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Meanings of UCC Contracts

Meanings of UCC Contracts
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  • 0:02 Contracts for the Sale…
  • 1:50 Battle of the Forms
  • 4:26 Merchants v. Non-Merchants
  • 7:00 Lesson Summary
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Lesson Transcript
Instructor: Ashley Dugger

Ashley is an attorney. She has taught and written various introductory law courses.

The Uniform Commercial Code, or UCC, allows a sales contract to exist even when the parties' contract terms differ. This lesson explains how additional or different terms are treated in UCC contracts, including the difference between merchant and non-merchant contracts.

Contracts for the Sale of Goods

Oliver runs an online store called Outrageous Orange. He sells clothing and home furnishings, all of which are the color orange. Oliver sells goods because his items are movable property. For businesses like Oliver's, it's helpful to be familiar with the Uniform Commercial Code, or UCC.

The UCC is a uniform act that covers sales and other commercial transactions. Note that different portions of the UCC have been enacted as law in different states. This means that laws regarding sales differ slightly from state to state, but the UCC is a good representation of the law regarding commercial transactions in most states.

In particular, Oliver will want to be familiar with the UCC's Article 2. This article is entitled Sales and addresses contracts for the sale of goods. Oliver may not think he uses contracts because he does all of his business electronically through online sales. However, a sales contract is created every time goods are bought and sold. The buyer offers to pay for the goods, and the seller agrees to sell the goods for that price. In an effort to facilitate sales, the UCC allows most sales contracts to be oral, unwritten, and unsigned.

These days, business transactions like Oliver's are common. Many buyers purchase goods electronically, orally, or through the use of purchase orders. In these cases, there won't be a signed sales contract.

Battle of the Forms

Sometimes the lack of a written and signed contract can cause difficulties. Let's say that Olivia owns and runs Olivia's Ottomans. She sees an orange ottoman for sale through Oliver's store and decides to buy five to sell in her own store. The ottoman is $100, so Olivia emails a purchase order to Oliver requesting to buy five orange ottomans for $500.

Olivia uses a standard purchase order form that she uses for all the purchases she makes for her store. Like most business forms, her purchase order contains several standard terms printed at the bottom of the document. These are typically known as boilerplate language. According to Olivia's boilerplate language, she'll pay for the order within 30 days of receiving the goods.

Oliver receives Olivia's purchase order and emails her an acknowledgment. He also ships the five ottomans to Olivia. Oliver uses his own standard form that contains his own boilerplate language. According to Oliver's boilerplate language, Olivia must pay in full within 10 days of his shipment.

Here's where things can get complicated. Under general contract principles, a valid acceptance must mirror or specifically agree to the same terms as the offer. This is known as the common law mirror image rule. Using this rule, Oliver's acknowledgment contains different terms, so it's treated as a rejection of Olivia's offer. Oliver's acknowledgment is, instead, treated as a counteroffer to buy the ottomans using Oliver's payment terms. Olivia may choose to accept or reject the new offer, but if she accepts Oliver's shipment of the ottomans, then she has accepted his offer. Oliver's payment terms will govern.

However, this isn't true under the UCC. Though the terms of these two forms don't mirror one another, the UCC still treats Oliver's acknowledgment and shipment as an acceptance of Olivia's offer to buy the five ottomans. This scenario is known as a battle of the forms. The battle occurs when the UCC treats the agreement as a contract but the parties differ on the terms.

Merchants v. Non-Merchants

A common battle of the forms scenario involves two merchants, like Oliver and Olivia. Merchants are people who are in the same business. Oliver and Olivia are merchants because they both own and run stores that sell home furnishings.

If both parties aren't merchants, then any additional or different terms are treated as proposals. They don't become part of the sales contract unless the other party specifically agrees to those terms. This rule applies to sales between two non-merchants or between a merchant and a non-merchant. However, when both parties are merchants, additional or different terms in the second document normally become part of the contract. Under the UCC, these terms become a part of the sales contract unless:

  • The offer specifically prohibits additional or different terms.
  • The additional or different terms materially alter the offer.
  • A party notifies the other that he or she objects to the additional or different terms.

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