Navigating the requirements of federal warranty law.

I previously discussed the care a business must take to avoid unknowingly creating an express warranty in favor of consumers. Different industries have different warranty requirements. This link from the FTC provides a lot of information on federal warranty requirements for businesspersons who provide consumer goods or services. It is just a guide for compliance; it is not exhaustive.

The most important thing is to be truthful in your advertisements. Do not say things you cannot prove, and do not mislead consumers. Most consumer products require you to designate whether you provide a "full" or "limited" warranty, or no warranty at all. In those cases, a full warranty requires: (1) no limitation on the duration of implied warranties; (2) that you provide warranty service to anyone who owns the product during the warranty period; (3) that you provide warranty service free of charge; (4) that you provide either a replacement or full refund if you cannot fix the product, and the consumer gets to pick; and (5) you do not require consumers to do anything as a precondition for receiving service, unless you can prove that any precondition is "reasonable."

If you do not offer all of those things, you have a "limited" warranty (again, in applicable situations involving consumer goods). As with any warranty, your decision to offer a full, limited or no warranty must be conspicuously disclosed.

Previous posts on contract, business and commercial law.

Here is a link to some of my previous posts on contract, business and commercial law. Some are on simple topics of general interest. Others are more esoteric.

International and domestic sales of goods.

It is increasingly common to make transactions with businesses in other countries. If you are purchasing goods not for personal or household use, Article 2 of the Uniform Commercial Code ("UCC art. 2") or the United Nations Convention on Contracts for the Sale of Goods ("CISG") apply.

All 50 states have enacted the UCC. As of December 2012, 78 nations ratified the CISG. Wikipedia, United Nations Convention on Contracts for the Sale of Goods, http://en.wikipedia.org/wiki/United_Nations_Convention_on_Contracts_for_the_International_Sale_of_Goods (last visited February 21, 2013). Parties can generally contract around UCC art. 2 or the CISG, as long as other requirements for a valid contract exist. There are some things that cannot be varied by agreement, such as good faith, diligence, reasonableness and care. (If a party enters a contract in bad faith with the intention to take advantage of the other party, the other party would likely have a cause of action for fraud.)

In many cases, the parties do contract around the provisions of the UCC or CISG. In international transactions, when the parties are both contracting states and the contract is silent regarding choice of law, the CISG applies.

There are minor differences between the two. CISG art. 18 provides that acceptance of an offer is valid when it reaches the offeror. In American law, acceptance is valid when dispatched, when that is the method by which acceptance is to be effectuated. CISG art. 19 provides that a reply to an offer that appears to be an acceptance but adds additional terms or limitations operates as a rejection and counteroffer. UCC art. 2 provides that such a reply operates as an acceptance, unless the acceptance is expressly conditioned on the adoption of those terms or limitations in the contract. CISG art. 11 does not require contracts for goods over $500 to be in writing. In American law, the Statute of Frauds and the UCC require such a contract to be in writing, electronically or otherwise.

There are no likely changes in the foreseeable future to either the UCC or CISG, so any practical differences between the two are likely to remain minimal. But there are situations when the two differ, as noted above, in which case legal consequences can vary quite widely.

Integration clauses in form contracts.

In earlier posts, I discussed things to look for in a basic contract, and tips for when you contract with larger companies. Those are all good, but there are a few other items that you should know about when contracting. This post will introduce integration clauses, which are found in most contracts. An integration clause is "boilerplate," which means that it is found in almost all form contracts without negotiation.

Sometimes, an integration clause is prominently noted in a contract. Sometimes it is not. It typically states that any oral or other agreement between the parties is ineffective, unless it is contained in the signed contract. Modifications to a contract after it is signed may still be effective, depending on the facts and the law of the jurisdiction in which you are located. An integration clause is only effective for agreements leading up to and at the time of the contract's signing.

Some things to look for in a basic contract.

I previously discussed contracting with larger companies. That information applies here, but there some additional things to note when signing a contract.

1. Companies generally disclaim implied and express warranties.

If a company has a written warranty, they will probably disclaim any implied and express warranties to the extent permitted by law. The company will not be able to do this all the time, because implied warranties cannot always be disclaimed. Also, express warranties sometimes override a written disclaimer, if the disclaimer is not conspicuous enough for the customer to reasonably notice it.

