What the updated UCC means to you
Dr. John Murray, Jr. -- Purchasing, 5/6/2004 2:00:00 AM
The Uniform Commercial Code (UCC) is a broad-ranging commercial statute of interest to buyers because it covers contracts for the sale and lease of goods, negotiable instruments, bank collections, letters of credit, documents of title, investment securities and secured transactions. While the UCC has been in existence for some time, there are some recent updates and revisions that buyers and suppliers should be aware of.
The UCC was first enacted in Pennsylvania more than a half century ago, driven primarily by two organizations working cooperatively, the National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Law Institute (ALI). Over the course of fifteen years, other states worked to enact the legislation and today every state has enacted the UCC, with the exception of Louisiana, which has only enacted certain parts.
While some articles of the UCC have been revised over the years (some more than once), revision of the foundational article on contracts for the sale of goods, Article Two, was not finally approved until 2003, after more than a decade of proposed drafts and redrafts. The American Bar Association recently added its imprimatur to the revision. The next step is to have it introduced in all of the state legislatures for possible enactment. At this time, it appears likely that it will become law.
The long revision process produced its share of controversy. A rather extensive revision was proposed in 1999 but it was rejected by NCCUSL. The current draft is a very modest revision. Indeed, instead of a revision, it is called Proposed Amendments to Article Two.
Some updates reflect the changing nature of contracts in the electronic age. In the current version of Article Two, contracts for the sale of goods priced at $500 or more must be evidenced by a "writing." The amendment changes the threshold to $5,000 and excises the term "writing" in favor of the term, "record," since the law now recognizes electronic records as sufficient writings in contracts. The amendments contain other updates recognizing the validity of electronic contracts. If a party to an oral contract admits making the contract in court, the writing requirement disappears under the current law. The amendment would allow the contract to be proved by a party's admission made out of court but under oath, allowing depositions before trial to be sufficient evidence of the oral contract.
The section dealing with the notorious "battle of the forms" has been substantially modified to overcome a number of controversial issues. Essentially, only the matching terms in the records of both parties (such as a purchase order and acknowledgment) will be the terms of the contract unless the parties agree to other terms that are not in the records.
There are new warranty-like obligations recognized in the amended Article Two to address the enforceability of express warranties and remedial promises made by a manufacturer to a remote purchaser with whom the manufacturer has not dealt. For example, if a manufacturer encloses a written warranty inside a package that is distributed to the ultimate purchaser through a distributor, the buyer will be able to sue the manufacturer directly under that express warranty.
There are more specific directives for how sellers may disclaim warranties that would otherwise be implied in a contract for sale. Specific language is suggested to provide sellers with a safe harbor in assuring them that the use of such language will be legally effective to disclaim implied warranties.
Several sections of the current version of Article Two that define delivery are excised from the amended version on the grounds that these terms are obsolete. The amended version does not replace them with new terms. Rather, contracting parties will be expected to observe reasonable delivery terms used by merchants such as those outlined by the International Chamber of Commerce (incoterms).
Under the current law, when a buyer receives nonconforming goods from a seller, the buyer may reject the shipment, but the seller has the right to cure the defect if time remains for the seller's performance under the contract. The current writing fails to consider the possibility that a buyer may accept the shipment and only later become aware of the nonconformity. At that point, if the defect is substantial, the buyer may revoke acceptance of the goods, but the seller has no right to cure the defect, even if time remains for the seller to perform the contract. The amended version of Article Two allows the seller to cure the defect even after the buyer revokes acceptance of the goods.
One section of the current Article Two requires the buyer to provide notice of any defects in accepted goods within a reasonable time after the buyer did or should have discovered the defect. Failure to do so bars the buyer from any remedy. The new version would bar the buyer from any remedy for failure to provide timely notice only where such failure prejudices the rights of the seller.
The current Article Two has a four-year statute of limitations for breach of the contract, which begins as soon as the goods are delivered to the buyer even though the buyer has no knowledge that the goods are defective. Unless the nonconformity appears within four years from delivery, the four-year statute bars the buyer from any relief. Among other changes, the amended version states that the action must be commenced within four years from the time of delivery or one year after the breach was or should have been discovered, but, no later than five years.
There are a number of other minor changes in the amended Article Two. The current version often refers to "him" and that language has been changed throughout to be gender-neutral. The modesty of the changes in the amended Article Two may be explained by the fact that there was considerable controversy in the revision process between the "strong sellers" and other groups such as consumer protection advocates.
Another major reason for the modesty of the changes is that the original version has worked so well. This is a tribute to the genius of the late Professor Karl Llewellyn of the University of Chicago School of Law, the chief architect of the UCC and the principal draftsman of the original Article Two.
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