Ucc Article 2 And Warranty Assignment

 

Construction Law Survival Manual

Ch 4 - Uniform Commercial Code Sale Of Goods

 

Appendix 6: Supplier Proposal

WHAT IS THE UNIFORM COMMERCIAL CODE (UCC)?

A look at the Uniform Commercial Code (UCC) Table of Contents tells us that this subject is very broad. No lawyer, business person or college professor knows all of the Uniform Commercial Code. In fact, Court opinions interpreting the UCC could fill rooms.

This chapter will not attempt to discuss the entire UCC or even the entire Sale of Goods article. Rather, this chapter will include a brief discussion of the UCC, generally speaking. We will then highlight parts of UCC Article 2 on the Sale of Goods that are likely to impact a supplier or purchaser of construction materials. Another chapter of this book will discuss UCC Article 9 on Secured Transactions. These chapters will give you an idea of some of the issues covered by the UCC but should not be relied on to solve any particular problem.

As the name implies, the UCC is uniform, it concerns commercial transactions and it is a code.

Code

The Uniform Commercial Code (UCC) is a "code" or a "collection of statutes." This is the type of law that may be adopted by all U.S. legislatures, including the U.S. Congress, the Virginia General Assembly, other state legislatures, and even a county board of supervisors. Codes are intended by the legislature to create new law in the targeted subject areas.

The other source of law is "case law" or "common law." For centuries, courts have been in the business of resolving disputes. When a court resolves a particular dispute, the record of this decision is case law, which may be used as authority in a future case. In future disputes, litigants may argue that their case is similar to a prior case and that the prior case law should be followed.

Often, to resolve a dispute, a court must interpret the "statutes" or codes created by the legislature. It is often difficult to determine how a statute or code should be applied to a particular fact situation. The law is usually written broadly so that it may be applied judicially. Courts must "fill in" the gaps in the statute.

An "Official Comment from the drafters of the Uniform Commercial Code" follows each UCC code section. The official comments explain the intent behind each code section and provide examples of appropriate factual situations. Most state legislatures also add a state comment describing how the new Uniform Commercial Code changed the law in that state. These official comments also fill in the gaps in the UCC and help courts, lawyers and business people better understand the UCC.

Commercial

The UCC concerns a wide variety of commercial issues, including the sale of goods, banking and security interests. The UCC does not apply to:

  1. The sale of real estate
  2. Security interests or liens in real estate
  3. Service agreements or employment contracts
  4. Contracts involving significant labor
  5. Marriage settlements or other domestic relations law

The table of contents tells us that the UCC covers the following:

Article 1: General Provisions. Provides application of the UCC, subject matter and general definitions.
Article 2: Sales. Covers the sale of goods. This will be discussed in some detail here.
Article 2.A: Leases. Covers the lease of goods.
Article 3: Commercial Paper. Negotiable instruments such as promissory notes and bank checks.
Article 4: Bank Deposits and Collections. Covers the relationship between banks as they pass bank checks, deposits and credits among them.
Article 4.A: Funds Transfers. Covers modern electronic funds transfers.
Article 5: Letters of Credit. Covers letters of credit issued by banks, usually used by business people to guarantee payment of obligations.
Article 6: Bulk Transfers. Concerns the "bulk transfer" of all of a business’ inventory.
Article 7: Warehouse receipts, Bills of Lading and other documents of title. Covers these documents used in large wholesale transactions concerning the ownership and risk of loss of goods.
Article 8: Investment Securities. Concerns the regulation of investment securities.
Article 9: Secured Transactions. Covers security interests in all types of personal property, including accounts receivable, equipment and inventory. This will be discussed in some detail later.

Uniform

The UCC was intended as a Uniform Model Code that might be adopted by every state legislature. Prior to the UCC, each state legislature created its own commercial transaction code. The laws in different states could vary widely. As the nation’s economy matured, interstate commerce became increasingly important. The variations in state law became a tremendous problem for businesses and banks dealing across state lines.

Many business people, lawmakers and academics saw a need for a uniform set of laws covering commercial transactions to facilitate interstate commerce. This would promote interstate commerce, create more comfort and security for interstate business transactions, increase competition and lower costs. A national conference of lawmakers, lawyers and college professors worked for years studying the various commercial laws of the 50 states, debating the pros and cons of these variations and drafting what they viewed as the best "Uniform Commercial Code."

This process has continued for decades. New articles are added over time, and specific sections of existing articles are revised.

The "Uniform Commercial Code" is a model. It is not law in any state unless and until a state legislature adopts it as the law of that state. Any state can decide not to adopt the UCC or can decide to make revisions to the code that satisfies that state’s particular heritage or commercial needs. Accordingly, the UCC is not entirely uniform in all 50 states. Also, each state’s court system can reach different results when interpreting the code provisions. Business people cannot assume, therefore, that the law will be exactly the same in each state. Nonetheless, the UCC has facilitated much greater uniformity of commercial laws.

UCC law, therefore, is derived from three places:

  1. The actual UCC statute passed by the state legislature
  2. The official comment to the statute
  3. Case law that interprets the statute

For the purposes of this discussion, we will refer to the Uniform Commercial Code sections in the Model Code. Code section text an numbers in each state will be identical or very similar. Uniform Commercial Code Article II, Section 305 (2-305), for example, is Virginia Code 8.2-305, New York Code Section 2-305 and Pennsylvania Code Section 2305.

Keep in mind that the UCC law can vary from state to state. This discussion is based generally on the Virginia, Maryland and Pennsylvania Uniform Commercial Code provisions. Fortunately, if you understand the Uniform Commercial Code in one state, you probably understand it in all states. This discussion also is a very brief and general attempt to give you some idea of how a few of the UCC code sections work. As usual, however, you should not rely on any portion of this book to provide you with a legal solution to any specific problem.

INTRODUCTION TO UCC ARTICLE 2 (SALE OF GOODS)

The Uniform Commercial Code Article 2 on the Sale of Goods is basically a codification of existing commercial law. The UCC drafters tried to write down the generally understood business practices between merchants for the sale of goods. The UCC "fills in the gaps," providing controlling contract terms where the contracting merchants either didn’t agree or just forgot to discuss the matter. In many commercial transactions, the buyer and seller only discuss how many goods, how much to pay, and perhaps when delivery or payment is due. It is only later, after problems arise, that merchants also will discuss or argue about many more specific terms such as: "Where will the goods be delivered?" or "Is the buyer under any obligation if the goods are slightly defective?" The UCC answers most of these questions by basically providing the parties with a "50-page fine print contract," whether they know it or not.

The parties are almost always allowed to "contract out of the UCC." If the merchants do discuss and agree to terms different from the UCC, then the parties’ own terms will apply.

The UCC takes a very pragmatic and common sense approach to commercial transactions. It is usually not precise and does not provide exact rules. Many flexible terms are used, such as "reasonable" or "standards in the industry" or "commonly accepted practice." This can be frustrating in that the answers to a dispute are not always clear. A buyer can still argue about whether a seller took a "reasonable" approach. However, these terms do allow flexible and common sense solutions to practical problems.

The UCC has a philosophy of elastic performance to try and keep deals together. This philosophy frowns upon an "all or nothing" approach. The parties have to work together to keep things moving. For example, a buyer is generally not relieved of any further obligation if there are defects or delays in some deliveries. The seller will have a right to "cure" defects and continue deliveries. The buyer may be entitled to a credit for damages from the defects or delay, but the buyer must continue to take deliveries.

Definitions

Merchants

Some UCC rules apply only to "merchants" or transactions "between merchants."1 The UCC often holds parties to "commonly accepted practices" or "industry standards." Only persons familiar with this business should be held to these standards. Ordinary household consumers, for example, don’t know the industry standards and would be vulnerable to a merchant with more experience. Experienced merchants are held to a higher standard, therefore, than ordinary consumers.

A "merchant" is a person who: (1) deals in goods of the type in question; (2) holds themselves out as having particular knowledge or skill with goods of this type; or (3) is using a broker, agent or intermediary who holds themselves out as having particular knowledge or skill in this type of goods.2

Most construction material buyers and sellers will be merchants for transactions in the ordinary course of their business. A lumberyard will definitely be a merchant for transactions in lumber, although it may not be a merchant in a transaction involving the purchase of a new computer accounting system. A carpentry subcontractor also would be a merchant for the transaction involving the purchase of lumber. This is something that the carpentry subcontractor does on a regular basis and in which the carpentry subcontractor has experience, knowledge and skill.

Note that you can be held to the higher standard of a merchant, even if you do not actually have special knowledge or skill.3 First, if you "hold yourself out as an expert," other people may assume that you are. If a brand new carpentry subcontractor talks big to the lumberyard, he cannot later claim that he did not know the standards in the industry. Secondly, many businesses use expert brokers or agents to help them. It is a good idea to hire an expert to bring knowledge and skill to a transaction, but it will mean that the merchant rules will apply to the transaction.4 Buyers and sellers should choose their brokers carefully for this reason.

When a small lumberyard purchases its first computer accounting system, the computer seller is an experienced merchant in computers, but the lumberyard is not. The computer seller will be held to the higher merchant standard but not the lumberyard. In the lumber transaction described above, both the lumberyard and the carpentry subcontractor are merchants, which will mean that more UCC provisions will apply to the transaction.

Goods

Goods are "all things which are moveable."5 Lumber, asphalt, concrete, computers, trucks and gift shop greeting cards are all goods. UCC Article 2 applies to the sale of all such "goods." Note that goods can include items that are now attached to real estate but can later be "severed" or removed from the real estate.6 This includes stone, sand and timber, as well as agricultural crops like corn.

The UCC does not apply to any transaction to buy or sell the real estate itself. More importantly, Article 2 does not cover any service contract like an employment contract for a salesperson.7 The UCC also does not apply if labor is a "significant part" of a contract. A contract for the sale of lumber is definitely a sale of goods, and Article 2 applies. A contract for carpentry labor only, where the owner is supplying the material, is definitely a service contract, and Article 2 will not apply.

Many construction contracts are in the "gray area," where it is hard to tell whether the UCC applies.8 For example, in a typical carpentry subcontract for labor and materials, the labor is a "significant part" of the contract and Article 2 will not apply. Mere delivery and unloading of materials are probably not "significant labor." Many truck drivers essentially "install" stone, however, by spreading the stone evenly over a road when they deliver it. Is this enough to make it a labor and materials contract? What about ready mix concrete? In a way, concrete is material delivered to the site the same way as lumber. What if the batch plant is on site, however, and the ready mix contractor has a supervisor and six other employees on site at all times? Many such transactions are in gray areas, and it is not clear whether the UCC applies.

FORMATION AND MODIFICATION OF CONTRACT

When Do You Have a Contract?

Think about how contracts are formed in real life. You have letters and telephone conversations. Material suppliers send offers, proposals and quotes. Contractors send purchase orders. These documents go by electronic mail, regular mail and facsimile machine. Sometimes the parties never write anything down and instead deal "on a hand shake." How do you know when you are bound to a contract? This is the issue of "contract formation."

Some contracts go on for years, with monthly deliveries of materials. Can the terms of this contract change over time? Prices rise. Methods of delivery change. Material specifications change slightly. Are you bound to these changes? This is the issue of "contract modification."

To determine what specific terms or provisions are in a contract, the agreement must be "interpreted." This is discussed in another section of this chapter, Contract Interpretation.

Hypotheticals

Contract Creation—Hypothetical #1: A contractor calls a lumberyard and asks, "What do you want for spruce 2x4 studs?" The salesperson answers, "$1.79 a piece." The contractor asks, "Do you have 2,000?" The salesperson answers, "Yes."

Do the contractor and lumberyard have a contract? Is the lumberyard bound to sell 2,000 studs at $1.79 a piece? Is the contractor bound to buy? Why or why not?

Contract Creation—Hypothetical #2: The carpentry contractor calls and requests a price for 2,000 spruce 2x4 studs. The lumber salesperson responds, "That would be $3,580." The contractor says, "OK, that is a deal, please deliver them tomorrow." The salesperson responds, "No problem." Later in the day, the salesperson discovers that all 2x4 studs have been committed to other purchasers and none will be available for at least 30 days. The salesperson calls back within one hour of the earlier conversation and informs the contractor that they will not be able to deliver.

Do these parties have binding contract? What if the contractor had requested 200 studs instead of 2,000?

Contract Creation—Hypothetical #3: The contractor calls the lumberyard and requests a price on 2,000 spruce 2x4 studs. The lumber salesperson faxes the contractor an offer of 2,000 studs for $3,580. The contractor writes the word "Accepted" across the face of the offer, signs it and faxes it back to the lumberyard.

