Understanding The Uniform Commercial Code: Seller Rights & Contract Considerations
Suppose a buyer and seller have multiple separate contracts together, but the buyer has failed to pay for goods that have already been delivered. Is the seller obligated to deliver or fulfill future orders? Here is what you need to know about the Uniform Commercial Code and remedies for a contract breach.
The Uniform Commercial Code (UCC) was established to standardize state laws concerning a specific type of transaction. The UCC applies to contracts for the sale of movable goods that involve shipments of goods between merchants and between merchants and consumers. Contracts subject to this law should meet the UCC requirements to be enforceable. Further, the UCC sets forth particular remedies for any breach.
Under the Uniform Commercial Code (UCC) Section 2-609, a contract for sale imposes the expectation that neither party’s delivery will be affected or impaired due to performance. However, if the buyer has failed to pay for previous orders, this may create reasonable grounds for the seller to have insecurity. A buyer cannot simply stop paying for delivered goods, as this would breach the contract; the seller must first have a written demand of assurance. If reasonable grounds for insecurity exist, one party may demand written assurance of performance and suspend its performance until after getting such assurance. If the demand isn’t made appropriately, then the party making the request risks becoming exposed as the breaching party for unlawfully suspending its performance or treating the contract as renounced.
A properly written demand letter allows the seller to prevent or mitigate the risk of incurring additional losses until the buyer gives the assurance or proof that the seller will pay or perform their contractual obligations. If the buyer fails to present enough assurance within the given time, the seller can consider the contract repudiated.
Can an existing contract be modified without new consideration?
The UCC is concerned with transactions involving the sales of goods with the aim of accelerating the nature of commerce. Hence, it does not require that the parties provide new considerations to modify a contract for the sale of goods.
Nevertheless, the UCC obliges that the parties modify their contract in good faith. For instance, a buyer enters a written contract with a bakery. The buyer orders a birthday cake for $500 to be delivered to a birthday party for a certain event date. The baker calls the woman an hour before the party and tells the buyer that they cannot deliver the cake for less than $1,000.
The buyer in anguish agrees to pay the $1,000. The baker then delivers the cake and sends the woman a bill for $1,000. The buyer pays $500, the original contract price, to the baker. However, the baker then sues for $500. The court will not enforce the contract under the modified terms as the baker tried to modify the contract in bad faith.
If you have a concern regarding contracts or breaches, call San Diego Business Lawyer Christopher Villasenor to help you with your next steps.
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