For several years, I taught a law school class covering sales, personal property leases, and documents of title – Uniform Commercial Code Articles 1, 2, 2A, and 7. At one time, the UCC was the big thing in American law. Now it has become workaday area of the law. Nonetheless, it remains an important, and I fear, often overlooked, subject.
I suspect that many lawyers negotiating asset purchase agreements may fail to recognize and address basic UCC issues. For example, they may spend a great deal of time negotiating express warranties while not recognizing that the UCC will impose (if not properly disclaimed) implied and other warranties. (My former students will recognize that under the UCC, there are three types of warranties – express, implied and warranties that are neither express nor implied.) Similarly, an asset purchase agreement may not take into account the risk of loss rules that apply to the sale of goods under the UCC.
Some questions to consider the next time you negotiate an asset purchase agreement:
- Does my agreement involve a transaction in goods subject to the UCC?
- Do I understand how warranties (express, implied and other) are made and disclaimed under the UCC?
- Do I understand the UCC’s risk of loss rules and are those rules properly addressed in the agreement?
- Do I understand the UCC’s remedy provisions and my client’s rights and obligations in the event of a breach or anticipatory repudiation?
A useful housekeeping task for the summer might be to review your form of asset purchase agreement with the UCC in mind. California, like Rudyard Kipling’s cat, walks alone in many respects. We don’t refer to “articles” of the California UCC, we call them “divisions”. Also, there is no Article 2a in the California UCC, it’s Division 10.