What are the UCC and Common Law
The Uniform Commercial Code (UCC) is a comprehensive set of laws governing all financial and commercial transactions. It was created to standardize commercial transactions, giving them a uniformity that makes it easier for both consumers and businesses to carry out sales and purchases. "Official Comments" accompany each article of the UCC. These comments explain the state of the law before that article of the UCC, and aid in interpreting its language.
The UCC has been adopted to various degrees in all 50 states, and it is meant to be a model act that can be slightly modified to suit the needs of each state. Each legislature should review the UCC and its specific provisions to adopt for its jurisdiction.
The Common law system is a legacy of English law , and it essentially means that the laws evolve over time in relation to the decisions judges have made in interpreting existing laws. The precedent set by these decisions creates a foundation for dealing with new cases, but the evolution of the Common law means that it can shift with necessity.
Common laws apply to all transactions. Even when a sale involves goods, a part of the transaction may not involve goods. In that case, all the Common law rules apply. When a transaction involves something that is not covered by the UCC, all rules of the Common law apply.
History of UCC and Common Law
The Uniform Commercial Code (UCC) originated from a desire to facilitate business transactions across state lines in the United States. Its roots trace back to the code drafted by Samuel Williston in 1931. Williston’s version was not widely adopted, but a decade later the American Bar Association and the National Conference of Commissioners on Uniform State Laws began the process of revising the code. The significant revisions that were made culminated in the issuance of the final UCC drafters’ version in 1952. This draft then went back to the American Bar Association and the National Conference of Commissioners on Uniform State Laws for approval. After receiving final approval, the revised UCC became effective on January 1, 1954. Although the purpose of the UCC was initially to create uniform commercial law across states, this goal has been undermined by the varied adoption of the UCC provisions by different states. Some states have adopted all provisions while other states have enacted laws that conflict with the text of the UCC provisions.
The common law originated in England and developed over time, based on the decisions of the king and his nobles and later upon decisions of judges in various jurisdictions. Over the years, common law "precedents," or judicial decisions, began to accumulate and those decisions provided rules for future decisions. Eventually, the decisions of the highest courts in each state constituted the common law for that jurisdiction. These judicial decisions incorporated requirements and standards that were established in the text of the UCC, along with requirements of the model versions of the UCC proposed by the American Bar Association and the National Conference of Commissioners.
What is Included in the Scope of the UCC vs Common Law
The UCC substantially changed the landscape of commercial law in the states. By its own terms, however, the UCC applies exclusively to "transactions" not "contracts." This, of course, begs the question, what exactly constitutes a transaction. The official comment to Section 1-102 of the UCC defines transactions as any action between two or more parties involving the exchange of consideration. A hitch can arise, though, when that exchange entails an agreement to engage in a transaction.
The UCC defines "contract" as "the total legal obligation which results from the parties’ agreement." Section 1-201 (11). Consequently, the line between "transactions" and "contracts" is not always clear. For that reason, courts have frequently looked to the source of the agreement to determine whether the UCC is applicable. Determining whether parties entered an agreement under the UCC or common law can have a significant impact on the outcome of a case.
Primarily, the UCC governs commercial, personal property transactions in the business setting. As a result, most suits based on the UCC originate from contracts involving the sale of goods. See generally UCC Sections 2-102, 2-501 (expressly applying only to the sale of goods). Additionally, the UCC will apply to leases of goods if the lessor (as usual) has recorded the lease in good faith. See UCC Section 2:1.
Conversely, the UCC does not apply to contracts concerning interests or transactions involving land. In some circumstances, it will apply to the purchase of fixtures so long as the contract for that fixture is recorded. See generally UCC Sections 2-107, 9-334. However, generally the UCC has no application to those types of contracts.
Due to its limited scope and focus on goods and personal property, the UCC does not apply to securities. Instead, common law applies to those transactions. Generally, common law governs the interests of the following types of instruments:
The exceptions to common law application are far fewer. Federal, state, and local statutes regulate the following transactions:
Furthermore, federal statute governs bills of exchange, notes, bonds, and checks.
Comparison of Major Differences between UCC and Common Law
One of the most fundamental differences in these two legal doctrines is the manner in which they are applied. The Uniform Commercial Code serves as a set of guidelines for contracts involving purchasing tangible goods. Common law is a legal doctrine that governs contracts for intangible items and transactions related to these goods.
The majority of negotiations regarding commercial transactions, such as the transfer of securities, sales contracts, insurance contracts and others involving the purchase or sale of goods are covered under the UCC.
Among the types of cases that are governed by UCC law:
The Uniform Commercial Code is leveraged when one party to a sales contract breaches because it covers the sale of goods.
Meanwhile, common law is employed to adjudicate matters involving service contracts and similar agreements that are not protected under the UCC set of guidelines. In short, the UCC deals with items that are tangible, whereas common law deals with services and other products that are intangible.
