BBA 3210, Business Law 1
Course Learning Outcomes for Unit VI
Upon completion of this unit, students should be able to:
7. Demonstrate how Article 2 of the Uniform Commercial Code (UCC) applies to sales transactions. 7.1 Use concepts unique to Article 2 of the UCC concerning the formation of sales contracts. 7.2 Discuss performance of sales contracts under Article 2 of the UCC.
Course/Unit Learning Outcomes
Unit Lesson Chapter 15 Article: “The Uniform Commercial Code Survey: Introduction” Article: “Sales” Unit VI Case Study
7.2 Unit Lesson Chapter 16 Unit VI Case Study
Required Unit Resources
Chapter 15: Formation and Performance of Sales and Lease Contracts
Chapter 16: Sales and Lease Contracts: Performance, Warranties, and Remedies
In order to access the following resources, click the links below.
Martin, J. S., Marks, C. P., & Barnes, W. (2019). The Uniform Commercial Code survey: Introduction. Business Lawyer, 74(4), 1203–1206. https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc t=true&db=bsu&AN=139803242&site=ehost-live&scope=site
Martin, J. S. (2019). Sales. Business Lawyer, 74(4), 1207–1223. https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc t=true&db=bsu&AN=139803243&site=ehost-live&scope=site
The Uniform Commercial Code
Contract law is primarily state law, and state contract law, in most cases, is common law. One of the hallmarks of the common law is that it is based on the interpretations that courts have assigned to specific legal concepts, so the details of the common law of contracts vary from state to state. Those variations are not a weakness in the common law, but the variations from state to state can make contracts involving parties in different states difficult. For example, if the common law of contracts in Alabama says one thing about how an acceptance of an offer can be made, and the common law of Georgia says something different, one party to a contract in Alabama and another party to the contract in Georgia may not know if there has been an acceptance of an offer to make a contract.
A number of years ago, a semi-official organization, the National Conference of Commissioners on Uniform State Laws, created the Uniform Commercial Code (UCC) to address the variation in state commercial laws,
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Title including contract laws, so that contracts involving parties in different states would be easier to make and perform and so commerce would not have to bear the burdens imposed by state-to-state variations in contract laws.
The National Conference of Commissioners on Uniform State Laws surveyed contract law in the states and developed the UCC to provide a common sense approach to contract law that was intended to standardize contract law in the states without causing states to make substantial changes in their existing laws.
One of the unique aspects of the UCC is that the National Conference of Commissioners on Uniform Laws— not being an official governmental entity—did not have the power to force states to adopt the UCC. Yet, all states except Louisiana that have a legal system based of French civil law rather than common law have adopted at least a portion of the UCC.
The result has been that contracts that are subject to the UCC (and we will see that not all contracts are subject to the UCC) are generally easier to make and easier to perform and enforce than before the UCC was adopted. The UCC introduces several new concepts to contract law, but its most important contribution to contract law is that it emphasizes finding that contracts exist rather than presenting obstacles to the creation of contracts, which was sometimes the effect of the common law of contracts.
Articles 2 and 2A of the UCC
The UCC covers more than just sales contracts. It is divided into sections, which are referred to as Articles, that address specific types of commercial transactions. Article 2 addresses sales contracts, and Article 2A addresses lease transactions. Though the UCC strives to disrupt the common law as little as possible, with respect to Articles 2 and 2A, the application of the provisions of the UCC are limited by several concepts that are either new to contract law or that have special meanings in the UCC.
Sales: In the UCC, a sale is defined as a transaction that involves the passing of a title to something from the seller to the buyer. Title is defined as ownership. This provision does not change the common law.
Goods: Articles 2 and 2A apply only to transactions involving goods, and goods are anything that is tangible and that is moveable when the contract is made. Tangible means that something has a physical form, and moveable means that the subject of the sales contract can be moved from place to place, but both the idea of physical form and movement in the context of the UCC need some further explanation.
Having physical form means that something can be touched or held, but not everything that can be touched or held is a good within the meaning of the UCC. A laptop computer clearly has physical form and is a good, but some things that have physical form represent something that does not have physical form and is, therefore, not a good. For example, if Bill owns 100 shares of stock in Ford Motor Company, there is a Ford Motor Company stock certificate with Bill’s name that indicates that Bill owns 100 shares of stock. While that stock certificate can be touched and held, it only represents the shares of stock that Bill owns, so the stock certificate is not a good under the UCC. Bill’s ownership of the shares of stock in Ford Motor Company is an intangible right, and any contract for the sale of those shares of stock would not be subject to the provisions of the UCC.
The requirement that a good be moveable to be subject to the UCC also involves a few quirks. Land and anything that is permanently attached to land is not moveable, so a contract for the sale of land or anything permanently attached to the land is not subject to the provisions of the UCC. However, if something that is permanently attached to land is separated from the land, it then becomes moveable, and any sale of that item is subject to the provisions of the UCC. For example, if Pete owns land where pine trees are growing, and Pete sells the growing trees to Sidney, that sale would not be subject to the provisions of the UCC because the growing trees are not moveable. However, if Pete cuts the trees down and sells the cut trees, that sale would be subject to the provisions of the UCC because the cut trees would be moveable. Although growing crops would seem to be like pine trees and be permanently attached to the land until they are harvested, there is a provision of Article 2 of the UCC that classifies growing crops as goods that are subject to the provisions of the UCC.
