Contract Formation Under Article II
Prof. Bill Long 1/25/05
Understanding the 200 Series
So far we have examined a few paragraphs in new Article 1 (1-103, 1-304) and several in old Article 2. I use the word old to denote that version of Article 2 which is currently enacted in 49 states. The new Article 2, though approved by NCCUSL and ALI in 2003, will probably not be adopted in its present form by any state. Article 1 was revised in 2001 and will, in my judgment, eventually be adopted by the States. Thus, my use of new Article 1 and old Article 2. The sections we emphasized in old Article 2 were 2-102, 2-105 and 2-107. You also should note the defintion of "contract for sale" in 2-106(1) as well as the difference between "termination" and "cancellation" in 2-106(3) and 2-106(4). The former word is equivalent to the common law term "rescission," a word that has almost completely dropped out of the UCC.
Thus, by this time in the course, you should be gaining some of the vocabulary of sales. You should know the scope of Article 2, what "goods" are, what "future goods" are, what three things are not goods and what the difference is between extractable goods and goods that may be "cut" in 2-107. Notice also that the one extracting the material in 2-107(1) determines whether the transaction is under Article 2 or is a real estate transaction. The crucial issue, as David observed in class, was whether the resource is renewable. If it is a non-renewable resource (like oil and gas), then a removal of such a resource by the buyer looks like the removal of real estate by a buyer--hence the transaction is not an Article 2 transaction.
On to the 200 Series
There are six sections of the 200 series which will require some attention: 2-201, 2-204, 2-205, 2-206, 2-207 and 2-209. In this and the next two mini-essays I will review 201, 204 and 206. These three deal with basic issues of contract formation. One distinction needs to be made at the outset, however. Whereas 2-204 and 2-206 speak about the conditions necessary to form a contract, 2-201 (the Statute of Frauds) focuses on the enforceability of a contract. Thus, the Statute of Frauds is usually used as a defense in a defendant's answer to a complaint. The defendant argues that the contract, even if it had been formed properly, should not be enforced against it because the contract didn't comply with 2-201. Thus, let's turn to principles of contract formation and enforceability according to UCC Article 2.
Formation: 2-204
I only assigned 2-204 for reading, but you will also now be responsible for 2-206. When you look at the UCC on contract formation, your first reaction might be, "Wow, this stuff is easy compared to the common law of contracts!" And you would be right. 2-204 lists three basic principles of contract formation under the UCC.
(1) A contract for the sale of goods may be made "in any manner sufficient to show agreement (2-204(1))." Pause for a minute on that one. What this means is that all the contract law doctrines on revocation, repudiation, counteroffers, implied in fact contracts, etc. can be set aside for now. What is therefore at stake is whether, in fact, the dealings of the parties give indicia of agreement. Conduct may be enough. Gestures may suffice. Oral communication might do it. Written signed documents might be enough. Now, this doesn't completely replace the common law doctrine of contracts. Recall under 1-103 that other sources of law can supplement Article 2. Thus, the mailbox rule is still in effect, though I don't know if anyone mails anything any more. Ah, maybe one of you could develop an "emailbox rule" for our day!
(2) Timing is not of the essence. The Code provides that you have a contract "even though the moment of its making is undetermined (2-204(2))." This again distances the Code from the common law, where it was often crucial to know exactly when a deal was made. The Official Comment ("OC") says that the issue is whether a "binding obligation" has been undertaken, and not whether you can pinpoint the time when it was so undertaken.
(3) Open terms do not invalidate a contract. 2-204(3). The test, as indicated in the OC is "there is any reasonably certain basis for granting a remedy." But what kind of indefiniteness is permitted? Quantity? Delivery date? Price? Other conditions? The Code does not say. The OC only states that "commercial standards on the point of 'indefininteness' are intended to be applied." This fits in well with the "pro-commerce" thrust of the entire Code (1-103).
Conclusion
One caveat should be added to this description so far. The fact that Article 2 relaxes the common law doctrine of contracts in a number of ways does not mean that everything is a contract. Every expression of interest in goods is not a contract. The basic points of contract law, that there must be an offer, an assent and consideration, still apply, but the UCC has collapsed those terms into the one requirement of whether the words and/or actions of the parties recognize the existence of an agreement. We just have eliminated all kinds of terminology and tests (read the Restatements of Contracts to get these) that concerned classical contract law.
Let's continue with 2-206.
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