Do these parties have a contract? Is each bound? The lumberyard discovers that afternoon that it has already committed all spruce studs available and tells the contractor that it cannot deliver. Is the lumberyard liable for damages? The lumberyard asserts that there was no contract because no time or place for delivery was agreed, no credit or payment terms were agreed, and there was no agreement on the quality of the studs to be delivered. Does this matter? Does this mean there is no binding contract?

If the contractor now has to pay $1.99 per stud for a total of $3,980, is the seller liable for damages? How much?

Contract Creation

Once an offer has been made and accepted, the parties have a binding contract. In order to have a contract, "consideration must flow both ways." Consideration is any thing of value. When a lumberyard offers to sell 2,000 spruce studs at $1.79 a piece, this promise is worth something. When the contractor promises to pay for the 2,000 studs when delivered, this promise also is worth something. Consideration is flowing both ways. The parties have a contract.

Under the UCC, an offer can be accepted in "any medium and manner, which is reasonable."9 Sending a response letter is usually a reasonable manner of accepting an offer. Simple performance also may be enough.10 If a contractor says he will take 2,000 studs if the supplier can provide them tomorrow, it may not be necessary for the lumberyard to send a return letter. Rather, it can accept by performance. If the delivery truck simply appears at the contractor’s yard the next day with 2,000 studs, there has probably been an offer and a reasonable manner of acceptance. There is a binding contract.

Firm Offers

When a merchant submits an offer in writing to buy or sell goods, the offer is open for a "reasonable" time.11 This means there will be a binding contract if a contractor accepts a material supplier’s firm offer (offer) within a reasonable time, even though the supplier has not promised to keep the offer open for any particular time.

What is a "reasonable" time depends on the circumstances and the knowledge each party has of the other’s circumstances.12

A material supplier or buyer could put a time limit on any offer.13 This would mean that they "contracted out" of the UCC provision by making an explicit time limit term. The UCC provision on "firm offers" is only to "fill in the blank," if neither the buyer nor the seller discuss the time limit on any offer.14

Suppose a contractor sends a written request for proposals, stating in its fine print that "all proposals must be kept open for 30 days." This could be a problem. That provision must be "separately signed" by the material supplier to be binding.15

There also is a problem with holding open any offer more than three months. An agreement to keep an offer open more than three months is not binding unless "supported by consideration."16 This means, basically, that there must be an agreement of some type. Remember that a firm offer is only an offer going one way, which has not yet been accepted. If a promise is made in exchange for the offer or a payment is made to keep the offer open, then there is "consideration" and the offer can be kept open longer than three months. This would be an "option contract," in which one party is paying to keep an offer open for an extended period of time. A contractor may pay a premium price for one load of wood, in order to get a guarantee of future deliveries at the same price. The contractor has paid for this option, and the firm offer will be open more than three months.

Based on this UCC provision, the written offer in Contract Creation—Hypothetical #3 was a "firm offer," which the contractor accepted within a reasonable time by writing "Accepted" across the front and faxing it back to the lumberyard. These parties had a binding contract.

Essential Parts of a Contract

The Uniform Commercial Code takes a very elastic, practical and common sense approach to contracts for the sale of goods:17 Many contracts can be oral; written agreements do not have to say "Contract" across the top; and letters are often enforceable contracts. It is not necessary to have agreement on all terms.18

Terms Can Be Missing

The UCC will fill in these blanks. Even the price of the goods can be missing.19 There will still be a binding contract if the parties never agree on a time for delivery, the manner of delivery, the place for delivery or the time that payment is due.20 It is not even necessary to know exactly when a contract existed,21 because it can develop over a series of conversations, letters or actions. All of these UCC "fill in the gap" provisions are discussed in greater detail under the Contract Interpretation section below.

In Contract CreationHypothetical #3 above, the lumberyard faxed an offer for 2,000 2x4 studs for a price of $3,580. The buyer approved the offer and sent it back. These parties had an enforceable contract, even though they had not agreed to a delivery place or time and had not agreed on the payment or credit terms. The "fill in the blank" provisions of the UCC, discussed further in the Contract Interpretation section, tells us that delivery will be at the seller’s place of business within a reasonable time, unless otherwise agreed.22 Payment is due before the seller is obligated to deliver the goods unless otherwise agreed.23 And, even though they had not discussed material quality or specifications, the seller provided an implied "warranty of merchantability with the sale."24 This means that the seller warranted that the 2x4’s would be of sufficient quality to pass without objection in the trade and would be fit for their ordinary purposes.25

Essential Elements

It is essential only that both parties intend that they be bound, and the agreement must be clear enough for a court to fashion a remedy for breach of the contract.26 Accordingly, in Contract Creation—Hypothetical #1 above, there was no contract. When the contractor asked and was provided information on the price and availability of spruce 2x4 studs, neither the contractor nor the lumberyard intended to make a contract. They intended to request and provide information. There was no "meeting of the minds," and there was no contract.

What if a contractor told a supplier, "I promise I will do business with your supply house some day"? The contractor may make such a promise in writing and may intend to be bound. He may have made the promise in exchange for some price reduction on an earlier delivery. In this case, there would be an intention to be bound and consideration for the promise to "do more business someday." This would not be an enforceable contract for the sale of goods, however, because the agreement is not sufficiently clear for a court to fashion a remedy.27 A court would have no idea what materials the contractor was promising to purchase, when, or the price to be paid. This is simply too indefinite to be enforced.

When a Written Contract or Confirmation Is Necessary

Any contract for the sale of goods with a price of $500 or more will not be enforceable unless there is "some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought."28 This is known as the Statute of Frauds.

This "writing" is not necessarily a formal contract.29 A letter or handwritten note is sufficient. There just needs to be something written, in addition to verbal conversations, and the writing must be "signed" by the other party.30 The concept of "signature" also is broad. A formal signature is definitely not necessary.31 Initials, a stamp, an electronic mail signature32 or probably even the identifying marks made by a fax machine are sufficient. The writing would still be sufficient if it omits or incorrectly states some of the terms.33

In Contract CreationHypothetical #2, the contractor and lumberyard made a verbal agreement for the purchase of $3,580 in spruce 2x4 studs. This agreement would not be enforceable, and the lumberyard would not be able to sue for damages. A verbal agreement for 200 studs for $364, however, would be enforceable since it is under the $500 threshold.

Exceptions

There are some exceptions to the Statute of Frauds and no writing is required if: (1) the seller had to specially manufacture the goods, (2) both parties admit that a contract for sale was made, (3) the goods have already been delivered and accepted or 4) payment has already been made and accepted for the goods.34

Written Confirmation

As another exception to the Statute of Frauds, the Uniform Commercial Code added a new feature designed to grease the wheels of commerce. After a verbal agreement is made either a buyer or seller can prepare and send a "confirmation" of the contract.35 If the confirmation is sent between merchants, the party receiving the confirmation can be bound to it, unless they send written notice of objection within 10 days of receipt.36 This means that buyers and sellers must read their mail and send return letters (or at least handwritten objections) if they believe mail received does not accurately describe agreements made. There are other places in the UCC where merchants can lose contract rights if they fail to read and respond to mail from other merchants.37

In Contract CreationHypothetical #2, the contractor could not enforce the agreement to sell $2,000 spruce 2x4’s for $3,580 because there was no writing satisfying the Statute of Frauds. If the contractor had sent a letter confirming their agreement, and the lumberyard did not object within 10 days, this confirmation would have served as the necessary writing and the agreement would have been enforceable.

Battle of the Forms

Let’s think again about the way modern commerce works. Material suppliers mail or fax offers. Contractors send back purchase orders. Both offers and purchase orders often have detailed "fine print." The fine print terms on the offer often conflict with the fine print terms on the purchase order. What provisions are in the final contract?

Contract on Base Terms

The first thing to remember is that these parties have a contract on the terms on which there is agreement.38 It doesn’t matter that some terms are missing or in complete conflict.39

Firm Offers and Price Quotes

In order to have an enforceable contract, there must be an “offer” that has been accepted. It can be important in establishing the terms of the contract whether the buyer or seller made the initial offer. The terms of the offer will be the contract, if the offer is accepted.40 Once an initial offer is made, the recipient must object to terms in the offer or those terms will be part of the contract. Additional or different terms in a response do not become a part of the contract if there is an objection or if those additional or different terms “materially alter” the agreement.41 Accordingly, it is easier to establish terms in an initial offer. It is more difficult to change terms through a response.42 The party that sent the initial offer has an advantage in this respect. All buyers and sellers would prefer to “fire the first shot” in the Battle of the Forms by making the first firm offer.

It is sometimes difficult to tell whether a correspondence is a firm offer or simply conversation. An offer must be sufficiently detailed regarding the product, quantity and price so that an acceptance would result in an enforceable contract.43

There does seem to be some prejudice in the courts against seller quotes as firm offers. Generally, price quotes are not considered offers, but rather a “mere invitation to enter into negotiations.”44 It is the submission of a purchase order by a buyer that is generally viewed as an offer, which may then be accepted or rejected by the seller.45 Sellers should be particularly careful to include all important terms in proposals or quotes and make it clear the documents are an “offer” that can be accepted by acknowledgement or calling for delivery.46

A seller should either sign the offer or make sure there is no signature line for the seller.47 An offer should not state that all orders are subject to review and acceptance at seller’s place of business, as this would mean that there was no offer ready for acceptance.48 A seller can overcome the prejudice against seller offers by making sure an offer is clearly expressed and ready for acceptance.49

Responses and Confirmations

When the second party (buyer or seller) sends the return document (which is definitely accepting or confirming an agreement), the parties will have a contract even though the confirmation contains provisions adding to or differing from the original offer.50

Under common law prior to the Uniform Commercial Code, the "mirror image" rule required that the buyer’s acceptance be a mirror image of the seller’s offer.51 At common law, if the acceptance is not a mirror image of the offer, it rejects the initial offer and operates as a counteroffer. This is still the rule for most contract negotiations. If the contract involves the sale of goods, however, the Uniform Commercial Code controls.

The Uniform Commercial Code rejects the mirror image rule and converts a common law counteroffer into an acceptance even if it states additional or different terms."52 The UCC states:

A definite and seasonal expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.53

This means that if there is a timely response to an offer that indicates an acceptance, the parties have a contract even if the response has additional or different terms than the offer. In a response, there is a difference between “additional” terms (that add some new term to the offer) and “different” terms (that conflict with a term in the offer).

The UCC considers "additional terms" to be "proposals for addition to the contract."54 If the transaction is between merchants, these additional terms will become a part of the contract unless the additional provisions: (1) "materially alter" the agreement, (2) the other party objects to the new terms or (3) the original offer was expressly limited to the terms of the offer.55 The UCC states that:

The additional terms are to be construed as proposals for additions to the contract. Between merchants, such terms become part of the contract unless:

  1. the offer expressly limits acceptance to the terms of the offer;
  2. they materially alter it; or
  3. notification of objection to them has already been given or is given within a reasonable time after notice of them is received.56

Courts have disagreed on the fate of “different” terms that conflict with terms in the offer. Some courts follow the same rule as for additional terms and the different terms become a part of the contract if there is no objection.57 The majority view, however, is the “knock out” rule.”58 The conflicting terms in the offer and acceptance knock each other out, so that neither is in the contract. The UCC filler terms, discussed below, are used to fill in the gaps.59 The contract would be the terms agreed by the parties, which would be the terms in the offer and acceptance that do not conflict, plus the contract terms added by the UCC.

It is important to join the "Battle of the Forms" within the meaning of the UCC. It is not enough to respond with a confirmation that is silent about the terms in an offer. The recipient must expressly reject or object to any objectionable terms of sale or propose different terms.60 Sending purchase orders that only acknowledge the material and pricing, but were otherwise silent, certainly constitutes an acceptance of a supplier’s proposal and cannot be a "counteroffer" proposing a sale with no terms. Simply telephoning a supplier and verbally requesting shipment of materials, as often happens, also constitutes an acceptance of a supplier’s proposal and would not be a counteroffer.61 Even terms limiting the seller’s liability may be included in an initial offer and will become a part of the contract unless the buyer expressly objects.62

A response or confirmation can be made conditional on an agreement to the additional or different terms. A buyer could respond to an offer by stating "I will agree to this only if you agree to remove your limitations of liability and extend your payment terms to 90 days." This would not be an acceptance.63 This is a counteroffer and there is no contract unless the additional or different terms are accepted.64

If additional or different terms are added in a response or confirmation (and the response or confirmation is not made conditional on an agreement to the additional or different terms), it becomes relevant whether the additional or different terms were "material." Lawyers can spend a long time and a lot of your money arguing about whether the additional provisions "materially altered" the contract. This exception is possible protection if a return purchase order has a very important and costly provision in the fine print. It is normally better and easier, however, to limit acceptance of an offer and object to any new terms added later.

