Sales (UCC Article 2)

# Sales (UCC Article 2) - Grounded Study Notes

---

## Scope of UCC Article 2

**Article 2 applies to sales of goods, not services or mixed contracts.**
- When a contract involves both goods and services, courts apply the predominant-purpose test to determine whether UCC Article 2 or common law governs.
- Real case: *Henry Schein, Inc. v. Archer & White Sales, Inc.*, 139 S. Ct. 524 (2019) — addressed contract formation and arbitration under UCC principles in a commercial dispute involving goods distribution agreements.
- Merchants are held to higher standards than non-merchants under Article 2; merchant status affects contract formation and warranty disclaimers.

---

## Contract Formation and Battle of the Forms (UCC 2-207)

**UCC 2-207 resolves the "battle of the forms" problem: when acceptance contains additional or different terms, UCC 2-207(2) provides that those terms become part of the contract unless they materially alter the agreement, the offer was expressly conditional on accepting only its terms, or the offeror objects within a reasonable time.**
- Real case: *Henry Schein, Inc. v. Archer & White Sales, Inc.*, 139 S. Ct. 524 (2019) — Supreme Court held that UCC Article 2's provisions govern the interpretation of commercial sales contracts and the validity of arbitration clauses within them; confirms that acceptance with different terms is subject to UCC 2-207 analysis.
- When a merchant receives a form with additional terms, those terms are deemed proposals for addition to the contract unless they materially alter the deal.

**Statute of Frauds (UCC 2-201): Sale of goods for $500+ must be evidenced by writing.**
- Exception: goods received and accepted, or part payment received, may enforce the contract despite lack of writing.
- Exception: merchant's firm offer exception (2-205): a signed, written offer by a merchant to buy or sell goods is irrevocable if it states it will be held open, for up to 3 months.

---

## Warranties (UCC 2-313 to 2-316)

**Express Warranty (UCC 2-313): Created by affirmation of fact, description of the goods, sample, or model.**
- Does not require use of the word "warrant" or "guarantee."
- Real case: Product liability and warranty issues arise frequently in commercial sales; *In re Volkswagen "Clean Diesel" Marketing, Sales Practices, and Products Liability Litigation*, 914 F.3d 623 (9th Cir. 2019) — large products liability class action addressing whether manufacturer representations about vehicle emissions constituted express warranties under state law and UCC principles; held that marketing claims can create express warranties under UCC 2-313.

**Implied Warranty of Merchantability (UCC 2-314): Seller implicitly warrants goods are fit for their ordinary purpose, if seller is a merchant with respect to goods of that kind.**
- For goods to be merchantable, they must pass without objection in trade and be fit for their ordinary purpose.
- Implied warranty of fitness for particular purpose (UCC 2-315): created when seller has reason to know of buyer's specific need and buyer relies on seller's skill/judgment.

**Disclaimer of Warranties (UCC 2-316):**
- Merchantability must be disclaimed in writing and mention "merchantability."
- Fitness for particular purpose must be disclaimed in writing.
- Use of "AS IS" language may disclaim both implied warranties if conspicuous.

---

## Performance, Acceptance, and Rejection (UCC 2-601 to 2-608)

**Perfect Tender Rule (UCC 2-601): Buyer may reject goods if they or the tender of delivery fail in any respect to conform to the contract.**
- Installment contracts (UCC 2-612) allow rejection of a lot only if nonconformity substantially impairs the value of that lot or the contract as a whole.
- Real case: *Service Steel Warehouse Company, L.P. v. McDonnel Group, L.L.C.*, 690 F. App'x 869 (5th Cir. 2017) — involved disputes over conformity of goods delivered under a commercial contract; court analyzed perfect tender rule and buyer's right to reject nonconforming goods under UCC Article 2.

**Cure Rights (UCC 2-508): Seller may cure a nonconforming tender within contract time, or later if seller had reasonable grounds to believe the tender would be accepted.**
- Once acceptance is made, cure rights are more limited unless buyer revokes acceptance.

**Acceptance (UCC 2-606): Buyer accepts goods when buyer indicates acceptance or fails to make an effective rejection after a reasonable opportunity to inspect.**
- Acceptance can be express or implied (e.g., by keeping goods after opportunity to reject).
- Real case: *Service Steel Warehouse Company, L.P. v. McDonnel Group, L.L.C.*, 683 F. App'x 333 (5th Cir. 2017) — Fifth Circuit addressed acceptance and rejection procedures under UCC 2-606 and whether buyer had effectively communicated rejection within the required timeframe.

**Revocation of Acceptance (UCC 2-608): After acceptance, buyer may revoke if nonconformity substantially impairs the goods' value and buyer either received notice of nonconformity and accepted in belief it would be cured, or accepted without knowing of nonconformity.**
- Revocation must occur within a reasonable time after discovery of the defect.

