PCCA Journal 1st Quarter 2014 - page 12

PCCA Journal|1
st
Quarter 2014
12
Legal Watch
Continued from page 11
fit for their intended purpose). Section
2-316 establishes rules for disclaiming
warranties (“in writing and conspicu-
ous”). This last requirement is why
you often see disclaimers of warranties
in purchase orders or contracts in a
larger font size, bolded, all capitalized,
or some combination thereof.
These provisions are just a sampling
of Article 2’s breadth. Contracting parties
should be aware of these provisions not
only to avoid unfavorable provisions but
to take advantage of favorable provi-
sions.
3. Article 2 of the UCC dispenses with
many formalities that common law
requires.
A chief purpose of Article 2 is to
grease the contracting wheels that are
otherwise bogged down in legal and con-
tractual technicalities. For instance, the
UCC supplies price and time terms when
such terms are not identified in an offer
and acceptance. Section 2-305 identi-
fies how price will be calculated in the
absence of a negotiated price:
“The parties if they so intend can con-
clude a contract for sale even though the
price is not settled. In such a case the
price is a reasonable price at the time for
delivery if
a. nothing is said as to price; or
b. the price is left to be agreed by
the parties and they fail to agree;
or
c. the price is to be fixed in terms
of some agreed market or other
standard as set or recorded by a
third person or agency and it is
not so set or recorded.”
The UCC also rejects common law’s
“Mirror Image Rule,” which requires one
party’s acceptance to be an exact mirror
image of the offer that was made to it.
Any variations to an offer prevented
contract formation. The Mirror Image
Rule made it difficult for buyers and
sellers who asserted their own com-
mercial terms to form valid, enforceable
contracts. Under the UCC, however,
only “material” changes to an offer will
prevent contract formation.
4. Clarity of contract terms is sacri-
ficed in favor of contract formation
under Article 2.
One of the consequences of rejecting
the Mirror Image Rule is that a deter-
mination of the precise terms of the
contract can be challenging. When only
one party provides written terms to the
particular transaction, a determination
of the contract terms is relatively easy.
But when the buyer and seller exchange
their own standard commercial terms
(by way of purchase order, invoice, or
other written instrument), the UCC may
establish an enforceable contract even
when some of the buyer’s and seller’s
standard terms are inconsistent or even
contradictory. This is called the Battle of
the Forms, which the UCC attempts to
address with Section 2-207. That section
provides that additional terms that are
not material become part of the contract.
Materials alterations are not accepted,
and contradictory terms are “knocked
out.” Not surprisingly, what terms are
material alterations and what terms are
contradictory (and therefore knocked
out) are breeding grounds for lawsuits.
Entire books are devoted towards
analyzing the concepts and ramifications
of Section 2-207. It is a thorny, nebulous
provision that has entangled buyers and
sellers for decades. Contractors wishing
to minimize the uncertainty and disputes
that often arise under Section 2-207 may
wish to approach regular suppliers and
negotiate a master sales agreement that
should inject some certainty into their
sales transactions.
5. The provisions of Article 2 of the
UCC can be modified by contract.
The provisions of Article 2 are escap-
able. American law has traditionally
upheld contracting parties’ freedom to
contract. UCC Section 1-302 provides
that “[a]n agreement that varies the
effect of provisions of the Uniform
Commercial Code may do so by stating
the rules that will govern in lieu of the
provisions varied.” Therefore, a contract-
ing party may avoid the consequences of
a particular provision UCC by inserting a
provision contrary to the UCC’s rule on
the subject or even expressly disclaiming
application of a particular UCC provision
or principle. Existing contracts, purchase
orders, and invoices may already contain
such anti-UCC terms. The consequences
of contracting around the UCC should be
carefully considered.
Conclusion
and Best Practices
The importance of Article 2 of the UCC
cannot be overstated. It governs the
sales of everything from chewing gum
to mobile homes. It is a complex body
of law that generates volumes of books,
articles, and treatises seeking to distill
its many provisions. Against this broad
legal framework, contractors should con-
sider reviewing their purchasing policies.
Contractors should consider issuing their
own commercial terms when making
any materials purchase. If contractors
already assert their standard commercial
terms, they should review them carefully
in light of the UCC to make certain that
any disfavored UCC provisions are inap-
plicable and that any favored terms of
the UCC are enforced.
Matthew Straub is an attorney in the
Construction Industry Group of Ogletree,
Deakins, Nash, Smoak and Stewart P.C.
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