Terms that would not be material alterations in a response or confirmation would include provisions for reasonable interest on unpaid invoices, limiting remedies for delays outside the seller’s control, or a clause fixing a reasonable time for complaints.65 Courts have held that addition of an attorney’s fee provision is a material alteration.66 These cases imply that a limited right to legal fees may not be material and UCC Section 2-207, Official Comment 5 states that a clause fixing the seller’s standard credit terms where they are within the range of trade practice would not be material. An indemnification clause67 or a “no damage for delay” clause68 would materially alter the terms of an agreement. If the offer had included warranties, then a confirmation containing a disclaimer of warranties and limitation of remedies would “materially alter” the agreement.69 On the other hand, if the offer had excluded warranties, then a confirmation adding warranties would “materially alter” the agreement.70 This difference exemplifies the importance of making the first firm offer.

Conclusions on Battle of the Forms

It is important to both buyers and sellers to be the first to make a firm offer. It is easier to establish terms in an offer, than to add different terms in a response acceptance or confirmation.71 For example an offer to buy or sell can add warranty rights or limit remedies and warranty rights.72 Once an offer has done either, however, a response or confirmation adding warranty rights or eliminating warranty rights would not be enforceable as a material alteration of the original offer.73 As discussed below, it is also easier to limit acceptance of an offer than to make a response acceptance conditional. A signed agreement from the other party may be necessary, or is at least advisable, to change the terms of an offer. Accordingly, both buyers and sellers should endeavor to “fire the first shot” in the Battle of the Forms. Make sure that your offer is clearly expressed as a definite offer to buy or sell, with enough detail regarding the goods and the price to be an enforceable contract and including strong terms of sale.

It is also always preferable to get a signed agreement, rather than depending on the Battle of the Forms to establish your terms. A signed agreement will eliminate much uncertainty and make it much harder for the other party to add or modify terms.74

The best advice is also to expressly limit acceptance of all proposals, offers, purchase orders or confirmations you send out. Offers sent out should state that "This proposal is subject to the terms and conditions on the reverse and any acceptance of this proposal shall be limited to the terms described in this proposal." This would make it more difficult for the return "acceptance" to change the terms of the agreement.75

Even if the initial offer limited acceptance to the terms of the offer, the other party could send a response or confirmation that expressly rejects the terms of the offer and states that any contract must be on the terms of the response. This is a "counteroffer," and you have no contract unless there is agreement to the changes.76 If you ship or accept product at this point, however, you are taking a risk that your initial offer will not apply and that the response terms do apply.77 This is another instance where it is important to read your mail and send written objections if you receive a confirmation that you believe does not accurately describe an agreement. A final signed agreement is also advisable to eliminate doubt regarding terms.

It is important to have good forms available for offers, proposals, purchase orders and confirmations. The provisions you have in the fine print of a firm offer will be a part of your contract, unless they are expressly rejected.78 The fine print provisions in these documents involve a fairly small, one time investment by you or your company, but can considerably reduce your risk and costs for years to come.79

The sample Supplier Proposal (Appendix 6) states:

Acceptance is limited to terms of this Proposal. Seller objects to any different or additional terms contained in any purchase order, offer or confirmation sent or to be sent by Buyer, which are expressly rejected. The price offered will be held firm only if acknowledgment is received by Seller or Buyer calls for delivery within 30 days of this Proposal, either of which shall be an acceptance of all terms herein. This Proposal is conditional on Buyer’s agreement to all terms and Seller is otherwise unwilling to proceed with this transaction. This is the final expression of this agreement and here will be no waiver or modification of any of these terms unless in writing signed by both parties. If Seller does expressly make any further agreement regarding these goods, all terms of this Proposal shall be incorporated into and shall become a part thereof.

If you are sending a return document or “confirmation,” you have an opportunity to change or neutralize some of the harsh terms in the original offer you receive.80 It is more difficult to add different terms in a response acceptance or confirmation, however, than it is to establish terms in an offer.81 To effectively change terms, a response acceptance or confirmation must be expressly conditional on assent to those different terms. It is not enough to say that “acceptance is limited to the different terms and conditions.82 A response acceptance or confirmation must clearly express an unwillingness to proceed with the transaction unless there is assurance of assent to the different terms.83 It is advisable to both parties to get an actually signed contract at this point if it is important to know the terms of the final agreement.

A buyer purchase order should state something like:

Acceptance is limited to terms of this Purchase Order. Buyer objects to any different or additional terms expressed or implied in any quote, proposal, offer or confirmation sent or to be sent by Seller, which are hereby expressly rejected and superseded by this Purchase Order. This Purchase Order is expressly conditional on Seller’s assent to all terms herein and Buyer is unwilling to proceed in this transaction without that assent. The first to occur of Seller’s acceptance of this order or shipment of goods shall constitute Seller’s agreement to all of the terms and conditions in this Purchase Order. This is the final expression of this agreement and there will be no waiver or modification of any of these terms unless in writing signed by both parties.

End of the Battle of the Forms

When does the Battle of the Forms end? It does seem clear that an actually signed and complete agreement would be final.84 Subsequent letters and emails cannot change the terms of the agreement, unless they qualify as modifications to the agreement, discussed below.85

In the absence of an actually signed and complete agreement it is not clear that the Battle of the Forms ever ends.86 An invoice sent on the day of delivery can act as a written confirmation that can add terms,87 but could not change terms in light of the “knock out” rule.88 A disclaimer of warranties and limit of liability on a product label can be effective if no prior contract had been formed.89

Modification of Contracts

To this point, we have been discussing the formation of a contract. Firm offers exist before any type of contract is formed. The Battle of the Forms determines what provisions exist in the contract between a buyer and a seller. Provisions can be added or subtracted from a contract after that original contract exists. These additions or subtractions are "modifications to the contract."

Modifications may occur in long-term contracts with successive, repeated deliveries. For example, a concrete ready mix plant may take set deliveries of cement or stone each week for months or years. The price may be set for long periods of time or it may fluctuate with the market. Such price changes would be modifications to the supply contract.  Modifications can also occur in short-term or single delivery contracts.

Modifications to contracts for the sale of goods need no consideration to be binding.90 This means you could modify a contract, even inadvertently, without receiving anything in exchange. It can be important to read your mail and object to any suggestions or assertions that you think would change your contract detrimentally.

Verbal Modifications to Written Contracts

Even written contracts can be modified verbally.91 However, the modified contract would still need to comply with the Statue of Frauds.92

Your contract can prohibit any modification, except in a signed writing. For this reason the sample Supplier Proposal above states that “there will be no waiver or modification of any of these terms unless in writing signed by both parties.” However, this prohibition to verbal modification is only effective if the contract is signed. You cannot obtain this protection in the Battle of the Forms, by just including this provision in an unsigned but accepted offer.93 An attempted modification that violates such a “no oral modification” provision or violates the Statute of Frauds can still operate as a waiver.94 Accordingly, it is still always best to object in writing to anything you believe violates your contract.

Course of Performance

Under the UCC, the Course of Performance is the way that the parties have performed throughout the life of the contract. This can determine whether there have been modifications to a contract.95 Examples are the prices charged on invoices, the manner of delivery and the time for payment.

Such course of performance is very important under the UCC to help a court determine what the terms of any contract are and whether those terms have been modified.96 If a buyer consistently makes payment 60 to 90 days after invoice for years, without objection, the seller may not be able to claim the buyer is in breach of a credit agreement requiring payment within 30 days of invoice. It looks like the seller agreed to modify the contract. If a seller raises its prices and the buyer pays the higher prices without objection for a long period of time, the buyer may not be able to return to the lower written prices in later litigation.97

The UCC again puts the burden on parties to object. If you think that the other party is not performing your contract, you should send some sort of written objection. You may decide not to enforce all the terms of the contract and "let them get away with it." However, you should still preserve your contract rights by sending a letter noting that deliveries are consistently late, materials are not completely meeting specifications or payments are late.98

Delegation and Assignment of Contracts

Either party can delegate its performance of a contract.99 This means that someone else can perform the contract for them. A material supplier may have a distributor, another supplier or "subcontractor" ship goods to a buyer. The supplier may run short of certain materials or may want to simply "direct ship" from a manufacturer.

This delegation of duties is allowable under the UCC generally, even though the buyer may not be aware this can happen. Such delegation is not allowable if the parties so agreed or the other party had a "substantial interest" in having performance from the original contracting party.100 This could happen in the case of hi-tech equipment that could be of substantially different quality from another manufacturer. Delegation in this instance may not be allowed.

In a delegation of duties, the original contracting party will remain responsible for performance.101 If the new supplier fails to perform, then the original supplier is liable for damages to the buyer.

Assignments of contracts also are generally allowed by the UCC.102 If a material supplier assigns a contract, the buyer now has its contract with the new supplier. For example, a material buyer also may want to assign a valuable supply contract, if a supplier has committed to favorable prices for a long period of time. An assignment will not be allowed if it would be "a material change" in the other party’s duty or materially increase the burden or risk of the other party.103

CONTRACT INTERPRETATION

Many disputes concern the correct interpretation of a contract in both oral and written forms. There may be no question that a contract exists. There may be many detailed provisions over which the parties have no doubt. A dispute may arise because of an event neither party anticipated when entering into the contract. Even detailed written contracts can have terms that are ambiguous, often because of unforeseen circumstances.

There is much contract case law that provides rules for the interpretation of contracts. Courts attempting to resolve all types of disputes have developed these contract interpretation rules over centuries. Most of this case law would apply to the interpretation of any type of contract, not just Article 2 of the UCC.104 These general rules for the interpretation of contracts are beyond the scope of this UCC outline. An example, however, would be the Course of Performance, discussed above.105 The course of performance can be very important to a court trying to interpret what the parties intended in their contract.

Where sophisticated business professionals enter into an arms-length transaction, the court will enforce the terms of the agreement between them absent some compelling reason that enforcement would be unreasonable or unjust.106 The guidepost in determining the legal responsibilities of the parties is the contract itself. The contract, unless it is illegal or violates public policy, constitutes the law that governs the parties' relationship.107

When an agreement is plain and unambiguous in its terms, it will be given full effect.108 This means that buyers and sellers of materials that are not consumers and are regularly in the business of buying and selling materials will usually be stuck with their contract terms. This is true, even if you were not even aware of some contract terms, because you did not read them or you never joined the "Battle of the Forms" by expressly objecting to terms and conditions received.

Contract Terms Added by the UCC

The UCC does have several special provisions that only apply to the interpretation of contracts for the sale of goods. These are mostly "fill in the gap" rules that provide the parties a contract term to resolve an issue they neglected to consider when entering into the contract.

Unconscionable Contract Terms

The UCC has a very vague, but flexible and useful, catchall provision concerning unconscionable contracts or clauses.109 If a court determines that a contract is unconscionable, the court can simply refuse to enforce it.110 If just one term of the contract is unconscionable, that one term can be stricken. The court can still enforce the balance of the contract.111

This provision gives the court great flexibility to avoid what the court considers an unfair result and to fashion a remedy that avoids a result the court considers unjust. The power in the court can keep a buyer or seller from gaining too much by burying provisions in the fine print of a long contract form. It also can remedy unfair results caused by unequal bargaining power.

No buyer or seller should ever count on being able to get a contract term stricken as unconscionable. It is a far better practice to read contracts carefully and remove any provision that is unacceptable. It is impossible to predict how or whether a court will consider any particular contract clause unconscionable.

Open Price Term

Parties can have a binding contract even if they never agreed to a price.112 This will be true, however, only if the parties intended to enter into a binding agreement.113 Sometimes buyers or sellers haven’t yet discussed price. They may agree to negotiate a price later, or they may agree on a formula or standard to set the price at a later time. In each of these cases, the UCC states, "The price is a reasonable price at the time of delivery."114 Note that the parties are bound to the price at the time of delivery.115 In the case of fluctuating prices, it could be very important whether the enforceable price was the market price at the time of the agreement or the market price at the time of later delivery.

