The Uniform Commercial Code (UCC) is a comprehensive, uniform set of laws that govern commercial sales and transactions. The UCC was originally published in 1952 and was adopted by the State of Minnesota in 1965. It has been adopted in every state except Louisiana, with minor variations between states. This article will focus on Minnesota’s version of the UCC with reference to Minnesota statues and case law applying Minnesota UCC law.
Important concepts to the UCC in general are its provision imposing an obligation of good faith in every duty or contract, and the heightened standards that apply to Article 2 “merchants.”
Article 2 is the most important of the UCC articles, as its provisions govern the sale of goods in every state except Louisiana.
- The Contract
Article 2 governs applies to transactions in “goods,” defined as “all things that are movable.” A contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct of the parties. Such conduct generally includes an offer and acceptance.The term “offer” is not defined in the UCC, and acceptance may be made “in any manner and by any medium reasonable in the circumstances.” Whether a contract exists is governed by an objective standard, subjective intent is not material.
- Battle of the Forms
An important concept of Article 2 is the “battle of the forms.” Acceptance of an offer sent within a reasonable time can operate as an acceptance even if it states terms additional to or different from those offered or agreed upon. An offeree can avoid this problem by making acceptance expressly conditional upon assent to additional terms.
The UCC provides for four warranties. In every contract, the seller warrants that it has clear title to the goods. Express warranties may be made by the seller’s words and actions. If the seller is a merchant, a warrant for merchantability is implied. A further warranty may be implied when the buyer relies on the seller’s judgment to select conforming goods. Sellers may sued for breach of warranty and liable to third parties that use the goods.
- Breach and Remedy
- Buyer – Upon receipt of the goods, the buyer must accept or reject them. Acceptance occurs in three situations. A buyer must seasonably notify the seller of its rejection. If the buyer accepts goods, the burden to prove breach shifts to the buyer. In addition, the buyer has no remedy unless it notifies the seller of the breach within a reasonable time.
- Seller – A buyer’s right to reject may be limited by the seller’s right to cure. The seller must notify the buyer of its intent to cure.
ARTICLES 2A, 3, 4, 5, 7, 8, AND 9
Article 2A applies to leases in “goods”; it does not apply to leases on real property. An Article 2A lease is a transfer of goods for a term in return for consideration. Important to the practitioner is the distinction between a lease and a sale or Article 9 security interest.
Article 3 governs negotiable instruments, documents that guarantee payment of a specific amount at a certain time or upon demand. Examples include checks, drafts, and promissory notes. Article 3 does not apply to cash transfers.
Article 4 deals with bank deposits and collections. Article 4 contains specific rules governing the relationships between banks and their customers. Article 4A governs the process of the transfer of funds between banks.
Article 5 governs letters of credit, a letter from a buyer’s lender promising to pay a seller upon demand, in effect supporting the buyer’s promise to pay the seller.
Article 7 governs the rights and responsibilities of the parties involved in the shipment and storage of goods. Important to Article 7 are “documents of title.”
Article 8 governs the rights of parties regarding the transfer of securities (stocks, bonds, mutual fund shares, partnership shares, etc.). Article 8 includes certificated securities (those represented by a certificate) and uncertificated securities (transfers only registered on books of the issuer).
Article 9 governs liens on personal property or fixtures, but not on real property. Article 9 deals with how “security interests” attach, how they are perfected, how priority is established, and how they are enforced. In Minnesota, security interests are filed through the Office of the Secretary of State.