Lesson 35: Sales of Goods (Article 2)

In this lesson, we will discuss Sales of Goods as governed by Article 2 of the Uniform Commercial Code (UCC). Article 2 applies to transactions in goods and significantly impacts contract law. Understanding the provisions of Article 2 is crucial for anyone involved in the sale and purchase of goods.

Scope of Article 2

Article 2 covers all transactions in goods. To understand its scope, let's define what "goods" are under the UCC:

  • Goods: All things that are movable at the time of identification to the contract for sale, including unborn young of animals and growing crops.

It's important to note that Article 2 does not apply to transactions for services, real estate, or intangible property like intellectual property.

Note: If a contract involves both goods and services, courts will typically use the predominant factor test to determine whether Article 2 applies.

Formation of a Sales Contract

The formation of a sales contract under the UCC can vary from common law. Here are some key points:

  • Offer and Acceptance: The UCC is more flexible in terms of offer and acceptance. A contract can be formed even if some terms are left open, as long as the parties intend to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
  • Firm Offers: Unlike common law, under the UCC, a written and signed offer by a merchant to buy or sell goods that gives assurance it will be held open is irrevocable for the stated period, or if no period is stated, for a reasonable time not exceeding three months.

Statute of Frauds

The UCC requires certain contracts to be in writing to be enforceable. This is known as the Statute of Frauds. Under Article 2:

  • Contracts for the sale of goods priced at $500 or more must be in writing.
  • The writing must be sufficient to indicate that a contract for sale has been made and must be signed by the party against whom enforcement is sought.

Exceptions to the Statute of Frauds

There are several exceptions to this requirement, including:

  • Specially Manufactured Goods: If goods are specially manufactured for the buyer and are not suitable for sale to others, the contract may be enforceable even if it is not in writing.
  • Admissions: If the party against whom enforcement is sought admits in court that a contract was made, the contract is enforceable.
  • Part Performance: If payment has been made and accepted, or goods have been received and accepted, the contract is enforceable to that extent.

Risk of Loss

Understanding who bears the risk of loss in a sales contract is critical. The risk of loss provisions under Article 2 can be summarized as follows:

  • If the contract requires the seller to ship the goods, the risk of loss passes to the buyer when the seller delivers the goods to the carrier.
  • If the contract requires the seller to deliver the goods at a particular destination, the risk of loss passes when the goods are tendered at the destination.
  • In other cases, the risk of loss passes to the buyer on receipt of the goods if the seller is a merchant; otherwise, the risk passes on tender of delivery.
Tip: Parties can agree to different terms regarding risk of loss in their contract.

Performance and Obligations

Under Article 2, both buyers and sellers have specific obligations. Here are the key performance obligations:

  • Seller's Obligations: The seller must deliver conforming goods as specified in the contract. If the goods or tender of delivery fail in any respect to conform to the contract, the buyer has the right to reject them.
  • Buyer's Obligations: The buyer must accept conforming goods and pay for them as specified in the contract. The buyer also has the right to inspect the goods before payment.

Tender of Delivery

The UCC defines tender of delivery as the seller putting and holding conforming goods at the buyer's disposition and giving the buyer any notification reasonably necessary to enable the buyer to take delivery.


  
    

      Obligation
      Seller
      Buyer
    

  
  
    

      Delivery of conforming goods
      ✓
      N/A
    

    

      Payment for goods
      N/A
      ✓
    

    

      Right to inspect goods
      N/A
      ✓

Warranties

Warranties are assurances about the quality and performance of goods. Under Article 2, there are several types of warranties:

  • Express Warranties: Created by the seller's words or actions that become part of the basis of the bargain.
  • Implied Warranty of Merchantability: Implies that the goods are fit for the ordinary purposes for which such goods are used.
  • Implied Warranty of Fitness for a Particular Purpose: Implies that the goods are fit for the buyer's particular purpose when the seller knows the particular purpose and the buyer relies on the seller's skill and judgment to select suitable goods.

  Remember: Warranties can be disclaimed or modified by the seller under certain conditions, but disclaimers must be clear and conspicuous.

Warranty Flow Diagram


graph TD;
  A["Sale of Goods"]-->B["Warranties"];
  B-->C["Express Warranties"];
  B-->D["Implied Warranty of Merchantability"];
  B-->E["Implied Warranty of Fitness for a Particular Purpose"];
  style A fill:#f9f,stroke:#333,stroke-width:4px;
  style B fill:#bbf,stroke:#333,stroke-width:2px;
  style C fill:#bfb,stroke:#333,stroke-width:2px;
  style D fill:#ffb,stroke:#333,stroke-width:2px;
  style E fill:#fbf,stroke:#333,stroke-width:2px;

Remedies for Breach of Contract

If either party breaches a sales contract under Article 2 of the UCC, several remedies are available to the aggrieved party.

  • Seller's Remedies: If the buyer breaches the contract, the seller has several options, including:
    • Withholding delivery of the goods
    • Stopping delivery of goods in transit
    • Reclaiming goods if the buyer is insolvent
    • Reselling the goods and recovering the difference between the resale price and the contract price
    • Recovering damages for non-acceptance or the price of the goods
  • Buyer's Remedies: If the seller breaches the contract, the buyer can:
    • Cancel the contract
    • Cover (buy substitute goods and recover the difference between the cost of cover and the contract price)
    • Recover damages for non-delivery
    • Recover the goods if they have been identified in the contract and the buyer has paid part or all of the price
    • Sue for specific performance if the goods are unique or in other proper circumstances
    • Recover damages for accepted goods if they do not conform to the contract

Remedies Diagram


graph TD;
  A[Contract Breach] --> B[Seller's Remedies];
  A --> C[Buyer's Remedies];
  B --> B1[Withhold Delivery];
  B --> B2[Stop Delivery in Transit];
  B --> B3[Reclaim Goods];
  B --> B4[Resell Goods & Recover Damages];
  B --> B5[Recover Damages for Non-Acceptance];
  C --> C1[Cancel Contract];
  C --> C2[Cover];
  C --> C3[Recover Damages for Non-Delivery];
  C --> C4[Recover Identified Goods];
  C --> C5[Specific Performance];
  C --> C6[Recover Damages for Accepted Goods];

Limitation of Remedies

The UCC allows parties to limit or modify the remedies available under a sales contract. For example, a contract may limit the buyer's remedies to return of the goods and repayment of the price, or repair and replacement of non-conforming goods or parts.

Important: Any limitation of remedies must not be unconscionable. For instance, limiting remedies for personal injury in the case of consumer goods is generally considered unconscionable.

Conclusion

Article 2 of the UCC provides a comprehensive framework for the sale of goods, balancing the interests of buyers and sellers while promoting fair dealing and uniformity in commercial transactions. By understanding the provisions of Article 2, parties can more effectively navigate the complexities of sales contracts and protect their interests.

For further reading on contract law concepts, consider exploring our other lessons such as Definition and Purpose of Contracts and Sources of Contract Law: Common Law vs. UCC.

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