Output, Requirements and Exclusive Dealings

It is possible for parties to a contract to agree that the seller will provide all of its production capacity or "output."116 A buyer can agree that it will purchase from one supplier all of the buyer’s "requirements." Buyers and sellers can agree to deal exclusively with each other.117

Delivery

All goods described in a contract must be delivered in a single lot, unless otherwise agreed.118 In other words, a seller could not unilaterally decide to deliver some of the goods now and make the buyer wait until later for the rest.

Generally speaking, the place for delivery of goods is the seller’s place of business.119 A buyer cannot assume that there will be delivery to the buyer, unless such delivery is made a part of the contract.

Unless otherwise agreed, payment by the buyer is a condition precedent to the seller’s duty to deliver.120

Time for Performance

Goods must be delivered within a "reasonable time" if the parties have not agreed on any other schedule.121 This is again vague, but it does mean something. In most markets, it is not reasonable for a lumberyard to deliver two months after an order.

What is reasonable will vary depending on such factors as the nature of goods to be delivered, the purpose for which they are used, the extent of seller’s knowledge of buyer’s intentions, transportation conditions, the nature of the market and so on.122 A court would look at 1) the course of dealing between the parties; 2) trade usage in the industry; and 3) buyer’s notification to seller of time concerns.123 A purchase order with a definite delivery date can make time of the essence for a material supplier.124

The most common “counterclaim” or “back charge” dispute with a supplier is that the materials were delivered late and delayed the job. If the contract defines a particular delivery schedule, then the supplier can be liable for damages if the materials are delivered late. If there is no definite delivery schedule, however, then the supplier cannot be liable for damage as long as the materials are delivered in a reasonable time. In other words, if a supplier has not agreed to deliver goods on twenty four hours verbal notice, there is no breach of contract if a supplier is unable to do so.

Time for Payment

Payment is due for goods supplied at the time and place of delivery, unless the parties have agreed otherwise.125 This means that no credit or "time" is ever assumed. Most material supplier invoices state "due on receipt of invoice" or "due within 30 days." Such provisions on an invoice are actually granting more time for payment than otherwise exists. Material suppliers should consider remaining silent on invoices about the time for payment or stating "payment is due on the receipt of goods."

Many material suppliers and subcontractors are concerned about beginning work on a project before they have a signed contract. This may not be such a problem, however. On a sale of goods under the UCC, we have seen that the law will fill in most of the missing provisions. If the party on the other side of the transaction supplies the written contract, then the contract form provisions will help them far more than the provisions will help you. If you are in an unequal bargaining position, you may be better off without the written contract.

If the goods are shipped in multiple lots, a material supplier also is entitled to payment on each delivery.126 A construction subcontractor with a labor and materials contract (not covered by the UCC) will be entitled to payment upon completion, but will not be entitled to partial payments as the work progresses. This may be a serious problem. A subcontractor would have to complete his entire contract, spending large sums of money for months on materials and payroll, without any progress payments. For this reason alone, many labor and material subcontractors must make sure they have a signed subcontract. A supplier of goods, however, may be better off without a written contract, deciding to utilize the terms provided by the UCC, if the supplier is unable to require the use of the supplier’s form contract.

Where the seller is required or authorized to ship the goods on credit, the credit period runs from the time of shipment.127 Post-dating the invoice or delaying the invoice’s mailing, however, will correspondingly delay the start of the credit period.128

Unless otherwise agreed, payment by the buyer is a condition precedent to the seller’s duty to deliver.129 The buyer may make payment in any manner "current in the ordinary course of business."130 If the parties have not made any other agreement as to credit or payment, the seller has the right to demand legal tender (cash).131 In this case, however, the seller must give "any extension of time reasonably necessary" to procure the cash.132

Normally, the buyer has the right to inspect the goods before accepting them and before payment is due, unless otherwise agreed.133 The term "COD" (collect on delivery) means that the buyer must pay for the goods before inspection.134

Termination or Modification of Ongoing Supply Contracts

Many verbal and written supply contracts run over a long period of time, with many successive deliveries. An example would be the ready mix contractor who gets weekly shipments of cement and stone. Either party can terminate such a contract at any time, unless otherwise agreed.135 If your business is dependent upon a steady flow of materials, you may want to have a contract requiring shipments in steady quantities. Remember that a seller can agree to such a contract, even if the price or quantity is not set.136 A buyer can get a commitment that the seller will ship all of the buyer’s requirements, even if the buyer has not committed to buy from the seller.137

Any contract that can be terminated also can be modified. A material supplier that is able to terminate an ongoing supply relationship also can call the buyer and say, "I will terminate shipments unless you agree to a higher price or agree to do your own trucking."

F.O.B. and C.I.F. Terms

F.O.B. means "Free on Board."138 Contracts, proposals or letters often state that materials will be delivered, for example, F.O.B. seller’s plant, F.O.B. carrier or F.O.B. buyer’s place of business.

When the term is F.O.B. place of shipment (usually the seller’s plant), the seller must put the goods into the possession of the carrier at that place.139 The seller bears the risk until the goods are in the possession of the carrier.140 It would be the seller’s problem, for example, if the goods are stolen or damaged before the seller puts them in the possession of the carrier.141

If the term is F.O.B. vessel or carrier, the seller also bears the risk and expense of loading the goods for the carrier.142 If the term is F.O.B. the buyer’s place of business or some other place of destination, the seller must deliver the goods to that place at the seller’s risk and expense.143 The term F.A.S. is similar; it means "Free Along Side" and is normally used in connection with shipments by boat.144

The term C.I.F. means "the price includes in a lump sum the cost of the goods, the insurance, and the freight."145 The term C. & F. (or C.F.) means that the price includes "cost and freight" only.146

Title

In a normal construction material situation, title to goods normally passes at the time they are delivered.147 This means that the buyer owns the goods once they are delivered, regardless of when payment is made. After delivery, the seller owns the right to obtain money from the buyer but no longer owns the goods. If a buyer fails to make payment and the seller takes the goods, the seller may be guilty of larceny for stealing the goods. The seller no longer owns them and cannot reclaim them unless the seller fits within an exception.148

The UCC states, "Title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place."149 In some cases, the time or place that the seller completes his performance could be different than delivery at the construction project.

A rejection or other refusal by the buyer to receive or retain the goods will "revest" title in the seller.150 This is true whether or not the buyer was justified in refusing the goods.151

Risk of Loss

Generally, the risk of loss stays with the seller until delivery.152 It will be the seller’s problem if the goods are damaged or stolen before the risk of loss transfers to the buyer. If the seller has breached the contract, however, and the buyer has rightfully rejected the goods, then the risk of loss remains with the seller after delivery.153

Warranties

Warranties can be "expressed" or "implied." Consider the following hypotheticals:

Warranty Hypotheticals

Warranty—Hypothetical #1: The carpentry contractor walks into a lumberyard and says, "I am building a house. Give me 2,000 2x4s." The house is framed using normal practices, but the 2x4s don’t hold weight sufficiently. They bend and break, and soon the second floor deck falls in. The carpenter contacts the lumberyard and complains. The lumberyard’s response is, "You never specified a particular strength 2x4, and I didn’t promise any particular strength."

Is the lumberyard correct? Can the lumberyard be held liable for the cost of reframing the house?

Warranty—Hypothetical #2: A carpentry contractor walks in and requests 2,000 spruce 2x4 studs. The contractor uses the studs to frame a floor deck for a garage over a basement. He then parks his semi-tractor trailer truck in the garage. The floor deck collapses, and he calls the lumberyard to complain. The lumberyard’s response is, "You are out of your mind if you thought wood 2x4 studs would hold up a semi-tractor trailer."

Who wins this argument? Would it make a difference if the contractor had told the lumberyard the purpose for the studs? Would it make a difference if the 19-year-old salesmen at the lumberyard had expressed an opinion that he thought, "The studs, framed 12 inches on center, would hold the truck"?

Warranty—Hypothetical #3: A brick manufacturer sends a sample brick to a masonry subcontractor in connection with a contract bid. They enter into a contract for 10,000 bricks. When the bricks arrive they are uneven in size and appearance. The masonry contractor complains, but the manufacturer’s response is, "There was nothing in the specifications concerning these problems."

Who wins this argument? Can the contractor reject the brick and order brick from another manufacturer or will the first manufacturer be able to sue the buyer for the price?

Express Warranties

Modern automobile or equipment manufacturers normally supply lengthy written warranties to buyers. This is only one type of express warranty. Express warranties can arise in other ways, and a seller is often unaware that they are providing an express warranty at all.154 Any affirmation of fact or any promise can create an express warranty.155 In Warranty—Hypothetical #2, the 19-year-old salesmen stated an opinion that wood 2x4s studs would hold up a semi-tractor trailer. This may have been an express warranty for which his employer could be held liable.156 Material salespersons must be trained not to express opinions on material performance. Salespersons should refer the buyer to architects, engineers or other professionals, unless the salesperson has had adequate training and does know how materials will perform.

Any type of description of goods supplied by a seller also can be an express warranty.157 Advertising brochures, for example, which describe material capabilities, will be express warranties of material performance. Sample materials provided by a supplier, specifications, correspondence or other communications also can be express warranties.158 If the goods eventually delivered do not confirm with the samples, specifications or correspondence, this will constitute a "breach of warranty." According to the UCC, an express warranty is created by "(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain . . . or (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description."159

It is important to remember that the express warranty will not mean that other implied warranties do not apply. To do this, the written warranty must expressly exclude the implied warranties and this language must be conspicuous.160 This is why you often see contracts and warranties with language in large, capitalized print stating "BUYER ACCEPTS THIS WARRANTY IN LIEU OF ANY OTHER WARRANTY EXPRESSED OR IMPLIED, INCLUDING THE WARRANTY OF MERCHANTABILITY."

Implied Warranties

Implied warranties are another type of "fill in the blank" provision where the UCC is supplying contract terms that the parties did not discuss.

Implied Warranty of Merchantability

In all sales of goods, unless expressly excluded, the seller warrants to the buyer that the goods are merchantable.161 This means that the goods: (1) would pass without objection in the trade under the contract description; (2) are of fair, average quality within the description; (3) are fit for the ordinary purposes for which such goods are used; (4) are of even kind, quality and quantity within each unit or lot and among all units or lots involved; (5) are adequately packaged and labeled; and (6) conform to the promises or affirmations of fact made on the container or label.162 These are again somewhat vague and flexible concepts, but they are very important to protect buyers of materials.

In WarrantyHypothetical #2, holding up a semi-tractor trailer is not an ordinary purpose for wood 2x4 studs. That seller cannot be held liable for the failure. In Warranty—Hypothetical #1, however, it is an ordinary purpose to use wood studs to frame a house using normal framing practices. The lumberyard will be liable for the costs of this breach of warranty, including the cost of new labor and materials and possibly the damages from any personal injury that may have occurred. These studs were not of fair average quality and would not pass without objection in the trade.163

In WarrantyHypothetical #3, a court would consider whether large shipments of brick are often of uneven size and color.164 Would such a shipment normally pass without objection in the trade? Were they of even kind, quality and quantity, within variations permitted by the agreement? There also would be a question as to whether a single brick constituted an express warranty on how all 10,000 bricks would appear. These are the types of factual questions a court or jury must decide in a UCC breach of warranty lawsuit.

Other implied warranties may arise from course of dealing or usage of trade, unless excluded or modified.165 The masonry contractor in Warranty—Hypothetical #3 may have purchased brick from this manufacturer for years. If these bricks had always had consistent color and size, then this course of dealing would create an implied warranty that future deliveries would be the same. Because of this breach of warranty, the contractor could refuse the brick delivery.

Implied Warranty of Fitness for a Particular Purpose

Under the implied warranty of merchantability, sellers warrant that their materials are fit "for ordinary purposes."166 Sellers do not warrant that materials are fit for any particular purpose, however, unless the seller has reason to know the purpose for which the materials will be used and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods.167 Such a warranty is an implied warranty of fitness for a particular purpose.168

In WarrantyHypothetical #2, the seller could have a problem if the carpenter had told the salesmen that he would use the wood studs to hold up a semi-tractor trailer. Material salespeople must be trained to listen to unusual statements from buyers about the use of materials and suggest that the buyer investigate whether the materials are fit for that purpose.

Implied Warranties of Title and Against Liens and Infringement

All sellers of goods provide an implied warranty that the buyer will get good title (ownership) of the goods, free and clear of any liens.169 Any seller who is a merchant regularly dealing with these types of goods warrants that the goods will not violate any patents or infringe on any other rights of third parties.170 This would normally be an issue with tools, machinery and equipment. If a buyer supplied the specifications for the goods to be manufactured, however, the buyer is warranting to the seller/manufacturer that these specifications do not violate any patent or other third party rights.171

Exclusion of Warranties

Express and implied warranties are cumulative. In other words, a buyer would have the choice of suing under an express written warranty or an implied warranty or both. Even if an express warranty is offered, the seller must carefully exclude the implied warranty of merchantability.

