UCC Article 2
Sales Provisions
Master the Uniform Commercial Code rules governing the sale of goods: formation, performance, remedies, and the key distinctions tested on the CPA REG exam.
CPA Regulation (REG)
What is UCC Article 2?
UCC Article 2 is a uniform set of rules adopted by every U.S. state (except Louisiana for some parts) that governs transactions in goods: tangible, movable personal property at the time of identification to the contract.
Scope: Goods vs. Everything Else
Merchants vs. Non-Merchants
The UCC imposes higher standards on merchants: persons who regularly deal in goods of the kind, or hold themselves out as having special knowledge or skill.
Merchant
A car dealer selling cars, a wholesaler selling widgets. Subject to additional rules: firm offers, good faith (honesty + commercial standards), implied warranty of merchantability.
Non-Merchant
A homeowner selling a used lawnmower. Subject only to basic UCC rules. Good faith means only honesty in fact. No implied warranty of merchantability.
Contract Formation Rules
1
Open terms allowed: A contract can be formed even if price, delivery, or payment terms are left open, as long as the parties intend to contract and there is a reasonably certain basis for remedy.
2
No mirror image rule: An acceptance with additional or different terms can still form a contract (the "Battle of the Forms" under UCC 2-207).
3
Statute of Frauds: Contracts for goods priced at \( \$500 \) or more must be evidenced by a writing signed by the party to be charged.
The Firm Offer Rule
Under UCC 2-205, a merchant who makes a signed, written offer to buy or sell goods that states it will be held open is irrevocable for the time stated, or if no time is stated, for a reasonable time not exceeding 3 months.
Battle of the Forms: UCC 2-207
Statute of Frauds Exceptions
The writing requirement for contracts \( \geq \$500 \) has important exceptions where no writing is needed:
SWAP
Specially manufactured goods that cannot be resold
Written Confirmation
Between merchants: if one sends a written confirmation and the other doesn't object within 10 days
Admission
Party admits in court that a contract exists (enforceable only up to the quantity admitted)
Part Performance
Goods have been received and accepted, or payment has been made and accepted (enforceable to the extent performed)
UCC vs. Common Law
| Feature | UCC Article 2 | Common Law |
|---|---|---|
| Applies to | Goods | Services, real estate |
| Open terms | Allowed (gap-fillers) | Must be definite |
| Acceptance | No mirror image rule | Mirror image required |
| Irrevocable offer | Firm offer (no consideration) | Option contract (needs consideration) |
| SOF threshold | \( \geq \$500 \) | \( \geq \$500 \) (varies by type) |
| Performance standard | Perfect tender | Substantial performance |
Warranties Under Article 2
Express Warranty
Created by seller's affirmation of fact, description, or sample/model that becomes part of the basis of the bargain.
Implied: Merchantability
Goods must be fit for their ordinary purpose. Only applies when seller is a merchant of goods of that kind.
Implied: Fitness
When the seller knows the buyer's particular purpose and the buyer relies on the seller's expertise to select suitable goods.
The Perfect Tender Rule
Under UCC 2-601, if goods or their delivery fail in any respect to conform to the contract, the buyer may: (1) accept all, (2) reject all, or (3) accept some and reject the rest.
1
Right to cure: If time for performance has not expired, the seller may notify the buyer of intent to cure and deliver conforming goods.
2
Installment contracts exception: Buyer can reject an installment only if the nonconformity substantially impairs the value of that installment and cannot be cured.
3
Revocation of acceptance: Buyer who accepted nonconforming goods may revoke acceptance if the defect substantially impairs value and was either not discovered or was accepted on assurance of cure.
Risk of Loss Rules
How to Apply UCC Article 2
1
Identify the subject matter: Is the transaction about goods (tangible, movable property)? If yes, UCC applies. If services or real estate, use common law.
2
Determine merchant status: Is either party a merchant? This affects firm offers, warranty of merchantability, additional terms in acceptance, and risk of loss.
3
Check formation: Is there a valid offer + acceptance? Are open terms filled by UCC gap-fillers? Is the Statute of Frauds satisfied (\( \geq \$500 \))?
4
Analyze performance: Apply the perfect tender rule. Check for right to cure, installment exceptions, and acceptance/revocation issues.
