SALES LAW AND THE UNIFORM COMMERCIAL CODE

SALES LAW AND THE UNIFORM COMMERCIAL CODE


In addition to being aware of the common law of contracts, a business manager or entrepreneur doing business in the United States must be aware of a new and relatively recent body of law governing contracts – the Uniform Commercial Code (UCC) which governs contracts for the sale of goods and which makes some major changes in the old common law of contracts. The UCC is designed to change the common law to reflect modern commercial practices, particularly the mass distribution of goods to consumers. The UCC was first introduced in 1951 as a proposed uniform sales law by a group of legal and commercial experts; offered to the state legislatures; and now has been adopted by virtually every state in the United States. However, although the Code is supposed to be consistent and uniform among the states, which the UCC usually is, there may be differences, and material ones, that have been made to the Code upon its adoption by a particular state. Thus, the prudent business person is well-advised to carefully check his or her state’s version of the UCC, which is found in the state’s commercial statutes, and not definitely rely on the generic version of the UCC or for that matter this book or any book treating the UCC.  The Uniform Commercial Code has several major sections, called Articles, which seek to extensively regulate commercial transactions. For example, Article 3 deals with commercial paper transactions; and Article 4 deals with banking
transactions. An examination of the entire UCC is beyond the scope of this book; rather, the authors will concentrate on Article 2, which deals with the sales of good, and especially those sections of Article 2 which make material changes in the common law of contracts. It also should be mentioned initially that the UCC’s Article 2A applies to the commercial lease of goods, which in fact will be very important when examining UCC warranty law later in this chapter.  The UCC’s Article 2 “just” applies to the sale of goods. Accordingly, the old common law still governs service contracts, including employment agreements, as well as real estate sales contracts. Accordingly, first and foremost, it is critical to define the UCC’s indispensable term - “good.” A ‘good” is moveable, tangible, personal property, that is, a thing. Land, structures and buildings attached to the land, as well as fixtures, that is, things which are so attached to the real estate that their removal would cause material harm to the real estate, are not goods, as they are not “personal” but “real” property. “Tangible” means a physical existence is required in order to be a “good”; thus patents, copyrights, trademarks, investment securities, and contract rights are not “goods.”  As mentioned, the UCC applies to sales of goods, and not services. Yet a major problem arises when there is a mixed transaction, that is, the same transaction involves the sale of goods and also the provision of some services. By legislative or judicial decree, some of these “mixed” cases have been settled. For example, anything
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specially manufactured for a buyer is a good, as is computer software. Similarly, a meal in a restaurant is deemed to be the sale of a good, and not a service; but a blood transfusion usually is regarded as a service and not a sale of the blood. The test the courts will apply to determine the nature of the subject matter of the contract is called the “predominant feature” test, in which the major aspect of the contract will determine its nature as a sale of goods or service contract. For example, in a construction contract, the predominant feature is the building and the not purchase of the building supplies, and as such the common law will govern the contract. This distinction between sales and service is crucial to the law of contracts since the UCC
makes some very significant changes to the old common law of contracts, and, in addition, the UCC’s body of warrant law applies only to the sale of goods (and the commercial lease of goods).  It is also necessary to define another key term in the UCC – “merchant.” However, it must be underscored right away that the UCC’s Article 2 applies to the sale of goods by anyone; but there are some special provisions of the UCC, and with some unique harsh effects, that apply only to merchants. So, who is a “merchant”? A merchant is a person or business that regularly deals in goods of a particular kind, that is, as a retailer, wholesaler, distributor, or manufacturer. A merchant also can be a person who holds himself or herself out as having knowledge and/or skill peculiar to the goods and commercial practices involved in the transaction. There obviously can be an overlap between the first and second categories. Finally, one can be deemed a merchant by employing a merchant for a particular transaction, for example, as an agent or broker.
Lastly, it is of great consequence that the UCC states that implied in every UCC contract is a covenant of good faith and fair dealing, in which the parties are deemed to promise not to do anything to hinder, impair, frustrate, or destroy the reasonable expectations and legitimate rights of the other contract party to enjoy the
“fruits” of the contract.

Summary
This chapter emphasized that business managers and entrepreneurs doing business in the United States must be aware of a new and relatively recent body of law governing contracts – the Uniform Commercial Code (UCC) which governs contracts for the sale of goods and which makes some major changes in the old common law of contracts. The UCC is designed to change the common law to reflect modern commercial practices, particularly the mass distribution of goods to consumers. The Uniform Commercial Code has several major sections, called Articles, which seek to extensively regulate commercial transactions. For example, UCC’s Article 2 “just” applies to the sale of goods. Accordingly, the old common law still governs service contracts, including employment agreements, as well as real estate sales contracts.  Contract laws, as discussed in this and previous chapter, illustrate the major elements associated with agreements and contracts. As discussed in this chapter, sales contracts and its vital components, including title and risk of loss, warranties, as well as performance and remedies are all to be conducted in accordance to the guidelines provided by the UCC. The UCC is an important tool for managers to understand,
 


specifically when designing contracts with their business associates and customers. Therefore, it becomes important for all managers, firms and employees to fully understand the laws, regulations, and concepts associated with contracts.


Discussion Questions
1. Why is the concept of a “good” critical to UCC law? Provide an example with a brief explanation thereof. What body of law governs “mixed” contracts? Provide an example of the latter along with a brief explanation thereof.
2. What are some of the major changes the UCC makes in the common law of contracts regarding the offer? Provide examples with brief explanations thereof.
3. What are some of the major changes the UCC makes in the common law of contract regarding the acceptance? Provide examples with brief explanations thereof.
4. What is the UCC’s statute of frauds rule and what are some of the major exceptions thereto? Provide examples with brief explanations thereof.
5. What are the three major types of implied warranties pursuant to the UCC? Provide an example of each with a brief explanation thereof. Why is the legal concept of a “disclaimer” critical in warranty law? Provide an example of a disclaimer with a brief explanation thereof.
6. What is the UCC’s “perfect tender” rule and how does it drastically change the old common law of contracts regarding performance? Provide an example with a brief explanation thereof. What is the “cure” exception? Again, provide an example with a brief explanation of the latter.
7. Describe, explain, and illustrate some of the major UCC “risk of loss” rules.
8. What are some of the major terms of sale in contracts that affect the risk of loss for damage or loss of goods in transit? Provide examples with brief explanations thereof.
9. Define, explain, and illustrate the UCC’s “commercial impracticality” doctrine.
10. What are some of the fundamental rights and duties of the buyer and seller regarding the delivery and acceptance of goods? Provide examples together with brief explanations thereof.