Monopoly and the UCC

There are millions of businesses and hundreds of millions Americans who are impacted by the Uniform Commercial Code every day.  Some of these entities interact with the UCC hundreds or thousands of times per day.  Regardless of the volume of transactions, if you are in business, you need to know the meaning and operations of the Uniform Commercial Code.

I have often analogized various aspects of life to a board game.  When playing a board game, it is very helpful, if not essential, to understand the rules of the game.  Moreover, the better one understands the rules of the game, the greater the likelihood of winning.  Take Monopoly for example.  People who understand the rules: which properties pay the most in rent; how to get a monopoly, and then how to build houses and hotels, are ready to play the game and ready to win.

If you compare the foregoing individual to someone who has no clue what the rules of Monopoly are, it is quickly apparent the latter has virtually no chance of winning.  The reason is simple: he doesn’t’ know what to do.  He knows to select a piece for the game, and how to roll the dice, but has no understanding of how to succeed.  He may be able to move around the board for a long time.  But eventually, he will lose.

The same is true in business.  You need to know the rules.  You need to understand the legal structure of the world you have entered, and particularly how to avoid a mistake that can cost you everything.  Like the uninformed Monopoly player, without sufficient understanding of the rules of the game, you may be able to move around the board, but the risks you take every day by being uninformed can cost you everything.

Nowhere is this more evident than in the Reply Doctrine of the Statute of Frauds contained in  Section 2-201(2).  The basic Statute of Frauds rule contained in Section 2-201(1) requires sales contracts with a value of $500 or more “must be signed by the party against whom enforcement is sought…”.  Assume for example, that Seller agrees to sell Buyer 1000 tables worth $500.00 per table.  That is a great deal for buyer and he is excited about the deal.  A week later, Seller meets Buyer #2 who offers seller $750.00 per table. Seller accepts and sells the tables to Buyer #2.  If Buyer #! Brings a cause of action against Seller and there is no written contract, Seller will prevail.

Section 2-201(2) can change that result in a very dramatic way.  Assume Seller and Buyer are discussing a sale of the tables for $500.00 per table, and the parties agree to the sale of the 1000 tables at that price.  Three days later, on October 1, 2011 Buyer writes Seller and states the following:  “Pursuant to our phone conversation on September 28, 2011, I hereby agree to buy 1000 tables from you for $350.00 per table.”   Seller reads the letter, tears it up and throws it away.  He doesn’t’ want to waste any more time dealing with this Buyer..

What Seller should have done is immediately write Buyer back and state that “there was no deal at $350.00 per table.  The deal was for $500.00.”  Seller’s failure to reply to Buyer’s “confirmation of the contract” within ten days, results in a waiver of the Statute of Frauds rule of 2-201(1).  Translation: Buyer can sue Seller for Seller’s alleged breach of contract to sell the tables at $350.00 per chair.  While Buyer would still have to prove his case, Seller would not be able to use the basic Statute of Frauds rule as a defense, and would face the costs of litigation, as well as the risk of losing.

Obviously, it is far better to answer  your mail in a timely manner in a situation such as this, and eliminate the possibility of the result faced by not taking timely and appropriate action.  This is an example of a single instance where not knowing the appropriate provisions of the UCC can result in a potential disaster. Conversely, understanding the law, and proceeding accordingly, will result in ultimate protection for your business.

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