The UCC permits disclaimers of express warranty.172 If a seller has excluded all express warranties, it does not matter what any salesperson may have said in any meetings. The buyer has agreed in advance not to rely on any oral statement.173 Unconscionability is not an element in determining whether waivers of express warranty are effective. A writing must only be "conspicuous" to exclude warranties under the UCC. It is the limitation of remedies, discussed below, that can possibly be avoided if unconscionable.174

It is not easy to contract out of the implied warranty of merchantability. Any exclusion of this warranty must be "conspicuous" and must specifically identify the warranty of merchantability.175 This is why you often see such language in large print, all caps, in a contract or written warranty. This would make the exclusions conspicuous as a matter of law.176 Language excluding any other implied warranty, such as warranty of fitness for a particular purpose, must be in writing and must be conspicuous, but does not need to be as specific.177 It would be enough to state that "there are no warranties which extend beyond the description on the face hereof."178

The implied warranties of title and against liens and infringement can be excluded or modified only by specific language or by circumstances that give the buyer reason to know such warranties are not provided.179

It also is possible to limit the remedies available to a buyer for damage caused by any breach of contract, including any breach of warranty.180 Material sellers should consider adding language to their credit agreements and offers that limits the buyer’s remedies and the seller’s liability for damages. This is discussed in the subsection below on Remedies for Breach of Contract. The ability of a general contractor, owner or other third party without a direct contract to sue the supplier for breach of warranty also is discussed in Remedies for Breach of Contract.

CONTRACT PERFORMANCE AND BREACH

Buyer’s Right of Inspection

As discussed above,181 the buyer normally has the right to inspect goods before payment is due.182 If the parties have agreed that payment must be made prior to an opportunity to inspect (COD), then the buyer will still have an opportunity to later reject the goods or revoke any acceptance of the goods.183

Rejection of Goods

The buyer has the right to reject any goods that do not conform to the contract.184 The buyer may reject the whole delivery or accept part of the delivery and reject the rest.185 The buyer must pay the contract price for any goods that have been accepted.186

The buyer must affirmatively reject the goods within a reasonable time, or they will be deemed accepted.187 If the buyer is a merchant and has the right to reject the goods, then the buyer will still have the obligation to act reasonably and to use reasonable care to hold the goods for a time sufficient for the seller to retrieve them.188 The merchant buyer also must follow reasonable instructions received from the seller if the seller is geographically far away and unable to promptly retrieve the goods.189 If the seller does not provide instructions, then the buyer must take reasonable efforts to resell the goods on the seller’s account if the goods are perishable or will quickly decline in value.190

When a buyer rejects goods, the buyer must give the seller notice of any "particular defect which is ascertainable by reasonable inspection."191 The buyer cannot later rely on any unstated defect to justify rejection or to establish breach if: (1) the seller could have cured the defect if the seller had received notice of it, or (2) the buyer and seller are both merchants and the seller, after rejection, made a request in writing for a full and final statement of all defects on which the buyer will rely.192 Any seller whose goods have been rejected would be advised to make such a request in writing promptly. This may limit the defects on which the buyer can later rely. It also may provide the seller a notice of defects that the seller can promptly cure.

Seller’s Right to Cure

If the buyer has rejected goods and the time for delivery has not passed, the seller may give the buyer notice of the seller’s intent to cure.193 In this case, the buyer must allow the seller to cure by making another delivery of goods that do conform to the contract.194

In a typical construction material context, the time for the seller’s performance will not usually be "expired" at the time a buyer rejects the goods. If a supply contract states that "delivery shall be made by 10:00 a.m. on January 5," then the time for performance would have expired at that time. Most construction material supply contracts, however, do not state such a specific time for delivery. Delivery must be within a "reasonable time," therefore, and the seller also would have a reasonable time to cure any defective delivery.

Even if the time for performance has expired, the seller will have a right to cure within a reasonable time, if "the seller had reasonable grounds to believe [that the goods] would be acceptable with or without money allowance."195 This is to avoid injustice to the seller by reason of a surprise rejection.196

Seller’s Right to Reclaim Goods

The seller may have the right to reclaim goods if the buyer breaches. The buyer’s right to retain goods is conditional upon the buyer making payments due.197 The buyer’s payment by a check is "conditional."198 In other words, the buyer never really made payment if the check does not clear. In other words, the buyer never really made payment if the check does not clear. If a check does not clear, the seller has the right to reclaim the goods if the seller makes demand within 10 days after delivery of the goods.199

The seller also has the right to reclaim goods within 10 days after the receipt if "the seller discovers that the buyer has received goods on credit while insolvent."200 As long as the seller makes demand within 10 days after receipt in accordance with the UCC, the seller can reclaim and again become the owner of the goods.201 If the owner fails to make demand within the time stated, then the buyer will remain the owner of the goods and the seller will only own a debt and be another creditor of the buyer.

To reclaim goods under the UCC, the creditor-reclamation claimant must prove:

  1. The debtor was insolvent at the time of delivery
  2. Written demand was made within 10 days of delivery (extended to 20 days after bankruptcy, if bankruptcy is filed within 45 days after delivery)
  3. The goods are "identifiable" at the time of the reclamation demand
  4. The goods are in possession and control of the debtor at the time of the reclamation demand

A creditor should be sure to send notice by some method providing third-party verification of receipt, such as commercial courier, Federal Express, certified mail or service by the Sheriff. Otherwise, it will be difficult to prove receipt of written demand.

The right to reclaim goods is always important to creditors when a debtor files bankruptcy. A vendor with the right of reclamation becomes a secured creditor and may be able to retake possession of the goods sold. If there is no right or reclamation, the vendor is a general unsecured creditor.202

The bankruptcy code always has generally respected the state law right of reclamation in the UCC and now actually expands this right. A creditor can reclaim goods delivered within the 45 days prior to a bankruptcy petition, as long as written reclamation demand is delivered within 20 days after the bankruptcy petition.203 A creditor can file for an administrative expense claim for any goods delivered within the 20 days prior to a bankruptcy petition in any event, regardless of whether any reclamation notice has been sent.204

If the buyer made a misrepresentation in writing concerning solvency within three months before delivery, then the 10-day limitation under the UCC does not apply.205 The seller could reclaim the goods more than 10 days after delivery. Credit applications are important for this reason. They can be representations concerning solvency that induce a material seller to deliver.

For the current version, see: U.C.C. - ARTICLE 2 - SALES (2002)

Note: The UCC withdrew the 2003 amendments to Article 2. This version is preserved for historical purposes only

PART 1. SHORT TITLE, GENERAL CONSTRUCTION AND SUBJECT MATTER [Table of Contents]

§ 2-101. Short Title.

This Article shall be known and may be cited as Uniform Commercial Code-Sales.

§ 2-102. Scope;  Certain Security and Other Transactions Excluded From This Article.

Unless the context otherwise requires, this Article applies to transactions in goods;  it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.

§ 2-103. Definitions and Index of Definitions.

(1) In this Article unless the context otherwise requires

(a) "Buyer" means a person that buys or contracts to buy goods.

(b) "Conspicuous", with reference to a term, means so written, displayed, or presented that a reasonable person against which it is to operate ought to have noticed it. A term in an electronic record intended to evoke a response by an electronic agent is conspicuous if it is presented in a form that would enable a reasonably configured electronic agent to take it into account or react to it without review of the record by an individual. Whether a term is "conspicuous" or not is a decision for the court. Conspicuous terms include the following:

(i) for a person:

(A) a heading in capitals equal to or greater in size than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same or lesser size; and

(B) language in the body of a record or display in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from surrounding text of the same size by symbols or other marks that call attention to the language; and

(ii) for a person or an electronic agent, a term that is so placed in a record or display that the person or electronic agent may not proceed without taking action with respect to the particular term.

(c) "Consumer" means an individual who buys or contracts to buy goods that, at the time of contracting, are intended by the individual to be used primarily for personal, family, or household purposes.

(d) "Consumer contract" means a contract between a merchant seller and a consumer.

(e) "Delivery" means the voluntary transfer of physical possession or control of goods.

(f) "Electronic" means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.

(g) "Electronic agent" means a computer program or an electronic or other automated means used independently to initiate an action or respond to electronic records or performances in whole or in part, without review or action by an individual.

(h) "Electronic record" means a record created, generated, sent, communicated, received, or stored by electronic means.

(i) "Foreign exchange transaction" means a transaction in which one party agrees to deliver a quantity of a specified money or unit of account in consideration of the other party's agreement to deliver another quantity of a different money or unit of account either currently or at a future date, and in which delivery is to be through funds transfer, book entry accounting, or other form of payment order, or other agreed means to transfer a credit balance. The term includes a transaction of this type involving two or more moneys and spot, forward, option, or other products derived from underlying moneys and any combination of these transactions. The term does not include a transaction involving two or more moneys in which one or both of the parties is obligated to make physical delivery, at the time of contracting or in the future, of banknotes, coins, or other form of legal tender or specie.

[(j) Reserved]

[(j) "Good faith" means honesty in fact and the observance of reasonable commercial standards of fair dealing.]

Legislative Note: The definition of "good faith" should not be adopted if the jurisdiction has enacted this definition as part of Article 1.

(k) "Goods" means all things that are movable at the time of identification to a contract for sale. The term includes future goods, specially manufactured goods, the unborn young of animals, growing crops, and other identified things attached to realty as described in Section 2-107. The term does not include information, the money in which the price is to be paid, investment securities under Article 8, the subject matter of foreign exchange transactions, or choses in action.

(l) "Receipt of goods" means taking physical possession of goods.

(m) "Record" means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

Legislative Note: The definition of "record" should not be adopted if the jurisdiction has enacted revised Article 1.

(n) "Remedial promise" means a promise by the seller to repair or replace goods or to refund all or part of the price of goods upon the happening of a specified event.

(o) "Seller" means a person that sells or contracts to sell goods.

(p) "Sign" means, with present intent to authenticate or adopt a record:

(i) to execute or adopt a tangible symbol; or

(ii) to attach to or logically associate with the record an electronic sound, symbol, or process.

(2) Other definitions applying to this Article or to specified Parts thereof, and the sections in which they appear are:

"Acceptance".  Section 2-606.

"Between merchants".  Section 2-104.

"Cancellation".  Section 2-106(4).

"Commercial unit".  Section 2-105.

"Conforming to contract".  Section 2-106.

"Contract for sale".  Section 2-106.

"Cover".  Section 2-712.

"Entrusting".  Section 2-403.

"Financing agency".  Section 2-104.

"Future Goods".  Section 2-105.

"Goods".  Section 2-103.

"Identification".  Section 2-501.

"Installment contract".  Section 2-612.

"Lot".  Section 2-105.

"Merchant".  Section 2-104.

"Person in position of Seller".  Section 2-707.

"Present sale".  Section 2-106.

"Sale".  Section 2-106.

"Sale on approval".  Section 2-326.

"Sale or return".  Section 2-326.

"Termination".  Section 2-106.

(3) "Control" as provided in Section 7-106 and the following definitions in other Articles apply to this Article:

"Check".  Section 3-104(f).

"Consignee".  Section 7-102(3).

"Consignor".  Section 7-102(4).

"Consumer Goods".  Section 9-102(a)(23).

"Dishonor".  Section 3-502.

"Draft".  Section 3-104(e).

"Honor". Section 5-102(a)(8).

"Injunction against honor". Section 5-109(b).

"Letter of credit". Section 5-102(a)(10).

(4) In addition Article 1 contains general definitions and principles of construction and interpretation applicable throughout this Article.

§ 2-104. Definitions:  "Merchant";  "Between Merchants";  "Financing Agency".

(1) "Merchant" means a person that deals in goods of the kind or otherwise holds itself out by occupation as having knowledge or skill peculiar to the practices or goods involved in the transaction or to which the knowledge or skill may be attributed by the person's employment of an agent or broker or other intermediary that holds itself out by occupation as having the knowledge or skill.

(2) "Financing agency" means a bank, finance company or other person that in the ordinary course of business makes advances against goods or documents of title or that by arrangement with either the seller or the buyer intervenes in ordinary course to make or collect payment due or claimed under the contract for sale, as by purchasing or paying the seller's draft or making advances against it or by merely taking it for collection whether or not documents of title accompany or are associated with the draft.  The term includes also a bank or other person that similarly intervenes between persons that are in the position of seller and buyer in respect to the goods (Section 2-707).

