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Law Offices of JAMES GLASSFORD |
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WHAT ARE UCC SALES CONTRACTS?
Sales contracts are governed by the Uniform Commercial Code, the UCC, as supplemented by the common law of contracts. Often, a sales contract is tied to a security agreement and a promissory note. These related contracts are also covered by the UCC. If you have a problem with a sales contract, send me an email or call. I would be happy to talk to you about it.
CONTRACTS FOR THE SALE OF GOODS.
Goods are moveable things. The sale of goods is governed by the UCC Article 2 as adopted in the California Commercial Code. You want to buy a Boeing 747 airplane? The sale would be covered by the UCC. You want to buy a bottle of propane gas? Again, the sale is covered by the UCC. The UCC customizes the law of contracts for commercial transactions. In fact, it modernizes the law of contracts in a broad area of the law in the commercial world. The influence of the ideas of the UCC reformers has poured over into many other areas of the law as well.
To enforce a contract for a sale of goods, a party must show that the contract was formed in compliance with the legal requirements of the UCC as supplemented by the common law. First, the mutual assent of the parties to the transaction must be shown. Usually, the words of the parties are sufficient. For example, "I will buy from you a 1959 Chevrolet with VIN of 1234 for $5,000," shows the buyer's assent. "I agree," shows the seller's assent. Conduct can be sufficient to show mutual assent. For example, If the seller delivers the 1959 Chevrolet, and the buyer accepts it and pays for it, there can be no doubt that the parties agreed to the transaction. Second, the sale must be supported by the common law idea of consideration. In sales contracts, this is usually a given. Anytime the parties agree to an exchange of goods for money, consideration is present. Third, if the sale was for $500 or more, the contract must be in writing and signed by the party to be charged.
PROMISSORY NOTES.
When you buy or sell something, like a car, on credit, the buyer sometimes will sign a promissory note. The note is a stripped down version of the agreement, addressing only the buyer's obligation to pay for the goods. The buyer promises to pay a sum or money on a given date or in installments over a period of time. Often the seller will assign the promissory note to a finance company, and the buyer will never hear from the seller again.
SECURITY AGREEMENTS.
When the buyer buys on credit, the seller will normally want to secure payment by taking an interest in the goods sold. This is done with a security agreement.
Most people are familiar with mortgages and deeds of trust on real estate. A security agreement under Article 9 of the UCC is similar. Instead of real estate, the collateral for an obligation is almost any other kind of property. The purpose is much the same: to secure an obligation of a debtor, usually to pay money. For example, when you buy a car on credit, you will sign a purchase agreement. Sometimes this will be called a retail installment sales agreement. The agreement will contain your promise to pay the balance owed on the car, usually in monthly installments. It will also contain a security agreement. You, the buyer, are the debtor. The seller is the secured party. The car is the collateral for the seller's security interest.
The formalities of a security agreement can be complicated. First, a security agreement must be in writing signed by the debtor. A properly executed security agreement can be enforced by the secured party against the debtor. In the case of the sale of a car, enforcement rights usually included the right to repossess the car in case the buyer defaults on a payment. This assumes that the collateral has not been impaired. Second, a security agreement should be perfected.
Since the collateral for the security agreement can be used by the debtor in other transactions, the secured party should protect his security interest by perfecting it. This is done in California by filing a UCC Form One with the Secretary of State. This will ensure that the secured party has priority over others in the collateral. For example, if the buyer of the car uses the car for collateral in getting a loan, the seller could be in trouble if he does not perfect by filing the UCC Form One. If the lender on the loan should file a Form One before the seller, the lender will have priority over the collateral.
The secured party may have additional rights not found in some real estate mortgages or deeds of trust. If the secured party sells the collateral after default by the debtor but fails to recover the full amount of the obligation, the secured party may go to court and obtain a deficiency judgment against the debtor. The amount of a deficiency judgment is the difference in what is owed on the obligation and the amount recovered on the sale of the collateral. This process may not be easy, as the UCC has many rules that must be followed before the secured party can obtain a deficiency judgment.
Goods are moveable things. The sale of goods is governed by the UCC Article 2 as adopted in the California Commercial Code. You want to buy a Boeing 747 airplane? The sale would be covered by the UCC. You want to buy a bottle of propane gas? Again, the sale is covered by the UCC. The UCC customizes the law of contracts for commercial transactions. In fact, it modernizes the law of contracts in a broad area of the law in the commercial world. The influence of the ideas of the UCC reformers has poured over into many other areas of the law as well.
To enforce a contract for a sale of goods, a party must show that the contract was formed in compliance with the legal requirements of the UCC as supplemented by the common law. First, the mutual assent of the parties to the transaction must be shown. Usually, the words of the parties are sufficient. For example, "I will buy from you a 1959 Chevrolet with VIN of 1234 for $5,000," shows the buyer's assent. "I agree," shows the seller's assent. Conduct can be sufficient to show mutual assent. For example, If the seller delivers the 1959 Chevrolet, and the buyer accepts it and pays for it, there can be no doubt that the parties agreed to the transaction. Second, the sale must be supported by the common law idea of consideration. In sales contracts, this is usually a given. Anytime the parties agree to an exchange of goods for money, consideration is present. Third, if the sale was for $500 or more, the contract must be in writing and signed by the party to be charged.
PROMISSORY NOTES.
