UCC Fundamentals – A Guide to Article 2 (Sales)
Part 1: Introduction to Article 2
The Uniform Commercial Code, or “UCC”, provides uniform laws on a variety of subjects which are broken down into nine “Articles.” This post is the first installment in a new series focusing on UCC Article 2 – the sale of goods. Every jurisdiction in the United States has adopted some version of Article 2. In Washington, Article 2 is codified as RCW 62A.2. While this series focuses on Washington’s version of Article 2, the UCC is largely the same across jurisdictions.
UCC Article 2 Applies to the Sale of “Goods”
While this series will explore numerous provisions that set significant rules governing commercial transactions, today we tackle the first question: when does UCC Article 2 apply?
In short, it applies to transactions in goods. RCW 62A.2-102.
And this begs the second question: what is a “good”?
The UCC defines “goods” as “all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action.” RCW 62A.2-105(1). That is a long-winded way of saying that a good is tangible, moveable, personal property. This means that if you can touch it and move it, it is likely a good.
The list of “goods” to which UCC Article 2 applies is incredibly broad including, for example, fruits and vegetables, livestock, automobiles, heavy construction equipment, electronics, books, clothes, fashion accessories, furniture, and most household items.
On the other hand, “goods” does not include intangible items (such as investment notes) and immovable items (such as real property).
If a sales transaction involves “goods” Article 2 applies, at least in part. But what about transactions that involve more than just “goods”?
Application to Hybrid Transactions
What happens when a transaction involves more than just the sale of “goods”? For example, many real estate transactions include immovable, non-goods (real estate and improvements thereto) and goods (household appliances or furniture). Alternatively, a transaction may involve goods (household items or food) and services (delivery) – like when you order a pizza for home delivery or you order almost anything from Amazon.
Does UCC Article 2 apply to these hybrid transactions that involve both goods and non-goods? The answer is “Yes,” but the degree to which UCC Article 2 will apply to such a transaction depends on the relevance of the “goods” to the overall transaction.
Critically, Article 2 applies (as a whole) to transactions where the sale of goods “predominates.” RCW 62A.2-102(2)(b). To determine if the sale of goods predominates the transaction, courts employ the predominant factor test, analyzing “whether their predominant factor, their thrust, their purpose, reasonably stated, is the rendition of service, with goods incidentally involved (e.g., contract with artist for painting) or is a transaction of sale, with labor incidentally involved (e.g., installation of a water heater in a bathroom).” Tacoma Athletic Club, Inc. v. Indoor Comfort Sys., Inc., 79 Wn. App. 250, 257, 902 P.2d 175 (Wash. App. Div. 2 1995).
The sale of goods generally “predominates” a transaction when the value of the goods is greater than the value of the service. This is often easy to determine. For example, when you purchase a textbook online for $100.00 and pay a $5.00 delivery fee, it is easy to conclude that the purchase of the textbook (the “good”) predominates the transaction. But this determination is not always so easy to make. For example, a commercial bakery may pay an equipment manufacturer $150,000 for the sale, delivery and installation of a commercial baking system that mixes ingredients and bakes cookies. This will require a more nuanced analysis, under the predominant factor test, of whether the sale of “goods” predominates the transaction.
Ultimately, if the sale of goods predominates, UCC Article 2 applies as a whole to the transaction. RCW 62a.2-102(2)(b). But this does not preclude application in appropriate circumstances of other law to aspects of the transaction which do not relate to the sale of goods. RCW 62A.2-102(2)(b).
On the other hand, if the sale of goods does not predominate the transaction, only those provisions of UCC Article 2 that “relate primarily to the sale-of-goods aspects of the transaction apply, and the provisions that relate primarily to the transaction as a whole do not apply.”
For example, a homebuyer may purchase a fully furnished property. The value of the property will almost certainly exceed the value of the furniture included in the sale. As such, Article 2 will not apply to aspects of the transaction which relate primarily to the sale of the real estate (non-goods); however, those provisions of Article 2 that relate “primarily to the sale-of-goods aspects of the transaction” will apply to aspects of the transaction which relate primarily to the sale of the furniture.
Where do we go from here?
Article 2 is a fascinating area of law with wide ranging implications in commercial sales transactions. For those seeking to avoid uncertainty in disputes, Article 2 is your friend and familiarity with its provisions – such as its provisions on acceptance, rejection, revocation of acceptance, implied warranties, and disclaimer of warranties – is a must for businesses involved in the sale of goods. We look forward to discussing those provisions over the course of this series. Be sure to follow along with us as we detail many of the intricacies of Article 2.
To learn more about UCC Article 2 and the sale of goods, please contact Beresford Booth at info@beresfordlaw.com or by phone at (425) 776-4100.