Five FAQs about the Uniform Commercial Code

There were a lot of things to think about when it was time to start your business, but the Uniform Commercial Code (UCC) may not have been one of them. Buying equipment or selling your products seems like it should be fairly simple, but there are a lot of places where a deal can break down or go wrong. The UCC is intended to make drafting and enforcing certain contracts easier. Here are 5 frequently asked questions about the UCC.

What is the UCC?

The UCC is a set of rules that applies to contracts for the sale of goods over $500, borrowing money, and leasing vehicles and equipment.

What are the Benefits of the UCC?

In the press of business and the need to order or sell equipment and other goods, or to sell them, details can get overlooked. When that happens, the UCC can come in handy.

The drafters of the UCC recognized that there are times when the parties involved are trying to make a deal, but one or more term of the agreement is missing. Rather than voiding the contract a buyer and seller tried to make (because they didn’t agree on all material terms), the UCC can fill in the blanks.

The UCC allows for differences between offers to sell and offers to purchase the goods in question. Rather than throwing out the contract when the offer to buy and the offer to sell do not match up exactly, the UCC gives guidance on how to resolve differences in the offer to buy and the offer to sell so as to reach the same end.

What would happen if there were no UCC?

Without the UCC, you would be left with the common law approach to contracts. This would mean following the “mirror image” rule, which states that the offers to enter into a contract drafted from both sides of a negotiation would have to match in order to be enforceable.

While effective in real estate and services contracts, the mirror image rule can make enforcing contracts more difficult.

When does it apply?

There are a lot of transactions that the UCC can apply to, including buying or selling equipment for your business or borrowing money. There are two large categories of transactions where the UCC does not apply: services and real estate transactions. The idea is that services and real estate transactions have a lot more nuances than could be covered in the UCC and are better handled by the common law approach. For businesses that deal only in services, the UCC will not apply at all. For businesses that deal only in goods, it applies all the time.

What about businesses with contracts that cover both goods and services?

For an agreement that covers both goods and services, the issues get a little more complicated. Most courts will analyze a contract to determine whether the predominant purpose of the contract is for goods or services, that is, whether the goods are incidental to the provision of services or vice versa. For example, if a contract provides for the sale and installation of lanes and gutters at a bowling alley, the contract will more likely be governed by the UCC because the primary purpose of the contract is for the acquisition of lanes and gutters—the installation of the goods is incidental to the sale of the goods. Other factors can inform a court as to the predominant purpose of the contract, such as whether the parties are referred to as “purchaser” and “seller”, or whether the goods fit within the UCC’s definition of “goods.”

Experienced counsel is essential in UCC disputes

When disputes arise as to the sale of goods, the UCC may provide important advantages for a party, but it also may restrict a party’s rights and remedies. Businesses involved in a dispute over the sale of goods, such as equipment, should contact a business attorney familiar with disputes under the UCC. An experienced attorney can help a client understand its risks and rights in trying to and resolve the dispute, taking into consideration the UCC, as well as help a client guard against unforeseen results in litigation. Chenoweth Law Group’s attorneys are available to consult with you regarding any domestic or international disputes related to the sale of goods.

Contact Chenoweth Law Group, P.C. at 503-446-6261.

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