What is the U.C.C.?
The U.C.C. stands for the Uniform Commercial Code. The laws concerning commercial and private transactions for the sale and leasing of goods developed out of the common law of both England and the United States. The majority of the law developed after the 1800`s. At the end of the nineteenth century, England codified the common law principles into the Sale of Goods Act. The United States codified the laws into the Uniform Sales Act. The volume of commercial and private sales dramatically increased during the twentieth century. As a result of the rapid growth, the Uniform Sales Act became outdated. In response, the Commissioners on Uniform State Laws created what is now known as Article 2 of the Uniform Commercial Code (U.C.C.). With the exception of Louisiana, Article 2 has been adopted by every State in the United States.
What is Article 2 of the U.C.C.?
Article 2 of the U.C.C. deals with transactions involving the sale of goods. Article two only covers the sale of goods. This is important to keep in mind. Goods include all items that can be both identifiable and moveable at the time of the sale. Article 2 does not cover transactions involving service contracts. In addition, the sale of real estate is not covered by Article 2, but rather by Article 9 of the Uniform Commercial Code.
For example, the sale of an automobile or a computer would be covered by Article 2. However, the sale of insurance or a membership in a health club or a contract between you and a painter to paint your house would not be covered. The sale of your house would also not be covered. A house certainly is a Good, but the sale of a house involves the sale of land. Under the U.C.C., any transaction involving the transfer of land is covered by Article 9 of the code.
What is a Sales Contract?
This is an important consideration under Article 2 of the U.C.C. A contract need not be formed with any special formality. A contract may be formed in any manner sufficient to show agreement between the parties. This includes the conduct of the parties. To determine whether Article 2 applies to a transaction, you must first determine whether a contract exists.
A contract usually begins by one person making an offer to another. The other person accepting the offer completes the contract. If the contract is supported by consideration, a contract is formed. Consideration, in the context of a contract usually means, money paid, or a promise to do something.
For example, If Jack asks Jill if she would like to buy his car for one hundred dollars, an offer has been made. If Jill agrees to the deal, then Jill has accepted the offer. The one hundred dollars serves as the consideration. The transaction would create a legally enforceable contract under the Uniform Commercial Code. Since the contract involved a transaction involving the sale of a good (the automobile), the transaction is governed by Article 2 of the U.C.C.
Does a contract have to be in writing in order to be enforceable?
No, a written contract is not required to create all contracts. The U.C.C. implements something called The Statute of Frauds (S.O.F.). The S.O.F. requires that certain contracts be recorded in writing in order to be enforced. The S.O.F. has been implemented to reduce and prevent fraud in contracts. The S.O.F. requires that all contracts for the sale of goods over five hundred dollars be in writing to be enforceable.
For example, if you orally agree to buy your neighbor`s car for six hundred dollars then later decide that you no longer want to buy the car, you can do so. To be enforceable, the contract must be in writing because the sale is for six hundred dollars, an amount above the S.O.F.`s five hundred dollar writing requirement. On the other hand, if you orally agree to buy your neighbor`s car for three hundred dollars and later decide to back out, you may be liable to your neighbor under the contract.
Are there fundamental principles that Article 2 always applies to?
Yes. Certain fundamental principles apply to the sale of all goods. Failure to adhere to the fundamental principles may take the transaction outside of the protection of the Uniform Commercial Code. One fundamental concept is that of good faith. Courts presume that all parties to a contract are acting in good faith.
The U.C.C. defines good faith as honesty in fact. In order to qualify for the protections of the U.C.C., all parties to a contract for the sale of goods must deal honestly with each other as to the essential facts of the contract. Another basic concept of the U.C.C. is that all contracts for the sale of goods must be fundamentally fair. If a contract is so unfair that it may be said to shock the conscience, a Court may find that the contract is unconscionable.
Courts do not recognize contracts that are determined to be unconscionable. The term is broad and there is not a strict line drawn to determine whether or not a contract is unconscionable. The determination is determined on a casebycase analysis. If a Court finds that a contract is unconscionable, the court may:
- void the entire contract,
- enforce the contract without including the unconscionable clause, or
- so limit the application of the clause that it will avoid the unconscionable result.
A final concept fundamental to the U.C.C. is that of a merchant. Article 2 distinguishes between merchants and nonmerchants. In most situations, the U.C.C. holds merchants to a higher standard.
Does Article 2 treat merchants the same as non-merchants?
No. Article 2 distinguishes between merchants and nonmerchants. In most situations, the U.C.C. holds merchants to a higher standard. Under the U.C.C., a merchant is one who regularly deals in goods of the kind.
For example, if your neighbor sells his car through an advertisement in the classifieds, he or she would not be considered a merchant. However, if your neighbor sells a car every week through the classifieds, for purposes of the U.C.C., your neighbor may be a merchant because he or she regularly deals in goods of the kind.
Any store that sells merchandise will generally be considered a merchant under the U.C.C. For example, the computer store on the corner, the grocery store in your neighborhood, and all major retailers would be considered a merchant under Article 2.
The information on this page is meant to provide a general overview of the law. The laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation you should speak with a local attorney.