2–302.

Subsection (B):

Sections 2–205 through 2–209.

Subsection (C):

See Part 3.

Definitional Cross References

"Agreement".

Section 1–201.

"Contract".

Section 1–201.

"Contract for Sale".

Section 2–106.

"Goods".

Section 2–105.

"Party".

Section 1–201.

"Remedy".

Section 1–201.

"Term".

Section 1–201.

Special Plain Language Comment

This section emphasizes that two parties may demonstrate an agreement in a

variety of ways and that once an "agreement" is found to have been made the

Code will attempt to resolve any unclear terms.

§ 2–205. Firm offers

An offer by a merchant to buy or sell goods in a signed writing which by

its terms gives assurance that it will be held open is not revocable, for lack

of consideration, during the time stated or if no time is stated for a

reasonable time, but in no event may such period of irrevocability exceed three

months; but any such term of assurance on a form supplied by the offeree must

be separately signed by the offeror.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 2–

205 of the Uniform Commercial Code adopted by the states.

Commentary.

1. This section is intended to modify the former rule which

required that "firm offers" be sustained by consideration in order to bind, and

to require instead that they must merely be characterized as such and expressed

in signed writings.

2. The primary purpose of this section is to give effect to the deliberate

intention of a merchant to make a current firm offer binding. The deliberation

is shown in the case of an individualized document by the merchant's signature

to the offer, and in the case of an offer included on a form supplied by the

other party to the transaction by the separate signing of the particular clause

which contains the offer. "Signed" here also includes authentication but the

reasonableness of the authentication wherein allowed must be determined in the

light of the purpose of the section. The circumstances surrounding the signing

may justify something less than a formal signature or initialing but typically

the kind of authentication involved here would consist of a minimum of

initialing of the clause involved.

A handwritten memorandum on the writer's

letterhead purporting in its terms to "confirm" a firm offer already made would

be enough to satisfy this section, although not subscribed, since under the

circumstances it could not be considered a memorandum of mere negotiation and

it would adequately show its own authenticity.

Similarly, an authorized

telegram will suffice, and this is true even though the original draft

contained only a typewritten signature.

However, despite settled courses of

dealing or usages of the trade whereby firm offers are made by oral

communication and relied upon without more evidence, such offers remain

revocable under this article since authentication by a writing is the essence

of this section.

3. This section is intended to apply to current "firm" offers and not to long

term options, and an outside time limit of three months during which such

offers remain irrevocable has been set.

The three-month period during which

firm offers remain irrevocable under this section need not be stated by days or

by date.

If the offer states that it is "guaranteed" or "firm" until the

happening of a contingency which will occur within the three-month period, it

will remain irrevocable until that event. A promise made for a longer period

will operate under this section to bind the offeror only for the first three

months of the period but may of course be renewed.

If supported by

consideration it may continue for a long as the parties specify. This section

deals only with the offer which is not supported by consideration.

4. Protection is afforded against the inadvertent signing of a firm offer when

contained in a form prepared by the offeree by requiring that such a clause be

separately authenticated.

If the offer clause is called to the offeror's

attention and he separately authenticates it, he will be bound; § 2–302 may

operate, however, to prevent an unconscionable result which otherwise would

flow from other terms appearing in the form.

5. Safeguards are provided to offer relief in the case of material mistake by

virtue of the requirement of good faith and the general law of mistake.

Cross References

Point 1:

Section 1–102.

Point 2:

Section 1–102.

Point 3:

Section 2–201.

Point 5:

Section 2–302.

Definitional Cross References

"Goods".

Section 2–105.

"Merchant".

Section 2–104.

"Signed".

Section 1–201.

"Writing".

Section 1–201.

Special Plain Language Comment

Normally an offer may be revoked prior to acceptance unless something of value

is received to keep the offer open. Merchants, however, are held to a higher

standard of conduct and must keep their promise to keep an offer open even

without consideration, if the offer is in writing and signed by the merchant.

