UCC Rules for Sale of Goods Contracts

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 Article 2 of the Uniform Commercial Code (UCC). Within that article, you can find 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 (fulfilling your side of the contract)
• what's considered a breach (violation) 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 articles of our UCC section.

How to Form a Contract for the Sale of Goods

It's 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 meant to help, rather than hinder, the making of contracts. As a result, the rules are rather broad.

For example, Article 2 says that it generally isn't necessary that there be a definitive moment of agreement between the parties for a contract to be binding.

Offer to Make a Contract

Generally, a seller can make an offer to sell goods or a buyer can make an offer to buy them. The offer is usually recognized as an offer as long as whoever makes the offer:

• intends to be bound by it, and
• invites acceptance of it.

For example, suppose you see a pop-up Girl Scout cookies stand. As you pass, a troop member asks if you'd like to buy a pack of cookies. They have made you an offer.

If you make an offer, you can take it back before it's been accepted. However, once accepted, the offer is binding. For example, suppose you're selling your business and liquidating (selling off) your assets. You tell a potential buyer that you'll sell them your break room furniture for $200. They take a minute to think about your offer. Before they give you an answer, you change your mind and tell them the furniture isn't for sale. You've successfully revoked your offer and aren't bound by it.

The UCC makes one exception to revocable offers. When a merchant makes an offer in writing to buy or sell goods, it's considered a "firm offer" and isn't revocable. In other words, they can't take the offer back. A merchant is anyone who deals regularly in their goods. (U.C.C. § 2-205 (2023).)

But the offer isn't indefinitely irrevocable. The offer is irrevocable for as long as the written offer says. For example, if an offer to sell metalworking tools says that it's good for 60 days, then the offer is irrevocable for 60 days. If the offer doesn't say how long it's good for, then it's irrevocable for a "reasonable time." An offer can be irrevocable for up to three months. (U.C.C. § 2-205 (2023).)

Acceptance of an Offer to Contract

When you make an offer—unless you say otherwise—an acceptance can be made "in any manner and by any medium reasonable in the circumstances." (U.C.C. § 2-206 (2023).) Generally, you can accept an offer either by saying you accept it or by your actions as long as it'd be reasonable to view your words or actions as an acceptance.

The UCC gives one example of how an offer can be accepted. When you order or offer to buy goods to be shipped, then someone can accept your offer either by:

• promising to ship the goods, or
• shipping the goods.

(U.C.C. § 2-206 (2023).)

Even if your acceptance contains additional or different terms from the offer, it's still valid as long as it's definite and sent within a reasonable time. However, if your acceptance is conditioned on the offeror agreeing to your terms, then your acceptance is instead a counteroffer. (U.C.C. § 2-207 (2023).)

Typically, if the contract is between merchants and the new terms under the acceptance aren't rejected by the offeror or don't materially (significantly) alter the offer, they'll make it into the final agreement. (To learn more about which terms make up a final contract, read our article on the UCC battle of the forms.)

For additional information, read what constitutes acceptance of an offer.

Contract Terms for the Sale of Goods

The most basic statement of terms can be considered a contract. Under the UCC, a contract isn't necessarily invalid if certain terms are missing or incorrect. (U.C.C. § 2-201 (2023).) For example, suppose Annie wants to buy 100 pounds of flour from Lillian. They agree that Lillian will deliver the flour to Annie's bakery by the end of the week. They write up a contract but Lillian forgets to include the delivery date. The contract would still be valid even though it doesn't specify a delivery date.

If the contract gives the wrong quantity of goods, then the contract is only enforceable for the quantity of goods given under the contract. Going back to our example above, suppose Annie wants 100 pounds of flour. But the contract incorrectly says 80 pounds. Lillian would only be required to deliver 80 pounds of flour, and Annie would only be required to pay for those 80 pounds.

Some contracts must be in writing. Article 2 provides specific requirements for when a sales contract must be in written form—a rule known as a "statute of frauds." Generally, a contract for the sale of goods must be in writing if the price of the goods is $500 or more. However, even if the price is more than $500, a contract doesn't have to be in writing as long as the goods are either "specially manufactured" for the buyer or have been accepted and either paid for or received. (U.C.C. § 2-201 (2023).)

