Contract Rules for the Sale of Goods

Find out what the UCC standards are regarding contracts for the sale of goods.

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Contract law is a vast and ancient subject, and you can search through a lot of sources to try to answer a single contract question. However, when it comes to selling or buying goods, a good place to check first is UCC Article 2, which contains many important, fundamental rules. Titled simply “Sales” and referring, more specifically, to sales of goods (as opposed to services or real estate), Article 2 is itself rather vast by UCC standards. It contains over 100 different sections. Taken together, those sections cover—in an intentionally general fashion—such matters as contract formation, contractual obligations of the seller and the buyer, rules for performing on a contract, what constitutes breach of contract, and remedies for breach of contract. We’ll look very briefly at each of these areas; fuller treatment of at least some of these areas is contained in other Nolo articles.

Note: This article is based on the current version of the model Uniform Commercial Code (UCC). However, not all states have adopted all sections of the current model UCC. Moreover, the model UCC specifically leaves it to individual states to determine the precise wording of certain sections. Therefore, you should check your own state’s commercial code for the most accurate information for your state.

UCC General Contract Rules

Form of Contract. Both lawyers and businesspeople will tell you that, when you make a deal with someone, you should always “get it in writing.” Article 2 provides specific requirements for when a sales contract must be in written form. In legal lingo, this type of rule is known as a “statute of frauds.” Beyond the rules for when a contract must be in writing, Article 2 also provides rules for what a contract must contain, and what it need not contain, in order to be enforceable. Article 2 also provides basic rules for when oral as opposed to written agreements (in the lingo, “parol evidence”) may be relevant.

Formation of Contract. It is a general principle of contract law that, in order to form a contract, there must be an offer and acceptance. Article 2 presents some general rules regarding offers and acceptances. These rules are intended to facilitate, rather than impede, the making of contracts and, as a result, the rules are rather broad. For example, Article 2 states that it generally is not necessary that there be a definitive moment of agreement between the parties for a contract to be binding, nor is a contract necessarily invalid if certain terms are missing. In a few cases, Article 2 also presents more specific rules regarding offer and acceptance, such as a rule regarding so-called “firm offers.” These are offers which, at least for a stated period of time, are not revocable.

Modification of Contract. Often you will find that you need to modify an existing contract. Article 2 provides basic rules for how to do this. One key rule is that contract modification generally does not require any additional consideration in order to be effective.

Contract Obligations. Apart from general statements that a seller is obligated to deliver the goods, and that a buyer is obligated to make payment, in accordance with the contract, Article 2 also covers many additional rules regarding obligations. These include: a rule that certain risks may be allocated between seller and buyer; a rule that a valid contract need not necessarily include a price term (along with additional rules on the handling of prices); a rule regarding whether and how an order for goods may be delivered in several lots; and—crucially—a set of rules regarding warranties.

Performance. “Performance” on a contract basically means doing what you’re obligated to do under the contract. In the case of contracts for the sale of goods, the basic obligation is that the seller deliver the goods and the buyer pay for the goods. Article 2, however, goes further, and provides specific rules relating to shipments and deliveries of goods, as well as to payment. For example, Section 2-503 includes a rule that a seller must give a buyer “notification reasonably necessary to enable [the buyer] to take delivery.” And, Section 2-508 states that, if a seller initially delivers the wrong goods, the seller may “cure” the mistake by delivering the right goods within the timeframe set out in the contract. If the seller does “cure” the mistake, it is implied that the buyer will not be relieved of the obligation to pay for the goods.

Breach. One of the primary ways that a contract for sale of goods may be breached is if a seller provides the buyer with the wrong items. Article 2 includes a series of rules regarding what options a buyer may have in such circumstances, including when and how to reject all or part of a group of ordered goods. Similarly, there are rules regarding a buyer’s acceptance of goods, which include a rule that acceptance occurs if a buyer “fails to make an effective rejection.” Finally, in relation to breach, Article 2 has rules for “repudiation” of a contract prior to, for example, the delivery of ordered goods.

Remedies. When a party to a contract breaches the contract—perhaps a seller does not deliver the ordered goods, or a buyer does not make full payment for delivered goods—then the non-breaching party generally is entitled to some compensation, restitution, or “remedy” for the breach. Article 2 provides sections on both seller’s remedies (Section 2-703 lists such general remedies as withholding or stopping delivery of goods, reclaiming goods, cancelling orders, or obtaining “specific performance”) and buyer’s remedies (Section 2-711 lists such general remedies as recovering the price paid for undelivered goods, deducting damages from any amount still due, cancelling orders, or obtaining “specific performance”). The sections on remedies in Article 2 are rather extensive; those listed here just scratch the surface.

This article provides only the most cursory summary of UCC Article 2. For more details, check the additional Nolo articles covering some of the specific parts and sections into which Article 2 is divided.

 

by: , Contributing Author

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