You negotiated and signed the terms for purchasing construction materials for the project. The project begins, but the materials arrive late or, worse yet, not at all. What can you do to avoid or mitigate liability for a breach of contract claim? 

Our COVID-19 page has covered many related topics, including the applicability of a force majeure clause.  But what if your contract doesn’t include such a clause or some other alternative?  Many times, material is supplied under an invoice or purchase order, with no written purchase agreement or terms and conditions. 

If the materials qualify as the sale of “goods”, Article 2 of the Uniform Commercial Code (“UCC”), a uniform act enacted into law by many states, may provide some relief.  As a starting point, there are 3 things you need to know about UCC.

1.     Is the UCC applicable in Texas? 

Texas has enacted various portions of the UCC, codifying them in the Texas Business and Commercial Code.  For purposes of the sale of “goods”, the relevant part of the Texas UCC is Article 2. Within that Article is a specific section, Section 2.615, entitled “Excuse by Failure of a Presupposed Condition” (“Texas § 2.615”). 

2.    What are “goods” to which Texas §2.615 applies?

Texas §2.615 applies to “transactions in goods”. “Goods” are “all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale.”  Examples of “goods” used on a construction project might include reinforcing steel, manufactured stone, light gauge and metal studs. For a pure material supplier, the inquiry might stop there.  But for most contractors, who supply materials and labor, the inquiry goes at least one step further. 

Construction contracts are a hybrid where a contractor typically provides both goods and services. For example, a waterproofing contractor is both providing a good (the waterproofing) and a service (application). In Texas, whether the contract is for “goods” (and Texas §2.615 applies) depends on whether the “essence” or the “dominant factor” of the contract is for goods or services. If the essence of the contract is a contract for services, the UCC would not apply. 

3.    Does Texas §2.615 excuse non-performance of a contract? 

Breach of contract may be excused by Texas §2.615 if performance “has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption of which the contract was made.” In other words, where a breaching party’s performance is made impracticable by some event (the “contingency”), and the parties assumed the event would not occur at the time they entered into the contract, the breaching party may be excused for their non-performance. 

A few caveats are in order before determining whether impracticability under the UCC is an appropriate excuse for contractual performance.  If the contingency occurs and the seller has the capacity to partially deliver some of the goods promised under the contract and has contractual obligations to deliver the product to other parties, the seller must allocate the goods among its customers in a manner that is fair and reasonable. The seller must also notify the buyer that there will be delay or non-delivery and, when delivery must be apportioned as mentioned above, of the estimated amounts available for each buyer. 

It is too early to tell whether Texas courts will excuse performance as impracticable under Texas §2.615 due to the novel coronavirus and COVID-19 pandemic.  The last pandemic of this scale was the Spanish Flu pandemic of 1918, a pandemic that preceded the development of the UCC.  

In determining whether the pandemic or other event excuses performance under a contract for the sale of goods, it is advisable to consult with legal counsel.  

Our attorneys in Dallas and Austin, working remotely during the pandemic, are available to answer any questions you may have about your contractual or legal rights and to help you navigate these uncharted waters.  Contact us at info@gstexlaw.com if you have any questions.

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