Common Law v. UCC

09 Aug Common Law v. UCC

If you write enough contract essays you probably have dreams of writing “Governing Law: The Uniform Commercial Code (UCC) governs contracts for the sale of goods and Common law governs for contracts for services.  Under the UCC goods are tangible movable objects identified at the time of contracting.”  This is really the keystone of all contract essays.  The governing law statement is your starting point, your starting line.

Formation

Once you identify the governing law for your contracts analysis (covering governing law, goods, and merchants if necessary) your ready to move on to your Formation discussion.  We all know that to have a valid enforceable contract you must have offer, acceptance, consideration, and no defenses to enforcement.  There are many differences between Common Law and the UCC; this article will cover just a few, so please don’t think this is it, its never that easy!

A valid offer exists if a party communicates to an identifiable party an intention to be bound to the terms of the offer.  At Common Law the terms of the offer must identify the parties, subject matter, quantity, price, and must do so with sufficient definiteness.  Many students are taught the acronym:

Q-TIPS.  Q = Quantity T = Time for Performance I = Identity of Parties P = Price S = Subject Matter

But the above discussion is more valid for a common law contract.  If we are discussing a UCC governed agreement then our offer discussion changes a bit.  A valid offer exists if a party communicates to an identifiable party an intention to be bound to the terms of the offer.  The UCC holds even though one or more term are left open a contract for the sale of goods does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.  The only required term, and even the required term has an exception, is quantity.

As we have identified there is a difference between a Common Law offer and UCC offer, this directly effects the way in which acceptance can be made.  Under Common Law we know that acceptance is a manifestation of an intent by the offeree to be bound by the terms of the offer.  The brass tacks being under Common Law the acceptance must be a mirror image.

If Bob offers to wash your car for $200 on the third full moon of the year of Aquarius, you must accept the offer to wash the car for $200 on the third full moon of the year of Aquarius.  If there is any variance then it is not a mirror image.

Under the UCC acceptance is much more fluid.  Under the UCC an offer to enter into a contract for the sale of goods may be accepted in any manner that is reasonable under the circumstances.  There are many issues at difference in acceptance but the one that I find used the most often is when both parties are merchants and a new or additional term in the acceptance or confirmation shows up.  These new or additional terms are often lovingly called the Battle of the Forms.

UCC 2-207 states a “definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from” the terms of the offer, unless acceptance is made expressly conditioned on assent to the additional or new terms.  Whether these new or additional terms are added in rests upon whether one party is a merchant or both are merchants.  When both are merchants the new or additional terms are added to the contract unless the offer expressly limits acceptance to the terms of the offer, new or additional terms materially alter the offer, or within a reasonable time after learning of the new or additional terms the offeror notifies the offeree that he objects to them.

Performance

Performance in a contract analysis asks us whether either party has an absolute duty to perform under the contract.  If an absolute duty to perform has come due what is the outcome; was the duty performed, was their a discharge, was there an excuse, what actually happened?

An important variance between Common Law and the UCC is “risk of loss”.  Risk of loss was one of those 1L contract subjects that sent my brain whirling.  I am not going to go into all the UCC specifics for FOB, FAS, CIF, or C&F (that can be found in another article).

What I am going to briefly cover is the concept of risk of loss.  The UCC holds that the parties to an agreement may make whatever expression of allocation of risk as they wish as long as it is set forth in the contract with sufficient clarity.  If the parties fail to to provide in their agreement where risk of loss falls the UCC steps in with guidelines.

If goods are destroyed or lost in transit the dependent factors are whether the goods were shipped via carrier or held by a bailee.  If goods identified when the contract is made are destroyed or damaged through no fault of either party before risk of loss passes to the buyer, the obligations under the contract are discharged if the loss is total; but if it is less than total the buyer may avoid the contract or accept whatever goods remain.  See more articles on this subject for more development on this.

     Breach

Here, we are going to look at a specific difference under the heading of breach but more specifically a minor breach.  If a breach is deemed to be minor rather than material, the non-breaching party may not hold his performance and avoid the contract but will still be eligible for the damages resulting from whatever minor breach.

Under the UCC unless the parties have agreed otherwise (or if the contract is an installment contract) if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may reject the whole, accept the whole, or accept any commercial unit(s) and reject the rest.  This is very different than the common law rule that a minor breach may be treated by the buyer as “material” under the perfect tender rule; subject to the sellers right to cure.

I use the example of purchasing things on Amazon to explain this rule.  Imagine you purchase a set of 12 books about Common Law off Amazon.  You pay for the books and they are shipped.  When the books arrive 3 of them are on Common Law and the rest are on Veterinarian Science.  You have the option (bear with me) of keeping all the books, keeping the three Common Law books, returning all the books, or keeping whatever books you want.  Maybe the pictures in the Veterinarian Science books peaked your interest and your no longer interested in law and want to go into Horse Surgery?

      Remedies

 I think of all the contracts issues we have to learn in 1L contracts, remedies is always the hardest.  One significant difference between the UCC and Common Law that is commonly tested in remedies sits in specific performance.  The UCC allows an aggrieved buyer to obtain specific performance where the goods are unique “or in other proper circumstances” if the goods are identified at the time of contracting and the aggrieved party may have replevin if the buyer is unable to cover.  Don’t forget your cover rules.

Remember, there are many differences between Common Law and the UCC.  Sometimes it feels too much to take in but if you keep reading, writing, studying, and working at it, it will all begin to fall in place.