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The difference between a contract that falls under the UCC and one that does not and why it is important to you
When dealing with contracts, it is important to understand that there are two possible general bodies of law that could come into play, the Uniform Commercial Code (UCC) and the common law of contracts. Because of the differences between the UCC and the common law, whether a contract falls under the UCC or the common law can make a huge difference in the outcome of a contract dispute. It could mean the difference between being able to collect punitive damages, discharge or modify a contract, being able to sue under a breach of contract, and whether there was actually a legally recognized contract at all.
How to Determine Whether the Governing Contract Law is the UCC or the Common Law
Before discussing the differences between the two governing bodies of law, it is important to understand the type of contract governed by each body of law. The UCC applies to the sale of goods and securities, whereas the common law of contracts generally applies to contracts for services, real estate, insurance, intangible assets, and employment. If the contract is for both the sale of goods and for services, the dominant element in the contract controls. There are many subtleties in these general categories, and different states implement the UCC differently.
Differences between the UCC and the Common Law of Contracts
One of the big differences between the UCC and the common law of contracts is what is recognized as an “acceptance.” The common law follows the “Mirror Image Rule,” requiring an acceptance to be an exact mirror image of the terms of the offer for it to be a legally recognized acceptance. If any changes are made to the offer, there can be no acceptance because the offer has been changed. It then becomes a rejection and a counteroffer. However, under the UCC, only changes that affect the contract “materially” have an impact. If the changes are only minor, with little impact, and the additional terms do not create a conflict in terms, the offer is not voided. When determining the terms, the UCC focuses mainly on quantity, whereas the common law focuses on quantity as well as price, performance time, the nature of the work, and other issues.
Modification or Discharge of a Contract
Another difference between the UCC and the common law of contracts deals with the modification and discharge of a contract. Under the common law, a contract can only be modified if there is additional consideration for the modification. Under the UCC, however, a contract can be modified without any additional consideration. Additionally, unlike under the common law, under the UCC a contract may be discharged due to impracticability.
Eligibility to sue for breach of contract differs between the UCC and the common law of contracts. Under the common law, privity of the contract is required in order to litigate, but under the UCC it is not. The statute of limitations is also different. Under the UCC, the statute of limitations is four years, but it is usually four to six years under the common law of contracts. Additionally, whether or not someone can collect punitive damages is also affected by which body of law governs. The common law of contracts usually does not grant punitive damages, but the UCC does.
Why it Matters and Whether to Seek Counsel from an Experienced Attorney
Whether the UCC or the common law of contracts governs can make a huge difference with how you handle your contracts. When dealing with contracts, it is always best to seek counsel from an experienced contract attorney. Out attorneys at Gunderson, Denton, and Peterson, PC can answer any questions and offer the counsel you need regarding your contract issues.
Written By Brad Denton
1930 N. Arboleda, Suite 201
Mesa, Arizona 85213
40 N. Central Avenue, Suite 1400
Phoenix, AZ 85004
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Mesa, AZ 85213