Published In October 2000
Each state has its own laws governing commercial transactions. This diversity has created problems among the states. The Uniform Commercial Code (U.C.C.) was designed to be a national body of law on the rights of buyers and sellers. It was intended to make a coherent and consistent body of law that each state would adopt and implement in harmony. The Code is divided into nine substantive sections, each of which is important to an electrical contractor. The focus here will be on portions of Article Two, “Sales.” In particular, the discussion will be on the sale of goods. How it applies You call suppliers and manufacturers almost every day. You may confirm your discussions by fax, send specification sections to the suppliers, and receive estimates, either verbally or in writing. Somewhere along the way, you think you have an agreement. But what does this agreement include? The U.C.C. fills in the gaps. “Incorporation by reference” was discussed in a recent column. The U.C.C. is incorporated into your contract as a matter of law, whether it is explicitly referenced or not. A simple example: you call a supplier for a quantity of devices, and the supplier quotes a price. You did not discuss a schedule for delivery, warranties, or anything else, but you do send a purchase order. Is there a contract? Under the U.C.C. there probably is. Section 2-204(3) says: Even though one or more terms are left open a contract of sale does not fail for indefiniteness if the parties intended to make a contract.... What about: - Time of delivery? It is a reasonable time. (§ 2-309 (1)). - Time for payment? It is due at delivery. (§ 2-310(a)). - Warranties? There are many, including: Warranty of title Express warranties, including any affirmation of fact or promise relating to the goods, and any description of the goods which formed the basis of the bargain Implied warranty of mechantability Implied warranty of fitness for particular purpose The U.C.C. supplies these and other terms and conditions as a matter of law, unless you specify otherwise. The U.C.C. also outlines terms you should consider for your contract, which ones to exclude, and what to do when something goes wrong. Quite a bit of material! One printing of the code, with official commentary, is 214 pages of dictionary-sized type. All U.C.C. rules apply to your purchase order, unless they were modified in your purchase order. Even if you have a relatively complete set of terms and conditions, the U.C.C. specifies ways in which those terms should be interpreted. This is quite a law, and it is a good one. Battle of the forms You send a purchase order to a supplier with your terms printed on it. The supplier then sends back an “acknowledgment of order” form of its own with different terms. Is there a contract? If there is, what terms apply? Before the U.C.C. was adopted by the states, the courts would often rule that there was no contract, because all terms did not agree. This old rule has changed and it is extremely important to know these changes. Under the facts used here, if your supplier’s acknowledgment form contains additional terms and you do not catch them, they become part of the contract. If your supplier has a term that conflicts with one of yours, neither clause is in the contract. This means you need to have a well-drafted purchase order, and you need to read any written response by your supplier. Your purchase order should also state that it “expressly limits acceptance to the terms of” your offer. Implied warranty of fitness Two important “implied” warranties required by the U.C.C. are the warranty of merchantability and the warranty of fitness for particular purpose. For goods to be considered “merchantable,” they need only be of fair average quality and fit for ordinary purposes. In essence, the goods should not be defective. Your supplier can exclude this basic implied warranty. Where the supplier’s form states conspicuously that “there are no warranties of merchantability,” then the warranty is gone. A more interesting warranty is that of fitness for particular purpose, which arises in the following situation: Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods... For example, the warranty is violated when materials are supplied that cannot stand up under the harsh environment of a pulp and paper mill and the supplier knew the intended use of the goods. The emphasis here is on the seller. So long as the seller knew or had reason to know of the end use of its product, it is bound by this implied warranty even though the buyer did not give details. As with merchantability, the warranty of fitness can be waived. If you see language in your supplier’s forms which states, for example, that there are no warranties except those expressly contained herein, the fitness warranty is probably gone. Read your suppliers’ forms. Your subcontract with a general contractor will have warranty clauses covering not only your installation efforts, but also goods and materials you supply. You need to make certain that your suppliers are bound to the same warranties. In some cases, the contractor has been found liable to an owner for breach of warranty, yet it had no recourse against the supplier because of the supplier’s waiver language in its forms. The U.C.C. and construction contracts Article Two was drafted solely for transactions in goods, not for “services.” What is typically called a construction contract calls for labor, materials, equipment, supervision, etc. It is considered a “service” agreement, even though the contractor supplies and installs “goods.” The rationale is that the buyer is principally contracting for the services of the contractor. For example, the purchase of a refrigerator is a sale of goods, although some labor is involved in the installation. A contract for the renovation of a kitchen is a service agreement, although the contractor is also supplying a refrigerator. The courts, however, often turn to the U.C.C. for guidance on construction issues. This is partly because it is well organized. It is relatively easy to find the U.C.C.’s definitions, rules-of-contract interpretation, rules on warranties, breach of contract issues, descriptions of recoverable damages, etc. For example, the U.C.C. defines “consequential” and “incidental” damages, which have varying meanings in the case law. In addition, it is becoming common to see phrases from the U.C.C. in construction contracts, and the courts interpret them accordingly. So, reference to the U.C.C. can be beneficial in interpreting your contracts and in analyzing claims for breach of contract. Words of caution Every state has adopted the U.C.C., but often with variations, making it a mostly uniform code. You will need to consult the state’s law that applies to your purchase order to determine the present status of this law. Choice of law issues was discussed in a prior article. The U.C.C.’s instructions are also affected by other state and federal case law, regulations, and statutes concerning such things as unfair trade practices, false advertising, and breach of contract. For guidance and answers to your questions, consult a legal professional with expertise in these areas. ITTIG, of Ittig & Ittig, P.C., in Washington D.C., specializes in construction law. He can be contacted by e-mail: USBuildlaw@aol.com, at his Web site, www.ittig-ittig.com, or by telephone: (202) 387-5508.