Magazine article Business Credit

The New (and Improved) Article 2 to the UCC

Magazine article Business Credit

The New (and Improved) Article 2 to the UCC

Article excerpt

In case you have not yet heard, a new--albeit amended--Article 2 (Sales) to the Uniform Commercial Code (UCC) may be coming real soon to your state. Recently, after a lengthy process, certain amendments to Article 2 were adopted by its drafters, the National Conference of Commissioners on Uniform State Laws and the American Law Institute.

Those amendments have now been referred to several states for consideration as possible legislative amendments to their state commercial code. These UCC amendments will trigger the necessity of all buyers and sellers to "revisit" their organizational terms/ conditions of purchase/sale, negotiation "tactics" and the like--including those appropriate in supply chain contract management/administration. With state/ federal government(s) focusing more frequently on commercial purchases, government contracts officers at all levels are not immune from these amendments.

This article is intended to provide an overview of significant non-consumer amendments to UCC Article 2.

Background, Introduction, Scope

First, recall that UCC Article 2 is the "Bible" for contracts/purchase orders for the sale/purchase of goods in the United States. It applies to transactions in "goods," as defined in UCC 2-103, and thus impacts all buying and selling professionals within the United States (UCC 2-102). The typical boilerplate terms and conditions incorporated into domestic sales transaction explicitly or implicitly--usually have the law of a particular state apply to that sales transaction.

This has the operative effect of allowing that state's commercial law to control and influence the outcome of many transactions. This arises due to local/domestic law accomplishing what the UCC intended, filling the gaps in various aspects of the deal that was structured by the contracting parties. No change is proposed to UCC Section 1-102(3), however which allows the contracting parties to continue to "vary by agreement" the UCC--with very few exceptions that are not applicable here.

Furthermore, leasing of goods continues to be outside the scope of Article 2 and is covered in Article 2A, which is unaffected by these amendments.

It must also be realized that the UCC and state law will normally not control international sales transactions in goods where the contracting parties are situated in different countries each of which have ratified the United Nations Convention on Contracts for the International Sale of Goods (CISG). Thus, for those 60+ countries (including the United States) that have ratified the CISG, that law provides the commercial law benchmark in the sales of goods in that arena--and there are significant differences (e.g., no "Statute of Frauds," "different" shipping terms, no "battle-of-the-forms" concept, etc.) in contract formation/terms that are included in the current UCC and should be appreciated by the buying and selling professional before conducting business in that international environment--all of which is beyond the scope of this article.

Significant Changes To Article 2

Generally, the changes to Article 2 are predicated upon updating "the article to accommodate electronic commerce ... and also to reflect the development of business practices, changes in other law and to resolve some interpretive difficulties of practical significance." It is submitted that global transactions in this era of WTO, NAFTA, and other free trade agreements are dynamic and impact so-called purely domestic transactions: this necessarily has driven change in the underlying basis in most laws and thus requiring "updating."

The significant changes in Article 2 may be characterized under the major headings of definitions, formation and terms, warranties, performance and breach, and remedies.

Definitional Changes

The basic definition of "goods" is unchanged in that it continues to include "all things that are movable at the time of identification to a contract for sale," as well as future goods and specially manufactured goods. …

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