(3) "Between Merchants" means in any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants.

§ 2-105. Definitions:  Transferability;  "Future" Goods;  "Lot";  "Commercial Unit".

(1) Goods must be both existing and identified before any interest in them may pass. Goods that are not both existing and identified are "future" goods. A purported present sale of future goods or of any interest therein operates as a contract to sell.

(2) There may be a sale of a part interest in existing identified goods.

(3) An undivided share in an identified bulk of fungible goods is sufficiently identified to be sold although the quantity of the bulk is not determined. Any agreed proportion of the bulk or any quantity thereof agreed upon by number, weight, or other measure may to the extent of the seller's interest in the bulk be sold to the buyer that then becomes an owner in common.

(4) "Lot" means a parcel or a single article which is the subject matter of a separate sale or delivery, whether or not it is sufficient to perform the contract.

(5) "Commercial unit" means such a unit of goods as by commercial usage is a single whole for purposes of sale and division of which materially impairs its character or value on the market or in use.  A commercial unit may be a single article (as a machine) or a set of articles (as a suite of furniture or an assortment of sizes) or a quantity (as a bale, gross, or carload) or any other unit treated in use or in the relevant market as a single whole.

§ 2-106. Definitions:  "Contract";  "Agreement";  "Contract for sale";  "Sale";  "Present sale";  "Conforming" to Contract;  "Termination";  "Cancellation".

(1) In this Article unless the context otherwise requires "contract" and "agreement" are limited to those relating to the present or future sale of goods.  "Contract for sale" includes both a present sale of goods and a contract to sell goods at a future time.  A "sale" consists in the passing of title from the seller to the buyer for a price (Section 2-401).  A "present sale" means a sale which is accomplished by the making of the contract.

(2) Goods or conduct including any part of a performance are "conforming" or conform to the contract when they are in accordance with the obligations under the contract.

(3) "Termination" occurs when either party pursuant to a power created by agreement or law puts an end to the contract otherwise than for its breach.  On "termination" all obligations which are still executory on both sides are discharged but any right based on prior breach or performance survives.

(4) "Cancellation" occurs when either party puts an end to the contract for breach by the other and its effect is the same as that of "termination" except that the cancelling party also retains any remedy for breach of the whole contract or any unperformed balance.

§ 2-107. Goods to Be Severed From Realty:  Recording.

(1) A contract for the sale of minerals or the like (including oil and gas) or a structure or its materials to be removed from realty is a contract for the sale of goods within this Article if they are to be severed by the seller but until severance a purported present sale thereof which is not effective as a transfer of an interest in land is effective only as a contract to sell.

(2) A contract for the sale apart from the land of growing crops or other things attached to realty and capable of severance without material harm thereto but not described in subsection (1) or of timber to be cut is a contract for the sale of goods within this Article whether the subject matter is to be severed by the buyer or by the seller even though it forms part of the realty at the time of contracting, and the parties can by identification effect a present sale before severance.

(3) The provisions of this section are subject to any third party rights provided by the law relating to realty records, and the contract for sale may be executed and recorded as a document transferring an interest in land and shall then constitute notice to third parties of the buyer's rights under the contract for sale.

§ 2-108. Transactions Subject to Other Law

(1) A transaction subject to this article is also subject to any applicable:

(a) [list any certificate of title statutes of this State covering automobiles, trailers, mobile homes, boats, farm tractors, or the like], except with respect to the rights of a buyer in ordinary course of business under Section 2-403(2) which arise before a certificate of title covering the goods is effective in the name of any other buyer;

(b) rule of law that establishes a different rule for consumers; or

(c) statute of this state applicable to the transaction, such as a statute dealing with:

(i) the sale or lease of agricultural products;

(ii) the transfer of human blood, blood products, tissues, or parts;

(iii) the consignment or transfer by artists of works of art or fine prints;

(iv) distribution agreements, franchises, and other relationships through which goods are sold;

(v) the misbranding or adulteration of food products or drugs; and

(vi) dealers in particular products, such as automobiles, motorized wheelchairs, agricultural equipment, and hearing aids.

(2) Except for the rights of a buyer in ordinary course of business under subsection (1)(a), in the event of a conflict between this article and a law referred to in subsection (1), that law governs.

(3) For purposes of this article, failure to comply with a law referred to in subsection (1) has only the effect specified in that law.

(4) This article modifies, limits, and supersedes the federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001 et seq., except that nothing in this article modifies, limits, or supersedes Section 7001(c) of that Act or authorizes electronic delivery of any of the notices described in Section 7003(b) of that Act.

PART 2. FORM, FORMATION AND READJUSTMENT OF CONTRACT [Table of Contents]

§ 2-201. Formal Requirements;  Statute of Frauds.

(1) A contract for the sale of goods for the price of $5,000 or more is not enforceable by way of action or defense unless there is some record sufficient to indicate that a contract for sale has been made between the parties and signed by the party against which enforcement is sought or by the party's authorized agent or broker.  A record is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this subsection beyond the quantity of goods shown in the record.

(2) Between merchants if within a reasonable time a record in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against the recipient unless notice of objection to its contents is given in a record within 10 days after it is received.

(3) A contract that does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable:

(a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business and the seller, before notice of repudiation is received and under circumstances that reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement;

(b) if the party against which enforcement is sought admits in the party's pleading, or in the party's testimony or otherwise under oath that a contract for sale was made, but the contract is not enforceable under this paragraph beyond the quantity of goods admitted;  or

(c) with respect to goods for which payment has been made and accepted or which have been received and accepted (Sec. 2-606).

(4) A contract that is enforceable under this section is not unenforceable merely because it is not capable of being performed within one year or any other period after its making.

§ 2-202. Final Expression in a Record:  Parol or Extrinsic Evidence.

(1) Terms with respect to which the confirmatory records of the parties agree or which are otherwise set forth in a record intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be supplemented by evidence of:

(a) course of performance, course of dealing, or usage of trade (Section 1-303);  and

(b) consistent additional terms unless the court finds the record to have been intended also as a complete and exclusive statement of the terms of the agreement .

(2) Terms in a record may be explained by evidence of course of performance, course of dealing, or usage of trade without a preliminary determination by the court that the language used is ambiguous.

§ 2-203. Seals Inoperative.

The affixing of a seal to a record evidencing a contract for sale or an offer to buy or sell goods does not constitute the record a sealed instrument. The law with respect to sealed instruments does not apply to such a contract or offer.

§ 2-204. Formation in General.

(1) A contract for sale of goods may be made in any manner sufficient to show agreement, including offer and acceptance, conduct by both parties which recognizes the existence of a contract, the interaction of electronic agents, and the interaction of an electronic agent and an individual.

(2) An agreement sufficient to constitute a contract for sale may be found even if the moment of its making is undetermined.

(3) Even if one or more terms are left open, a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

(4) Except as otherwise provided in Sections 2-211 through 2-213, the following rules apply:

(a) A contract may be formed by the interaction of electronic agents of the parties, even if no individual was aware of or reviewed the electronic agents' actions or the resulting terms and agreements.

(b) A contract may be formed by the interaction of an electronic agent and an individual acting on the individual's own behalf or for another person. A contract is formed if the individual takes actions that the individual is free to refuse to take or makes a statement, and the individual has reason to know that the actions or statement will:

(i) cause the electronic agent to complete the transaction or performance; or

(ii) indicate acceptance of an offer, regardless of other expressions or actions by the individual to which the electronic agent cannot react.

§ 2-205. Firm Offers.

An offer by a merchant to buy or sell goods in a signed record that by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but in no event may the period of irrevocability exceed three months. Any such term of assurance in a form supplied by the offeree must be separately signed by the offeror.

§ 2-206. Offer and Acceptance in Formation of Contract.

(1) Unless otherwise unambiguously indicated by the language or circumstances

(a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances:

(b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or nonconforming goods, but the shipment of nonconforming goods is not an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.

(2) If the beginning of a requested performance is a reasonable mode of acceptance, an offeror that is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.

(3) A definite and seasonable expression of acceptance in a record operates as an acceptance even if it contains terms additional to or different from the offer.

§ 2-207. Terms of Contract; Effect of Confirmation.

Subject to Section 2-202, if (i) conduct by both parties recognizes the existence of a contract although their records do not otherwise establish a contract, (ii) a contract is formed by an offer and acceptance, or (iii) a contract formed in any manner is confirmed by a record that contains terms additional to or different from those in the contract being confirmed, the terms of the contract are:

(a) terms that appear in the records of both parties;

(b) terms, whether in a record or not, to which both parties agree; and

(c) terms supplied or incorporated under any provision of this Act.

[§ 2-208. Reserved]

§ 2-209. Modification, Rescission and Waiver.

(1) An agreement modifying a contract within this Article needs no consideration to be binding.

(2) An agreement in a signed record which excludes modification or rescission except by a signed record may not be otherwise modified or rescinded, but except as between merchants such a requirement in a form supplied by the merchant must be separately signed by the other party.

(3) The requirements of Section 2-201 must be satisfied if the contract as modified is within its provisions.

(4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3), it may operate as a waiver.

(5) A party that has made a waiver affecting an executory portion of a contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

§ 2-210. Delegation of Performance;  Assignment of Rights.

(1) If the seller or buyer assigns rights under a contract, the following rules apply: 

(a) Subject to paragraph (b) and except as otherwise provided in Section 9-406 or as otherwise agreed, all rights of the seller or the buyer may be assigned unless the assignment would materially change the duty of the other party, increase materially the burden or risk imposed on that party by the contract, or impair materially that party's chance of obtaining return performance. A right to damages for breach of the whole contract or a right arising out of the assignor's due performance of its entire obligation may be assigned despite an agreement otherwise.

(b) The creation, attachment, perfection, or enforcement of a security interest in the seller's interest under a contract is not an assignment that materially changes the duty of or materially increases the burden or risk imposed on the buyer or materially impairs the buyer's chance of obtaining return performance under paragraph (a) unless, and only to the extent that, enforcement of the security interest results in a delegation of a material performance of the seller. Even in that event, the creation, attachment, perfection, and enforcement of the security interest remain effective. However, the seller is liable to the buyer for damages caused by the delegation to the extent that the damages could not reasonably be prevented by the buyer, and a court may grant other appropriate relief, including cancellation of the contract or an injunction against enforcement of the security interest or consummation of the enforcement.

(2) If the seller or buyer delegates performance of its duties under a contract, the following rules apply:

(a) A party may perform its duties through a delegate unless otherwise agreed or unless the other party has a substantial interest in having the original promisor perform or control the acts required by the contract. Delegation of performance does not relieve the delegating party of any duty to perform or liability for breach.

(b) Acceptance of a delegation of duties by the assignee constitutes a promise to perform those duties. The promise is enforceable by either the assignor or the other party to the original contract.

(c) The other party may treat any delegation of duties as creating reasonable grounds for insecurity and may without prejudice to its rights against the assignor demand assurances from the assignee under Section 2--609.

(d) A contractual term prohibiting the delegation of duties otherwise delegable under paragraph (a) is enforceable, and an attempted delegation is not effective.

(3) An assignment of "the contract" or of "all my rights under the contract" or an assignment in similar general terms is an assignment of rights and unless the language or the circumstances, as in an assignment for security, indicate the contrary, it is also a delegation of performance of the duties of the assignor.

(4) Unless the circumstances indicate the contrary, a prohibition of assignment of "the contract" is to be construed as barring only the delegation to the assignee of the assignor's performance.

§ 2-211. Legal Recognition of Electronic Contracts, Records, and Signatures

(1) A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.

(2) A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.

(3) This article does not require a record or signature to be created, generated, sent, communicated, received, stored, or otherwise processed by electronic means or in electronic form.

(4) A contract formed by the interaction of an individual and an electronic agent under Section 2-204(4)(b) does not include terms provided by the individual if the individual had reason to know that the agent could not react to the terms as provided.

§ 2-212. ATTRIBUTION

An electronic record or electronic signature is attributable to a person if it was the act of the person or the person's electronic agent or the person is otherwise legally bound by the act.

§ 2-213. ELECTRONIC COMMUNICATION

(1) If the receipt of an electronic communication has a legal effect, it has that effect even if no individual is aware of its receipt.

(2) Receipt of an electronic acknowledgment of an electronic communication establishes that the communication was received but, in itself, does not establish that the content sent corresponds to the content received.

