The Uniform Commercial Code and Contracts for the Sale of Goods (2024)

Contracts: The UniformCommercial Code

Theuniform commercial code (UCC) is a set of laws governing sales andcommercial transactions.[1] The purpose of any uniformcode is to create a standard body of law across multiple jurisdictions. Theprovisions of the UCC or any uniform code are not binding on a jurisdiction unlessthey have been adopted by that jurisdiction. However, the UCC has beenadopted in whole or in large part by all 50 states. The UCC containsmultiple articles dealing with various components of commerce. The focus ofthis presentation will be on Article 2 of the UCC, which regulates contractsfor the sale of goods. We will illustrate when Article 2 applies and discuss severalpractical concepts from Article 2 that affect contracts and sales.

Article 2 applies to contracts for the sale of goods.[2] Goods are things that canbe identified when the contract is formed and can be moved.[3] Pens, boats, computers,cars and animals are all “goods.” In contrast, real estate, services, andintangibles (such as intellectual property) are not “goods.”

SeveralUCC provisions provide special rules for “merchants.” A “merchant” is a personthat regularly deals in transactions involving certain types of goods or holdshimself out as having special knowledge about those goods.[4] A merchant is in thebusiness of selling a specific type of product. If you go to a sporting goodsstore and buy a baseball, the sporting goods store is a merchant for purposesof the UCC, while you are not.

While UCC rules are often comparable to general contractrules, the UCC does significantly change the rules in many places. Let’s lookat some examples.

Thefirst is the concept of a firm offer.This is an important exception to the general rule that an offer can bewithdrawn by the offeror unless she received something of value in exchange fora promise to keep the offer open. For example, if I offer to sell you my housefor $400,000, I can pull that offer off the table at any time until you accept.However, if you gave me $100 in exchange for my agreement to keep the offeropen for a week, I must keep the offer open for the week. The agreement to keepan offer open for a given period of time in exchange for consideration is sometimesknown as an “option contract.”

Thefirm offer rule dispenses with theneed for consideration when dealing between merchants. A firm offer betweenmerchants cannot be revoked for a specified time (or “reasonable” time if noneis specified). To be considered a firm offer, the offer must be to buy or sellgoods, must be in writing and signed and must specify that it will not berevoked for either a specified time or, if it does not specify a time, for areasonable time. As in most cases when the UCC varies from the common law, thisrule is designed to facilitate commerce. Allowing merchants to be confidentthat their offers will be good for a reasonable time allows them to engage inother related contractual activities. For example, a contractor may rely on anoffer of materials at a certain price when putting together a bid. The firmoffer rule allows her to do so with the confidence that the materials merchantwill not be able to revoke his offer for a given period of time.

Thesecond concept deals with the case of an acceptance that varies from the offer.This is sometimes known as the “battle of the forms.” Generally, when a contract offer is accepted, the terms must bethe same as those in the offer (this is known as the “mirror image” rule).Article 2 changed this traditional contract principle. When there areadditional terms to a contract sent in the acceptance, Article 2 applies thefollowing rules.[5]

-If the offeree accepts onterms that are not the same as the offeror’s, it will be presumed to be a validacceptance unless the offeree specifically conditioned his acceptance on thechange in terms.

-The additional terms will beconstrued as proposed additions to the contract. They do not become part of theexisting contract.

-However, if both parties aremerchants, then the additional terms do become part of the contract unless:

o Theoriginal offer limits acceptance to the terms of the original offer

o Theyare “material” (major) changes to the offer; or

o Theofferor objects to the terms in a reasonable time.

Thethird UCC doctrine is the UCC’s “gap filler” rules. The traditional law ofcontracts requires that the parties to a contract have mutual assent to the keyelements of the bargain.[6] Because the UCC’s policyencourages enforceability and the ability to contract quickly and reliably, theUCC allows contracts to become enforceable even without agreement on allimportant terms. For example, the parties may not know the price, date ofdelivery, or payment terms. When certain terms are left out of a contract,Article 2 provides “gap filler” terms that are used to determine each party’s responsibilitiesunder the contract.[7]For example, when the place of delivery is not specified in the contract, thenthe gap filler states that the seller’s place of business will be the defaultrule.[8] If the time for payment isnot specified, then the goods must be paid for at the time and place the buyerreceives the goods.[9]Even if the parties to a completed agreement fail to reference something sofundamental as the price, the contract is enforceable at a “reasonable price.” Ifa party does not want to rely on a gap filler provision of Article 2, then hecan include specific requirements in the contract.

TheUCC also covers risk of loss. Therisk of loss focuses on which party must pay for goods that are lost or damagedduring delivery.[10]The risk of loss provisions depend on how the goods are being delivered.[11]

If the goods are not shipped by a common carrier, therisk of loss passes to the buyer when the goods have been delivered unless theseller is a merchant, in which case the risk of loss passes to the buyer whenthe buyer takes physical possession of the goods.

If the goods are shipped by a common carrier (which meansa third party that is contracted for delivery, such as UPS or the United StatesPostal Service), then the UCC provides for two types of agreement. A “shipmentcontract” requires that the seller place the goods into the possession of thecarrier. A “destination contract” requires that the seller deliver the goods tothe buyer at a certain location. If a shipment contract is used, then the riskof loss passes to the buyer when the goods are delivered to the carrier. If adestination contract is used, the risk of loss passes to the buyer when thegoods arrive at the buyer’s location.

TheUCC also defines the buyer’s right ofinspection and the seller’s right tocure. After the goods are delivered to the buyer, the buyer has the rightto inspect the goods before paying for them to make sure they conform to theoffer.[12]

Ifa buyer rejects non-conforming goods, the UCC typically gives the seller theopportunity to fix the mistake (the “right to cure”). This applies only if theoriginal time for the seller to complete the order has not expired, the sellernotifies the buyer within a reasonable time of his intention to cure and thatthe seller complete corrected delivery in time to meet the original deliverydate. [13]

Theseare just some of the areas in which the UCC changes the previously existingcontract rules. Because of the UCC’s dominance in the areas of sales of goods,it is important for anyone involved in commercial goods transactions to befamiliar with the UCC and its most important provisions.

Footnotes