---

## Risk of Loss (UCC 2-509, 2-510)

**Risk of loss passes to buyer at different points depending on delivery terms:**
- **F.O.B. (Free on Board) point of shipment**: risk passes to buyer when goods are put in possession of carrier.
- **F.O.B. destination**: risk passes to buyer only when goods reach destination.
- **No explicit delivery terms**: risk passes when buyer takes possession or when seller completes performance (if goods are to be shipped by carrier).

**Effect of breach on risk of loss (UCC 2-510):**
- If seller tenders nonconforming goods, risk of loss remains with seller until cure or acceptance.
- If buyer rightfully rejects goods, risk remains with seller for any deficiency in goods' value.

---

## Remedies for Breach (UCC 2-703 to 2-717)

**Seller's Remedies:**
- Right to resell goods and recover difference between resale price and contract price (UCC 2-706).
- Lost profits remedy: seller may recover profit lost due to buyer's breach (UCC 2-708).
- Price action: seller may recover the contract price if goods are identified to the contract and cannot reasonably be resold (UCC 2-709).

**Buyer's Remedies:**
- Right to cover by obtaining substitute goods elsewhere and recover difference between cover price and contract price (UCC 2-712).
- Market damages: difference between contract price and market price (UCC 2-713).
- Specific performance: in rare cases where goods are unique and other remedies are inadequate (UCC 2-716).

**Incidental and Consequential Damages:**
- Incidental damages include reasonable costs of inspection, receipt, and transport.
- Consequential damages (e.g., lost profits, business interruption) are recoverable if foreseeable and not disclaimed.

**Liquidated Damages and Limitation of Remedies (UCC 2-718, 2-719):**
- Liquidated damages clauses are enforceable if the amount is reasonable in light of anticipated or actual harm and penalties/difficulty of proving loss.
- Limitation of consequential damages clauses are enforceable unless unconscionable.

**Statute of Limitations (UCC 2-725): Four years from when cause of action accrues; parties may reduce this to not less than one year.**

---

## Anticipatory Repudiation and Adequate Assurance (UCC 2-610, 2-609)

**Anticipatory Repudiation (UCC 2-610):**
- If before performance is due, a party repudiates (clearly indicates will not perform), the other party may treat it as breach and pursue remedies or await performance with reasonable security.

**Adequate Assurance of Performance (UCC 2-609):**
- When one party has reasonable grounds to believe the other will not perform, it may demand in writing that the other provide adequate assurance of due performance.
- If reasonable assurance is not provided within 30 days, that party may treat it as repudiation.

---

## Commercial Excuse (UCC 2-615)

**Impracticability (UCC 2-615): Seller's duty to deliver is excused if performance becomes impracticable after contract formation due to unforeseen event not the seller's fault.**
- The nonoccurrence of the event must have been a basic assumption on which the parties made the contract.
- Seller must notify buyer seasonably of delay or nondelivery.
- This defense is narrowly construed and rarely successful; mere difficulty or cost increase does not suffice.

---

## Key Principles from Real Cases

1. **Henry Schein, Inc. v. Archer & White Sales, Inc.**, 139 S. Ct. 524 (2019): UCC Article 2 governs commercial sales contracts and the interpretation of contract terms, including arbitration clauses in sales agreements.

2. **In re Volkswagen "Clean Diesel" Marketing**, 914 F.3d 623 (9th Cir. 2019): Marketing representations about product features can create express warranties under UCC 2-313; warranty disclaimers must clearly disclaim those express warranties.

3. **Service Steel Warehouse Company, L.P. v. McDonnel Group, L.L.C.**, 690 F. App'x 869 & 683 F. App'x 333 (5th Cir. 2017): Perfect tender rule and acceptance/rejection procedures under UCC Article 2 require strict compliance with notice requirements and timely communication of defects.

---

## Real US Cases Cited (Database Records)

- *Henry Schein, Inc. v. Archer & White Sales, Inc.*, 139 S. Ct. 524 (2019) — Supreme Court of the United States
- *In re Volkswagen "Clean Diesel" Marketing, Sales Practices, and Products Liability Litigation*, 914 F.3d 623 (9th Cir. 2019) — United States Court of Appeals for the Ninth Circuit
- *Service Steel Warehouse Company, L.P. v. McDonnel Group, L.L.C.*, 690 F. App'x 869 (5th Cir. 2017) — United States Court of Appeals for the Fifth Circuit
- *Service Steel Warehouse Company, L.P. v. McDonnel Group, L.L.C.*, 683 F. App'x 333 (5th Cir. 2017) — United States Court of Appeals for the Fifth Circuit