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CANADIAN INDUSTRY ONLINE - FEB/MAR 2013
A
RT ICLE 2 OF
the Uniform
Commercial Code (UCC) regu-
lates business dealings between con-
struction material suppliers and mate-
rial purchasers. This is the first article
of a three part series which will cover
various Article 2 related topics.
So, when does Article 2 apply?
Article 2 of the UCC applies to transac-
tions for the sale of “goods.” Goods
are considered to be any movable, tan-
gible thing such as ready mix, cabinets,
light fixtures, furniture, block and lum-
ber.
The UCC does not cover a trans-
action of services. Contractors, sub-
contractors, architects and engineers
provide services. A seller of goods
does not provide a service, it sells
something tangible. For instance, the
seller of light fixtures comes within
Article 2; but the electrician does not.
Usually a manufacturer’s representa-
tive, if they are accepting payment
for goods supplied through them,
will come within Article 2. However,
some manufacturer’s representatives
have been known to perform services
on site. If the predominant aspect of
the manufacturer’s representative (or
seller) is selling goods, then Article 2
likely applies. However, the more ser-
vices that a manufacturer’s representa-
tive (or seller) provides, the greater the
likelihood that they will move outside
the scope of Article 2. The benefit of
Article 2 is that it spells out in black
and white the rights and remedies
of the parties to a construction mate-
rial sale transaction. Unlike most U.S.
laws, the UCC is adopted in nearly ev-
ery state. As such, it is important that
you identify Article 2 in the contract
and indicate that it will be the law that
governs the transaction. The failure to
“
adopt” it in the contract may result
in certain treaties being used to deter-
mine the buyer and seller’s rights and
responsibilities.
BATTLE OF THE FORMS
It is common for a material supplier
to provide a written offer or quotation
to a contractor. We often see terms
written on the back of the document,
whereby the supplier attempts to set
forth the legal rights between the par-
ties.
What happens if a subcontractor,
upon receiving a proposal form from
a supplier, responds with a purchase
order form which accepts the offer on
terms of quantity, price and delivery,
but otherwise submits its own stan-
dard set of terms and conditions that
differ from the quote?
In a similar fashion, what hap-
pens when a contractor sends a pur-
chase order to a supplier to purchase
goods? Very often the purchase order
will have terms and conditions on
the back. What would happen if the
supplier, in response to the purchase
order, sent an acceptance which had
terms that differed from those on the
purchase order? The UCC deals with
these situations which it refers to as
the “battle of the forms.” You may
have been involved in situations where
a dispute arises with regard to timely
delivery of materials or timely pay-
ment for materials and the other party
pulls out their standard form which
imposes terms and conditions that you
didn’t know about. The battle of the
forms is resolved by Section 2-207 of
the UCC.
The statute tells us that an accep-
tance or a written confirmation which
is sent within a reasonable time after
an offer or quote will operate as an ac-
ceptance even if the terms of the accep-
tance are different from those set forth
in the initial offer. When additional
terms come along with a purchase or-
der or quote, the additional terms will
become part of the contract unless one
or more of three things happens. The
new terms will not become part of the
contract if the:
1.
Offer or quotation expressly lim-
its acceptance of the terms of the offer;
2.
New terms “materially” alter the
quote, or
3.
Party receiving the additional
terms gives notice of objection to them
within a “reasonable time” after the
notice of those terms is received.
So, let us say that you send a
quote to a contractor in response to its
request. Your quote will probably state
delivery terms, time of delivery, place
of delivery, price and quantity as well
as description of goods to be provided.
You may also have standard terms on
the back. When the contractor sends
back its purchase order the terms and
conditions on the purchase order will
become part of your contract to sell
goods unless one of the above excep-
tions applies.
Let’s look at each one briefly. You
can avoid the imposition of terms and
conditions which you are not aware of
by including language in your quote
that limits acceptance of the quote to
the terms recited on the quote. If you
are a supplier and you submit an offer
that expressly limits acceptance of the
terms of the offer, then responding and
contradictory terms and conditions on
a purchase order will typically not be
enforceable.
However, if the quote does not
restrict the terms to those that are re-
cited on the quote then the buyer can
include terms of its own, provided
those terms do not materially change
the agreement. If the response to the
quote makes “material” changes in the
agreement between the parties then
CONSTRUCTION LAW
