What is the Uniform Commercial Code?
The Uniform Commercial Code (UCC) is a model statute covering things such as the sale of goods, credit, bank transactions, conduct of business, warranties, negotiable instruments, loans secured by personal property and other commercial matters. All states have adopted and adapted the entire UCC, with the exception of Louisiana, which only adopted parts of it. Article 2 of the UCC deals with sales.
How does the UCC define a “sale”?
A sale of goods is a present transfer of title to movable property for a price. This price may be a payment of money, an exchange of other property, or the performance of services.
What are goods?
Goods are anything movable at the time it is identified as the subject of the transaction. Most goods are tangible and solid, such as an automobile or a chair. But goods may also be fluid, such as oil or gasoline. Goods may also be intangible, such as natural gas and electricity. The UCC is applicable to both new and used goods. It does not apply to real estate.
What about a contract for services, like a contract with an electrician to wire a new house?
A contract for services is an ordinary contract and is not a sale of goods. Therefore, such a contract would be covered by general contract law.
What about a contract that deals with both goods and services?
If a contract calls for both the rendering of services and the supplying of materials (goods) to be used in performing the services, the contract is classified according to its dominant element. If the sale of goods is dominant, it is a sales contract covered by Article 2 of the UCC. If the service element is dominant, it is a service contract and not covered by the UCC but is covered by general contract law. For example, a contract with someone who repaired bicycles is a contract for services, even if parts are supplied to perform the repairs. The supplying of the parts is not regarded as a sale but is merely incidental to the primary contract of making repairs. In contrast, the purchase of a television set, with the incidental service of installation, is a sale of goods because the purchase of the set is the dominant element.
Are there any major differences between the law of sales as set forth in Article 2 of the UCC and general contract law?
Yes, the following is a brief overview of the differences:
- Merchants. In most instances, the UCC treats all buyers and sellers alike. In some cases, it treats merchants differently than it does the occasional or casual buyer or seller. The UCC recognizes that the merchant is experienced and has a special knowledge of the relevant commercial practices.
- Firm Offer. Contract law as to offers is applicable to a sales contract, with the following exception. A firm offer by a merchant cannot be revoked if the offer:
- expresses an intention that it will not be revoked,
- is in a writing, and
- is signed by the merchant.
- Acceptance. An offer to buy or sell goods may be accepted in any manner and by any medium that is reasonable under the circumstances. However, if a specific manner or medium is clearly required by the terms of the offer or the circumstances of the case, the offer can only be accepted in that manner.
- Additional Term in Offer. Unless it is expressly specified that an offer to buy or sell goods must be accepted just as made, the offeree may accept an offer and at the same time propose an additional term. The new term does not reject the original offer. A contract arises on the terms of the original offer, and the new term is a counteroffer. The new term does not become binding until accepted by the original offeror. If, however, the offer states that it must be accepted exactly as made, the ordinary contract law rules apply. In a transaction between merchants, the additional term becomes part of the contract if that term does not materially alter the offer and no objection is made to it. However, if such an additional term from the seller operates solely to the seller’s advantage, it is a material term and must be accepted by the buyer to be effective.
- Conflicting Term in Offer. When a term of an acceptance conflicts with a term of an offer, but it is clear that the parties intended to be bound by a contract, the UCC recognizes the formation of a contract. The terms that are conflicting cancel each other out and are ignored. The contract then consists of the terms of the offer and acceptance that agree, together with those terms that the UCC or contract law implies into a contract.
- Determination of Price. The price for goods may be expressly fixed by the contract. If not fixed by the contract, the price may be an open term, whereby the parties merely indicate how the price should be determined at a later time or make no provision whatever as to the price. When persons experienced in a particular industry make a contract for goods without specifying the price to be paid, the price will be determined by the manner that is customary in the industry. Ordinarily, if nothing is said as to price, the buyer is required to pay the reasonable value of the goods, which is generally the market price.
- Output and Requirement Contracts. Somewhat related to the open-term rule concerning price is the rule involved in output and requirement contracts that the quantity to be sold or purchased is not a specific quantity. Instead, it is the amount that the seller should produce or the buyer should require. Although this introduces an element of uncertainty, such sales contracts are valid. To prevent oppression, these contracts are subject to two limitations: (1) the parties must act in good faith, and (2) the quantity offered or demanded must not be unreasonably disproportionate to prior output or requirements or to a stated estimate.
- Indefinite Duration Contract. When the sales contract is a continuing contract, such as one calling for periodic delivery of gas, but no time is set for the life of the contract, the contract runs for a reasonable time. It may be terminated on notice by either party.
- Modification of Contract. An agreement to modify a contract for the sale of goods is binding even though the modification is not supported by consideration.
- Parol Evidence Rule. The parol evidence rule applies to the sale of goods, with the slight modification that a writing is not presumed to represent the entire contract of the parties unless the court specifically decides that it does.
- Usage of Trade and Course of Dealing. The patterns of doing business as shown by the prior dealings of the parties may form part of their contract. These patterns may be looked to in order to find what was intended by the express provisions of the agreement and to supply otherwise missing terms.
What is a merchant?
The word “Merchant” is defined by § 2-104 of the UCC as a person that deals in goods of the kind or otherwise holds itself out by occupation as having knowledge or skill peculiar to the practices or goods involved in the transaction.
Why are merchants treated differently by the UCC?
The UCC recognizes that the merchant is experienced and has a special knowledge of the relevant commercial practices.
What is a bulk sale?
A bulk sale is a sale of goods by a business which engages in selling items out of inventory (as opposed to manufacturing or service industries), often in liquidating or selling a business. This type of sale is governed by the bulk sales law which is Article 6 of the UCC. When merchants are about to transfer a major part of their materials, supplies, merchandise, or other inventory (not in the ordinary course of business), advance notice of the transfer should be given to creditors. This notice should be given by the transferee. If the notice required by Article 6 is not given, the creditors of the seller may enforce their claims on property in the hands of the buyer. Creditors may also reach the property in the hands of any subsequent transferee who knew that there had not been compliance with the UCC or who did not pay a reasonable value for the goods. This provision is designed to protect the creditors of a merchant from the merchant’s selling all the inventory, pocketing the money, and then disappearing, leaving the creditors unpaid.
Does the UCC require that all contracts regarding the sale of goods be in writing?
A contract for the sale of goods may be oral or written. In some cases, it must be evidenced by a writing or it cannot be enforced in court. Whenever the sales price of goods is $500 or more, the sales contract must be evidenced by a writing to be enforceable. The writing evidencing the sales contract may be either a complete written contract signed by both parties or (b) a memorandum signed by the defendant. The writing must indicate that there has been a completed transaction as to certain goods. It needs to indicate that a sale has been made and the quantity of goods involved. Any other missing terms may be shown by parol evidence.
When the transaction is between merchants, an exception is made to the requirement of signing. The failure of a merchant to repudiate a confirming letter sent by another merchant within ten days of receiving such a letter binds the merchant who did not sign just as he had signed the letter. This makes it necessary for a merchant seller to watch the mail and to act within ten days of receiving a mailed confirmation.