We here at the MCLB love manufacturers. In an economic climate where so much of our growth rests on intangibles and virtual goods, you provide the tangible items and the jobs that make it all possible.
As a way to say thank you, we’re beginning this column for you. The Manufacturer’s Corner will focus on important issues for manufacturers, such as warranty exclusions, protection against insolvent buyers, and product liability issues.
We’ll begin with a series on Article 2 of the Uniform Commercial Code (the “UCC”), which governs the formation of contracts for the sale of goods. Because your contracts delineate your rights and your buyer’s rights, a thorough understanding of the provisions of Article 2 is critical to any manufacturer.
Let’s start with the basics – we can get to the details in subsequent posts. A contract for the sale of goods – and for our purposes here, “goods” includes any items you manufacture – can be made “in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.” Note that the contract need not be written. That said, a written contract is practically essential to defining the parties’ rights and obligations in the manner the parties intend, and, in fact, one generally may not sue to enforce a contract for the sale of goods in excess of $500.00 unless there is a written contract.
In the absence of a written contract, the seller’s obligation is to provide the goods, and the buyer’s obligation is to pay for them. But that glosses over a number of important issues. First, as a manufacturer, you are likely a “merchant” with respect to the goods you manufacture. Accordingly, the goods must meet a series of requirements to be merchantable. For instance, they must be such that they would pass without objection in the trade. Second, the seller needs to deliver the goods only to his place of business, not the buyer’s, though the tender of delivery must give the buyer a reasonable opportunity to inspect the goods at reasonable hours. Third, the delivery must occur within a reasonable time. Fourth, the risk of loss of the goods passes to the buyer only upon the buyer’s receipt of the goods, and passage of the risk of loss does not necessarily occur at the same time title passes to the buyer.
Of course, all of this is subject to modification, and those potential modifications will be the focus of this first series in the Manufacturer’s Corner. How do we discern contract terms when the terms on your invoice differ from the terms on the buyer's purchase order? How do industry standards or the parties’ prior dealings impact contract terms? When can a buyer refuse tendered goods, and when can a seller refuse to tender? What is the impact of FOB or FAS terms on risk of loss?