Key Takeaways

  • The formation of a contract of sale under UCC Article 2 requires mutual assent, but not necessarily a formal agreement or complete terms.
  • Essential elements include the transfer of ownership from seller to buyer, with the price agreed upon, and the goods must be movable and not services or real estate.
  • A contract can still be valid even if it omits some terms (such as price) or is formed through conduct.
  • The contract of sale distinguishes between sale and agreement to sell, and between general and special property.
  • Risk allocation, delivery in installments, modifications without new consideration, and remedies for nonconforming goods are all governed by Article 2 of the UCC.
  • Statutory requirements such as the Statute of Frauds require certain contracts to be in writing if they involve goods over a certain value.

The formation of contract of sale of goods refers to forming a contract when goods are bought or sold. UCC Article 2 addresses many of the important rules regarding this. Forming the contract of sale of goods is where a contract is made regarding the specifics of the goods that the seller is selling to the buyer for a set price. A contract of sale can be between one partial owner and another.

The partial owner of the goods agrees to transfer their ownership of to the buyer for a value they both agree on. This contract can be conditional or absolute depending on what the contract parties desire.

UCC General Contract Rules

Many lawyers will advise that you should always have a written contract when you're making a deal. There are certain requirements that must be included in a sales contract when they're written, and this is known as the statute of frauds. The main principle of contract law is that there must be an offer as well as an acceptance in order for a contract to be formed.

There doesn't necessarily need to be a certain moment of agreement between the two parties in order for the contract to be binding. If specific terms are missing from the contract, it's not necessarily invalid. Sometimes a contract will need to be modified, and the rules for doing this can be found in Article 2. One of the rules is that there doesn't need to be any extra consideration in order for the modified contract to be effective.

In addition to statements that the seller must deliver their goods and the buyer must pay for them, there are other rules when it comes to obligations. These include the following:

  • Certain risks can be allocated between the buyer and seller.
  • A valid contract doesn't need to outline the specific price.
  • A rule specifying how to order items that are delivered in several lots.

The performance on a contract is what the two parties are obligated to do. The basic obligation when it comes to a contract for the sale of goods is that the buyer pays for the items the seller delivers. According to Section 2-503, the seller must make sure the buyer has been notified within a reasonable amount of time to accept the delivery. Section 2-508 says that if the wrong goods are delivered by the seller, they need to fix the mistake by delivering the correct items within a certain timeframe, which should be outlined in the contract.

Formalities and Modifications under UCC Article 2

Under UCC Article 2, the formation of a contract of sale does not always require all terms to be finalized. A binding agreement can exist even if some terms—such as price or delivery details—are left open. The key requirement is the intention of both parties to form a contract and reasonably certain basis for giving a remedy.

In some cases, the UCC will "fill in the gaps" using default provisions. For instance, if the price is not stated, Section 2-305 allows for a “reasonable price at the time of delivery.” Contracts can also be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of a contract.

Modifications to an existing sales contract do not require new consideration under Section 2-209. However, such modifications must meet good faith standards and may require writing if the original contract contains a no-modification clause or falls under the Statute of Frauds.

Elements of a Contract of Sale

There are several features that are crucial parts of a contract of sale of goods, which include an agreement to sell and a sale. There must be two parties where the goods go from one party to the other. As an example, person A owns a grocery shop. If he supplies his family with goods from his shop, there is no sale or contract of sale. This is because the buyer and seller must be two separate parties.

If person A and person B own a television set together, person A is allowed to transfer their ownership to person B. This means person B becomes the sole owner of the television. This is similar to a partner buying goods from the company that he's a partner in. However, no one can buy their own goods. If a pawnee sells the goods or the non-payment of their money, the pawner can buy them to end the decree. Any kind of movable property besides money and actionable claims are considered goods. Contract of sales doesn't cover services or immovable property.

It's important to cover the transfer of property in goods, or ownership of the goods, in a contract of sale. In each sale, there needs to be an agreement between the seller and buyer for transfer of ownership. The general property gets transferred from the contract of sale and is distinguished from a special property, which gets transferred in case there's pledge of goods. Therefore, a contract of sale has to have an absolute ownership transfer. Goods getting physically delivered isn't necessary for transferring the ownership.

Sale vs. Agreement to Sell

The formation of contract of sale can result in either an immediate sale or an agreement to sell. In a sale, ownership of the goods transfers from seller to buyer immediately upon the formation of the contract. In contrast, an agreement to sell refers to a future transfer of ownership, which may depend on conditions being fulfilled.

This distinction matters for determining the parties’ rights and liabilities. For example, if goods are damaged after an agreement to sell but before delivery, the loss typically falls on the seller, unless risk has already passed to the buyer per the contract terms or default UCC rules.

Subject Matter and Types of Goods

For a contract of sale to be valid, the subject matter must consist of movable goods, excluding services, money, and actionable claims. Goods can be existing (owned and possessed by the seller at the time of the contract) or future (to be manufactured or acquired after the contract is made).

Contracts involving contingent goods—those that depend on an uncertain future event—are also recognized under UCC provisions, though the sale is conditional and may not be enforced if the goods never come into existence.

Price and Payment Terms

The price in a contract of sale does not have to be fixed at the time of contract formation. Parties may agree that the price will be set by one of them, a third party, or determined by market standards. If no method is agreed upon, UCC Section 2-305 allows courts to infer a reasonable price based on standard practices or market conditions.

Additionally, unless otherwise agreed, the buyer is generally expected to pay at the time and place of delivery. Contracts may also specify terms like cash on delivery (COD) or include credit terms, which can shift payment timelines or conditions.

Conditions, Warranties, and Risk of Loss

A valid contract of sale may include conditions (events that must occur before performance is due) and warranties (assurances about the quality or performance of the goods). The UCC recognizes both express warranties (e.g., product descriptions or sample conformity) and implied warranties, such as:

  • Implied warranty of merchantability – that goods are fit for ordinary use.
  • Implied warranty of fitness for a particular purpose – when the buyer relies on the seller’s expertise to select suitable goods.

Risk of loss typically remains with the seller until the buyer receives the goods, but this can change based on shipping terms (e.g., FOB shipping point vs. destination).

Frequently Asked Questions

  1. What is the formation of a contract of sale?
    It refers to the legal process in which a seller agrees to transfer ownership of goods to a buyer for a price, governed by UCC Article 2.
  2. Can a contract of sale be valid without a set price?
    Yes. Under UCC rules, a contract can still be valid if the price is left open, as long as there’s intent to form a contract and a reasonable price can be inferred.
  3. What’s the difference between a sale and an agreement to sell?
    A sale transfers ownership immediately, while an agreement to sell involves a future transfer, often subject to certain conditions.
  4. Do sales contracts have to be in writing?
    Sales contracts for goods priced at $500 or more generally must be in writing under the Statute of Frauds, with some exceptions.
  5. What are implied warranties in a contract of sale?
    Implied warranties are legally assumed promises that goods are fit for their ordinary purpose or a specific purpose communicated by the buyer.

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