The section protects merchants making such offers by limiting the duration that

the operation will remain open to a "reasonable period" but not more than three

months.

§ 2–206. Offer and acceptance in formation of contract

A. Unless

circumstances:

otherwise

unambiguously

indicated

by

the

language

or

1. An offer or make a contract shall be construed as inviting

acceptance in any manner and by any medium reasonable in the

circumstances;

2. An order or other offer to buy goods for prompt or current

shipment shall be construed as inviting acceptance either by a prompt

promise to ship or by the prompt or current shipment of conforming or

non-conforming goods, but such a shipment of non-conforming goods does

not constitute an acceptance if the seller seasonably notifies the buyer

that the shipment is offered only as an accommodation to the buyer.

B. Where the beginning of a requested performance is a reasonable mode of

acceptance, an offeror who is not notified of acceptance within a reasonable

time may treat the offer as having lapsed before acceptance.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 2–

206 of the Uniform Commercial Code adopted by the states.

Commentary. 1. Any reasonable manner of acceptance is intended to be regarded

as available unless the offeror has made quite dear that it will not be

acceptable.

Former technical rules as to acceptance, such as requiring that

telegraphic offers be accepted by telegraphed acceptance, etc., are rejected

and a criterion that the acceptance be "in any manner and by any medium

reasonable under the circumstances", is substituted. This section is intended

to remain flexible and its applicability to be enlarged as new media of

communication develop or as the more time-saving present-day media come into

general use.

2. Either shipment or a prompt promise to ship is made a proper means of

acceptance of an offer looking to current shipment.

In accordance with

ordinary commercial understanding the section interprets an order looking to

current shipment as allowing acceptance either by actual shipment or by a

prompt promise to ship and rejects the artificial theory that only a single

mode of acceptance is normally envisaged by an offer. This is true even though

the language of the offer happens to be "ship at once" or the like. "Shipment"

is here used in the same sense as in § 2–504;

it does not include the

beginning of delivery by the seller's own truck or by messenger. But loading

on the seller's own truck might be a beginning of performance under Subsection

(B).

3. The beginning of performance by an offeree can be effective as acceptance so

as to bind the offeror only if followed within a reasonable time by notice to

the offeror.

Such a beginning of performance must unambiguously express the

offeree's intention to engage himself. For the protection of both parties it

is essential that notice follow in due course to constitute acceptance.

Nothing in this section however bars the possibility that under the common law

performance begun may have an intermediate effect of temporarily barring

revocation of the offer, or at the offeror's option, final effect in

constituting acceptance

4. Subsection (A)(2) deals with the situation where a shipment made following

an order is shown by a notification of shipment to be referable to that order

but has a defect. Such a non-conforming shipment is normally to be understood

as intended to close the bargain, even though it proves to have been at the

same time a breach.

However, the seller by stating that the shipment is

non-conforming and is offered only as an accommodation to the buyer keeps the

shipment or notification from operating as an acceptance.

Definitional Cross References

"Buyer".

Section 2–103.

"Conforming".

"Contract".

"Goods".

Section 2–106.

Section 1–201.

Section 2–105.

"Notifies".

Section 1–201.

"Reasonable time".

Section 1–204.

Special Plain Language Comment

To ensure maximum flexibility an offer may be accepted in any "reasonable" way

unless the offer requires a specific method of acceptance. An order for goods

maybe accepted by shipping or promising to ship the goods.

If the goods

requested are not available, the shipper may deliver other "non-conforming"

goods as a substitute although no agreement is formed by such shipment and the

person ordering goods may accept or reject the "non-conforming" goods. Where

an offer invites acceptance by beginning performance, the person accepting the

offer must notify the offeror of his acceptance by beginning the performance or

the offeror will not be bound (offers which require completion of a certain

performance are not governed by this rule and are only accepted upon completion

of the performance).