2. Consequential damages are likely excluded.

When you contract for product A, consequential damages are unforeseeable damages that result to products B, C, and D. They are damages beyond the items or services for which the parties contracted. From a merchant company's perspective, these damages are variable for each customer, because not all customers have the same items in their home or business that are susceptible to damage. For that reason, it is prudent for businesses to exclude consequential damages.

3. Severability.

Severability is the concept that if a court of law determines one part of the contract to be void or unenforceable, the remainder of the contract will remain in effect. Companies usually put this provision in a contract.

4. If you have much less bargaining power than the company with whom you are contracting, the contract terms must be within your reasonable expectations to be enforceable.

This is called an adhesion contract. Whether a contract provision is within your reasonable expectations is objectively determined. In other words, it does not matter if you were actually aware of a given contract provision; it matters whether a reasonable person -- as determined by a court -- would expect the provision to be part of the contract.

On express warranties: Watch what you say.

A warranty does not have to consist of writing on a piece of paper. It can be verbally created. If you are a merchant providing goods or services, you should take care to ensure that your employees are not unknowingly creating express warranties. Large companies have boilerplate disclaimers of implied and express warranties, but even those are not always successful. If the disclaimers are not conspicuous enough, or are against public policy, they will not effectively disclaim express and implied warranties. Article 2, Part 3 of the Uniform Commercial Code covers warranties in transactions among merchants. The Magnuson-Moss Warranty Act covers warranty disclosure requirements in consumer transactions.

An express warranty does not need to use the words, "warranty," or "guarantee," either. If your employee or colleague says anything about the goods or services that become part of the buyer's decision to purchase from you, an express warranty can be created.

Being "litigation-ready."

Litigation-readiness is a concept used by big companies that face multiple lawsuits at any given time. It means that a company is always prepared for litigation. When it arises, the company does not miss a beat in preparing documentation and prioritizing other tasks necessary to the litigation process.

Litigation-readiness is a good concept for small businesses and individuals to implement into their daily lives. Unfortunately, many people face litigation or threats of litigation at some point in their lives. It makes the process easier if you are prepared and can minimize the obstruction that litigation causes to your daily life. Being litigation-ready requires no drastic changes from your current lifestyle. It does not mean that you are willing to sue anything that moves. It suggests nothing about using the legal process offensively. But if you are a defendant or respondent in a lawsuit, litigation-readiness minimizes the stress and anxiety over litigation. Two of the most important things that you can do to be "litigation-ready" are:

• Use a calendar on your smartphone. Put important events in your smartphone and do not delete them after they have passed. Make sure that your calendar is backed-up on occasion, so if your phone breaks, your events are not lost. Past events, even if irrelevant, can rekindle other memories and help create a relevant timeline of events. If you do not have a smartphone, keep a calendar and write important events on it.
• Write stuff down, and get stuff in writing. If you are wronged and the person admits it, get them to write it down. They will be reticent to do this, but if they trust you, they may be willing to do so. This does not mean that you will sue them, but if something happens and you find yourself in litigation, written admissions are extremely powerful pieces of evidence. On the other hand, do not make an admission to someone else if you wronged them, unless you are prepared to write it down. If you do not feel comfortable writing it down, do not make the admission in the first place. This principle extends beyond written admissions: 100 percent of the time, written evidence is better than oral evidence.

Of course, there are other things you can do to be litigation-ready. These are just two of the most important.

How to register for the Mechanics' Notice and Lien Registry.

Over the last several days, I discussed mechanic's liens, and how Iowa lien law changed in 2013. I discussed the importance of registering for the Mechanics' Notice and Lien Registry (MNLR), and posting Notices of Commencement of Work for residential construction projects. The 2013 Iowa Code provides that a person or company cannot enforce a mechanic's lien if proper notice is not provided in residential or commercial constructions projects.

Courts have not decided whether a person or company can enforce a mechanic's lien under the new Iowa law if proper notice was not provided at the beginning of a project. The law is too new for courts to have decided the issue. Not many contractors know about the new law, so it is a near certainty that courts will hear the issue in the next year or two. The way it is written, you cannot enforce a mechanic's lien if you do not provide proper notice. It does not matter if you were not aware of the new law.

