(a) A "course of performance" is a sequence of conduct between the parties to a particular transaction that exists if:

(1) the agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and

(2) the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection.

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

(c) A "usage of trade" is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage must be proved as facts. If it is established that such a usage is embodied in a trade code or similar record, the interpretation of the record is a question of law.

(d) A course of performance or course of dealing between the parties or usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware is relevant in ascertaining the meaning of the parties' agreement, may give particular meaning to specific terms of the agreement and may supplement or qualify the terms of the agreement. A usage of trade applicable in the place in which part of the performance under the agreement is to occur may be so utilized as to that part of the performance.

(e) Except as otherwise provided in Subsection (f) of this section, the express terms of an agreement and any applicable course of performance, course of dealing or usage of trade must be construed whenever reasonable as consistent with each other. If such a construction is unreasonable:

(1) express terms prevail over course of performance, course of dealing and usage of trade;

(2) course of performance prevails over course of dealing and usage of trade; and

(3) course of dealing prevails over usage of trade.

(f) Subject to Sections 55-2-209 and 55-2A-208 NMSA 1978, a course of performance is relevant to show a waiver or modification of any term inconsistent with the course of performance.

(g) Evidence of a relevant usage of trade offered by one party is not admissible unless that party has given the other party notice that the court finds sufficient to prevent unfair surprise to the other party.

History: 1953 Comp., § 50A-1-205, enacted by Laws 1961, ch. 96, § 1-205; 1978 Comp. §55-1-205; recompiled by compiler as 1978 Comp. § 55-1-303; Laws 2005, ch. 144, § 17; 2009, ch. 234, § 1.

OFFICIAL COMMENTS

UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.

Source. — Former Sections 1-205, 2-208, and 2A-207 [55-1-205, 55-2-208, and 55-2A-207 NMSA 1978, respectively].

Changes from former law. — This section integrates the "course of performance" concept from Articles 2 and 2A into the principles of former Section 1-205 [55-1-205 NMSA 1978], which deals with course of dealing and usage of trade. In so doing, the section slightly modifies the articulation of the course of performance rules to fit more comfortably with the approach and structure of former Section 1-205. There are also slight modifications to be more consistent with the definition of "agreement" in former Section 1-201(3) [55-1-201(3) NMSA 1978]. It should be noted that a course of performance that might otherwise establish a defense to the obligation of a party to a negotiable instrument is not available as a defense against a holder in due course who took the instrument without notice of that course of performance.

1. The Uniform Commercial 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," as defined in Subsection (b), is restricted, literally, to a sequence of conduct between the parties previous to the agreement. A sequence of conduct after or under the agreement, however, is a "course of performance." "Course of dealing" may enter the agreement either by explicit provisions of the agreement or by tacit recognition.

3. The Uniform Commercial Code deals with "usage of trade" as a factor in reaching the commercial meaning of the agreement that 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," the Uniform Commercial 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.

4. A usage of trade under Subsection (c) 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 (c) full recognition is thus available for new usages and for usages currently observed by the great majority of decent dealers, even though dissidents ready to cut corners do not agree. There is room also for proper recognition of usage agreed upon by merchants in trade codes.

5. The policies of the Uniform Commercial Code controlling explicit unconscionable contracts and clauses (Sections 1-304, 2-302 [55-1-304, 55-2-302 NMSA 1978]) apply to implicit clauses that rest on usage of trade and carry 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.

6. Subsection (d), giving the prescribed effect to usages of which the parties "are or should be aware," reinforces the provision of Subsection (c) requiring not universality but only the described "regularity of observance" of the practice or method. This subsection also reinforces the point of Subsection (c) that such usages may be either general to trade or particular to a special branch of trade.

7. Although the definition of "agreement" in Section 1-201 includes the elements of course of performance, 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 Section 1-302(c) [55-1-302(c) NMSA 1978].

