Applicability and Rules for the Commercial Code

California’s Commercial Code, in Division 1, Chapter 3, deals with territorial applicability and general rules.

Section 1301 states that, when a transaction bears a reasonable relation to this state and also to another state or nation, the parties may agree that the law either of this state or of the other state or nation govern their rights and duties. In the absence of an, this code applies to transactions bearing an appropriate relation to this state.

Section 1302 provides that the effect of provisions of this code may be varied by agreement. The obligations of good faith, diligence, reasonableness, and care prescribed by this code may not be disclaimed by agreement. The parties, by agreement, may determine the standards by which the performance of those obligations is to be measured if those standards are not manifestly unreasonable.

Section 1303 defines the following terms: “course of performance,” “course of dealing,” and “usage of trade.” Section 1304 states that every contract or duty within this code imposes an obligation of good faith in its performance and enforcement.

Section 1305 requires the remedies provided by this code to 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 or special damages nor penal damages may be had except as specifically provided in this code or by other rule of law.

Section 1306 states that a claim or right arising out of an alleged breach may be discharged in whole or in part without consideration by agreement of the aggrieved party in a signed record.

Section 1307 provides that 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 is admissible as evidence of the facts stated in the document by the third party in any action arising out of the contract that authorized or required the document.

Section 1308 specifies that a party that 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.

Section 1309 states that a term providing that one party or that party’s successor in interest may accelerate payment or performance or require collateral or additional collateral “at will” or when the party “deems itself insecure,” or words of similar import, means that the party has power to do so only if that party 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 which the power has been exercised.

Section 1310 provides that an obligation may be issued as subordinated to performance of another obligation of the person obligated, or a creditor may subordinate its right to performance of an obligation by agreement with either the person obligated or another creditor of the person obligated. Subordination does not create a security interest as against either the common debtor or a subordinated creditor.