In order to register for the MNLR, you need to fill out this form. Then, you need to post commencement of work notices within 10 days of beginning work for residential construction, and provide written notice within 30 days of beginning work for commercial projects. Once you get a handle on the new requirements, I am confident that they will be easy practices to implement. None of the requirements are too burdensome or onerous, but you do need to follow them in order to enforce a mechanic's lien.

Contracting with larger companies.

When making online transactions, hardly anyone reads terms and conditions in their entirety. Some people gloss over them. Some people do not read them at all. But they do have legal consequences, and in most cases those legal consequences are enforceable.

To a mathematical certainty, those terms and conditions will include choice of law provisions. They will probably include choice of venue provisions and an agreement to arbitrate. Choice of law provisions provide that any dispute over the terms and conditions will be decided by the law of a given jurisdiction, often the jurisdiction in which the company is headquartered. Choice of venue provisions provide that any dispute over the terms and conditions needs to be brought in a particular jurisdiction.
 

Agreements to arbitrate provide that a dispute needs to be submitted to an impartial arbitrator of the company's choosing before the dispute can be submitted to any court's jurisdiction. Agreements to arbitrate sometimes foreclose any opportunity to resort to the legal process. People regularly run afoul of these common provisions. They will be adversely affected by a product or service they purchased, and will bring suit in their home jurisdiction. They are then surprised to find out that the case is dismissed, because one or more of those provisions are enforced by the court.

Unless a contractual term is particularly egregious or unexpected, courts tend to enforce these agreements so long as the consumer had actual or constructive notice. Actual notice is knowledge in fact of a particular provision. Constructive notice does not require actual knowledge. It simply requires that you had the opportunity to read the terms and conditions and should have known that a particular provision was included.

Large companies often try to bully smaller companies and individuals. They have large legal departments whose job it is to do everything they can to prevent the company from any liability. It is just their job. They are not bad people, but they may end up drafting term provisions that adversely affect other peoples' daily lives.

It is likely impracticable to ask anyone to read -- in depth -- the terms and conditions of every online transaction they make. But it is good to be aware of the provisions you almost always agree to -- choice of law and venue, and agreements to arbitrate any disputes. Even though terms and conditions are onerous, it is prudent to give them at least a cursory reading, because when you check the box that says, "I Accept," you are legally assenting to the given company's terms and conditions.

Specification-Compliance on Public Bid Projects, Part 2.

As discussed in my previous post, it is imperative for companies bidding on public projects to comply with specifications. If they do not, their customers or suppliers will hold them accountable for any oversight. Even if they do comply with specifications, business relationships or a customer's buying power (monopsony power) may cause a careful company to eat the cost of someone else's oversight.

In order for a careful company to cover itself, there are a few things the company should always do on public projects. In many cases, these would come in handy on private projects. First, never simply state that you are specification-compliant. Instead, state exactly the drawings and specifications on which your bid is based. It might get tedious, but to note exactly from which sources you get your bill of material or services can go a long way in protecting yourself in the event of later conflict. It is also prudent to date the drawings and specifications. Sometimes, these can change as a project proceeds.

When an oversight occurs and material or services are omitted from a bid, positively stating that you were only shown X number of drawings and specifications may exonerate you. Of course, if you have all of the specifications, then it is your responsibility to examine all pertinent documents to determine what the requirements are. But if you are in an industry where you typically do not receive everything, it would be prudent to note just what you are receiving. If you do, it puts the onus on either your customer or supplier who did have full access to the specifications.

Second, any time you get approval for a deviation, note it, and to whom you talked. If you can, get it in writing. On public projects, addenda are typically issued that may provide for this. Third, be redundant. Even if something is implicit in an industry, not everyone will see it that way. Again, it may be tedious and time-consuming, but you should not assume something is implied in your bid. You may have a page of notes or exceptions, but it can save you a lot in the long run.

Introduction to Specification-Compliance in Public Bids Submission.

Most businesspeople are familiar with the process of public bid submission. It is common in most industries. Whether it is in the private or public sector, the company or governmental entity will publish specifications with their requirements for the project. Events in the distribution chain can get Machiavellian. It is not uncommon for companies to award bonuses to project managers who come in underbudget. As a result, not all the requisite information is always transmitted to parties who need it. When it is, or when requirements change or are subject to a differing interpretation from the engineer on the project or the ultimate customer, somebody is left paying the bill.