5
Determine remedies: Buyer's remedies (cover, damages, specific performance) vs. Seller's remedies (resale, damages, price action). Apply the correct measure.
Example 1: Firm Offer
1
Merchant? Yes: Baker is a wholesale flour dealer (regularly deals in goods of the kind).
2
Signed writing? Yes: it is a signed letter.
3
Assurance to hold open? Yes: "good for 4 months."
4
Duration: The UCC caps firm offers at 3 months. So the offer is irrevocable for 3 months only. Baker's revocation at 2 months is ineffective.
Example 2: Battle of the Forms
1
Definite acceptance? Yes: Buyer accepted the core terms (quantity, price, goods).
2
Both merchants? Yes: so the additional term becomes part of the contract unless it materially alters the offer, the offeror already objected, or the offeror objects within a reasonable time.
3
Material alteration? Courts generally treat arbitration clauses as a material alteration. Therefore, the arbitration clause likely does not become part of the contract.
Example 3: Risk of Loss
1
Contract type? "FOB Seller's warehouse" = shipment contract.
2
When did risk pass? Risk transferred to the buyer when the seller delivered the goods to the carrier.
3
Result: The buyer bears the \( \$8{,}000 \) loss. The buyer must still pay the contract price and seek recovery from the carrier or insurer.
Common Mistakes
✕ Applying Mirror Image Rule
Under UCC 2-207, an acceptance with additional terms still creates a contract. The common law mirror image rule does not apply to sales of goods.
✕ Requiring Consideration for Firm Offers
A merchant's firm offer is irrevocable without consideration. Students often confuse this with common law option contracts.
✕ Confusing Shipment vs. Destination
The default is a shipment contract (risk passes at carrier). Students often assume the seller bears risk until delivery to the buyer.
✕ Ignoring Merchant Status
Whether a party is a merchant affects firm offers, warranty of merchantability, and how additional terms in acceptance are handled.
Remedies Summary
| Remedy | Buyer's Remedies | Seller's Remedies |
|---|---|---|
| Substitute transaction | Cover: buy substitute goods | Resale: resell the goods |
| Damages | Market price − contract price | Contract price − market price |
| Recovery of price | Specific performance (unique goods) | Action for the price (accepted goods) |
| Incidental damages | Costs of cover, inspection, transport | Costs of stopping delivery, resale |
| Right to withhold | Reject or revoke acceptance | Withhold delivery, stop in transit |
Question 1 of 5
A non-merchant homeowner offers in a signed letter to sell her used car for \( \$3{,}000 \), stating the offer will remain open for two weeks. Three days later, she revokes. Is the revocation effective?
The UCC firm offer rule (2-205) requires the offeror to be a merchant. A non-merchant homeowner's offer is freely revocable, even if it states it will be held open, unless separate consideration was given.
Question 2 of 5
Seller ships 100 blue widgets when the buyer ordered 100 red widgets. Under the perfect tender rule, the buyer may:
Under UCC 2-601, if goods fail in any respect to conform to the contract, the buyer has three options: accept all, reject all, or accept any commercial units and reject the rest. The "substantial impairment" test applies only to installment contracts.
Question 3 of 5
Two merchants enter an oral agreement for the sale of \( \$600 \) worth of inventory. Seller sends a signed written confirmation. Buyer does not respond. After 15 days, is the contract enforceable against the buyer?
Between merchants, a written confirmation sent by one party satisfies the Statute of Frauds against the receiving party if the recipient does not object within 10 days. Since the buyer did not object within 10 days, the contract is enforceable against the buyer.
Question 4 of 5
A merchant seller's advertisement states: "Our Model X blender will crush any ice within 30 seconds." This statement most likely creates:
A specific, measurable claim like "will crush any ice within 30 seconds" is an affirmation of fact that becomes part of the basis of the bargain, creating an express warranty under UCC 2-313. General praise ("best blender ever!") would be puffery, but a specific performance claim is not.
Question 5 of 5
Goods shipped FOB destination are destroyed in transit. Which party bears the risk of loss?
In a destination contract (FOB buyer's place / FOB destination), the seller bears the risk of loss until the goods are duly tendered at the specified destination. Since the goods were destroyed in transit before reaching the destination, the seller bears the loss.