Since the first version was published in 1949, the Uniform Commercial Code has obtained widespread acceptance throughout the United States and serves as a source of stability and regularity for commercial transactions.

Commercial uniformity was one of the intended goals of the drafters of the UCC, as evidenced by Section 1-103(a). But underlying the effects of the UCC on modern commercial practice is a jurisprudential construct that "represents the flower of the legal realist movement in American law." Karl N. Llewellyn, one of the figureheads for the American realist movement, was the code's principle coordinator and exercised "tremendous influence and practical control over the whole project." In fact, Llewellyn was the dominating force behind the drafting of the UCC.

Perhaps naturally, then, tenets of realist jurisprudence (and of Llewellyn's jurisprudential ideas in particular) are reflected throughout the UCC, perhaps most prominently in Articles 1 and 2. As one commentator aptly noted, realism "as a jurisprudential movement has been traditionally thought of as a revolt against the formalism that characterized legal thought in the latter part of the nineteenth century." Recognizing the problems associated with classical orthodoxy, the realists not only rejected formalism's reliance on abstract rules and principles, but also sought to change the methodology by which law was made. Instead of extracting abstract legal principles from judicial opinions, the legal realists sought to uncover rules that existed in the real world of everyday transactions. This perhaps is the major tenet of the realist movement - crafting the law not from top-down, pre-existing rules, but by cataloguing actual societal behavior and drafting the law around it.

Through the UCC, Llewellyn attempted to remedy the neglect of legal formalism to take into consideration the actual business practices of the actors involved in commercial transactions. As one commentator has noted: "Llewellyn saw no point in legal doctrine that failed to take account of the nuances and vicissitudes of everyday commercial practices, which were themselves always in the process of evolution and change. Llewellyn thought that contract doctrine should respond to commercial reality and not, as the classical theorists imagined, the other way around."

Through his work on the UCC, Llewellyn advocated for the reform of commercial law, believing that adherence to abstract legal principles stymied the natural flow of business. For him, business practice would guide the development of commercial law, and Llewellyn's aim in drafting the UCC was to capture the "situation-sense" of commercial transactions. As such, Llewellyn drafted sections of the UCC in a manner in which judges could adequately respond to changing factual situations, ultimately freeing them from the judicial constraints imposed upon them by a formalistic approach to deciding commercial disputes.

Articles 1 and 2 of the UCC are peppered with evidence that Llewellyn intended to base the UCC on realist ideology. As a starting point, Llewellyn successfully displaced the formalistic mentality of contract formation and replaced it with a "technology" for contract formation that incorporated the context of commercial transactions. "Llewellyn's goal . . . in the code was to replace the offer-acceptance-consideration model of contract with one more in keeping with the realities of commercial practice." Llewellyn accomplished this primarily through the definition of "agreement" in Section 1-201(b)(3).

Section 1-201(b)(3) provides as follows: "'Agreement', as distinguished from 'contract', means the bargain of the parties in fact, as found in their language or inferred from other circumstances, including course of performance, course of dealing, or usage of trade as provided in Section 1-303."

Under the code's approach, the parties' legal obligations are not determined solely by the four corners of their written expression. Instead, the parties' conduct in performing the contract and the commercial context in which the parties operate add to and supplement the complete "bargain" of the parties. Beyond Section 1-201(b)(3), Section 1-303(a) incorporates the realist notion that conduct plays an integral role in developing legal rights and obligations between contracting parties. Moreover, "usage of trade," as defined in Section 1-303(c), embodies Llewellyn's philosophy that "commercial context" breathes life into the parties' agreement. In addition to the nature of the "agreement" as defined by Section 1-201(b)(3), Section 1-303(b) expressly provides that conduct and context become part of the parties' agreement.

Section 1-303(b) provides: "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."

Furthermore, Section 1-303(e) signals a rejection of classical orthodoxy and a promotion of realist jurisprudence in the UCC. Through Section 1-303(e), Llewellyn de-emphasized the priority of express terms by insisting that course of dealing and usage of trade play vital roles in determining the parties' agreement.

Section 1-303(e) provides: "Except as otherwise provided in subsection (f), 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:

Express terms prevail over course of performance, course of dealing, and usage of trade;

Course of performance prevails over course of dealing and usage of trade; and

Course of dealing prevails over usage of trade."

Selected sections of the law of sales in Article 2 also reflect Llewellyn's view of business reality becoming the driving force behind the development of commercial law. For example, Section 2-204(1) states that "[a] contract for sale of goods may be made in any manner sufficient to show agreement, including offer and acceptance, conduct by both parties which recognizes the existence of a contract, the interaction of electronic agents, and the interaction of an electronic agent and an individual." Since appropriate conduct can serve as a basis for recognizing the existence of a contract, commercial actors are freed from the formal constraints that the common law of contracts previously imposed.

Under Section 2-204, parties can legally bind themselves in ways that suit their particular transacting styles. In a related provision, Section 2-202's parol evidence rule again evidences Llewellyn's belief that conduct and context should be integrated into the parties' written expression, even if that written expression is explicitly "final." While course of dealing, usage of trade and course of performance cannot contradict the written expression of the parties, they can be used to explain or supplement the words of the written contract.