In today's economic and business climate, public bid projects are increasingly competitive. In the Midwestern United States, such opportunities are not terribly plentiful. On public bid projects, the engineers are the arbiters. Specifications will say a certain thing, but the engineers (in conjunction with the ultimate customers) are the ones who end up determining whether to enforce provisions of a specification. When conflicts arise, the contractors, vendors and other suppliers act as lawyers, arguing for or against the verbiage of a particular provision in the specification. As mentioned, in some cases, not all parties will have received the pertinent specifications. On many large projects, requirements will be found throughout the specifications. This can involve thousands of pages, so it is not too difficult to see why certain requirements are not always met, omitted, or missed completely.

On large projects, mistakes and omissions can bankrupt a company. That is why compliance with specifications is so important. Public jobs are so competitive that if a company does not supply one of their vendors with the specification, the result will be a more competitive price for them to give their customers in the distribution chain. When a conflict over the goods or services to be supplied ensues, everyone is pointing fingers at another party, expecting them to foot the bill. Thus, a company must be vigilant in making sure that their company is protected from unscrupulous and unreasonable customers or suppliers.

Using the legal process is anathema to most small businesses, because resorting to it is like using the nuclear bomb. In one particular situation you may get your way, but you have damaged business relationships and may have cost yourself much more in the long run. If you use the legal process you will almost certainly not be doing business with the party against whom you are using the legal process. In many cases, word-of-mouth makes others in your industry wary of doing business with you, because the fear is that you will take them to court. Of course, there is also the possibility that this word-of-mouth is actual defamation or business interference, in which case you can take further action. It may even go so far as to be a violation of antitrust or competition law.

Industries have developed ways of dealing with these situations without resorting to the legal system. Surely, individual businesses differ. Some companies use their buying power to bully other companies. Some use a cost-benefit analysis and acquiesce in a situation when it appears likely that they will be able to make more money in the long run by extending goodwill to a company who may actually have made the mistake or omission. In my next post, I will discuss tips and pointers for companies to use in dealing with specification-compliance on public bid projects.

Introduction to Electronic Commerce.

Some people may believe that a contract is not valid unless signed by hand. "Signed," according to the UCC, "includes using any symbol executed or adopted with present intention to adopt or accept a writing." [1] This includes online contracting, whereby an individual can agree to purchase goods via email or another electronic method. This happens in situations where goods are needed quickly. Sometimes one merchant ships goods to another merchant based on a good faith belief that the other party will pay according to the terms of a given email exchange.

For instance, let's say A Seller deals in widgets. B Buyer needs widgets tomorrow, and sends a high priority email to A asking to ship them immediately. B Buyer may not have time to get a purchase order requisition through his company's purchasing department in time to receive the widgets when B needs them. So, A must rely on B's good faith in entering the online contract with no purchase order or handwritten signature. B's intent is surely to enter a contract, because the characters in his email to A indicate his intention to adopt or accept the terms of A's overnight shipment of widgets to B.

Now, if B were a scoundrel, and wanted to evade any terms of A's good faith shipment without a handwritten signature or formal purchase order, B would not be able to do so. Laws authenticating electronic signatures are ubiquitous in the United States. B would be bound by the terms of the online agreement.

Another example might be the situation where B sends another high priority email to A requesting widgets immediately, and A provides the terms of the transaction, but includes no mention of how long the price is valid. Three months and one day later, B sends a purchase order to A for standard delivery at the price sent over three months earlier. What then? Well, the UCC provides that the price quote would be valid for a "reasonable time," but not to exceed three months. [2] Of course, A could honor the quote if the price has not changed, or has changed a small amount. This would be of A's own volition, however, and not what the law provides.

