The Uniform Commercial Code
Episode #9 of the course Contract basics: Let’s make a deal! by James Wong
Yesterday, we finished the tour of formal common law contracts. Today, we’ll look at an American change to contract law.
What Is the UCC?
Common law contracts are formal and fussy. So, US judges and academics created a uniquely American model that greatly simplified and modernized commercial practices. From 1942-1955, eminent legal practitioners and judges formed private commissions and held conferences that ultimately created the Uniform Commercial Code (UCC, or Code). A permanent editorial board still meets every year in conferences to tweak the Code.
The UCC isn’t law. Rather, it’s a system of recommendations that states were asked to adopt. They encourage consistency and promote predictability between state laws. All 50 states have enacted portions of the UCC. While differences remain in certain subjects (such as warranties), by and large, the UCC has achieved its purpose of establishing uniform commercial practice across the states.
The UCC is made up of nine articles that cover commercial and banking transactions. For contracts, we’ll focus on Article 2 (Sales) and Article 2A (Leases).
How Does the UCC Work?
UCC Article 2 specifically applies to contracts for the sale of goods between merchants. However, many states have extended the laws to apply to consumer and merchant transactions too. Article 2 does not apply to contracts for services (like maintenance).
Where Article 2 applies, the rules for contract formation are simplified. In general, the UCC recognizes a contract if the parties behave like there’s a contract. The Code sees the great stream of commerce in the US as continuous and repetitive. If you’re selling plates to restaurants this year, you’re likely to sell plates to restaurants next year. So, the law should make it easier for you to sell more plates and maybe even bowls and tableware.
For example, let’s say you’ve been supplying plates to Dickie’s Restaurants under a contract, and one day, you get a call to supply cups and bowls with your next shipment. Under the common law, you would need to either modify the existing contract or enter a new contract to protect your payments before you ship the cups and bowls. This could take days to work out.
But with the UCC, you can just ship, and the law can “fill in the blanks” for you. The UCC uses previous practice to set the amount, quality standard, and delivery times. It can use reasonable trade rates if you haven’t agreed on the price. The point is that the restaurant gets what it needs to serve customers quickly and you get more sales with the least amount of hassle. The Code creates ground rules that make dispute resolution predictable.
The Battle of Forms
There are many differences between common law and UCC contracts—for example, eliminating the mirror-image acceptance rule.
One interesting situation that comes up is if merchants use two different standard forms for sales and purchases. Imagine if Samsung uses a Samsung printed form to ship TVs and Walmart uses its own printed form to buy TVs. What happens if there are differences in terms? Under common law, there’s no contract because the terms don’t match up.
However, the UCC makes it work by first looking at all the terms that agree. If the TVs shipped and Walmart accepted shipment and put the TVs into the stores, then all the terms that disagree are treated as proposals for addition to the contract. They become part of the contract unless they materially alter the contract. Even then, the behavior of the merchants determine the interpretation of the terms. What merchants do become more important than what they say.
Overall, the Code’s greatly relaxed contract recognition architecture reflects the “can do, get it done” commercial attitude that distinguished last century’s American free enterprise. However, as mentioned, it only applies to the sale and lease of goods. Today’s service-oriented economy still runs on top of the common law contract’s framework.
Tomorrow, we’ll wrap up with a quick review and some advice on where to go next.
See you then.
The Basics of U.C.C. Article 2 — Sales
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