Llewellyn's deconstruction of classical orthodoxy can also be found in Section 2-206. Classical theory steadfastly held to the "mirror-image" rule of contractual offer and acceptance. The "mirror-image" rule of contracts stemmed "directly from the rigorous conceptualism of offer-acceptance, and orthodoxy ha[d] always demanded that both the content and mode of the acceptance correlate one-to-one with the content and mode of the offer." Section 2-206 eradicates this formality from commercial law. Unless otherwise unambiguously indicated by the offeror, Section 2-206(1)(a) states that "an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances." Section 2-206 permits contracting parties to accept offers in a way that is tailored to their particular business practices.

Llewellyn also intentionally devised a code where judges would be granted a level of flexibility in order to decide cases on a fact-sensitive basis. By drafting the UCC as he did, Llewellyn freed judges from the constraints of the previous inelasticity of contract law in deciding commercial disputes. The UCC's extensive flexibility was "intended to provide the courts with a doctrinal vehicle to keep the Code's body of case law in conformity with commercial reality." In the classical contract methodology, judges would attempt to fit a finite number of abstract principles into an array of divergent factual circumstances. Recognizing this outdated approach to solving complex commercial transactions, Llewellyn used flexible standards to ensure the UCC's permanence and its ability to respond to the changes of commercial practice. For Llewellyn, the UCC was not to be viewed as a prescriptive statute, but as a "doctrinal vehicle" for the courts to develop a commercial common law.

Llewellyn accomplished this goal largely by the deliberate use of open-ended terms throughout Articles 1 and 2. For example, Section 1-302(b) speaks of what constitutes a "reasonable time" for a party to take action, yet the term "reasonable" is not defined in Section 1-201. Moreover, the term "reasonable" appears in 53 sections of Article 2, oftentimes modified by the term "commercial." Examples include the following:

Section 2-206: acceptance by any manner and in any medium reasonable in the circumstances;

Section 2-305: open-price term is a reasonable price at time of delivery if certain factors are met;

Section 2-103: defining "good faith" in the case of a merchant to mean "honesty in fact and the observance of reasonable commercial standards of fair dealing;"

Section 2-513: buyer has a right before payment or acceptance to inspect goods at any reasonable place and time and in any reasonable manner; and

Section 2-715: including any commercially reasonable charges under the umbrella of a buyer's incidental and consequential damages.

In addition to the intentionally vague, open-ended terms in Articles 1 and 2, Llewellyn overtly placed the realists' emphasis on "facts" in two of the most important concepts in the UCC: Sections 1-201(b)(3) and 1-201(b)(20). Section 1-201(b)(3)'s definition of "agreement" explicitly refers to the "bargain of the parties in fact," and Section 1-201(b)(20)'s definition of "good faith" means "honesty in fact" in the conduct or transaction concerned. The UCC's use of the words "in fact" was a deliberate message to the courts to place particular emphasis on the factual circumstances underlying a commercial dispute. Indeed, the words also infused the UCC with the realist belief that judges do decide cases based upon their personal interpretation of the facts of a case.

The effects of Llewellyn's system is perhaps best described by Professor Richard Danzig: "On its most ambitious level Article II's aim, and very possibly its achievement, may be said to have been to coerce courts into reviewing cases in the manner Llewellyn thought they ought to be decided. Whereas a code functioned for such diverse thinkers as Frederick the Great, Austin, or Williston as a means of dictating a result, Llewellyn's UCC Article II more often operated as a means of dictating a method. That method was designed to prompt decision not according to the letter or the logic of a statute or a juristic concept but rather according to the 'situation-reason.'"

As the title to this article indicates, the UCC represents the ideal reflection of realist jurisprudence. It successfully captures the major tenets of realism by directing the focus toward conduct, commercial context, and factual circumstance. But perhaps more importantly, the UCC revolutionized both contract law and the commercial world by repudiating the stultifying approach of classical orthodoxy. Through the UCC, Llewellyn made certain that abstract legal principles would not be unfeelingly imposed upon commercial actors. Rather, he solidified his goal of having commercial law developed through the realities of business practice.

Rudolph J. Di Massa, Jr., a partner at Duane Morris, is a member of the business reorganization and financial restructuring practice group. He concentrates his practice in the areas of commercial litigation and creditors' rights. He is a member of the American Bankruptcy Institute, the American Bar Association and its business law section, the Commercial Law League of America, the Pennsylvania Bar Association and the business law section of the Philadelphia Bar Association.

Michael D. Sousa practices with the firm in the area of bankruptcy law. Sousa served as judicial clerk to Rosemary Gambardella and to Donald H. Steckroth, both of the U.S. Bankruptcy Court for the District of New Jersey; to William J. Martini of the U.S. District Court for the District of New Jersey; and to John E. Wallace Jr., of the New Jersey Superior Court — Appellate Division. He is currently completing an LL.M. in bankruptcy from St. John's University School of Law, where he was named the American Bankruptcy Institute Scholar. He is also a regular author and contributing editor for several national bankruptcy publications, including the Journal of Bankruptcy Law and Practice and the American Bankruptcy Institute Journal.

Reprinted with permission from The Legal Intelligencer, © ALM Media Properties LLC. All rights reserved.