The Uniform Commercial Code and Construction Contracts

The Uniform Commercial Code (UCC) has been adopted in almost all states and, though its format may vary slightly from state to state, it is still substantially uniform throughout. The UCC supplants the common law in a multitude of commercial transactions, laying out rules for the conduct of business to promote certainty and predictability in those transactions. The major areas in which the UCC governs are: sales, leases, commercial paper, bank deposits and collections, funds transfers, letters of credit, bulk transfers, warehouse receipts, bills of lading and other documents of title, investment securities, secured transactions, and sales of accounts and chattel paper.

Construction contracts will generally be affected by the UCC when such contracts are for the sale of equipment or materials. Article 2 of the UCC addresses the sale of “goods,” which are “all things that are movable at the time of identification to the contract for sale.” A straightforward contract for materials used in a construction project would, therefore, be governed by the UCC. However, construction contracts typically involve contractual obligations for not only the supply of equipment or materials, but also for services. In situations such as these, most courts evaluate the contract to determine its primary or predominant purpose. If the primary purpose is for the sale of goods, the UCC will most likely apply. In contrast, should the main purpose of the contract be for the performance of a service, the UCC will give way to common law. It is important to note that in the formation of the contract, the parties may opt-out or alter any applicable UCC provisions.

The provisions of the UCC provide safeguards to the parties such that gaps in essential contract terms are filled. Additionally, it protects the buyer of goods by providing for an express warranty, an implied warranty of merchantability, and an implied warranty of fitness for the intended purpose. Under the UCC, the seller is given the ability to take certain actions should the buyer become insolvent. It also allocates the risk of loss, gives the buyer the right to inspect and reject the goods, and directs the buyer’s conduct with respect to goods that are accepted. In addition to providing remedies for the buyer and seller, the UCC also covers the performance of the parties in fulfilling the contract.