§ 2–207. Additional terms in acceptance or confirmation

A. A definite and seasonable expression of acceptance or a written

confirmation which is sent within a reasonable time operates as an acceptance

even though it states terms additional to or different from those offered or

agreed upon, unless acceptance is expressly made conditional on assent to the

additional or different terms.

B. The additional terms are to be construed as proposals for addition to

the contract. Between merchants such terms become part of the contract unless:

1. The offer expressly limits acceptance to the terms of the offer;

2. They materially alter it;

or

3. Notification of objection to them has already been given or is

given within a reasonable time after notice of them is received.

C. Conduct by both parties which recognizes the existence of a contract

is sufficient to establish a contract for sale although the writings of the

parties do not otherwise establish a contract. In such case the terms of the

particular contract consist of those terms on which the writings of the parties

agree, together with any supplementary terms incorporated under any other

provisions of this Code.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 2–

207 of the Uniform Commercial Code adopted by the states.

Commentary. 1. This section is intended to deal with two typical situations.

The one is the written confirmation, where an agreement has been reached either

orally or by informal correspondence between the parties and is followed by one

or both of the parties sending formal memoranda embodying the terms so far as

agreed upon and adding terms not discussed. The other situation is offer and

acceptance, in which a wire or letter expressed and intended as an acceptance

or the closing of an agreement adds further minor suggestions or proposals such

as "ship by Tuesday", "rush", "ship draft against bill of lading inspection

allowed", or the like.

A frequent example of the second situation is the

exchange of printed purchase order

and acceptance

(sometimes called

"acknowledgment") forms. Because the forms are oriented to the thinking of the

respective drafting parties, the terms contained in them often do not

correspond.

Often the seller's form contains terms different from or

additional to those set forth in the buyer's form. Nevertheless, the parties

proceed with the transaction.

2. Under this article a proposed deal which in commercial understanding has in

fact been closed is recognized as a contract. Therefore, any additional matter

contained in the confirmation or in the acceptance falls within Subsection (B)

and must be regarded as a proposal for an added term unless the acceptance is

made conditional on the acceptance of the additional or different terms.

3. Whether or not additional or different terms will become part of the

agreement depends upon the provisions of Subsection (B). If they are such as

materially to alter the original bargain, they will not be included unless

expressly agreed to by the other party.

If, however, they are terms which

would not so change the bargain they will be incorporated unless notice of

objection to them has already been given or is given within a reasonable time.

4. Examples of typical clauses which would normally "materially alter" the

contract and so result in surprise or hardship if incorporated without express

awareness by the other party are: a clause negating such standard warranties

as that of merchantability or fitness for a particular purpose in circumstances

in which either warranty normally attaches; a clause requiring a guaranty of

ninety percent (90%) or one hundred percent (100%) deliveries in a case such as

a contract by cannery, where the usage of the trade allows greater quantity

leeways; a clause reserving to the seller the power to cancel upon the buyer's

failure to meet any invoice when due; a clause requiring that complaints be

made in a time materially shorter than customary or reasonable.

5. Examples of clauses which involve no element of unreasonable surprise and

which therefore are to be incorporated in the contract unless notice of

objection is seasonably given are:

a clause setting forth and perhaps

enlarging slightly upon the seller's exemption due to supervening causes beyond

his control, similar to those covered by the provision of this article on

merchant's excuse by failure of presupposed conditions or a clause fixing in

advance any reasonable formula of proration under such circumstances; a clause

fixing a reasonable time for complaints within customary limits, or in the case

of a purchase for sub-sale, providing for inspection by the sub-purchaser; a

clause providing for interest on overdue invoices or fixing the seller's

standard credit terms where they are within the range of trade practice and do

not limit any credit bargained for; a clause limiting the right of rejection

for defects which fall within the customary trade tolerances for acceptance

"with adjustment" or otherwise limiting remedy in a reasonable manner (see §§

2–718 and 2–719).

