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How Does the Uniform Commercial Code Apply to Business Contracts?

How Does the Uniform Commercial Code Apply to Business Contracts?

Business contracts dealing with the sales of goods are generally governed by the New York Uniform Commercial Code (UCC). The UCC helps promote uniformity among state laws, which is often useful in commercial sales as goods are frequently purchased and shipped across state lines. The UCC often comes into play when addressingbreach of contractand related civil litigation rising from the sale of goods.

A Disputed Machinery Sale

Here is an example from an ongoing case here in New York. The plaintiff in this case, a New York company, signed a contract to purchase an automatic packaging machine from the defendant, an Illinois company. The machine was refurbished, so the defendant hired a third party, located in Wisconsin, to test the equipment before shipping it to the plaintiff. Under the sales contract, the defendant agreed to witness the final testing in Wisconsin before the completed machine was shipped. At that point, the plaintiff would also make final payment.

But the plaintiff never sent anyone to Wisconsin. Instead, several months after the machine's completion, the plaintiff merely sent payment and made shipping arrangements. The third party told the plaintiff the machine was operating as promised.

The machine itself arrived in several parts at the plaintiff's facility. For some reason, the plaintiff did not assemble the machine right away. Five months later, the plaintiff informed the defendant that the machine was not working properly. The defendant referred the plaintiff to a mechanical expert, who later testified in court he could not make the machine work due to improper setup and minor damage.

Separately, the sales contract also required the defendant to ship a number of “bucket elevators” used to feed the packaging machine. The defendant never sent these items. The parties dispute who is responsible for the shipping costs.

Ultimately, the plaintiff sued the defendant for breach of contract and breach of warranty. The case is currently before a federal judge in Brooklyn. On September 22,the court ruled on both parties' motions for summary judgment.

The defendant argued it was entitled to summary judgment because the plaintiff failed to reject the goods within a “reasonable amount of time,” as required by the UCC. The plaintiff waited about five months after it actually received the packaging machine to complain it did not work. While this may seem like an unreasonable delay, the court declined to grant summary judgment on this issue. The judge noted the goods here were not perishable and the alleged defects in the machine “could have gone unnoticed” by the plaintiff for several months.

The defendant also claimed the plaintiff violated the UCC by failing to inspect the machinery at the third party's facility. But as the court explained, this provision of the UCC “only applies to situations in which the buyer inspected goods before it entered into the contract.” That is inapplicable in this case, as the parties' written agreement specified inspection would take place afterwards. Furthermore, the UCC requires a seller actually demand the buyer inspect the equipment, which did not happen here.

Finally, the court addressed the plaintiff's motion for summary judgment on the defendant's failure to deliver the bucket elevators. The judge noted the parties' contract was “ambiguous” regarding who was responsible for delivery. In such cases, the UCC favors “shipment contracts,” meaning it is the seller's responsibility “to send goods to the buyer and the contract does not require him to deliver them at a particular destination.” Since it is undisputed the defendant did not deliver the bucket elevators to the plaintiff, the court granted summary judgment on this issue.

Need Help With a Contract Dispute?

As this case illustrates, breach of contract and UCC cases often involve complex legal issues. That is why if your business is involved in any type of contract dispute, it is important you seek advice from an experiencedNew York business attorney. Contact the offices of Nisar & Mason, P.C., today if you would like to speak with an attorney today.

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