Something is considered to be a sale if the ownership of goods is passed from a seller to a buyer for a price. Obtaining a bank loan would not be considered as a sale due to the fact that nothing actually passes from seller to buyer. Something is considered to be a “good” if the item is tangible and movable. This definition of goods could include natural resources, such as lumber, as well as man-made goods such as clothing.
The sale of land and real estate would not be considered a sale of goods; this includes anything attached to the land. Under this definition provided by the UCC, the sale of your home would not be considered a sale of goods because the home is not movable. However, things that were once attached to the land but can be removed from it would be considered a sale of goods.
The Uniform Commercial Code, or UCC, is a model statute that has been adopted by every state in its entirety with the exception of Louisiana. The UCC is the body of law governing contract disputes involving the sale of goods. However, only Article Two of the UCC is what specifically governs a sale of goods dispute. Every other article contained within the UCC governs a different type of transaction.
Who Must Adhere to the Uniform Commercial Code?
The Uniform Commercial Code generally applies to people who are considered to be merchants. Meaning, people who are skilled in a field of business or who have specific business knowledge, greater than the level of an average citizen. Some common examples of who qualifies as a merchant include, but are not limited to:
- Business managers;
- Sales people;
- Contractors; and
- Skilled workers.
The UCC applies whenever there is at least one merchant involved in the sale of goods. Contracts between people who are not considered to be merchants generally are not covered by the UCC, which means the code does not apply to them. It is for this reason that the code is referred to as uniform; it is intended to provide guidelines for official commerce and business activities, as opposed to personal interactions.
An example of this would be how one person selling their personal vehicle to another person would not need to adhere to the Uniform Commercial Code, unless they were also an auto salesperson.
What Does the Uniform Commercial Code Cover?
To reiterate, the Uniform Commercial Code mainly covers the sale of goods. The titles of the Articles help provide a description of what is covered by the code:
- Article 1: General Provisions: The first Article covers the many definitions and basic concepts described in the UCC. Article 1 also provides the rules of interpretation of the provisions.
- Article 2: Sale of goods: Article 2 covers sales and also leases of goods. However, this Article does not supersede or repeal any state’s statute which regulates sales to consumers, farmers, or any other specified class of purchaser.
- Article 3: Commercial Paper: Article 3 applies to what is known as negotiable instruments. This article does not apply to money, nor payment orders which are governed by Article 4 of the UCC. Additionally, Article 3 does not apply to securities governed by Article 8. What this means is that disputes involving Article 3 and Article 4 or 8, 4 or 8 would be the governing Article.
- Article 4 and 4A: Bank Deposits and Funds Transfers: Article 4 provides coverage for a bank’s liability regarding action or non-action. Specifically, involving an item by the bank for the purposes of payment, presentment, and/or collection. 4A applies specifically to funds transfers.
- Article 5: Letters of Credit: Article 5 governs letters of credit and the specific rights and obligations associated with transactions involving letters of credit.
- Article 6: Bulk Transfers: This Article applies to bulk sales auctions and the liquidation of assets.
- Article 7: Warehouse receipts, Bills of Lading, and Other Title Documents: Article 7 covers risk involving wholesales of goods, as well as the storage and delivering of goods without transfer of ownership.
- Article 8: Investment Securities: As previously mentioned, Article 8 is what governs a share or similar equity interest. An investment company security would not include things such as an insurance policy, an endowment policy, or an annuity contract that has been issued by an insurance company.
- Article 9: Secured Transactions: Article 9 governs a considerable number of topics associated with secured transactions. This includes:
- Any transaction which creates a security interest in personal property, or fixtures by contract;
- Agricultural liens;
- Sales on accounts, chattel paper, intangible payments, and promissory notes;
- Consignments; and
- Security interests.
As you can see, the Uniform Commercial Code is a considerably broad and comprehensive body of law covering several different situations. It often serves as a guide by “filling in” information in a contract that is unintentionally left out. Those who wish to avoid UCC conflicts should be careful that their contracts are very clear, and do not leave out important pieces of information that would be filled in by the applicable UCC Article(s).
What Are Common Terms Included in a Sale of Goods Contract?
Unlike most other contracts, a sale of goods contract does not need to specify the exact terms and conditions of the agreement being recorded by the contract document. Rather, many sales of goods contract terms can be left open and negotiated between the parties, even once the contract has been formed.
Some examples of sales of goods contract terms that may be left open include:
- The price to pay to buy or sell the goods;
- When, where, and how payment will is to be made;
- Where to deliver the goods once they have been bought; and
- Quantity of goods, although a contract may specify a minimum or maximum amount of how much must be bought.
The Uniform Commercial Code maintains provisions which state that some sale of goods contracts are required to be in writing, in order for them to be legally enforceable. Such provisions are known as the Statute of Frauds. The purpose of the statute of frauds is to prevent fraudulent acts associated with sales of goods contracts.
The statute of frauds laws vary from state to state. Generally speaking, most of these statutes resemble the UCC standards. The following are some examples of the most common types of contracts requiring a written agreement:
- Any contract involving the sale or transfer of land;
- Any contract involving the sale of goods exceeding $500;
- Any contract in which one person promises to pay the debt obligations of another;
- Any contracts in which performance cannot be completed within one year of the contract formation;
- Any contract involving the consideration of marriage; and
- Any contract in which an executor of an estate agrees to personally pay off the debts of the estate.
The general rule for a sale of goods contract is that if the price for the goods totals over $500, the contract must be in writing.
Do I Need an Attorney for Uniform Commercial Code Disputes?
If you are involved in a contract for the sale of goods, or are encountering disputes regarding the UCC, you should contact an area commercial attorney. An experienced and local business attorney would be best suited to understanding how your state’s specific statutes regarding the UCC and how local state statutes may affect your legal options.
An attorney can also represent you in court as needed, and either provide you a solid legal defense or help you work towards an appropriate damages award when possible.