Foxco Industries, Ltd. v. Fabric World, Inc. – Case Brief
Foxco Industries, Ltd. v. Fabric World, Inc., 595 F.2d 976 (5th Cir. 1979).
Facts: Foxco Industries (P) was a manufacturer of knitted fabrics and Fabric World (D) sold fabrics at retail. D gave P an order for 12,000 yards of first quality fabric, at a price of $36,705, to be delivered by January 1975. The price of yarn fell sharply a few weeks after the order was placed and D wrote to P to cancel the order. P replied that the order was substantially completed and that it would not accept the cancellation. P informed D that if the goods were not accepted, the order would be completed and the goods sold, and P would sue for the difference between the contract price and the sales price. D agreed to accept the order but threatened to return the entire shipment if it contained a single flaw.
P did not believe that it would be possible to produce such a large order without a single flaw and decided not to ship it. On the date the order was to have been shipped the fair market value was 20% less than the contract price. P made no effort to sell the goods for 8 months by which time the value had fallen by 50%.
P sued D in diversity. By the time of trial 15 months after the contract shipment date, P had sold part of the order for $10,100 and had on-hand the remainder of the order with a value of $6,250.
D claimed that “first quality” goods meant fabric containing no flaws. P introduced evidence of industry standards from the Knitted Textile Association, a large textile industry group. The standards established the amount and types of flaws that were permissible in fabric labeled as “first quality”.
D was not a member of that association and claimed it had no knowledge of its standards. The district court entered judgment for P for $26,000 and D appealed on several grounds. D claimed that the standards of a trade association of which it had no knowledge were not admissible to show the disputed meaning of an undefined contract term.
Issue: Are the parties to a contract presumed to have intended to incorporate trade usage under UCC 2-202?
Holding and Rule: Yes. The parties to a contract are presumed to have intended to incorporate trade usage under UCC 2-202.
D contended that it was not a member of the Knitted Textile Association, was unaware of its existence until the time of trial, and that that group’s standards were inadmissible because they were a custom or usage of the trade of which D had no knowledge. Under the traditional application of the parol evidence rule D’s argument might have merit; the private, subjective intent of a contracting party may well be irrelevant in determining the meaning of a contract term unless it is shown that that intent was communicated to the other party. There was no direct evidence that D was put on notice that the term “first quality” would be defined according to usage and custom, as embodied in the industry standards. Under UCC 2-202 the parties to a contract such as this are presumed to have intended the incorporation of trade usage in striking their bargain and trade usages may help explain or supplement contract terms.
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. 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.
Disposition: Affirmed.