As noted in Blog #9 (The Second Element of Contract: Application of the Uniform Commercial Code to the Agreement), once the parties ‘agreement’ has been delineated, the next element of the definition of ‘contract’ comes into play: application of the Uniform Commercial Code to the agreement which has been created. Once an agreement for sale has been determined to be enforceable under Section 2-201, the next step involves the application of the Uniform Commercial Code to the totality of that agreement.
It is clear that Article 2 will apply since we are hypothesizing a sales agreement. Article 1 will also apply since that Article applies to all transactions under the Uniform Commercial Code. In addition, several other Articles will be activated by the typical commercial sales transaction. First, there will generally be some shipment of goods from the seller to the buyer which will activate Article 7, documents of title. For the shipping portion of the transaction, the primary document will be a ‘bill of lading’ as defined in Section 1-201(b)(6); if goods are stored either before or after shipment, a warehouse receipt will likely be issued which is defined in Section 1-201(b)(42). The rights, duties and liability regarding these documents is covered under Article 7. Once again, it is worth noting that the actual definition of the documents themselves is found in Article 1.
There will also be a payment mechanism of some type: a check or promissory note which activate Article 3; a wire transfer which activates Article 4A; or a letter of credit which activates Article 5. If a documentary draft is involved, Section 4-104(a)(6), Article 4 will be activated. Finally, if the transaction is financed, Article 9 will be activated as well.
The comprehensive approach to Uniform Commercial related problems, incorporates the reality that many sections of the UCC are activated in most commercial transactions. While Article 2 may supply the key sections involved in a given Sales transaction, there are many sections in the other Articles which can create leverage and opportunities for someone drafting documents or someone involved in litigation. I have always been of the opinion that the comprehensive approach to Uniform Commercial Code matters is the best way to visualize and deal with UCC matters.
It is important to understand the reality of the comprehensive approach before undertaking the application of the substantive provisions of the UCC to the parties agreement. The next Blog will begin the application of Article 1 to Sales transactions, in the litigation and drafting contexts.