6. If no answer is received within a reasonable time after additional terms are

proposed, it is both fair and commercially sound to assume that their inclusion

has been assented to. Where clauses on confirming forms sent by both parties

conflict each party must be assumed to object to a clause of the other

conflicting with one on the confirmation sent by himself.

As a result, the

requirement that there be notice of objection which is found in Subsection (B)

is satisfied and the conflicting terms do not become a part of the contract.

The contract then consists of the terms originally expressly agreed to, terms

on which the confirmations agree, and terms supplied by this Code, including

Subsection (B). The written confirmation is also subject to § 2–201. Under

that section a failure to respond permits enforcement of a prior oral

agreement; under this section a failure to respond permits additional terms to

become part of the agreement.

7. In many cases, as where goods are shipped, accepted and paid for before any

dispute arises, there is no question whether a contract has been made. In such

cases, where the writings of the parties do not establish a contract, it is not

necessary to determine which act or document constituted the offer and which

the acceptance. See § 2–204. The only question is what terms are included in

the contract, and Subsection (C) furnishes the governing rule.

Cross References

See generally Section 2–302.

Point 5: Sections 2–513, 2–602, 2–607, 2–609, 2–612, 2–614, 2–615, 2–616, 2–

718 and 2–719.

Point 6:

Sections 1–102 and 2–104.

Definitional Cross References

"Between merchants".

"Contract".

Sections 2–104.

Section 1–201.

"Notification".

Section 1–201.

"Reasonable time".

"Seasonably".

Section 1–204.

Section 1–204.

"Send".

Section 1–201.

"Term".

Section 1–201.

"Written".

Section 1–201.

§ 2–208. Course of performance or practical construction

A. 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.

B. 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 reasonable 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 (§ 1–

205).

C. Subject to the 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.

History

CJA–1–86, January 19, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 2–

208 of the Uniform Commercial Code adopted by the states.

Commentary. 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.

This section thus rounds out the set of factors

which determines the meaning of the "agreement" and therefore also of the

"unless otherwise agreed" qualification to various provisions of this article.

2. Under this section a course of performance is always relevant to determine

the meaning of the agreement.

Express mention of course of performance

elsewhere in this article carries no contrary implication when there is a

failure to refer to it in other Sections.

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,

plus the application of the provisions on the reinstatement of rights waived

(see § 2–209), is needed to preserve the flexible character of commercial

contracts and to prevent surprise or other hardship.

4. A single occasion of conduct does not fall within the language of this

section but other sections such as the ones on silence after acceptance and

failure to specify particular defects can affect the parties' rights on a

single occasion (see §§ 2–605 an 2–607).

Cross References

Point 1:

Section 1–201.

Point 2:

Section 2–202.

Point 3:

Sections 2–209, 2–601 and 2–607.

Point 4:

Sections 2–605 and 2–607.

§ 2–209. Modification, rescission and waiver

A. An agreement modifying

consideration to be binding.

a

contract

within

this

article

needs

no

B. A signed agreement which excludes modification or rescission except by

a signed writing cannot be otherwise modified or rescinded, but except as

between merchants such a requirement on a form supplied by the merchant must be

separately signed by the other party.

C. The requirements of the Statute of Frauds section of this article (§

2–201) must be satisfied if the contract as modified is within its provisions.

D. Although an attempt at modification or rescission does not satisfy the

requirements of Subsection (B) or (C) it can operate as a waiver.

E. A party who has made a waiver affecting an executory portion of the

contract may retract the waiver by reasonable notification received by the

other party that strict performance will be required of any term waived, unless

the retraction would be unjust in view of a material change of position in

reliance on the waiver.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 2–

209 of the Uniform Commercial Code adopted by the states.

Commentary. 1. This section seeks to protect and make effective all necessary

and

desirable

modifications

of

sales

contracts

without

regard

to

technicalities.

2. Subsection (A) provides that an agreement modifying a sales contract needs

no consideration to be binding.

However, modifications made thereunder must meet the test of good faith imposed

by this Code.