When you buy or sell something, like a car, on credit, the buyer sometimes will sign a promissory note. The note is a stripped down version of the agreement, addressing only the buyer's obligation to pay for the goods. The buyer promises to pay a sum or money on a given date or in installments over a period of time. Often the seller will assign the promissory note to a finance company, and the buyer will never hear from the seller again.
SECURITY AGREEMENTS.
When the buyer buys on credit, the seller will normally want to secure payment by taking an interest in the goods sold. This is done with a security agreement.
Most people are familiar with mortgages and deeds of trust on real estate. A security agreement under Article 9 of the UCC is similar. Instead of real estate, the collateral for an obligation is almost any other kind of property. The purpose is much the same: to secure an obligation of a debtor, usually to pay money. For example, when you buy a car on credit, you will sign a purchase agreement. Sometimes this will be called a retail installment sales agreement. The agreement will contain your promise to pay the balance owed on the car, usually in monthly installments. It will also contain a security agreement. You, the buyer, are the debtor. The seller is the secured party. The car is the collateral for the seller's security interest.
The formalities of a security agreement can be complicated. First, a security agreement must be in writing signed by the debtor. A properly executed security agreement can be enforced by the secured party against the debtor. In the case of the sale of a car, enforcement rights usually included the right to repossess the car in case the buyer defaults on a payment. This assumes that the collateral has not been impaired. Second, a security agreement should be perfected.
Since the collateral for the security agreement can be used by the debtor in other transactions, the secured party should protect his security interest by perfecting it. This is done in California by filing a UCC Form One with the Secretary of State. This will ensure that the secured party has priority over others in the collateral. For example, if the buyer of the car uses the car for collateral in getting a loan, the seller could be in trouble if he does not perfect by filing the UCC Form One. If the lender on the loan should file a Form One before the seller, the lender will have priority over the collateral.
The secured party may have additional rights not found in some real estate mortgages or deeds of trust. If the secured party sells the collateral after default by the debtor but fails to recover the full amount of the obligation, the secured party may go to court and obtain a deficiency judgment against the debtor. The amount of a deficiency judgment is the difference in what is owed on the obligation and the amount recovered on the sale of the collateral. This process may not be easy, as the UCC has many rules that must be followed before the secured party can obtain a deficiency judgment.
SPECIAL PROBLEMS WITH SALES CONTRACTS.
Many problems connected with sales contracts can slow down or block enforcement of such agreements. One is the parol evidence rule. A second is the interpretation of the agreement. A third is the filing of gaps left open in the agreement.
PAROL EVIDENCE RULE.
This bars evidence to add to or contradict the terms of a written contract. Before this rule will be applied, the court must find that the parties intended their writing to be their final agreement. This is referred to as an integration. Then the court must determine whether or not the agreement was a total or partial integration. The parties should make sure that all of their agreements are contained in the writing. If something is left out, the party asserting an outside term may be unpleasantly surprised when the court excludes evidence of such a term.
INTERPRETATION.
When the parties include vague or ambiguous words or terms in their agreement, a court will interpret the meaning intended by the parties. Obviously, where the parties disagree about the meaning, litigating such an issue can be very costly. Parties are well advised to define words or terms to avoid any disagreement later.
GAPS.
No contract has ever been written that covered every possible contingency. People are notoriously lacking in the ability to predict the future. Unexpected events occur that may change the balance of risks in the contract. The best that anybody can do is cover the foreseeable contingencies and hope for the best. Actually, hope is not totally out of the question. Courts have standard default terms that they will imply into a contract with a gap or two. For example, every contract contains the implied duty of good faith and fair dealing. This governs the conduct of the parties during the performance phase of the contract. In brief, the parties must act in good faith to make sure that each receives the benefits and fruits of the agreement.
See my Privacy Policy for handling confidential information disclosed to me.
Many problems connected with sales contracts can slow down or block enforcement of such agreements. One is the parol evidence rule. A second is the interpretation of the agreement. A third is the filing of gaps left open in the agreement.
PAROL EVIDENCE RULE.
This bars evidence to add to or contradict the terms of a written contract. Before this rule will be applied, the court must find that the parties intended their writing to be their final agreement. This is referred to as an integration. Then the court must determine whether or not the agreement was a total or partial integration. The parties should make sure that all of their agreements are contained in the writing. If something is left out, the party asserting an outside term may be unpleasantly surprised when the court excludes evidence of such a term.
INTERPRETATION.
When the parties include vague or ambiguous words or terms in their agreement, a court will interpret the meaning intended by the parties. Obviously, where the parties disagree about the meaning, litigating such an issue can be very costly. Parties are well advised to define words or terms to avoid any disagreement later.
GAPS.
No contract has ever been written that covered every possible contingency. People are notoriously lacking in the ability to predict the future. Unexpected events occur that may change the balance of risks in the contract. The best that anybody can do is cover the foreseeable contingencies and hope for the best. Actually, hope is not totally out of the question. Courts have standard default terms that they will imply into a contract with a gap or two. For example, every contract contains the implied duty of good faith and fair dealing. This governs the conduct of the parties during the performance phase of the contract. In brief, the parties must act in good faith to make sure that each receives the benefits and fruits of the agreement.
See my Privacy Policy for handling confidential information disclosed to me.
email me or call (925) 274-0210
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