Sales Contracts: UCC Article 2

UCC stands for Uniform Commercial Code, UCC Article 2 pertains sales of goods, which provides additional rules when it comes to contracts for the sales of tangible, movable goods. Sometimes a contract calls for both goods and services, in which case use “Predominant factor test’ to distinguish between them. The question is “What is the predominant factor of this contract? Goods or Services?”

Merchants are special type of people under UCC Article 2, and special rules apply to transactions involving merchants. A merchant is usually someone dealing in goods of the kind involved in that transaction. But a merchant can also be someone who holds itself out as having some knowledge or skills peculiar to a kind of goods.

Contract Formation

Recall the elements of a valid contract, and UCC Article 2 changes 3 of 5 when it comes to contracts for sales of goods:

• Agreement (offer and acceptance)
  • permit open terms when making an offer
  • allow acceptance by performance
• Consideration
  • do not need new consideration to modify a contract as long as both parties are acting in good faith
• Capacity
  • same as common law
• Legality
  • same as common law
• Status of fraud
  • sales of goods > $500 must be in writing
  • except buyer has already accepted the goods
  • or specially manufactured goods
  • or admission in court

Parol (oral) evidence rule: written contracts are final agreement. UCC Article 2 helps determine what we mean by ambiguous terms by using “course of performance” or “course of dealing” or “industry usage”.

Title to Goods, Risk of Loss

The rules for title transfer and risk of loss transfer from seller to buyer depend on the type of contracts:

• Shipment contracts (call for use of a common carrier)
  • Title and risk of loss both transfer when goods delivered to common carrier
• Destination contacts (seller to deliver goods to buyer)
  • Title and risk of loss both transfer upon delivery to buyer’s location
• Buyer picks up the goods from the seller (goods delivered at seller’s location)
  • Title to goods transfer to buyers when
    1. seller delivers “document of title”
    2. seller identifies the goods
  • Risk of loss transfer
    • if seller is a merchant: when buyer picks up the goods
    • if seller is not a merchant: upon tender of delivery (whenever the seller notifies the buyer that the goods are ready to pick up)

If one party does breach the contract, the rule about transfer of risk of loss change a little bit. (Transfer of title is not affected).

1. If buyer breaches (usually not paying the goods), the risk of loss transfers to buyer at the time of breach
2. If seller breaches (usually sending non-conforming goods), the risk of loss stays with seller until curing nonconformity by seller or acceptance from buyer

Unlawfully Sales of Goods

The way how the person, who sold goods, obtained them decides what you can do. The general rule is you can always recover damages from the people who wrongfully sold the goods. But there are 3 different situations:

1. goods were obtained through fraud (for example getting paid using fake checks)
   • if the fraudster still has them, the original true owner can recover the goods from the fraudster
   • if the fraudster has sold them, the original true owner can reclaim the goods unless they were sold to a good faith purchaser for value.
2. stolen goods
   • stolen goods can always be returned to their original owner
   • all subsequent transfers are void
3. entrusted goods (voluntarily given to someone else)
   • the true owner can get them back, except seller is a merchant of that type of goods, and the sales take place in ordinary course of business

Warranty / Guarantee

The warranty (interchangeably guarantee) is a promise that our product / goods live up to some standard. Types of warranties include:

1. Express (the warranty written on the box, affirmative promise of fact)
2. Implied (not written anywhere, but assumed to be part of the transactions in certain circumstances)
   • the title of goods
   • fitness of a particular purpose
   • merchantablity (goods are fit for their ordinary purpose)
   • trade usage (goods follow customary practices)

Warranty Disclaimer is used when you do not want any warranties (even implied) to attach to your sales. The “AS-IS” disclaimer gets rid of all the implied warranties. Make sure to use the word “merchantability” if want to disclaim the implied warranty of merchantability. Express warranties can not be disclaimed.

My Certificate

For more on Sales Contracts: UCC Article 2, please refer to the wonderful course here https://www.coursera.org/learn/corporate-commercial-law-part1

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