UCC Article 2
Overview
Uniform Commercial Code Article 2 governs contracts for the sale of goods. Adopted (with variations) in all U.S. states; Louisiana has adopted only in part. Article 2 interacts with but displaces common law contract rules for goods transactions. The common law of contracts applies as a gap-filler where Article 2 is silent (§ 1-103).
Scope
Goods are defined as movable tangible personal property (§ 2-105). Does not cover real property, services, or intangibles.
Mixed transactions (goods + services): courts apply the predominant purpose test — if the predominant purpose is the sale of goods, Article 2 applies to the entire transaction; if services predominate, common law governs. Some courts apply the gravamen test, applying Article 2 only to the goods component regardless of predominance.
Merchants: § 2-104 — a person who deals in goods of the kind or holds themselves out as having special knowledge or skill regarding goods. Many Article 2 provisions impose heightened duties on merchants (e.g., § 2-205 firm offers, § 2-207 battle of forms, § 2-314 implied warranty of merchantability).
Formation — Differences from Common Law
§ 2-204 — Formation in General A contract for sale of goods may be made in any manner sufficient to show agreement, even if the moment of its making is undetermined. Open terms (price, quantity, etc.) do not prevent contract formation if the parties intended to make a contract. Courts will supply reasonable terms.
§ 2-205 — Firm Offers A merchant’s signed written offer to buy or sell goods, which by its terms gives assurance it will be held open, is irrevocable for the stated period or a reasonable time (not to exceed 3 months) without consideration. If the offeree supplied the form, the offeror must separately sign the firm offer clause.
§ 2-206 — Offer and Acceptance Unless otherwise unambiguously indicated, an offer invites acceptance in any manner and by any medium reasonable in the circumstances. An order for prompt shipment may be accepted by prompt promise to ship or by prompt or current shipment of conforming goods. Shipment of non-conforming goods constitutes acceptance and breach, unless the seller seasonably notifies the buyer it is offered only as an accommodation.
§ 2-207 — Battle of the Forms A definite and seasonable expression of acceptance that operates as an acceptance even though it states additional or different terms from those offered. Additional terms between merchants: become part of the contract unless (1) the offer expressly limits acceptance to its terms, (2) the additional terms materially alter the contract, or (3) notification of objection has already been or is given within a reasonable time. Different terms: majority view applies knock-out rule (conflicting terms cancel out; UCC gap-fillers supply the term); minority treats as additional terms and applies materially alter test.
Performance and Terms
§ 2-314 — Implied Warranty of Merchantability A warranty that goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. “Merchantable” means fit for the ordinary purposes for which such goods are used. Applies only to merchant sellers.
§ 2-315 — Implied Warranty of Fitness for a Particular Purpose Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment to select suitable goods, there is an implied warranty that the goods shall be fit for that purpose. Applies to any seller (not limited to merchants).
§ 2-316 — Exclusion or Modification of Warranties
- Express warranties cannot be disclaimed if the disclaimer is inconsistent with the warranty.
- Implied warranty of merchantability may be disclaimed by language mentioning “merchantability” (in writing, must be conspicuous).
- “As is,” “with all faults,” or similar language excludes all implied warranties.
- Implied warranties may be excluded by course of dealing, course of performance, or usage of trade.
§ 2-508 — Cure by Seller If a tender or delivery is rejected because non-conforming, the seller may cure (a) before the time for performance has expired with reasonable notification, or (b) after the time for performance if the seller had reasonable grounds to believe the tender would be acceptable (with or without money allowance) and seasonably notifies the buyer and cures within a further reasonable time.
§ 2-601 — Buyer’s Rights on Improper Delivery (Perfect Tender Rule) If the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may: (a) reject the whole; (b) accept the whole; or (c) accept any commercial unit or units and reject the rest. This is a major departure from the common law substantial performance doctrine. The perfect tender rule is subject to § 2-508 cure rights, installment contract rules (§ 2-612), and good faith obligations.
§§ 2-602/603/604 — Rejection Requirements Rejection must be within a reasonable time after delivery or tender and is effective only if the buyer seasonably notifies the seller. After rejection, buyer must hold goods with reasonable care for sufficient time to permit seller to remove them. Merchant buyer must follow reasonable instructions from seller; absent instructions, must make reasonable efforts to sell perishable goods.
§ 2-608 — Revocation of Acceptance A buyer who has accepted goods may revoke acceptance if: (1) the goods have a nonconformity that substantially impairs their value to the buyer; and (2) either (a) the buyer accepted on the reasonable assumption the nonconformity would be cured and it has not been, or (b) the buyer did not discover the nonconformity before acceptance because it was difficult to discover or because seller’s assurances induced acceptance. Revocation must occur within a reasonable time after buyer discovers or should have discovered the grounds.
Remedies
Seller Remedies (§§ 2-703 to 2-710)
- Withhold or stop delivery.
- Resell and recover difference between contract price and resale price, plus incidental damages (§ 2-706). Resale must be made in good faith and in a commercially reasonable manner.
- Recover contract price minus market price at time and place of tender (§ 2-708(1)).
- Lost profits for lost-volume sellers: if the difference formula is inadequate to put seller in as good a position as performance would have, seller may recover lost profit including reasonable overhead (§ 2-708(2)).
- Action for the price (§ 2-709): when buyer fails to pay the price as it becomes due, seller may recover the price (i) of goods accepted, (ii) of conforming goods lost or damaged after risk of loss passes, or (iii) of goods identified to the contract if seller cannot resell at reasonable price.
Buyer Remedies (§§ 2-711 to 2-717)
- Cover: buyer may purchase substitute goods in good faith without unreasonable delay and recover the difference between cost of cover and contract price, plus incidental and consequential damages (§ 2-712).
- Contract-market differential: if buyer does not cover, recover difference between market price at time of breach and contract price (§ 2-713).
- Specific performance for unique goods or other proper circumstances (§ 2-716).
- Deduction of damages from price: buyer may deduct all or part of damages from the unpaid purchase price (§ 2-717).
Statute of Frauds (§ 2-201)
A contract for the sale of goods for $500 or more is not enforceable by way of action or defense unless there is a written memorandum sufficient to indicate that a contract has been made between the parties and signed by the party against whom enforcement is sought. The writing need not contain all material terms but must specify quantity.
Exceptions:
- Merchant confirmation: if a merchant sends a written confirmation of an oral agreement within a reasonable time, the other merchant who receives it and has reason to know its contents is bound unless written objection given within 10 days.
- Specially manufactured goods: goods specially manufactured for buyer, not suitable for sale to others in seller’s ordinary course of business, and seller has made substantial beginning of manufacture or commitments for their procurement.
- Admission: if party against whom enforcement is sought admits in pleading, testimony, or otherwise in court that a contract was made (only enforceable to extent of quantity admitted).
- Partial performance: contract enforceable to extent of goods accepted or payment made.
Unconscionability (§ 2-302)
If a court finds a contract or any clause thereof to have been unconscionable at the time it was made, it may refuse to enforce the contract, enforce the remainder without the unconscionable clause, or limit application of the clause to avoid unconscionable results. Unconscionability has both procedural (unfair surprise, unequal bargaining power) and substantive (oppressive terms) components.
Modification (§ 2-209)
Agreements modifying a contract within Article 2 need no consideration to be binding. Modification must be in good faith. A signed written agreement that prohibits modification except by signed writing cannot be otherwise modified (no-oral-modification clause is enforceable). The SOF applies to modifications that bring the contract within its scope (i.e., modification causes contract to exceed $500).