The effective use of bad faith to escape performance on the

original contract terms is barred, and the extortion of a "modification"

without legitimate commercial reason is ineffective as a violation of the duty

of good faith. Nor can a mere technical consideration support a modification

made in bad faith.

The test of "good faith" between merchants or as against merchants includes

"observance of reasonable commercial standards of fair dealing in the trade" (§

2–103), and may in some situations require an objectively demonstrable reason

for seeking a modification.

But such matters as a market shift which makes

performance come to involve a loss may provide such a reason even though there

is no such unforeseen difficulty as would make out a legal excuse from

performance under §§ 2–615 and 2–616.

3. Subsections (B) and (C) are intended to protect against false allegations of

oral modifications. "Modification or rescission" includes abandonment or other

change by mutual consent, it does not include unilateral "termination" or

"cancellation" as defined in § 2–106.

The Statute of Frauds provisions of this article are expressly applied to

modifications by Subsection (C).

Under those provisions the "delivery and

acceptance" test is limited to the goods which have been accepted, that is, to

the past.

"Modification" for the future cannot therefore be conjured up by

oral testimony if the price involved is five hundred dollars ($500.00) or more

since such modification must be shown at least by an authenticated memo. And

since a memo is limited in its effect to the quantity of goods set forth in it,

there is safeguard against oral evidence.

Subsection (B) permits the parties in effect to make their own Statute of

Frauds as regards any future modification of the contract by giving effect to a

clause in a signed agreement which expressly requires any modification to be by

signed writing. But note that if a consumer is to be held to such a clause on

a form supplied by a merchant it must be separately signed.

4. Subsection (D) is intended, despite the provisions of Subsections (B) and

(C), to prevent contractual provisions excluding modification except by a

signed writing from limiting in other respects the legal effect of the parties'

actual later conduct.

The effect of such conduct as a waiver is further

regulated in Subsection (E).

Cross References

Point 1:

Section 1–203.

Point 2:

Sections 1–201, 1–203, 2–615 and 2–616.

Point 3:

Sections 2–106, 2–201 and 2–202.

Point 4:

Sections 2–202 and 2–208.

Definitional Cross References

"Agreement".

Section 1–201.

"Between merchants".

"Contract".

Section 1–201.

"Notification".

"Signed".

"Term".

Section 2–104.

Section 1–201.

Section 1–201.

Section 1–201.

"Writing".

Section 1–201.

§ 2–210. Delegation of performance:

assignment of rights

A. A party may perform his duty through a delegate unless otherwise

agreed or unless the other party has a substantial interest in having his

original promisor perform or control the acts required by the contract.

No

delegation of performance relieves the party of delegating of any duty to

perform or any liability for breach.

B. Unless otherwise agreed all rights of either seller or buyer can be

assigned except where the assignment would materially change the duty of the

other party, or increase materially the burden or risk imposed on him by his

contract, or impair materially his chance of obtaining return performance. A

right to damages for breach of the whole contract or a right arising out of the

assignor's due performance of his entire obligation can be assigned despite

agreement otherwise.

C. Unless the circumstances indicate the contrary, a prohibition of

assignment of "the contract" is to be construed as barring only the delegation

to the assignee of the assignor's performance.

D. An assignment of "the contract" or of "all my rights under the

contract" or an assignment in similar general terms is an assignment of rights

and unless the language or the circumstances (as in an assignment for security)

indicate the contrary, it is a delegation of performance of the duties of the

assignor and its acceptance by the assignee constitutes a promise by him to

perform those duties.

This promise is enforceable by either the assignor or

the other party to the original contract.

E. The other party may treat any assignment which delegates performance

as creating reasonable grounds for insecurity and may without prejudice to his

rights against the assignor demand assurances from the assignee (§ 2–609).

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and, effect as § 2–

210 of the Uniform Commercial Code adopted by the states.

Commentary.

1. Generally, this section recognizes both delegation of

performance and assignability as normal and permissible incidents of a contract

for the sale of goods.