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Another concept introduced by the UCC is the merchant status. A merchant is anyone who regularly deals in goods of a kind involved in a sales or lease transaction. The UCC imposes a number of responsibilities on merchants involved in sale and lease transactions that are not imposed on parties to contracts who are not considered to be merchants. The justification for imposing those additional responsibilities on merchants is that those who regularly deal in the goods that are the subject of the contract should be held to higher standards with respect to those transactions.
Elements of a Contract
The elements necessary to create a contract under the common law, (i.e., agreement, consideration, capacity, and legality) are still necessary under the UCC, but the UCC makes a few changes intended to simplify the formation of contracts.
Although the common law generally requires that all terms necessary for the formation of a complete contract be contained in an offer, the UCC considers an offer to be valid, even if major terms are missing from the offer. For example, if the price is not stated in an offer, the UCC allows a court to assume that a reasonable price was intended, and, if the place for delivery of the goods being sold is not stated, the UCC allows a court to assume that the seller’s place of business is the place that the goods are to be delivered to the buyer.
The common law provides that an offer can be withdrawn at any time before it is accepted unless the offeree pays the offeror an amount of money and the offeror agrees not to withdraw the offer for a specific amount of time. Under the UCC, an offer that is in writing and that the offeror agrees not to withdraw for a specific amount of time cannot be withdrawn for that time period, even though the offeree has not paid any amount of money to the offeror.
Under the common law, there is a complicated arrangement about how an offer can be accepted. If an acceptance is mailed, the mailbox rule provides that the acceptance is effective when mailed, but any other response to an offer is not effective until it is received. The UCC simplifies the process; an acceptance of an offer is effective when it is dispatched, so a written acceptance is effective when mailed, an emailed acceptance is effective when it is sent, and a verbal acceptance is effective when it is spoken.
Also, the mirror-image rule for acceptances under the common law does not apply under the UCC. If the offeree expresses an intention to accept an offer, the specific words used in that acceptance are not important.
Battle of the Forms
In many commercial contracts, there is an exchange of forms that may not contain the same terms. For example, a buyer might send a purchase order to a seller offering to buy 100 units of a described good for a specified price to be delivered as soon as possible with a statement that payment for the goods will be made within 10 days after the goods are delivered to the buyer. Upon receipt of that purchase order, the buyer might ship the 100 units of the good to the buyer and email the buyer an invoice that says the purchase price is due at the time of delivery. Under the common law, there might be a problem because the buyer’s offer specified payment within 10 days after delivery, but the seller’s acceptance said that payment was due on delivery. Under the UCC, there would be no problem because the UCC says that in a case like this, where forms are being exchanged, unless there is an objection stated by one of the parties, the terms included in the last document exchanged are the terms of the contract. Under the UCC, the buyer would be obligated to pay for the goods purchased when the goods were delivered to the buyer.
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Statute of Frauds
There is a specific statute of frauds in Articles 2 and 2A of the UCC that requires all contracts for the sale or lease of goods for more than $500 to be in writing.
Articles 2 and 2A of the UCC provide that a court does not have to enforce a sales contract or a lease if the court finds that the sales contract or lease is unconscionable. Unfortunately, the UCC does not define unconscionability, so courts have fashioned a test for unconscionability that does not provide a very satisfactory guide to determining if a sales contract or lease is unconscionable. Courts have said that if a contact or lease shocks the conscience of the court, then the court does not have to enforce the contract or lease.
Performance of the Contract
The UCC follows the common law rule of performance of a contract that requires that the seller/lessor of goods supply the buyer/lessee of the goods with exactly what is described in the contract. That common law rule is the perfect tender rule, and in the UCC, the rule refers to conforming goods. In other words, the seller/lessor of goods must make available to the buyer/lessee of the goods at a reasonable place and time goods that conform specifically to the goods specified in the contract. If the seller/lessor does not tender conforming goods to the buyer/lessee, the buyer/lessee can accept the goods even though they do not conform to the contract, the buyer/lessee can reject the goods because they do not conform to the contract, or the buyer/lessee can accept some of the goods and reject the rest of the goods.
The UCC is intended to make contracts for the sale of goods, especially contracts between parties in different states, easier to create and to perform; in doing so, the UCC has sanctioned some common law concepts and introduced other new concepts.
Learning Activities (Nongraded)
Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit them. If you have questions, contact your instructor for further guidance and information.
View the Unit VI Glossary to review key terms presented in this unit.
Alternate format for Unit VI Glossary
Photogl. (n.d.). Books on library shelves (ID 20785201) [Photograph]. Dreamstime. https://www.dreamstime.com/stock-image-books-library-shelves-image20785201
- Course Learning Outcomes for Unit VI
- Required Unit Resources
- Unit Lesson
- The Uniform Commercial Code
- Articles 2 and 2A of the UCC
- Elements of a Contract
- Battle of the Forms
- Statute of Frauds
- Performance of the Contract
- Learning Activities (Nongraded)