Generally, the determination of reasonableness of time is a jury question. [3] It depends on the nature, purpose, and circumstances of the action. [4] The court and factfinder would likely look to the express terms of the agreement, as well as what is called "course of performance," "course of dealing," or "usage of trade." [5] A "course of performance" is conduct and behavior of parties to a particular transaction if the parties have an agreement involving repeated occasions for performance by a party, and the other party does not object to the performance of the performing party, or acquiesces to it without objection." [6] A "course of dealing" is conduct and behavior of parties with regard to comparable business transactions before entering the subject agreement. [7] "Usage of trade" is probably the easiest concept to grasp of the three. It is "any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect" to the subject transaction. [8]

Express terms prevail over the three others. [9] Course of performance prevails over course of dealing, because it deals more directly with the conduct and behavior of the two or more parties in their prior business dealings with each other. [10] Course of dealing prevails over usage of trade because it deals directly with the conduct and the behavior of the two or more parties in business dealings, but not with each other. [11] Usage of trade is more consistent with industry or geographic standards that each party assumes the other to implicitly implement into their agreement without having to discuss them. Following these guidelines, the factfinder, or jury, would then determine the duration of "reasonable time," in a particular situation.


Citations:
[1] UCC 1-201(b)(37).
[2] UCC 2-205.
[3] St. Ansgar Mills, Inc. v. Streit, 613 N.W. 2d  289, 295 (Iowa 2000).
[4] UCC 1-205(a).
[5] UCC 2-202(a).
[6] UCC 1-303(a).
[7] UCC 1-303(b).
[8] UCC 1-303(c).
[9] UCC 1-303(e)(1).
[10] UCC 1-303(e)(2).
[11] UCC 1-303(e)(3)

Implied Warranties and the Distribution Chain.

Big companies have big legal departments. The purpose of those legal departments is to minimize risk for the company. In large companies that deal in goods, most of them will attempt to disclaim what is called the Implied Warranty of Fitness for a Particular Purpose ("IWFPP"). Usually, a disclaimer of IWFPP will accompany a disclaimer of the Implied Warranty of Merchantability ("IWM") and any express warranties. These generally work, but not always.

IWM can be disclaimed by mentioning "merchantability" in the disclaimer, and it must be conspicuous. Words like "as is" in connection with the purchase contract can be used. Additionally, circumstances such as failure to notice a defect upon inspection or a refusal to inspect, or courses of performance or dealing can also exclude implied warranties. IWFPP can be disclaimed by stating that "[t]here are no warranties which extend beyond the description on the face hereof." [1] IWFPP can also be disclaimed by specific language excluding the IWFPP.

Whether an implied warranty has or has not been disclaimed has real-world consequences. An implied warranty is predicated upon an an unmentioned assumption made by the buyer to which the seller either has or has not taken exception. There are problems if B buyer purchases goods from S seller, and those goods turn out to be defective in a way that incorporates an implied warranty, because either B buyer or S seller are going to have to pay unexpected costs. B buyer will have to pay unexpected costs if S seller has properly excluded implied warranties. S seller will have to pay unexpected costs if S seller has not properly excluded implied warranties.

There are further issues when there is an intermediary company, like a representative or distributor. If the first company in the chain of distribution excludes all implied warranties, the next level of distribution is sometimes hanged out to dry. The goal of the next level of distribution is to sell the product of the company higher up in the distribution chain. As a result, a number of things can happen. The terms and conditions of the original company may not be transmitted that disclaim implied warranties. Express warranties may be made by the lower level of the distribution chain. New implied warranties can also be created.

In the latter two situations, involving express warranties and new implied warranties, the lower level of the distribution chain is exposed to often unreasonable levels of liability. Let us consider a hypothetical involving a large company, A, that has produced a widget. D is a distributor of A's widget, and B buyer purchases the widget. A supplies D with however many widgets that D can sell. D needs to sell A's widgets to make money, and carrying inventory is costly. So D will attempt to sell these as quick as is practicable. A has terms and conditions like all large companies, that disclaim IWM and IWFPP. In D's attempts to sell A's widgets, it is unreasonable to assume that D will not create a new IWFPP.

The elements of IWFPP are: (1) the seller had reason to know of the buyer's particular purpose; (2) the seller had reason to know the buyer was relying on the seller's skill or judgment to furnish suitable goods; and (3) the buyer in fact relied on the seller's skill or judgment to furnish suitable goods. [2] In nearly every case that D sells A's widget, D will have created an IWFPP. A buyer of a good will tell D the purpose for which the good is being purchased. D will direct the buyer to a particular good. Thus is the IWFPP created.