8. In cases of a well established line of usage varying from the general rules of the Uniform Commercial 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.

9. Subsection (g) is intended to insure that this Act's liberal recognition of the needs of commerce in regard to usage of trade shall not be made into an instrument of abuse.

Compiler's notes. — Laws 2005, ch. 144, § 17, effective January 1, 2006, enacted a new 55-1-303 NMSA 1978 relating to course of performance, course of dealing and usage of trade. The substance of former 55-1-205 NMSA 1978, relating to course of dealing and usage or trade has been enacted as a new 55-1-303 NMSA 1978 by Laws 2005, ch. 144, § 17. See 12-2A-14 NMSA 1978 for repeal and reenactment of a law that is not a new enactment. For provisions of former 55-1-205 NMSA 1978, see the 2004 NMSA 1978 on NMOneSource.com..

The 2009 amendment, effective January 1, 2010, in Subsection (f), added the reference to Section 55-2A-208 NMSA 1978.

Establishes existence and terms of contract. — The course of conduct of the parties may not only establish the existence of a contract, but the terms as well. Terrel v. Duke City Lumber Co., 1974-NMCA-041, 86 N.M. 405, 524 P.2d 1021, rev'd on other grounds, 1975-NMSC-041, 88 N.M. 299, 540 P.2d 229.

Where handbook controls contract. — Where undisputed evidence shows course of conduct that made handbook part of plaintiff's contract, handbook was treated as controlling the relationship between the university administration and its faculty, and failure of the university administration to follow procedures outlined therein constituted a breach of contract by the university. Hillis v. Meister, 1971-NMCA-034, 82 N.M. 474, 483 P.2d 1314.

Where the jury found that there was one continuing contract, not separate loans, then the furnishing of working capital may constitute a course of conduct. Terrel v. Duke City Lumber Co., 1974-NMCA-041, 86 N.M. 405, 524 P.2d 1021, rev'd on other grounds, 1975-NMSC-041, 88 N.M. 299, 540 P.2d 229.

Terms of written contract may carry over into substantially identical oral contract. — Where, after a written contract is terminated, an oral contract is entered into, and where there is a course of dealing for a number of years under the oral contract, which is identical in all respects other than to whom payment would be made, the provisions of which are fully known to and understood by the buyer, who has the obligation to give timely notice or waive any and all claims, the terms of the written contract carry over into the oral arrangement. Bowlin's, Inc. v. Ramsey Oil Co., 1983-NMCA-038, 99 N.M. 660, 662 P.2d 661, cert. denied, 99 N.M. 644, 662 P.2d 645.

Express terms control where irreconcilable with course of dealing. — Where the express terms of a contract cannot be reconciled with an established course of dealing, the express terms control. Celebrity, Inc. v. Kemper, 1981-NMSC-084, 96 N.M. 508, 632 P.2d 743.

Summary judgment improper. — The trial court erred in granting summary judgment to a bank, on a default clause in a note, where a question of fact existed as to whether the bank, by its conduct, had misled the customer as to its intention to declare a default and accelerate payments. J.R. Hale Contracting Co. v. United N.M. Bank, 1990-NMSC-089, 110 N.M. 712, 799 P.2d 581.

Use to determine meaning of contract. — It is proper for a trial court, having found an ambiguity to exist, to consider evidence relating to custom and usage of trade, in determining the meaning to be given a contract. Major v. Bishop, 462 F.2d 1277 (10th Cir. 1972).

Consent by implication. — Consent can be established by implication arising from a course of conduct as well as by express words, and implied consent to a sale of collateral can operate as a waiver of a lien or security interest in farm products, even where security agreement prohibited such sale without express written consent of secured party. Clovis Nat'l Bank v. Thomas, 1967-NMSC-061, 77 N.M. 554, 425 P.2d 726 (decided prior to 1968 amendment which added the exception clause at the end of Subsection (3) and added the second sentence to Subsection (4)).