PART 3. GENERAL OBLIGATION AND CONSTRUCTION OF CONTRACT [Table of Contents]

§ 2-301. General Obligations of Parties.

The obligation of the seller is to transfer and deliver and that of the buyer is to accept and pay in accordance with the contract.

§ 2-302. Unconscionable contract or Term.

(1) If the court as a matter of law finds the contract or any term of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable term, or it may so limit the application of any unconscionable term as to avoid any unconscionable result.

(2) If it is claimed or appears to the court that the contract or any term thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination.

§ 2-303. Allocation or Division of Risks.

Where this Article allocates a risk or a burden as between the parties "unless otherwise agreed", the agreement may not only shift the allocation but may also divide the risk or burden.

§ 2-304. Price Payable in Money, Goods, Realty, or Otherwise.

(1) The price may be made payable in money or otherwise.  If it is payable in whole or in part in goods each party is a seller of the goods that the party is to transfer.

(2) Even if all or part of the price is payable in an interest in real property the transfer of the goods and the seller's obligations with reference to them are subject to this Article, but not the transfer of the interest in real property or the transferor's obligations in connection therewith.

§ 2-305. Open Price Term.

(1) The parties if they so intend may conclude a contract for sale even if the price is not settled.  In such a case the price is a reasonable price at the time for delivery if:

(a) nothing is said as to price; 

(b) the price is left to be agreed by the parties and they fail to agree;  or

(c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.

(2) A price to be fixed by the seller or by the buyer means a price to be fixed in good faith.

(3) If a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at the party's option treat the contract as cancelled or the party may fix a reasonable price.

(4) If, however, the parties intend not to be bound unless the price is fixed or agreed and it is not fixed or agreed there is no contract.  In such a case the buyer must return any goods already received or if unable to do so must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account.

§ 2-306. Output, Requirements and Exclusive Dealings.

(1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.

(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.

§ 2-307. Delivery in Single Lot or Several Lots.

Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot.

§ 2-308. Absence of Specified Place for Delivery.

Unless otherwise agreed

(a) the place for delivery of goods is the seller's place of business or if none, the seller's residence;  but

(b) in a contract for sale of identified goods which to the knowledge of the parties at the time of contracting are in some other place, that place is the place for their delivery;  and

(c) documents of title may be delivered through customary banking channels.

§ 2-309. Absence of Specific Time Provisions;  Notice of Termination.

(1) The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time.

(2) If the contract provides for successive performances but is indefinite in duration, it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party.

(3) Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable. A term specifying standards for the nature and timing of notice is enforceable if the standards are not manifestly unreasonable.

§ 2-310. Open Time for Payment or Running of Credit;  Authority to Ship Under Reservation.

Unless otherwise agreed

(a) payment is due at the time and place at which the buyer is to receive the goods even though the place of shipment is the place of delivery; 

(b) if the seller is required or authorized to send the goods, the seller may ship them under reservation, and may tender the documents of title, but the buyer may inspect the goods after their arrival before payment is due unless the inspection is inconsistent with the terms of the contract (Section 2-513); 

(c) if tender of delivery is agreed to be made by way of documents of title otherwise than by paragraph (b), then payment is due regardless of where the goods are to be received (i) at the time and place at which the buyer is to receive delivery of the tangible documents, or (ii) at the time the buyer is to receive delivery of the electronic documents and at the seller's place of business or if none, the seller's residence;  and

(d) if the seller is required or authorized to ship the goods on credit the credit period runs from the time of shipment but postdating the invoice or delaying its dispatch will correspondingly delay the starting of the credit period.

§ 2-311. Options and Cooperation Respecting Performance.

(1) An agreement for sale which is otherwise sufficiently definite (Section 2-204(3)) to be a contract is not made invalid by the fact that it leaves particulars of performance to be specified by one of the parties.  Any such specification must be made in good faith and within limits set by commercial reasonableness.

(2) Unless otherwise agreed, specifications relating to assortment of the goods are at the buyer's option and specifications or arrangements relating to shipment are at the seller's option.

(3) If the specification would materially affect the other party's performance but is not seasonably made or if one party's cooperation is necessary to the agreed performance of the other but is not seasonably forthcoming, the other party in addition to all other remedies:

(a) is excused for any resulting delay in that party's performance;  and

(b) may also either proceed to perform in any reasonable manner or after the time for a material part of that party's performance treat the failure to specify or to cooperate as a breach by failure to deliver or accept the goods.

§ 2-312. Warranty of Title and Against Infringement;  Buyer's Obligation Against Infringement.

(1) Subject to subsection (3), there is in a contract for sale a warranty by the seller that:

(a) the title conveyed shall be good and its transfer rightful and shall not unreasonably expose the buyer to litigation because of any colorable claim to or interest in the goods; and

(b) the goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.

(2) Unless otherwise agreed, a seller that is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer that furnishes specifications to the seller must hold the seller harmless against any such claim that arises out of compliance with the specifications.

(3) A warranty under this section may be disclaimed or modified only by specific language or by circumstances that give the buyer reason to know that the seller does not claim title, that the seller is purporting to sell only the right or title as the seller or a third person may have, or that the seller is selling subject to any claims of infringement or the like.

§ 2-313. Express Warranties by Affirmation, Promise, Description, Sample.

(1) In this section, "immediate buyer" means a buyer that enters into a contract with the seller.

(2) Express warranties by the seller to the immediate buyer are created as follows:

(a) Any affirmation of fact or promise made by the seller which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.

(b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.

(c) Any sample or model that is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.

(3) It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that the seller have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty.

(4) Any remedial promise made by the seller to the immediate buyer creates an obligation that the promise will be performed upon the happening of the specified event.

§ 2-313A Obligation to Remote Purchaser Created by Record Packaged With or Accompanying Goods

(1) In this section:

(a) "Immediate buyer" means a buyer that enters into a contract with the seller.

(b) "Remote purchaser" means a person that buys or leases goods from an immediate buyer or other person in the normal chain of distribution.

(2) This section applies only to new goods and goods sold or leased as new goods in a transaction of purchase in the normal chain of distribution.

(3) If in a record packaged with or accompanying the goods the seller makes an affirmation of fact or promise that relates to the goods, provides a description that relates to the goods, or makes a remedial promise, and the seller reasonably expects the record to be, and the record is, furnished to the remote purchaser, the seller has an obligation to the remote purchaser that:

(a) the goods will conform to the affirmation of fact, promise, or description unless a reasonable person in the position of the remote purchaser would not believe that the affirmation of fact, promise, or description created an obligation; and

(b) the seller will perform the remedial promise.

(4) It is not necessary to the creation of an obligation under this section that the seller use formal words such as "warrant" or "guarantee" or that the seller have a specific intention to undertake an obligation, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create an obligation.

(5) The following rules apply to the remedies for breach of an obligation created under this section:

(a) The seller may modify or limit the remedies available to the remote purchaser if the modification or limitation is furnished to the remote purchaser no later than the time of purchase or if the modification or limitation is contained in the record that contains the affirmation of fact, promise, or description.

(b) Subject to a modification or limitation of remedy, a seller in breach is liable for incidental or consequential damages under Section 2-715, but not for lost profits.

(c) The remote purchaser may recover as damages for breach of a seller's obligation arising under subsection (3) the loss resulting in the ordinary course of events as determined in any reasonable manner.

(6) An obligation that is not a remedial promise is breached if the goods did not conform to the affirmation of fact, promise, or description creating the obligation when the goods left the seller's control.

§ 2-313B Obligation to Remote Purchaser Created by Communication to the Public

(1) In this section:

(a) "Immediate buyer" means a buyer that enters into a contract with the seller.

(b) "Remote purchaser" means a person that buys or leases goods from an immediate buyer or other person in the normal chain of distribution.

(2) This section applies only to new goods and goods sold or leased as new goods in a transaction of purchase in the normal chain of distribution.

(3) If in an advertisement or a similar communication to the public a seller makes an affirmation of fact or promise that relates to the goods, provides a description that relates to the goods, or makes a remedial promise, and the remote purchaser enters into a transaction of purchase with knowledge of and with the expectation that the goods will conform to the affirmation of fact, promise, or description, or that the seller will perform the remedial promise, the seller has an obligation to the remote purchaser that:

(a) the goods will conform to the affirmation of fact, promise, or description unless a reasonable person in the position of the remote purchaser would not believe that the affirmation of fact, promise, or description created an obligation; and

(b) the seller will perform the remedial promise.

(4) It is not necessary to the creation of an obligation under this section that the seller use formal words such as "warrant" or "guarantee" or that the seller have a specific intention to undertake an obligation, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create an obligation.

(5) The following rules apply to the remedies for breach of an obligation created under this section:

(a) The seller may modify or limit the remedies available to the remote purchaser if the modification or limitation is furnished to the remote purchaser no later than the time of purchase. The modification or limitation may be furnished as part of the communication that contains the affirmation of fact, promise, or description.

(b) Subject to a modification or limitation of remedy, a seller in breach is liable for incidental or consequential damages under Section 2-715, but not for lost profits.

(c) The remote purchaser may recover as damages for breach of a seller's obligation arising under subsection (3) the loss resulting in the ordinary course of events as determined in any reasonable manner.

(6) An obligation that is not a remedial promise is breached if the goods did not conform to the affirmation of fact, promise, or description creating the obligation when the goods left the seller's control.

§ 2-314. Implied Warranty:  Merchantability;  Usage of Trade.

(1) Unless excluded or modified (Section 2-316), a warranty that the 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.  Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.

(2) Goods to be merchantable must be at least such as:

(a) pass without objection in the trade under the contract description; 

(b) in the case of fungible goods, are of fair average quality within the description; 

(c) are fit for the ordinary purposes for which goods of that description are used; 

(d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; 

(e) are adequately contained, packaged, and labeled as the agreement may require;  and

(f) conform to the promise or affirmations of fact made on the container or label if any.

(3) Unless excluded or modified (Section 2-316) other implied warranties may arise from course of dealing or usage of trade.

§ 2-315. Implied Warranty:  Fitness for 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 or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.

§ 2-316. Exclusion or Modification of Warranties.

(1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other;  but subject to Section 2-202, negation or limitation is inoperative to the extent that such construction is unreasonable.

(2) Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it in a consumer contract the language must be in a record, be conspicuous, and state "The seller undertakes no responsibility for the quality of the goods except as otherwise provided in this contract," and in any other contract the language must mention merchantability and in case of a record must be conspicuous. Subject to subsection (3), to exclude or modify the implied warranty of fitness, the exclusion must be in a record and be conspicuous. Language to exclude all implied warranties of fitness in a consumer contract must state "The seller assumes no responsibility that the goods will be fit for any particular purpose for which you may be buying these goods, except as otherwise provided in the contract," and in any other contract the language is sufficient if it states, for example, that "There are no warranties that extend beyond the description on the face hereof." Language that satisfies the requirements of this subsection for the exclusion or modification of a warranty in a consumer contract also satisfies the requirements for any other contract.

(3) Notwithstanding subsection (2)

(a) unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like "as is", "with all faults" or other language that in common understanding calls the buyer's attention to the exclusion of warranties, makes plain that there is no implied warranty, and, in a consumer contract evidenced by a record, is set forth conspicuously in the record;

(b) if the buyer before entering into the contract has examined the goods or the sample or model as fully as desired or has refused to examine the goods after a demand by the seller there is no implied warranty with regard to defects that an examination in the circumstances should have revealed to the buyer;  and

(c) an implied warranty may also be excluded or modified by course of dealing or course of performance or usage of trade.

(4) Remedies for breach of warranty may be limited in accordance with Sections 2-718 and 2-719.

§ 2-317. Cumulation and Conflict of Warranties Express or Implied.

Warranties whether express or implied shall be construed as consistent with each other and as cumulative, but if such construction is unreasonable the intention of the parties shall determine which warranty is dominant.  In ascertaining that intention the following rules apply:

(a) Exact or technical specifications displace an inconsistent sample or model or general language of description.

(b) A sample from an existing bulk displaces inconsistent general language of description.

(c) Express warranties displace inconsistent implied warranties other than an implied warranty of fitness for a particular purpose.

§ 2-318. Third Party Beneficiaries of Warranties Express or Implied.

(1) In this section:

(a) "Immediate buyer" means a buyer that enters into a contract with the seller.

(b) "Remote purchaser" means a person that buys or leases goods from an immediate buyer or other person in the normal chain of distribution.