2. Delegation of performance, either in conjunction with an assignment or

otherwise, is provided for by Subsection (A) where no substantial reason can be

shown as to why the delegated performance will not be as satisfactory as

personal performance.

3. Under Subsection (B) rights which are no longer executory such as a right to

damages for breach or a right to payment of an "account" as defined in the

Article on Secured Transactions (Article 9) may be assigned although the

agreement prohibits assignment. In such cases no question of delegation of any

performance is involved.

The assignment of a "contract right" as defined in

the Article on Secured Transactions (Article 9) is not covered by this

Subsection.

4. The nature of the contract or the circumstances of the case, however, may

bar assignment of the contract even where delegation of performance is not

involved. This article and this section are intended to clarify this problem,

particularly in cases dealing with output requirement and exclusive dealing

contracts.

In the first, place the section on requirement and exclusive

dealing removes from the construction of the original contract most of the

"personal discretion" element by substituting the reasonably objective standard

of good faith operation of the plant or business to be supplied. Secondly, the

section on insecurity and assurances, which is specifically referred to in

Subsection (E) of this section, frees the other party from the doubts and

uncertainty which may afflict him under an assignment of the character in

question by permitting him to demand adequate assurance of due performance

without which he may suspend his own performance. Subsection (E) is not in any

way intended to limit the effect of the section on insecurity and assurances

and the word "performance" includes the giving of orders under a requirements

contract.

Of course, in any case where a material personal discretion is

sought to be transferred, effective assignment is barred by Subsection (B).

5. Subsection (D) lays down a general rule of construction distinguishing

between a normal commercial assignment, which substitutes the assignee for the

assignor both as to rights and duties, and a financing assignment in which only

the assignor's rights are transferred.

This article takes no position on the possibility of extending some recognition

or power to the original parties to work out normal commercial readjustments of

the contract in the case of financing assignments even after the original

obligor has been notified of the assignment. This question is dealt with in

the Article on Secured Transactions (Article 9).

6. Subsection (E) recognizes that the non-assigning original party has a stake

in the reliability of the person with whom he has closed the original contract,

and is, therefore, entitled to due assurance that any delegated performance

will be properly forthcoming.

7. This section is not intended as a complete statement of the law of

delegation and assignment but is limited to clarifying a few points.

Particularly, neither this section nor this article touches directly on such

questions as the need or effect of notice of the assignment, the rights of

successive assignees or any question of the form of an assignment, either as

between the parties or as against any third parties. Some of these questions

are dealt with in Article 9.

Cross References

Point 3:

Article 9.

Point 4:

Sections 2–306 and 2–609.

Point 5:

Article 9, §§ 9–317 and 9–318.

Point 7:

Article 9.

Definitional Cross References

"Agreement".

Section 1–201.

"Buyer".

Section 2–103.

"Contract".

Section 1–201.

"Party".

Section 1–201.

"Rights".

Section 1–201.

"Seller".

Section 2–103.

"Term".

Section 1–201.

Part 3. General Obligation and Readjustment of Contract

§ 2–301. General obligation of parties

The obligation of the Seller is to transfer and deliver and that of the

buyer is to accept and pay in accordance with the contract.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 2–

301 of the Uniform Commercial Code adopted by the states.

Commentary. 1. This section uses the term "obligation" in contrast to the term

"duty" in order to provide for the "condition" aspects of delivery and payment

insofar as they are not modified by other sections of this article such as

those on cure of tender and replaces the general provisions of that Code on the

effect of conditions. In order to determine what is "in accordance with the

contract" under this article, usage of trade, course of dealing and

performance, and the general background of circumstances must be given due

consideration in conjunction with the lay meaning of the words used to define

the scope of the conditions and duties.

Cross References

Sections 1–106.

See also §§ 1–205, 2–208, 2–209, 2–508 and 2–612.

Definitional Cross References

"Buyer".

Section 2–103.

"Contract".

"Party".

Section 1–201.