Depending on the relationship between A and A's widgets and D distributor, A may be liable to B buyer. D distributor may have actual, implied or apparent authority, in which case B buyer can sue A. If B buyer sues to recover from A, A would then be able to recoup the amount for which A is liable from D distributor.

In the real-world, this ultimately comes down to an economic analysis. If D distributor made an implied warranty over goods that cost a lot, A may or probably will attempt to recover from D distributor. If D distributor made an implied warranty over goods that do not cost a lot or did not create a lot of legal liability, A probably will not attempt to recover from D distributor.

Citations:
[1] UCC 2-316(2).
[2] Renze Hybrids, Inc. v. Shell Oil Co., 418 N.W. 2d 634, 637 (Iowa 1988).

Precision with Legal Definitions in F.O.B. Destination.

In my last post, I discussed some of the difficult issues faced by buyers and sellers of goods when those goods are damaged in transit. Basically, if the contract is silent on who bears the risk of loss or damage to the goods in transit, then responsibility for damage to the goods is with the buyer after the seller tenders delivery to the freight carrier. Article 31 of the CISG has comparable rules with some nuances.

I thought it might be useful to delve into the definitions of "receipt" and "tender of delivery." They do not mean the same thing, and are tantamount when examining issues or potential issues with carriage. "Receipt" means taking physical possession of goods. In many cases, delivery will be tendered and the buyer has title or ownership to the goods, yet the buyer will not have physical possession of them.

From a buyer's standpoint, this is not inconsistent with the default rule when goods are to be shipped and the contract is silent on who owns the goods in transit. If A manufacturer sells goods to B buyer, and B buyer takes ownership of the goods after tender of delivery, and the goods are damaged in transit, then B buyer is responsible for replacing the goods. The result is the same when the situation is examined through the F.O.B. concept.

Tender is such performance by the tendering party to render the other party in breach or default if they do not perform. Tender of delivery requires the seller to place and hold conforming goods at the buyer's disposition, as well as give the buyer notification reasonably necessary to enable the buyer to take delivery. Note that it says conforming goods, which are those meeting the obligations of the contract. In other words, the goods are in such condition that the seller has met its legal obligation.

Tender does not require the seller to give physical possession of the goods to the buyer. Delivery requires voluntary transfer of possession. Tender of delivery can mean transfer of physical possession if the parties so contract, but the default rule when a contract is silent demarcates physical possession and delivery.

So, tender of delivery essentially means that the seller must place goods at the buyer's disposition, and a voluntary transfer of possession occurs, but not necessarily physical possession. If contracted-for goods are shipped F.O.B. Origin, then tender of delivery does not mean the same thing as receipt. If the goods are shipped F.O.B. Destination, then tender of delivery does mean the same thing as receipt.

The importance of F.O.B. Destination.

If you deal in goods, chances are that you are familiar with the terms "F.O.B. Origin," and "F.O.B. Destination." Alternatively, you may hear the terms, "F.O.B. Factory", "F.O.B. Shipping Point," and "F.O.B. Jobsite." Part 5 of UCC Article 2 deals with tender, delivery, shipment and risk of loss as it pertains to F.O.B. F.O.B. means "Free on Board," although one may also hear it as "Freight on Board." F.O.B. specifies whether the buyer or seller bears the risk of loss to the goods during shipment, and where responsibility is transferred.

In many cases, there is not a breaching party. The seller dutifully tenders the goods to the freight carrier or other method of transit, and the buyer is not aware that the goods may be damaged in transit. If the goods are F.O.B. Origin, the risk of loss or damage to the goods in transit rests with the buyer. If the goods are F.O.B. Destination, the risk of loss or damage to the goods in transit rests with the seller. To the buyer, having goods shipped F.O.B. Destination is a sort of insurance while they are in transit.

People may think this is not fair, and it is not. It is not fair that the buyer of goods who has no control over damage in transit be responsible for paying to replace goods damaged. But this is exactly what happens. It causes enormous problems in business relationships, as the buyers sometimes are so angry that they henceforth avoid doing business with the seller.

Article 2 allows the parties to contract around the default rules for shipment. The circumstances of a case, trade usage or practice, and a course of dealing or performance also allow parties to evade the default rules of Article 2 for shipment. These latter options, however, involve proving the shipment terms in court, which is almost certainly going to ruin business relationships.

