One of the most
critical policies of the Uniform Commercial Code is uniformity of law. Indeed,
the lack of uniformity of law among the various jurisdictions was a prime mover
in the overall undertaking to draft The Uniform Commercial Code. This is codified in section 1-102(a)(3),
which directs the courts once again, to ‘liberally construe and apply’ the Code
‘to make uniform the law among the various jurisdictions’.
In approaching
the policy of uniformity, several realities must be taken into account. First, the Official Text of the Uniform
Commercial Code must go through the legislative process of each state prior to
its enactment. In the legislative
process, states often amend the official text of the Code so that it lines up
with the law of the particular state. In
that situation, the text enacted in the state would not be identical to the
Official Text. In some cases, the
changes are minor and relatively insignificant; in others the changes might be
dramatic. Anyone involved in multistate
transactions should check the law of the other state to be certain that it is
consistent with the expectations of the parties. This is particularly important in the
drafting stage.
Second, the
Official Text of the UCC provides options for states to choose in several very
important provisions. The differences
among the alternatives can be dramatic.
Section 2-318, which deals with Third Party Beneficiaries of Warranties
Express or Implied, clearly illustrates this point. The Official Text to Section 2-318 provides
three alternatives for the states to choose from:
ALTERNATIVE A
A seller’s
warranty whether express or implied extends to any natural person
who is in the family or household of his buyer or who is a guest in his home
if it is reasonable to expect that such person may use, consume or be affected
by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit operation
of this section. [Emphasis Added]
ALTERNATIVE B
A seller’s
warranty whether express or implied extends to any natural person who may
reasonably be expected to use, consume or be affected by the goods and
who is injured in person by breach of the warranty. A seller may not exclude or limit operation
of this section. [Emphasis Added]
ALTERNATIVE C
A seller’s
warranty whether express or implied extends to any person who may
reasonably be expected to use, consume or be affected by the goods and who is
injured in person by breach of the warranty.
A seller may not exclude or limit operation of this section with respect
to injury of the person of an individual to whom the warranty extends.
[Emphasis Added]
A casual examination of the alternatives
presented in Section 2-318 reveals significant differences among them.
Alternative
A is the most restrictive of the three options presented, and is the option
selected in the majority of the states.
In that scenario, the warranty extends only to ‘any natural person who is in the family or household of his buyer or
who is a guest in his home’….
Alternative B is more expansive since it eliminates the ‘family, guest
of household’ criteria. Finally, Alternative C extends the warranty to ‘any
person’, eliminating the ‘natural person’ requirement, and does not limit
damages to personal injury.
The
differences among these three alternatives are huge. Imagine a wholesale buyer of goods in an
Alternative C state such as Minnesota purchasing goods for resale in Minnesota from
a seller in an Alternative A state such as Florida. The expectation of the Minnesota purchaser is
that he, and his buyers, will have the protection of the expansive warranty
which exists in Minnesota under Alternative C. While it is not certain which
law will apply—Minnesota or Florida [either one could depending on other facts
and relative conflicts of law provisions], the Minnesota purchaser takes a
major risk in going forward in the event the goods prove to be defective and
there is injury as a result. If alternative A applies, and injury occurs to
someone who is not ‘in the family or
household of his buyer or who is a guest in his home, the Minnesota buyers
would not have the benefit of a third party beneficiary under Section 2-318,
and the wholesale purchaser will face major exposure.
Attorneys
involved in multi state transactions should always review the law of the other
jurisdiction or jurisdictions involved.
In a situation like the one posed above, the Minnesota buyer can
request, or insist, depending upon bargaining power, that the law of Minnesota
will govern the transaction. This choice
of law will be protected under Section 1-301, which will be discussed in
greater detail in a later blog.
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