Alternative A to subsection (2)

A seller's warranty to an immediate buyer, whether express or implied, a seller's remedial promise to an immediate buyer, or a seller's obligation to a remote purchaser under Section 2-313A or 2-313B extends to any individual who is in the family or household of the immediate buyer or the remote purchaser or who is a guest in the home of either if it is reasonable to expect that the person may use, consume, or be affected by the goods and who is injured in person by breach of the warranty, remedial promise, or obligation. A seller may not exclude or limit the operation of this section.

Alternative B to subsection (2)

A seller's warranty to an immediate buyer, whether express or implied, a seller's remedial promise to an immediate buyer, or a seller's obligation to a remote purchaser under Section 2-313A or 2-313B extends to any individual who may reasonably be expected to use, consume, or be affected by the goods and who is injured in person by breach of the warranty, remedial promise, or obligation. A seller may not exclude or limit the operation of this section.

Alternative C to subsection (2)

A seller's warranty to an immediate buyer, whether express or implied, a seller's remedial promise to an immediate buyer, or a seller's obligation to a remote purchaser under Section 2-313A or 2-313B extends to any person that may reasonably be expected to use, consume, or be affected by the goods and that is injured by breach of the warranty, remedial promise, or obligation. A seller may not exclude or limit the operation of this section with respect to injury to the person of an individual to whom the warranty, remedial promise, or obligation extends.

(1) Unless otherwise agreed the term F.O.B. (which means "free on board") at a named place, even though used only in connection with the stated price, is a delivery term under which

(a) when the term is F.O.B. the place of shipment, the seller must at that place ship the goods in the manner provided in this Article (Section 2-504) and bear the expense and risk of putting them into the possession of the carrier;  or

(b) when the term is F.O.B. the place of destination, the seller must at his own expense and risk transport the goods to that place and there tender delivery of them in the manner provided in this Article (Section 2-503);

(c) when under either (a) or (b) the term is also F.O.B. vessel, car or other vehicle, the seller must in addition at his own expense and risk load the goods on board.  If the term is F.O.B. vessel the buyer must name the vessel and in an appropriate case the seller must comply with the provisions of this Article on the form of bill of lading (Section 2-323).

(2) Unless otherwise agreed the term F.A.S. vessel (which means "free alongside") at a named port, even though used only in connection with the stated price, is a delivery term under which the seller must

(a) at his own expense and risk deliver the goods alongside the vessel in the manner usual in that port or on a dock designated and provided by the buyer;  and

(b) obtain and tender a receipt for the goods in exchange for which the carrier is under a duty to issue a bill of lading.

(3) Unless otherwise agreed in any case falling within subsection (1)(a) or (c) or subsection (2) the buyer must seasonably give any needed instructions for making delivery, including when the term is F.A.S. or F.O.B. the loading berth of the vessel and in an appropriate case its name and sailing date.  The seller may treat the failure of needed instructions as a failure of cooperation under this Article (Section 2-311). He may also at his option move the goods in any reasonable manner preparatory to delivery or shipment.

(4) Under the term F.O.B. vessel or F.A.S. unless otherwise agreed the buyer must make payment against tender of the required documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents.

[§ 2-320. Reserved]

(1) The term C.I.F. means that the price includes in a lump sum the cost of the goods and the insurance and freight to the named destination.  The term C. & F. or C.F. means that the price so includes cost and freight to the named destination.

(2) Unless otherwise agreed and even though used only in connection with the stated price and destination, the term C.I.F. destination or its equivalent requires the seller at his own expense and risk to

(a) put the goods into the possession of a carrier at the port for shipment and obtain a negotiable bill or bills of lading covering the entire transportation to the named destination;  and

(b) load the goods and obtain a receipt from the carrier (which may be contained in the bill of lading) showing that the freight has been paid or provided for;  and

(c) obtain a policy or certificate of insurance, including any war risk insurance, of a kind and on terms then current at the port of shipment in the usual amount, in the currency of the contract, shown to cover the same goods covered by the bill of lading and providing for payment of loss to the order of the buyer or for the account of which it may concern;  but the seller may add to the price the amount of the premium for any such war risk insurance;  and

(d) prepare an invoice of the goods and procure any other documents required to effect shipment or to comply with the contract;  and

(e) forward and tender with commercial promptness all the documents in due form and with any indorsement necessary to perfect the buyer's rights.

(3) Unless otherwise agreed the term C. & F. or its equivalent has the same effect and imposes upon the seller the same obligations and risks as a C.I.F. term except the obligation as to insurance.

(4) Under the term C.I.F. or C. & F. unless otherwise agreed the buyer must make payment against tender of the required documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents.

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[§ 2-321. Reserved]

Under a contract containing a term C.I.F. or C. & F.

(1) Where the price is based on or is to be adjusted according to "net landed weights", "delivered weights", "out turn" quantity or quality or the like, unless otherwise agreed the seller must reasonably estimate the price.  The payment due on tender of the documents called for by the contract is the amount so estimated, but after final adjustment of the price a settlement must be made with commercial promptness.

(2) An agreement described in subsection (1) or any warranty of quality or condition of the goods on arrival places upon the seller the risk of ordinary deterioration, shrinkage and the like in transportation but has no effect on the place or time of identification to the contract for sale or delivery or on the passing of the risk of loss.

(3) Unless otherwise agreed where the contract provides for payment on or after arrival of the goods the seller must before payment allow such preliminary inspection as is feasible;  but if the goods are lost delivery of the documents and payment are due when the goods should have arrived.

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[§ 2-322. Reserved]

(1) Unless otherwise agreed a term for delivery of goods "ex-ship" (which means from the carrying vessel) or in equivalent language is not restricted to a particular ship and requires delivery from a ship which has reached a place at the named port of destination where goods of the kind are usually discharged.

(2) Under such a term unless otherwise agreed

(a) the seller must discharge all liens arising out of the carriage and furnish the buyer with a direction which puts the carrier under a duty to deliver the goods;  and

(b) the risk of loss does not pass to the buyer until the goods leave the ship's tackle or are otherwise properly unloaded.

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[§ 2-323. Reserved]

(1) Where the contract contemplates overseas shipment and contains a term C.I.F. or C. & F. or F.O.B. vessel, the seller unless otherwise agreed must obtain a negotiable bill of lading stating that the goods have been loaded in board or, in the case of a term C.I.F. or C. & F., received for shipment.

(2) Where in a case within subsection (1) a tangible bill of lading has been issued in a set of parts, unless otherwise agreed if the documents are not to be sent from abroad the buyer may demand tender of the full set;  otherwise only one part of the bill of lading need be tendered.  Even if the agreement expressly requires a full set

(a) due tender of a single part is acceptable within the provisions of this Article on cure of improper delivery (subsection (1) of Section 2-508);  and

(b) even though the full set is demanded, if the documents are sent from abroad the person tendering an incomplete set may nevertheless require payment upon furnishing an indemnity which the buyer in good faith deems adequate.

(3) A shipment by water or by air or a contract contemplating such shipment is "overseas" insofar as by usage of trade or agreement it is subject to the commercial, financing or shipping practices characteristic of international deep water commerce.

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[§ 2-324. Reserved]

Under a term, "no sale no arrival" or terms of like meaning, unless otherwise agreed,

(a) the seller must properly ship conforminggoods and if they arrive by any means he must tender them on arrival but he assumes no obligation that the goods will arrive unless he has caused the non-arrival;  and

(b) where without fault of the seller the goods are in part lost or have so deteriorated as no longer to conform to the contract or arrive after the contract time, the buyer may proceed as if there had been casualty to identified goods (Section 2-613).

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§ 2-325. "Letter of Credit" Term;  "Confirmed Credit".

If the parties agree that the primary method of payment will be by letter of credit, the following rules apply:

(a) The buyer's obligation to pay is suspended by seasonable delivery to the seller of a letter of credit issued or confirmed by a financing agency of good repute in which the issuer and any confirmer undertake to pay against presentation of documents that evidence delivery of the goods.

(b) Failure of a party seasonably to furnish a letter of credit as agreed is a breach of the contract for sale.

(c) If the letter of credit is dishonored or repudiated, the seller, on seasonable notification, may require payment directly from the buyer.

§ 2-326. Sale on Approval and Sale or Return;  Consignment Sales and Rights of Creditors.

(1) Unless otherwise agreed, if delivered goods may be returned by the buyer even if they conform to the contract, the transaction is:

(a) a "sale on approval" if the goods are delivered primarily for use; and

(b) a "sale or return" if the goods are delivered primarily for resale.

(2) Goods held on approval are not subject to the claims of the buyer's creditors until acceptance;  goods held on sale or return are subject to such claims while in the buyer's possession.

(3) Any "or return" term of a contract for sale is to be treated as a separate contract for sale under Section 2-201 and as contradicting the sale aspect of the contract under Section 2-202.

§ 2-327. Special Incidents of Sale on Approval and Sale or Return.

(1) Under a sale on approval unless otherwise agreed

(a) although the goods are identified to the contract the risk of loss and the title do not pass to the buyer until acceptance;  and

(b) use of the goods consistent with the purpose of trial is not acceptance but failure seasonably to notify the seller of election to return the goods is acceptance, and if the goods conform to the contract acceptance of any part is acceptance of the whole;  and

(c) after due notification of election to return, the return is at the seller's risk and expense but a merchantbuyer must follow any reasonable instructions.

(2) Under a sale or return unless otherwise agreed

(a) the option to return extends to the whole or any commercial unit of the goods while in substantially their original condition, but must be exercised seasonably;  and

(b) the return is at the buyer's risk and expense.

§ 2-328. Sale by Auction.

(1) In a sale by auction, if goods are put up in lots each lot is the subject of a separate sale.

(2) A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner.  If a bid is made during the process of completing the sale but before a prior bid is accepted, the auctioneer has discretion to reopen the bidding or to declare the goods sold under the prior bid.

(3) A sale by auction is subject to the seller's right to withdraw the goods unless at the time the goods are put up or during the course of the auction it is announced in express terms that the right to withdraw the goods is not reserved. In an auction in which the right to withdraw the goods is reserved, the auctioneer may withdraw the goods at any time until completion of the sale is announced by the auctioneer. In an auction in which the right to withdraw the goods is not reserved, after the auctioneer calls for bids on an article or lot, the article or lot may not be withdrawn unless no bid is made within a reasonable time. In either case a bidder may retract a bid until the auctioneer's announcement of completion of the sale, but a bidder's retraction does not revive any previous bid.

(4) If the auctioneer knowingly receives a bid on the seller's behalf or the seller makes or procures such a bid, and notice has not been given that liberty for such bidding is reserved, the buyer may at the buyer's option avoid the sale or take the goods at the price of the last good faith bid prior to the completion of the sale.  This subsection shall not apply to any bid at an auction required by law.

PART 4. TITLE, CREDITORS AND GOOD FAITH PURCHASERS [Table of Contents]

§ 2-401. Passing of Title;  Reservation for Security;  Limited Application of This Section.

Each provision of this Article with regard to the rights, obligations and remedies of the seller, the buyer, purchasers or other third parties applies irrespective of title to the goods except where the provision refers to such title.  Insofar as situations are not covered by the other provisions of this Article and matters concerning title become material the following rules apply:

(1) Title to goods cannot pass under a contract for sale prior to their identification to the contract (Section 2-501), and unless otherwise explicitly agreed the buyer acquires by their identification a special property as limited by this Act.  Any retention or reservation by the seller of the title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a security interest.  Subject to these provisions and to the provisions of Article 9, title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties.

(2) Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place;  and in particular and despite any reservation of a security interest by the bill of lading

(a) if the contract requires or authorizes the seller to send the goods to the buyer but does not require the seller to deliver them at destination, title passes to the buyer at the time and place of shipment;  but

(b) if the contract requires delivery at destination, title passes on tender there.

(3) Unless otherwise explicitly agreed where delivery is to be made without moving the goods,

(a) if the seller is to deliver a tangible document of title, title passes at the time when and the place where he delivers such documents and if the seller is to deliver an electronic docuemnt of title, title passes when the seller delivers the document;  or

(b) if the goods are at the time of contracting already identified and no documents of title are to be delivered, title passes at the time and place of contracting.

(4) A rejection or other refusal by the buyer to receive or retain the goods, whether or not justified, or a justified revocation of acceptance revests title to the goods in the seller.  Such revesting occurs by operation of law and is not a "sale".

§ 2-402. Rights of Seller's Creditors Against Sold Goods.

(1) Except as provided in subsections (2) and (3), rights of unsecured creditors of the seller with respect to goods which have been identified to a contract for sale are subject to the buyer's

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