Section 1–201.

"Seller".

Section 2–103.

§ 2–302. Unconscionable contractor clause

A. If the court as a matter of law finds the contract or any clause of

the contract to have been unconscionable at the time it was made the court may

refuse to enforce the contract, or it may enforce the remainder of the contract

without the unconscionable clause, or it may so limit the application of any

unconscionable clause as to avoid any unconscionable result.

B. When it is claimed or appears to the court that the contract or any

clause thereof may be unconscionable the parties shall be afforded a reasonable

opportunity to present evidence as to its commercial setting, purpose and

effect to aid the court in making the determination.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 2–

302 of the Uniform Commercial Code adopted by the states.

Commentary.

This section is intended to make it possible for the courts to

police explicitly against the contracts or clauses which they find to be

unconscionable.

In the past such policing has been accomplished by adverse

construction of language, by manipulation of the rules of offer and acceptance

or by determinations that the clause is contrary to public policy or to the

dominant purpose of the contract. This section is intended to allow the court

to pass directly on the unconscionability of the contract or particular clause

therein and to make a conclusion of law as to its unconscionability. The basic

test is whether, in the light of the general commercial background and the

commercial needs of the particular trade or case, the clauses involved are so

one-sided as to be unconscionable under the circumstances existing at the time

of the making of the contract. Subsection (B) makes it dear that it is proper

for the court to hear evidence upon these questions. The principle is one of

the prevention of oppression and unfair surprise (Cf.

Campbell Soup Co. v.

Wentz, 172 F.2d 80, 3d Cir. 1948) and not of disturbance of allocation of risks

because of superior bargaining power.

2. Under this section the court, in its discretion, may refuse to enforce the

contract as a whole if it is permeated by the unconscionability, or it may

strike any single clause or group of clauses which are so tainted or which are

contrary to the essential purpose of the agreement, or it may simply limit

unconscionable clauses so as to avoid unconscionable results.

3. The present section is addressed to the court, and the decision is to be

made by it. The commercial evidence referred to in Subsection (B) is for the

court's consideration, not the jury's. Only the agreement which results from

the court's action on these matters is to be submitted to the general triers of

the facts.

Definitional Cross References

"Contract".

Section 1–201.

Special Plain Language Comment

This section provides an exception to the general principle of freedom of

contract under the Code.

It recognizes that in some cases the lack of

bargaining power of one party compared to that of the other party will result

in an oppressive contract.

In the past courts had refused to enforce such

contracts or provisions by manipulating legal rules about contracts-this

section allows courts to do openly what they had previously done under cover.

Although "unconscionability" is not defined because of the variety of the

behavior which can be unconscionable, provisions or contracts which are found

to be unconscionable fall into certain categories:

(1) the agreement of one

party was obtained due to his ignorance or carelessness which was known to the

other party; (2) the agreement was difficult to read or deceptively arranged,

(3) parts of the agreement nullify the core duty of the contract;

(4) the

price is excessively high by several times the value of the goods; or (5) the

seller has unduly enlarged or unduly restricted the remedies of the buyer.

Unconscionability is determined at the time the contract was made-it does not

apply to situations where the value of the goods has changed over time.

A

court has considerable freedom to act to rectify an unconscionable contract-it

may refuse to enforce the whole contract, a part of the contract, cancel

further payments or demand refund of certain payments. Although the scope of

unconscionability is broad, it should not be seen as a way of avoiding

contractual duties-it is used only to adjust the most oppressive and unjust

contracts.

Annotations

1. Unconscionable arbitration clause

"Considering all of these principles together, the Court holds that the

specific arbitration clause in the financing contract is unenforceable. Though

arbitration generally is encouraged, clauses that mandate arbitration are not

immune from scrutiny for unconscionability or consistency with Fundamental

Law." Green Tree Servicing, LLC v. Duncan, No. SC–CV–46–05, slip op. at 12

(Nav. Sup. Ct. August 18, 2008).