Modifying the contract. Often you'll 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 doesn't require any additional consideration (added value) in order to be effective. Additionally, if the contract requires any amendment to be in writing and its acceptance signed, then you must follow the contract's amendment provisions. (U.C.C. § 2-209 (2023).)

Buyer and Seller Performance Obligations

"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 delivers the goods and the buyer pays for the goods.

Article 2 goes further and provides specific rules relating to shipments and deliveries of goods, as well as to payment. Additionally, under Article 2, you'll find the following rules:

• a rule that certain risks and burdens can be divided between the seller and buyer
• a rule that a valid contract doesn't necessarily need to include a price term (along with additional rules on the handling of prices)
• a rule regarding whether and how an order for goods can be delivered in several lots (smaller deliveries); and
• a set of rules regarding warranties.

For more information, read about what the UCC requires for a buyer's performance and a seller's performance in a contract for the sale of goods.

Breach of Contract for the Sale of Goods

A seller or buyer can breach the contract. Generally, a breach happens when the buyer or seller doesn't perform their obligations under the contract. A failure to perform can happen when the buyer or seller either:

• doesn't perform to the standards of the contract (for example, they don't deliver goods that conform or match the goods described in the contract), or
• refuses to perform under the contract as promised ("repudiates").

Seller breaches. One of the primary ways that a contract for the sale of goods can 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 might have in such circumstances, including when and how to reject all or part of a group of ordered goods. The seller might also be able to fix any goods that don't match what was promised under the contract without violating the contract.

Buyer breaches. 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." (U.C.C. § 2-606 (2023).) If a buyer accepts the goods, then they're typically required to pay for the goods. Usually, payment for the goods and delivery of the goods happens at the same time. But the contract might require the buyer to pay prior to delivery and acceptance of the goods. If the buyer refuses to pay for accepted goods or under the terms of the contract, then they're in breach of the contract.

Generally, when there's a breach, the non-breaching party needs to give the breaching party notice of the breach.

Right to Adequate Assurance of Performance

If you believe that the other side won't perform their end of the agreement, you can demand that the other side give you assurance that they'll perform. To demand assurance, you must:

• have "reasonable grounds for insecurity," and
• make the demand for assurance in writing.

Until you receive adequate assurance, you can suspend your performance under the contract as long as it's reasonable to do so. If the other party doesn't give assurance within 30 days that they'll perform their end of the contract, then the UCC considers them in breach. (U.C.C. § 2-609 (2023).)

Remedies for Breach of Contract

When a party to a contract breaches the contract, then the non-breaching party generally is entitled to some compensation or "remedy" for the breach.

When the buyer breaches, the seller might be entitled to:

• withhold the goods
• stop the delivery of the goods by someone else (specifically, a bailee)
• resell the goods and recover damages (the difference between the resale price and the contract price plus incidental damages)
• recover damages for nonacceptance of the goods (the difference between the market price for the goods and the contract price plus incidental damages)
• cancel the contract, or
• any other remedies available under the contract.

(U.C.C. § 2-703 (2023).)

When the seller breaches, the buyer might be entitled to:

• "cover" (purchase substitute goods) and recover damages (the difference between the cost of cover and the contract price plus incidental and consequential damages)
• not cover and recover damages (the difference between the market price for the goods and the contract price plus incidental damages and some consequential damages)
• recover the goods from the seller
• obtain specific performance (where the seller must perform their end of the contract)
• cancel the contract, or
• any other remedies available under the contract.

(U.C.C. § 2-703 (2023).)

The remedies available to the buyer and seller usually depend on the type of goods involved. For example, specific performance is usually only available when a good is unique. Additionally, while these remedies might be available, the non-breaching party typically has to prove there was a breach of contract and that they're entitled to the requested remedy.

Additional Guidance on Sale of Goods Contracts

All states, with the exception of Louisiana, have adopted Article 2 of the UCC into law. However, there might be some variation in the law among the states. Check your state's commercial code for specific rules on how contracts for the sale of goods are enforced.

While Article 2 does a good job of providing widely applicable rules, every sales transaction is unique. If you have legal questions specific to your situation, you can talk to a business attorney. They can review or draft a sales agreement for you or advise you on your rights and obligations under the contract.