What Every Entrepreneur Should Know About Contracts for Sales of Goods

What Every Entrepreneur Should Know About Contracts for Sales of Goods

contract for sale of goods

Like any model law, the Uniform Commercial Code (UCC) seeks to be a template for states to make commerce increasingly seamless throughout the United States. This is good for business owners and consumers alike. Article 2 of the UCC regulates the sale of goods. Fourteen states have implemented Article 2 in full, however all states except Louisiana have adopted some version or part of it.

Contract Formation

Article 2 of the UCC governs various issues arising in sales of goods including how a contract is formed, modified, performed, repudiated, breached, and what the remedies are in case of a breach. For a contract to be formed, Article 2 requires some type of offer and acceptance. This is as simple as:

Moe: Hey, Joe, want to buy these baseball bats? Ill sell them to you for $1,000.

Joe: Sure, Ill buy them.

or

Joe: Hey, Moe, Ill give you $1000 for your baseball bats.

Moe: Alright, they are yours.

In the first scenario, Moe offered bats for a price and Joe accepted the offer. In the second scenario, Joe offered money for the bats and Moe accepted the offer. Article 2 does not require one finalized document for a contract to be formed. A sequence of offers and acceptances are enough.

Statute of Frauds

Article 2 of the UCC requires sales of goods of $500 or more to be memorialized in writing. In the examples above, if either Joe or Moe are merchants, businesspersons, sales persons, or the like their contract needs to be in writing. If neither of them is a merchant, Article 2 does not apply. Regardless of your state having adopted Article 2 or having a requirement for written contracts (also known as the Statute of Frauds), keeping a written record of your business dealings can be a good idea since written records tend to carry more weight before a court of law.

As we well know, transactions are rarely completed in a short conversation without negotiation like in the examples above. Particularly in complex business transactions, negotiations with offers, counteroffers, modifications, and rejections can go on for months—or years—before there is a final deal. Aside from any legal requirement to put the deal in writing, being able to resort to something in writing can help the parties recall what was negotiated months or years prior or convince a court of what they intended.

Warranties 

Article 2 of the UCC specifies the obligations of buyer and seller doing business. Risk allocation and product warranties are no exception. For example, the Implied Warranty of Fitness for Particular Purpose requires that if a seller knows that a buyer requires the offered goods for a particular purpose, and the buyer relies on the seller’s knowledge or skill to choose goods for this particular purpose, then there is an implied warranty that the goods must fit this particular purpose. Since it’s an implied warranty, it need not be negotiated for—it’s a given.

Non-Conforming Delivery of Goods

Article 2 covers what to do when a seller delivers the wrong products to the buyer. First, the buyer must reject the wrong products in a timely and proper fashion. Then, the seller must remedy the problem by delivering the correct products within the negotiated timeframe. This is called conforming delivery because it’s a delivery that conforms with the contract terms.

Breach

Article 2 states an extensive list of remedies for both the buyer and the seller in the case of a breach. For instance, if a seller breaches the contract, then the buyer can recover the paid money plus damages. If the buyer breaches, the seller may withhold delivery of goods or resell goods to recover damages.

Article 2 of the UCC covers a wide variety of issues that may arise during a sale of goods. Having an understanding of the commercial code in the jurisdiction applicable to your transaction would behoove any businessperson.