Article 2: Facilitation of Contract Formation

By way of brief review—Article 2 applies to ‘transactions in goods’.  Some transactions are hybrid or ‘mixed transactions’ involving a combination of a sale and services.  If the ‘gravamen’ of the action or the essence of the transaction is a sale, the transaction will be within the purview of Article 2.  Conversely, if the transaction is primarily the delivery of services in connection with a sale, the transaction will be outside the scope of Article 2.

Once the scope issue has been satisfied, the question turns to the basic enforceability of the purported contract under the Statute of Frauds provision of Section 2-201.  The basic rule contained in Section 2-201(1), requires a writing, ‘signed by the person against whom enforcement is sought’ if the value of the contract exceeds $500.  The exceptions to the basic rule are contained in Section 2-201(2)(3)(a)(b)(c), and deal with the Reply Doctrine; specially manufactured goods; court documents and admissions in court that confirm the contract; and goods for which payment has been made or accepted.

Previous posts also discussed Section 2-207 in the context of this basic scheme for it is generally in the formation stages of the contract that documents are moving back and forth among the buyer and seller.  In approaching Section 2-207, one must remember that it is predicated upon an offer having been made by the buyer or the seller prior to the activation of that section. If the writings between the parties do not establish a contract, but the parties have engaged in conduct which ‘recognizes the existence of a contract’, the terms of the contract will be those on which the writings of the parties agree with the balance of the terms being supplied by the Code.  This basic rule is contained in Section 2-207(3).

As we continue to work through Article 2, it is important to remember and consistently apply the definition of ‘contract’ and ‘agreement’ under Article 1.  The former is the ‘total legal obligation that results from the parties’ agreement’; the agreement includes: language; course of performance; course of dealing; usage of trade; and inference from other circumstances.  Always remember how critically important trade usage is and the hierarchy of these concepts in the interpretation of the meaning of the contract as stated in Section 1-303(e).

With that introduction and review in place, we will continue the journey through Article 2.  At the outset, it should be noted that Article 2 is drafted in a style that facilitates contract formation by eliminating some of the technical barriers that existed in pre Code law.  Part 2 of Article 2 deals with Form, Formation and Readjustment of Contract.  Formation in general is covered in Section 2-204 with the basic rule stated in Section 2-204(1):

A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.

The general underlying policy of facilitating contracts is elaborated on in Section 2-204(3):

Even though 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.

Section 2-204(3) represents a radical departure from pre Code law which required much more specificity in order for a contract to be enforceable.  There are two requirements stated in order for a contract to be enforceable: first, the parties must have ‘intended to make a contract’; second, there must be ‘a reasonably certain basis for giving an appropriate remedy’.  As noted in the comments ‘commercial standards on the point of ‘indefiniteness are intended to be applied’.  The Code supplies certain terms which may be missing in communications between the parties.  For example, if no place of delivery is stated in the writings, Section 2-308(a)(b)(c) will supply one:

Unless otherwise agreed

(a) the place for delivery of goods is the seller's place of business or if he has none his 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.      

            Similarly, if there is no provision dealing with the delivery of goods in a single or multiple lots, Section 2-307 requires delivery in a single lot; if there is no stated time for shipment or delivery, Section 2-309(1) requires delivery to be within a ‘reasonable time’, which term is defined under Section 1-205(1):

Whether a time for taking an action required by the Uniform Commercial Code is reasonable depends on the nature, purpose, and circumstances of the action.

The Code is so liberal on the formation of a contract that ‘[t]he parties if they so intend can conclude a contract for sale even though the price is not settled’ per Section 2-305(1).   Section 2-305 will be discussed in detail in a subsequent post, but for now, attention is directed to underscore the lengths to which the Code has gone in terms of promoting the formation of the contract and removing sales transactions from the technical restrictions that preceded the Uniform Commercial Code.

Further evidence of the Code’s liberal approach to the formation of the contract is found in Section 2-206(1)(a):

 (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;

As noted in the comments to Section 2-206:

Any reasonable manner of acceptance is intended to be regarded as available unless the offeror has made quite clear that it will not be acceptable.  Former technical rules as to acceptance, such as telegraphed offers be accepted by telegraphed acceptance, etc., are rejected and a criterion that the acceptance be ‘in any reasonable manner, and by any medium reasonable under the circumstances,’ is substituted.

            The policies for keeping the deal in play are evidenced in numerous other sections in Article 2.  These will be discussed in future posts.