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Contracts and the Uniform Commercial Code

Contracts might not need to be formally written when covered by the UCC.

By Larry Berglas

No one article can hope to cover all of the Uniform Commercial Code (UCC), a huge body of legislation that was enacted to facilitate interstate commercial transactions and the sale of goods in the United States. The UCC's essential elements address commercial transactions through a single uniform code, as opposed to common law and legislative law approaches that might be particular to each individual state. Because states can apply the UCC differently, however, UCC law may vary somewhat from state to state.

First, note that the UCC does not apply across the board to all types of transactions. Many transactions occur without a written contract, such as when you leave your coat with the coat-check room at a restaurant, or when you shop at the local food store. The UCC also does not apply to transactions such as employment contracts, the sale of real estate, or service agreements.

The UCC does apply, however, to contracts for the sale of goods in a different manner. What is a "good?" Goods are anything that can be moved about for sale, such as refrigerators, computers, books, boats or lawn mowers.

Written Contracts

Formal written agreements are not required under the UCC. With recognition of the informal way in which many individuals transact business, the UCC attempts to find valid and subsisting agreements through writings that meet basic criteria sufficient to form an understanding between the parties. Under the UCC, merely a note or memorandum with terms sufficient to denote the intentions of the parties might serve to operate as a valid contractual agreement. An actual signature may not be necessary if other indications are present to specify the identities of the respective parties to the agreement.

However, under the UCC's Statute of Frauds, such contracts will not be enforceable unless there is "some writing sufficient to indicate that a contract for sale has been made between the parties, signed by the party against whom enforcement is sought." The Statute of Frauds only applies to the sale of goods above a certain amount, however, usually $500 to $1000 depending on the state. In sales above this minimum amount, a Bill of Sale should be drawn up.

The UCC also addresses many other aspects of the contracting process, including how delivery and payment should occur. Goods to be delivered must be delivered in a single delivery unless the parties to the agreement have agreed otherwise. Payment is due on the delivery of the goods. The buyer has the right to a "reasonable" inspection of the goods upon tender and before payment. The buyer who rejects the goods must do so within a reasonable time after tender.

Assuring Contract Performance

Parties also have the right to adequate assurance of performance under the UCC. That is, if one party has a reasonable belief the other may fail to perform its part of the bargain, it can demand "adequate assurance of performance" in writing from the other party.

If performance of the agreement has not yet occurred, and a party refuses to honor the agreement, the UCC offers several alternatives if the contract's value will be substantially impaired. The non-refusing party can either await performance for a reasonable time, treat the agreement as if it was already breached, or suspend performance on its part. All of these alternatives, however, are subject to the application of the UCC in its various other parts and sections.

Express and implied warranties are also addressed under the UCC. A promise made by a seller to a buyer can create an express warranty that the goods conform to some basic expectation based upon the nature of the transaction. Implied warranties may be created in a transaction where a merchant usually sells the type of goods that are the subject of the transaction.

The above is merely a small sample of what the UCC contains. The UCC is complex, and an attorney should be consulted if questions arise beyond the understanding of normal day-to-day operations, familiar transactions or typical custom-in-trade issues. Operating as a general resource and guide for commercial transactions, the UCC is broad in scope, and remains subject to interpretation by the courts when specific transaction problems arise.

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