Business and People it Affects
The interplay between UCC and common law not only has implications for their drafting, but also extends to their enforcement and the resolution of disputes. For businesses and individuals entering into transactions, knowing whether UCC or common law applies is integral to understanding their rights and responsibilities. For example, Article 2 of the UCC contains explicit instructions as to how to evaluate whether a contract is enforceable. It also specifically addresses issues such as the rights of a buyer regarding a breach or cancellation of a sale. A common law remedy may not be available if the UCC applies. Individuals involved in common-law contracts generally have fewer consumer protections than those selling or buying goods under the UCC. The UCC dictates that all contracts contain an implied warranty of merchantability and that the goods sold are fit for their intended use . Some courts extend this to a warranty that an item is going to be used for the purpose for which it was sold. Individuals buying goods may elect to receive restitution for a loss or elect rescission to cancel a contract. These options are not always available under common law. Businesses that are considering entering into contracts involving the sale of goods in the United States should review not only the UCC, but also state law. Even if the UCC governs a transaction, some states have additional regulations that apply. States such as California and New York have adopted their own variations on the UCC, while Pennsylvania has made significant amendments. Parties seeking to enter into contracts or who feel they have been wronged by a breach of contract may consult an attorney knowledgeable in UCC and common law.
When to Choose Between UCC and Common Law
When it comes to determining the applicability of the UCC or common law, there are a few primary considerations that come into play. The first is whether you are dealing with the sale of goods or provision of services—when goods are involved, it is more likely that the UCC will be the appropriate guiding law. The second consideration is the presence of any interstate commerce—when interstate commerce is involved, you can almost always assume the need for the UCC.
Let’s go deeper with a few examples. Perhaps you are seeking to bring a personal injury claim against a general contractor who performed an addition onto your home in another state. Since the contractor was "merely" performing services, you might expect common law to apply. However, if there were any goods sold as part of the remodeling, then the UCC could apply. As you can see, it’s not always black and white as to whether to choose UCC or common law. A qualified attorney can help you make this determination.
How it is Illustrated in Real Situations
To help illustrate the differences between the UCC and common law, let’s take a look at a couple of different case studies that highlight the application of each set of laws in different transactional situations.
1. COMMON LAW – TANGIBLE GOODS
In 2014, MacDonald v. Gen. Motors LLC, 70 F. Supp. 3d 588 (W.D. Pa. 2014), the U.S. District Court addressed a breach of contract dispute in which the court found no enforceable contract existed because the parties did not reach mutual assent to be bound. The plaintiffs (MacDonald) alleged that General Motors was liable under common law for its failure to replace, free of charge, ignition switches that MacDonald claimed to be ‘defective.’ General Motors asserted the statute of frauds as an affirmative defense, arguing that the agreement violated the statute because it was not in writing. The court noted that the statute of frauds applies to contracts for the sale of goods greater than $500, but found that the statute of frauds did not bar MacDonald’s breach of contract action. According to the court, the statute of frauds protected only automobile dealers, and had no effect on the ability of consumers to pursue breach of contract actions related to express warranties. Ultimately, the court found MacDonald’s claims sufficient to withstand a motion to dismiss because, even assuming the parties did not have a valid agreement, MacDonald’s complaint stated a plausible claim for implied contract.
2. UCC – INTANGIBLE GOODS
In 2018, Seitz v. Ticketmaster Entertainment Inc. , No. CV 18-1960-AB (C.D. Cal. Apr. 17, 2018), the U.S. District Court for the Central District of California dismissed an action for breach of contract brought by purchasers of concert tickets against Ticketmaster, concluding that the transaction between Ticketmaster and the plaintiffs constituted the sale of intangible goods, which fell outside of the scope of the UCC and, thus, the plaintiffs’ claim failed. Plaintiffs purchased tickets for a concert from Ticketmaster. Plaintiffs claimed that they were charged excessive shipping and service fees by Ticketmaster, which represented a breach of its agreement to sell the tickets at advertised prices. The plaintiffs contended that Ticketmaster materially breached its contract in two ways: (1) by failing to deliver tickets free of excessive fees, and (2) by selling them tickets at above advertised prices. The court found, however, that the plaintiffs’ breach of contract claim failed to state a claim because the UCC did not apply to the dispute because tickets are not goods. The court noted that the UCC governs only the sale of goods, which it defines as "all things … which are moveable at the time of identification to the contract for sale." A contract for the sale of an intangible (i.e., the sale of a service or the provision of a license) fell outside of the scope of the UCC. While the court also found Ticketmaster’s executed licenses evidence a license agreement, not a sale of a good, the court went on to determine that ticket purchasers were not entitled to damages for violation of the agreement.