Applying the Uniform Commercial Code to Ecommerce

Consumers and ecommerce merchants often take the complexity involved in buying a product online for granted. But behind the ease of the one-click checkout and free shipping is 65 years of law. In the U.S., the Uniform Commercial Code is the real art of the ecommerce deal, and, in this article, I will explore some of its most important provisions.

What Is the U.C.C.?

The Uniform Commercial Code is a joint American project between the National Conference of Commissioners on Uniform State Laws and the American Law Institute. Both consist primarily of practicing lawyers and law professors. The project was intended to harmonize the common law of contracts across all U.S. states to ensure that the laws governing the sale of goods are consistent. And, for the most part, the project has been very successful. The U.C.C. has been almost fully enacted in 49 of 50 states.

Article 2 of the U.C.C. covers the sale of goods. The U.C.C. specifies that a contract for the sale of goods may be made “in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.” This means that a contract can be formed by making mutual promises, as when a merchant promises to sell a widget at a certain price, or by performance, where a user requests that a merchant provide goods and the merchant provides them.

Contracts under the U.C.C. are based on “objective mutual assent,” which means that contracts have nothing to do with the personal or individual intent of the parties. All there needs to be for a contract to be formed is an offer and an acceptance of that offer.

The fact that contracts can be formed in a simple manner presents some problems for ecommerce merchants. For example, if all it takes for a contract to be formed is an offer and an acceptance, are ecommerce merchants on the hook for pricing or inventory errors? Put another way, a price listing on a website and the clicking of a purchase button for that listing certainly feels like an offer and an acceptance.

The fact that contracts can be formed in a simple manner presents some problems for ecommerce merchants.

Courts, however, have described these transactions as “invitations to bargain” in the United States and “invitations to treat” in the U.K. Price quotations are seen as an invitation to bargain — that is, an invitation to participate in a preliminary discussion or to make an offer. Upon the processing of payment information, or the shipping of goods, a contract is formed. And, to protect against the dangers of mistaken price quotes, attorneys will often describe such transactions as “invitations to bargain” in website terms-of-use agreements.

Shipments of Goods

Once a merchant ships goods, the U.C.C. also provides rules for who bears the loss if the goods are lost or damaged in shipment. If a contract requires a seller to deliver goods to a particular destination, the seller bears the risk of loss until the buyer can take delivery. If the goods are not shipped to a particular destination, the risk of loss passes, instead, when the goods are delivered to the shipping carrier.

Once goods have been delivered, the U.C.C. provides that the buyer has a right to inspect them before acceptance. This inspection must be performed in a reasonable time and manner. If the goods fail to conform to the contract, the buyer can reject all of them, accept all of them, or accept some of them and reject the rest. Good are considered conforming when they meet the contract’s terms and, if the goods are not as described upon delivery, they may be considered non-conforming.

If a buyer rejects the goods, the rejection must be within a reasonable time after their delivery. Upon rejection, the buyer must hold the goods with reasonable care for sufficient time so that the seller can remove them. If the seller does not give instructions on what the buyer should do with the goods after a reasonable time, the buyer may store the goods, reship them to the seller, or resell them. If the buyer resells the goods, the buyer may first reimburse itself for the cost that it paid for the goods and, in some cases, a commission for their sale.

Where the buyer has rejected the goods because they didn’t conform to the contract, the buyer can also recover from the seller (in addition to the purchase price) its “cover” damages, which are damages for having to obtain substitute goods.

“Cover” damages are the difference between the cost of the goods that the buyer purchased from the seller along with any incidental or consequential damages. Incidental damages are expenses incurred in inspection, receipt, transportation, and care of goods that have been rejected, while consequential damages include damages that arise out of the buyer’s general or particular requirements for the goods that were known by the seller at the time of sale.

Warranties

Certain express and implied warranties are also available under the U.C.C. by default. Any statements of fact, description of goods, or samples made by or provided by the seller that become a basis for the purchase of a product create an express warranty. Further, the U.C.C. creates an implied warranty that the goods will be merchantable, which means that they will pass inspection without objection and are fit for the ordinary purposes for which such goods are used.

If these provisions sound scary to you, as an ecommerce merchant, do not be afraid. All of these provisions can be overwritten by a well-drafted terms-of-use agreement. In the absence of a terms-of-use agreement, the U.C.C.’s provisions will likely apply.

For that reason, it is important to know about your rights and duties as a seller should you choose not to otherwise control those rights and duties by an explicit contract.