Beware of Recent Changes to the UCC Governing the Sale of Goods in Georgia!

Georgia, along with nineteen (19) other States, recently adopted changes to their versions of the Uniform Commercial Code or UCC.  The changes to the UCC  in Georgia are contained within “The UCC Modernization Act of 2024” or “ACT”, signed into law on May 6, 2024, and taking effect on on July 1, 2024. While a majority of the ACT focuses upon modernizing the UCC with respect to financial transactions and digital assets under Articles 12, 12A, and 13,  it does sneak in some changes regarding the sale of goods under Article 2.  Notably, the changes to Article 2 do not modernize the UCC, but rather “muddy the waters” regarding certain long-standing “bright line tests” governing the sale of goods.   [See, “Does the UCC or Common Law Govern Your Contract”?, posted 12/13/23].  

The sale of goods are governed by Article 2 of the UCC while borrowing definitions and concepts from Article 1.  Under prior law, the UCC segregated contracts governed by the UCC from those governed by Common Law, through a “predominant purpose test”.  If a transaction predominantly involved the sale of goods, it was governed by the UCC.  But if the transaction predominantly involved the provision of services it was governed by Common Law.  The predominant purpose was generally determined by whether the costs of goods or services exceeded 50% of the total transaction costs.  The ACT modifies application of the “predominant purpose test” under Article 2. 

The ACT introduces the concept of a “hybrid transaction”, whereby both the UCC and Common Law govern transactions involving the sale of goods and services.  This is a major break from prior law, whereby either the UCC or common law governed such transactions, but never both.  A “hybrid transaction” is defined as “a single transaction involving a sale of goods and: (a) the provision of services; (b) a lease of other goods, or; (c ) a sale, lease or license of property other than goods”.

Under the new changes, if the “hybrid transaction” predominantly involves the sale of goods, the UCC applies, but “does not preclude” application of “other law to aspects of the transaction which do not relate to the sale of goods” (i.e. "common law").  But if the “hybrid transaction” is not predominated by the sale of goods, only those UCC “provisions”  that “relate primarily to the sale of goods aspects of the transaction apply” and those UCC  “provisions that relate primarily to the transaction as a whole do not apply” (i.e. “common law”).  While these changes definitely modify the “predominant purpose test”, they are ambiguous, unclear, and will most likely generate more disputes than the “bright line test”  established by prior law.

The ACT also modifies the definition of “conspicuous” terms with respect to disclaimers and limitations of liability.  Under prior law, “conspicuous” terms had to be printed with:  1.) a heading in capital letters, or in contrasting type, font, or color from surrounding text, and 2.)  a body in larger text than surrounding text, or in contrasting type, font, or color from surrounding text, or set off by symbols or marks that call attention to the language.  This created an objective standard and “bright line test” that could be easily applied, administered and enforced by the courts.  The new changes provide that “conspicuous” terms must be evaluated based upon a “totality of the circumstances” test surrounding how the terms are written, displayed, or presented.  This is clearly a subjective standard that eliminates the prior definition providing objective criteria governing the meaning of “conspicuous” terms.

Finally, the ACT alters other provisions under Article 2, including exceptions to the statute of frauds, applications under the Parol Evidence Rule, and the modification of contracts.  [See “Do Contracting Parties Understand the Statute of Frauds”, posted 11/6/23; “Has Your Contract Been Hijacked by the ‘Parol Evidence Rule’”, posted 2/14/24].   Under the old law, a “writing” was required to avoid the statute of frauds, a “writing” could not be contradicted under the parol evidence rule by a prior agreement or contemporaneous oral agreement, and contracts could only be modified by a “writing". Under the ACT, the term “writing” is eliminated and replaced by the term “record”  with respect to the Statute of Frauds and the Parol Evidence Rule.  And with respect to contract modifications, the term ”record" is now added to the term “writing” by which a contract may be modified.  But the term “record” is not defined by the ACT, and will likely become absorbed within the new subjective “totality of the circumstances” test.   Once again, “bright line tests” requiring a writing have now been stricken in favor of subjective undefined terms and tests.

The ACT introduces ambiguity, where none previously existed, to Article 2 governing the sales of goods.  [See, “'Occam's Razor'” should guide all Laws, Lawmakers, and Lawyers", posted 7/17/24].  The changes within the ACT do not modernize Article 2, but rather eliminate “bright line tests” that had worked well since adoption of the UCC more than 70 years ago.  Consequently, the ACT represents another example of where the title of new legislation (i.e. “The UCC Modernization Act of 2024”) does not fully and fairly reflect the content.