§ 2–303. Allocation or division of risks

Where this article allocates a risk or a burden as between the parties

"unless otherwise agreed", the agreement may not only shift the allocation but

may also divide the risk or burden.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 2–

303 of the Uniform Commercial Code adopted by the states.

Commentary. 1. This section is intended to make it dear that the parties may

modify or allocate "unless otherwise agreed" risks or burdens imposed by this

article as they desire, always subject, of course, to the provisions on

unconscionability. Compare § 1–102(D).

2. The risk or burden may be divided by the express terms of the agreement or

by the attending circumstances, since under the definition of "agreement" in

this Code, the circumstances surrounding the transaction, as well as the

express language used by the parties enter into the meaning and substance of

the agreement.

Cross References

Point 1:

Sections 1–102 and 2–302.

Point 2:

Section 1–201.

Definitional Cross References

"Party".

Section 1–201.

"Agreement".

Section 1–201.

Special Plain Language Comment

The Code divides risks between the parties but the parties can alter this

division of risks in the agreement in any manner they wish.

However, the

parties may not in their agreement change certain duties under the Code. Those

duties include those of good faith, diligence, reasonableness and care, nor may

the parties waive the application of the doctrine of unconscionability to their

agreement.

§ 2–304. Price payable in money, goods, realty, or otherwise

A. The price can be made payable in money or otherwise. If it is payable

in whole or in part in goods each party is a seller of the goods which he is to

transfer.

B. Even though all or part of the price is payable in an interest in

realty the transfer of the goods and the seller's obligations with reference to

them are subject to this article, but not the transfer of the interest in

realty or the transferor's obligations in connection therewith.

History

CJA–1–86, January 29, 1986.

Official Comment

Changes. This section is intended to have the same meaning and effect as § 2–

304 of the Uniform Commercial Code adopted by the states. The transfer of real

property on the Navajo Indian Country may be affected by the federal

government's trust responsibilities.

Commentary.

1. Under Subsection (A) the provisions of this article are

applicable to transactions where the "price" of goods is payable in something

other than money. This does not mean, however, that this whole Article applies

automatically and in its entirety simply because an agreed transfer of title to

goods is not a gift. The basic purposes and reasons of the Article must always

be considered in determining the applicability of any of its provisions.

2. Subsection (B) lays down the general principle that when goods are to be

exchanged for realty, the provisions of this article apply only to those

aspects of the transaction which concern the transfer of title to goods but do

not affect the transfer of the realty since the detailed regulation of various

particular contracts which fall outside the scope of this article is left to

the courts and other legislation.

However, the complexities of these

situations may be such that each must be analyzed in the light of the

underlying reasons

in order to determine the applicable principles.

Transactions involving real property on the Navajo Nation are affected by the

trust responsibility of the federal government. See § 2–107. Navajo statutes

dealing with realty are not to be lightly disregarded or altered by language of

this article. In contrast, this article declares definite policies in regard

to certain matters legitimately within its scope though concerned with real

property situations, and in those instances the provisions of this article

control.

Cross References

Point 2:

Sections 1–102, 1–103, 1–104 and 2–107.

Definitional Cross References

"Goods".

Section 2–105.

"Money".

Section 1–201.

"Party".

Section 1–201.

"Seller".

Section 2–103.

Special Plain Language Comment

Article 2 governs not only the most common type of sale, goods exchanged for

cash, but also goods exchanged for goods, goods exchanged for services and even

goods exchanged for realty.

In barter transactions a person may be both a

buyer and seller; a "buyer" of the goods he or she obtains and a "seller" of

the goods he or she exchanges.

The status of a person as a "seller" is

important for the purposes of warranties. See §§ 2–312 to 2–315.

§ 2–305. Open price term

A. The parties if they so intend can conclude a contract for sale even

though the price is not settled.

In such a case the price is a reasonable

price at the time for delivery if:

1. Nothing is said as to price;

or

agree;

2. The pric

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