Brief Fact Summary.
Plaintiff sued Defendant after Defendant refused to pay for a portion of the goods it received from Plaintiff. The trial court ruled in favor of Plaintiff. Defendant appealed.
Synopsis of Rule of Law.
The parties’ prior dealings and customary and trade usages are admissible in court to provide meaning to contractual terms.
It is well settled law that if a plaintiff is prohibited from maintaining an action in a state court because of its failure to qualify to do business within the state, it is barred from prosecuting its claim as a diversity action in a federal district court.View Full Point of Law
Fabric World, Inc. (Defendant), a large retail fabric store, regularly purchased “first quality” goods from Foxco Industries, Ltd. (Plaintiff). After a dispute arose regarding the quality of the fabrics shipped to fill an order, Defendant refused to pay for a portion of the goods. Months later, Defendant decided to cancel its order after the price of yarn and finished goods drastically declined. Plaintiff replied that the order was already substantially completed.Defendant agreed to accept the order on the condition that it did not contain a single flaw. Believing that this would be impossible with such a large order, Plaintiff declined to ship the goods and sued for breach of contract. Following a jury trial, Plaintiff recovered a $26,000 judgment.Defendant appealed, arguing that the district court erred in admitting into evidence a textile trade association’s definition of “first quality” to establish the meaning of the term under the contract.
Whether the district court erred in admitting into evidence standards of industry custom and usages of trade to help define terms in the contract.
No. The trial court’s ruling is affirmed. The parties’ prior dealings and customary and trade usages are admissible in court to provide meaning to contractual terms.
Under Alabama sales law, Defendant does not need to be aware of the industry’s standards or customs for them to apply at law. Both parties are presumed to have intended the incorporation of trade usage in executing the agreement. Similarly, the Uniform Commercial Code (UCC) § 2-202(a) states that prior dealings between the parties and trade usages are taken for granted in the execution of the contract. The Knitted Textile Association, the associate relied upon in the trial, is a major industry group and its published standards qualify as trade usages. These standards are admissible even if Defendant had no knowledge of them.