When Do You Have a Legal Contract for the Sale of Goods?
Find out UCC rules regarding offers and acceptances in the context of sales contracts.
It is a general principle of contract law that, in order to form a contract, one party must make an offer and the other party must accept the offer. In other words, there must be “offer and acceptance.” Article 2 of the UCC covers contracts for the sale of goods, and includes rules regarding offers and acceptances in the context of those contracts. These rules are intended to facilitate the making of commercial contracts so they are generally rather flexible.
Exactly how flexible Article 2 is regarding goods contracts is clear from Section 2-204. This section begins with the statement that “[a] contract for sale of goods may be made in any manner sufficient to show agreement.” “Any manner” includes not only a formal offer and acceptance (oral or written), but also conduct by both parties to the contract that shows there is an agreement. It also includes contracts formed via “electronic agents” (computers). It allows contracts to be formed even though there may not be a definitive moment at which the parties reached their agreement. Further still, the section indicates that a contract will not fail to be formed if certain contact terms—for example, a unit price—are missing.
With these rules from Section 2-204 in mind, we can imagine a variety of more informal situations where binding contracts might be formed:
- You tell a cloth supplier that you’d probably pay three dollars per square yard for 10,000 square yards of a particular cloth if she can deliver it by next Monday. The supplier delivers 10,000 square yards of that particular cloth on Monday morning, and by Monday afternoon you have provided the supplier with a certified check for $30,000. From your conduct, and that of the cloth supplier, it seems that a contract was formed. Moreover, while it might not be clear at exactly what moment you and the cloth supplier reached an agreement, under the UCC that uncertainty does not mean that there was not, in fact, a binding contract between you and the supplier. (However, because of the value of the goods involved, there may be a question as to whether a written contract was, in fact, required in the event of a dispute.)
- Your business has a computerized system that makes offers to buy machine parts being sold online by various manufacturers and wholesalers, and the manufacturers and wholesalers, too, generally rely on computers to receive and accept your offers. If your system makes an offer that is accepted by a seller, under the UCC, you will be assumed to have intended to make the offer, the seller will be assumed to have intended to accept that offer, and therefore you will have formed a binding contract with the seller.
- You have a wholesale business that supplies replacement parts for office furniture to various furniture retailers and furniture repair shops. One of your longtime customers uses a standard form to order fifty AlphaZeta Model 123 office chair wheels roughly every other month, at a price of $50. The price has not varied in the last five years. A week ago, you received the same order form for the same wheels, and sent written confirmation that you would send out “a box” of AlphaZeta Model 123 wheels next Wednesday. The confirmation did not include the price or the quantity of wheels. Nevertheless, you likely have a binding contract with the customer to deliver wheels. The price you can charge for the wheels may be open to debate, as may the quantity. However, in a dispute, past conduct likely would suggest that the price was $50 and the quantity was fifty wheels.
None of these situations involves you and the other party to the contract sitting down at a table and writing out a detailed document that you both sign. Nevertheless, each of these situations involves the formation of a binding contract.
Offer and Acceptance
Where Section 2-204 concerns more general contract formation, Section 2-206 focuses rather more specifically on offer and acceptance. Again, this Section reflects Article 2’s generally flexible approach to contract formation. More specifically, Section 2-206 allows for acceptance of an offer “in any manner and by any medium reasonable in the circumstances.” Moreover, Section 2-206 states that when a buyer offers to buy goods if they are shipped promptly, the seller can demonstrate acceptance of that offer by in fact promptly shipping those same goods to the buyer.
Section 2-205 presents another concept worth briefly noting: firm offers. In short, there may be instances where either:
- you sell certain kinds of goods and want to attract buyers by providing a definite offer regarding the terms on which you will sell those goods; or
- you buy certain kinds of goods and want to entice a seller to sell you such goods by providing a definite offer regarding the terms on which you will buy those goods.
A “firm offer” under Section 2-205 allows you to make these types of offers—without the need for consideration (the giving of something of value)—if you simply provide a signed document laying out the offer. Ideally, the document will indicate how long the offer is available, but if there is no such statement, then Section 2-205 states that the offer will be considered to be held open “for a reasonable time.”
Modifying a Contract
Finally, Article 2 also provides some general rules on modifying, waiving, or rescinding contracts (see Section 2-209). Briefly, unlike forming a contract, an agreement to modify an existing contract does not require consideration. However, the official comments regarding the latter rule emphasize that modifications must be made in good faith, as that term is defined by the UCC. It also allows for contracts that, contrary to the default rule, prohibit modifications or rescissions except through signed documents. This is intended to prevent claims or purely oral agreements to modify or rescind contracts. Finally, this section also allows for a “waiver” of a contract—which is a distinct concept from modification or rescission—without there necessarily being a signed document. The intention, according to the official comments, is to make sure that the “legal effect” of the conduct of the parties to the contract, which may not in fact conform to the contract terms, is not limited due to the lack of, for example, a written, signed modification.
Two issues not covered here, but which are covered in another Nolo article, are when a contract must be in writing and when it’s permissible to refer to oral or other non-written evidence in the case of a contract dispute.
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 always check your own state’s commercial code for the most accurate information.