Sales of Goods and the UCC: Module 1 of 5

Sales of Goods and the UCC — Module 1

1. What the UCC Is and What Article 2 Covers

• The Uniform Commercial Code (UCC) is a model code developed jointly by the National Conference of Commissioners on Uniform State Laws and the American Law Institute. It is not federal law: states adopt and adapt it, so provisions can vary among states.
• Article 2 governs transactions in goods and aims to make commercial law simpler, clearer, and adaptable to business practices and agreements. Article 2A separately addresses leases.
• The UCC generally supports freedom of contract, but parties cannot contract away minimum standards such as good faith, diligence, reasonableness, and care.
• Some Article 2 rules apply specifically to merchants—people who regularly deal in particular goods or have specialized knowledge or skills relating to them.

2. Goods, Services, and Mixed Transactions

• Article 2 applies to goods, generally defined as movable things. It can also cover certain crops and items separable from real estate without damage.
• Minerals, oil, gas, and buildings can qualify as goods when the seller is responsible for separating them from the land. If the buyer must do the separation, the transaction is treated as involving real estate. Contracts for the buyer to produce oil or gas are outside Article 2.
• Services, labor, and legal claims are not goods.
• Courts may classify mixed goods-and-services transactions differently:
  • Predominant purpose test: The majority approach; asks whether the transaction is mainly for a product or for a service.
  • Substance of the claim test: Looks at what the complaint concerns; if the claim concerns a product, Article 2 may apply.
• Courts have disagreed about whether electricity is a good or a service. One court treated blood for transfusion as a service.
• Article 9 addresses security interests in goods; Article 2 governs the underlying sale. The UCC does not displace laws designed to protect groups such as consumers or farmers.

3. Contract Formation and Acceptance

To analyze an Article 2 transaction, ask:

1. Did the parties form a contract?
2. If so, which terms or requirements are mandatory?

A contract may exist even if the parties have not agreed on every term, provided they intended to be bound and there is a sufficiently definite basis for determining a remedy.

Unlike the common-law presumption that acceptance must use the same method as the offer, Article 2 generally allows acceptance by any reasonable means unless the offer specifies otherwise. An offer can invite acceptance by a promise (a bilateral contract) or by performance (a unilateral contract); Article 2 accepts either approach.

A seller may accept an order by shipping the goods, even without separately confirming the order. Shipping nonconforming goods generally constitutes a breach. However, if the seller promptly tells the buyer the shipment is offered only as a substitute or accommodation, it may operate as a counteroffer that the buyer can accept or reject.

Where an offer invites acceptance by performance, starting performance can restrict the offeror’s ability to revoke the offer if the accepting party gives notice of beginning performance within a reasonable time. The video illustrates this with custom-made wine tanks: a manufacturer that starts production but fails to notify the buyer may have difficulty establishing that a binding contract was formed.

4. Firm Offers by Merchants

A merchant’s offer to buy or sell goods can be irrevocable without payment to keep it open if the merchant gives an assurance that it will remain open.

The assurance must be in a signed writing. If no period is specified, the offer remains open for a reasonable time, up to three months under the rule described in the video.

5. Contract Terms, Fairness, and Interpretation

Parties may agree to a wide range of terms, and many Article 2 provisions—including some warranties—can be excluded or modified by agreement, either expressly or through words or conduct. However, the parties cannot waive the requirements of good faith, diligence, and reasonableness.

Good faith means honesty and adherence to reasonable commercial standards of fair dealing.

Courts may refuse to enforce an unconscionable contract—one that is so one-sided that enforcement would be unfair. The video’s example concerns financing arrangements that make it difficult for a vineyard to repay individual equipment loans and allow repossession of multiple machines. Whether the terms were understood and knowingly accepted may affect the court’s analysis.

Missing or unsettled terms do not necessarily defeat a contract. The UCC supplies default rules, while courts may also consider the parties’ established practices and industry customs. The interpretive sources described in the video are:

1. Express contract terms
2. Course of performance: Repeated conduct under the current agreement without objection
3. Course of dealing: The parties’ conduct in earlier transactions
4. Usage of trade: Regular industry practices that create reasonable expectations

The wine-rack example illustrates how past deliveries, prior transactions, or industry custom might help determine whether a buyer could require a different rack size.

6. Default Rules When the Contract Is Silent

• Price: If no price is set, the default is a reasonable price at the time of delivery. The parties may authorize one party to set the price, but that party must act in good faith. They may also use an external reference, such as a market price.
• Delivery: Unless the parties agree otherwise, delivery must occur within a reasonable time and generally in one shipment. The default delivery location is the seller’s place of business or residence. If the goods are identified as being at a specific location, delivery is there.
• Payment and inspection: The buyer generally pays when and where the goods are received, not when they are shipped. The buyer may inspect the goods within a reasonable time, and payment is due after that opportunity. A buyer may reject goods for a valid reason, but an unjustified refusal can be a breach.
• Separate shipments: If goods are delivered in separate batches, payment for each batch is due upon its acceptance.

7. Output, Requirements, and Exclusive-Dealing Contracts

Article 2 recognizes certain flexible agreements that might be considered illusory under common law:

• Output contracts: The buyer agrees to purchase the seller’s entire production of a particular good.
• Requirements contracts: The seller agrees to supply the buyer’s needs for a particular good.
• Exclusive-dealing contracts: One or both parties agree to deal exclusively with the other.

These contracts can be binding even when they do not state a fixed quantity. The parties must act in good faith, and the quantity must be consistent with reasonable expectations under the circumstances. The parties may include estimated quantities to help clarify expectations and guide interpretation.

In an exclusive-dealing arrangement, the parties’ obligations are not necessarily spelled out in detail; the UCC’s good-faith requirement helps supply the expected commercial commitment.

The module concludes by previewing a later discussion of written contracts, interpretation of terms, and modifications to sales contracts.

Speakers and Sources Featured

• Speaker: One unidentified narrator or presenter; no other speakers are identified in the subtitles.
• Legal sources discussed: The Uniform Commercial Code, especially Articles 2, 2A, and 9; state enactments of the UCC; common-law contract rules; and court approaches to classifying mixed goods-and-services transactions.
• Illustrative examples: Golden State Vineyards, Northwest Corporation, Sonoma Processing Equipment, and Sierra Corporation. These are presented as hypothetical examples, not as identified speakers or cited cases.