The Uniform Commercial Code (UCC) is one of a number of uniform acts created to standardize the laws, in particular, of commercial transactions. Much of the UCC has been adopted in some form by all 50 states. It helps businesses conduct transactions from money lending/borrowing, to writing contracts and some leases, to the sale of products called “goods” (but not services or software, unless bundled with product). The goal of uniform state laws is important since commerce crosses state lines. Businesses must know what to expect. We cover some main points in this three part UCC series.* The UCC Sales aims to allow business to hum along without lawyers looking at every contract. Do you think it does? We are concerned here with B2B trade.
The idea behind the UCC – Sales was to empower businesses to make their own contracts, providing definitions, while setting up rules (“Fill in the Blank”) for filling in any missing provisions where multiple communications may constitute the “agreement,” but leave out important details. The UCC promotes the streamlining of routine transactions. It discourages the use of legal formalities in creating contracts. Business may operate, in theory, without lawyer intervention; the Code reduces the use of complex documents. While lawyers may still be needed and should be used to set up forms, the need has been much reduced. It has been said that the UCC favors buyers.
Unique Details for Forming a Contract under the UCC
- Traditional contract law requires a clear offer by the buyer and acceptance by the seller with all material terms agreed. This is not so under the UCC. Firm offers (offers by a business person to buy or sell goods and promising to keep the offer open for a period of time) are valid without consideration (payment) if signed by the offeror, and are irrevocable for the time stated (for no longer than 3 months), or, if no time is stated, for a reasonable time. An Offer to buy goods for “prompt shipment” invites acceptance by either prompt shipment or a prompt promise to ship. However, this “acceptance by performance” does not even have to be by “conforming goods.” G.L. Ch. 106, §2-206(1)
- Consideration – Modifications without consideration may be acceptable in a contract for the sale of goods (products). §2-209(1)
- Failure to State Price – In a contract for the sale of goods, the failure to state a price will not prevent the formation of a contract if the parties’ original intent was to form a contract. A reasonable price will be determined by the court. [G.L. Ch. 106, § 2-305] The Code’s “fill in the blank” provisions do not apply unless a quantity is stated and “without a prior course of dealing.” Should you have one form for new customers and another repeat businesses.
Contract Repudiation and Breach
- Perfect Tender – The buyer has a right of “perfect tender” and can accept all, reject all, or accept conforming goods and reject the rest, within a reasonable time after delivery, but before acceptance he must notify the seller of the rejection. If the buyer does not give a specific reason (state the defect), he cannot rely on the reason later, in legal proceedings. What you don’t say can be used against you! Also, the contract is not breached per se if the seller delivered the non-conforming goods.
- Non-conforming Goods – If non-conforming goods (products that do not meet purchase order specs) are sent as an accommodation, it is a counteroffer, and if accepted, forms a new contract and binds buyer at the previous contract price. If seller refuses to conform and buyer does not accept, the buyer can sell the goods at public or private auction and credit the proceeds to the amount owed.
- “Reasonable Time/Good Faith” Standard – Such a standard is required from a party to a contract indefinite as to time, or made indefinite by waiver of the original provisions.
- Reasonable Grounds for Insecurity – In a situation with a threat of non-performance, the other party may suspend its own performance and demand assurances in writing. If assurance not provided “within a reasonable time not exceeding 30 days,” the contract is repudiated. [G.L. Ch. 106, §2-609]
Certain revisions to the UCC went into effect as of July 1, 2013 in Massachusetts. They added to the former definition of “good faith” – “honesty in fact… – the phrase “and the observance of reasonable commercial standards of fair dealing.”
Look for upcoming UCC topics. For those interested in more detail, visit the General Laws page at malegislator.gov General Laws Chapter 106 Article 2, and take a closer look at the recent updates to the UCC on our blog. *We write soon about those updates and “the battle of the forms” that may be of interest. We have a detailed explanation of Article 2. Feel free to call us with any questions. We help our clients with various issues under the UCC and protective language for their contracts.