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When Does the UCC Not Apply?


If you read our previous blog about the Uniform Commercial Code ("UCC"), you know that the UCC provides rules regarding the sale of goods, negotiable instruments, securities and financial assets, and secured transactions. However, there are many common types of transactions that are not governed by the UCC. Here are some major types of business transactions that the UCC does not touch:

Service Contracts

A landscaping company that is paid to maintain lawns. An auto mechanic that owns a garage. A courier company that delivers parcels. These are all examples of contractual agreements based on one party providing a service in return for something else (usually money).

Rules regarding service contracts are typically covered by a state’s common law rules, which can be ascertained from court opinions. While most of the rules regarding contract disputes are similar nationwide, be sure to consult your state’s law for specific nuances or details.

Employment Contracts

As your business grows and expands, the addition of employees becomes necessary. In small and medium sized businesses, there is often not a formal written contract of employment. For example, if you promise to give an employee paid time off, and then fail to keep that promise, you might be in breach of contract. While the advisability of whether to have an oral or written contract is debatable, what is not debatable is the fact that employment contracts are not governed by the UCC. Like service contracts, common law contract rules would determine whether you breached a contract.

Real Estate Contracts

Imagine your manufacturing business is booming. In fact, you are so successful that you know you will soon outgrow your current manufacturing facility and you need to purchase a new one. Eventually, you find the property and warehouse you want, and you will sign the huge stack of paper that makes up the real estate sales contract.

Despite that fact that you purchased commercial real estate, the laws that govern this purchase are not found in the UCC or your state’s version of it. Laws governing these transactions are likely found in court opinions or real estate statutes enacted by your state.

But what about leases, you might say? Article 2A of the UCC is specifically titled “Leases.” If the office space I rent for my business is governed by a lease agreement I signed, wouldn’t that be governed by Article 2A of the UCC? While a cursory reading of the Article’s title might suggest that idea, it is important to note that Article 2A deals with leases for goods, not real property. Just like the purchase of real estate, an agreement to lease real property is governed by your state’s relevant case law or real property statutes.

Do you know what law applies to your business transactions? If not, or if you have questions, seek qualified business law counsel. The Vethan Law Firm, P.C. has been in business for 20 years and has offices statewide. VLF gets results for the folks who are the backbone of this economy.

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