If there is a breach by the seller, then the default rules do not apply. The seller cannot deliver damaged goods to the carrier and shift the risk of loss onto the buyer. The issue with this is that the ability to discern whether the seller delivered damaged goods to the transit company is sometimes exceedingly difficult. Unless damage is clearly due to the rigors of transit, a buyer may not be able to tell whether the goods were damaged before or during transit. The resolution of issues like this often comes down to prudent, shrewd or accommodating businesspersons. A prudent seller admits that the goods were damaged when they delivered them to the carrier, especially when there is a future business relationship in the balance. A shrewd or dishonest seller will not admit the goods were damaged, especially when there is not a likely future business relationship in the balance. An accommodating seller will admit their mistake if the goods were damaged, and may accept the risk of loss even if they believe the goods were not damaged when they were delivered to the carrier.

Introduction to Commercial Law.

Commercial law is the body of law governing business and commercial transactions. [1] In the United States, the Uniform Commercial Code ("UCC") is indispensable to the discussion of commercial law. All 50 states have enacted some form of the UCC, even if they have made minor changes. The UCC's scope is wide. Article 1 contains general provisions. Article 2 deals with the sale of goods. Article 2A deals with leases. Article 3 deals with negotiable instruments (e.g., checks). Article 4 deals with banks and banking deposits. Article 5 deals with letters of credit. Article 6 deals with bulk transfers and bulk sales. Article 7 covers warehouse receipts, bills of lading and other documents of title. Article 8 deals with investment securities. Article 9 deals with secured transactions.

If one had to say that there is a "most commonly used" article of the UCC, it would likely be Article 2. As mentioned above, Article 2 deals with the sale of goods. For sales of services, the UCC does not apply. When transactions involve goods and services, there are different rules that may be applied, depending on the jurisdiction in which the case is being tried.

The majority approach is the "Predominant Purpose" test, where courts decide whether the predominant purpose of the transaction is to sell goods or services. If it is goods, then Article 2 applies. The UCC will apply to the whole transaction, even the services portion. If the predominant purpose is services, then Article 2 does not apply to any part of the transaction. [2]

Another common approach is the "Gravaman of the Action" test. Under this test, the inquiry is whether the source of the complaint is with the goods or services portion of the transaction. If the source of the complaint lies with the goods, then Article 2 applies even if the predominant purpose of the transaction is services rather than goods. If the source of the complaint lies with the services, then Article 2 does not apply even if the predominant purpose of the transaction is goods rather than services. [2]

Outside the United States, the Convention on Contracts for the International Sale of Goods ("CISG") is indispensable to the discussion of commercial law. Its scope is the same as the scope of Article 2 in the U.S. As of August 2010, the CISG had been ratified by 77 countries, including the United States. [3] The CISG applies when there is a sale of goods between contracting states to the CISG, or when the rules of private international law lead to the application of the law of a contracting state to the CISG.

It is also important to note that parties to a contract can often provide for rules differing from those of the UCC and CISG. Very generally, parties of equal bargaining power can vary the terms of the UCC and CISG. If two large businesses contract for a transaction in goods, a general rule is that the parties can input contractual provisions to modify the UCC or CISG. However, if a transaction in goods is between two parties of unequal bargaining power (sometimes the difference in bargaining power must be profound), then generally the UCC or CISG cannot be modified through contracting. Please note that the point of the general rule is that it does not necessarily hold throughout its sphere of application.

Identifying the major players in commercial law is only the tip of the iceberg. It will take many more posts to reveal more of that hypothetical iceberg.

Citations:
[1] Wikipedia, Commercial Law, http://en.wikipedia.org/wiki/Commercial_law (last visited May 23, 2012).
[2] Lynn M. LoPucki, Elizabeth Warren, Daniel Keating, Ronald J. Mann, Commercial Transactions: A Systems Approach, 12 (Aspen Publishers 4th ed. 2009).
[3] Wikipedia, United Nations Convention on Contracts for the International Sale of Goods, http://en.wikipedia.org/wiki/United_Nations_Convention_on_Contracts_for_the_International_Sale_of_Goods (last visited May 23, 2012).