Tennessee Business Litigation Lawyers Blog
The “Sales” chapter of the Uniform Commercial Code (referred to as “Article 2 of the UCC”), which was adopted by Tennessee in 1963, was designed to bring uniformity and efficiency to transactions involving the sales of goods. Article 2 is thorough, to say the least. In any breach of contract case, breach of warranty case or any other case involving goods sold, it should be reviewed carefully as it has provisions that touch on every aspect of transactions involving the sales of goods, including, contract formation, price, terms, delivery, remedies, warranties, and rejection of non-conforming goods.
There is no way, in the space for a blog such as this, to cover all of the potentially important aspects of Article 2, but the following are some observations about it that are helpful to practitioners and litigants.
The UCC – Sales Only Applies to Sales of “Goods”
Article 2 only applies to transactions involving the sales of goods. If your case involves an investment, a real estate dispute, a shareholder divorce, or some type of service, you need to look to Tennessee common law or to some other statute. With some frequency, transactions will involve both the sales of goods and services. For example, the purchase and installation of computer software and hardware by a business will entail both the provision of goods and services (which the UCC refers to as “non-goods”). In such cases, the UCC will apply if the predominate assets transferred were goods. One of the leading Tennessee cases on this topic is Hudson v. Town & Country True Value Hardware, Inc., which was decided by the Supreme Court of Tennessee in 1984.
Different Rules in Article 2 May Apply If the Sale Involves a “Merchant”
A party considered a “merchant” under Article 2, in many important situations, may find that it is subject to different rules and standards under that Article. To generalize, under Article 2, you are a “merchant” if you are a professional in a business involving the type of goods involved with the transaction. (See T.C.A. § 47-2-104 for the precise definition of “merchant”). Keep in mind that, to be considered a merchant with respect to a transaction in goods, you have to be a professional with respect to the type of goods involved. If a lighting manufacturer buys a forklift, it will not be considered a merchant with respect to that transaction. If it buys filament for the bulbs it manufactures, it will be.
Here are some notable provisions that prescribe different rules for merchants:
- The Article 2 statute of frauds, which requires that a sale of goods for the price of over $500 be memorialized in a writing, contains different rules for agreements “between merchants.” To generalize, the Article 2 statute of frauds can be satisfied, in a transaction between merchants, by a confirmation sent after the formation of the agreement. See, T.C.A. 47-2-201(2).
- Unlike under Tennessee common law, a merchant cannot revoke a firm offer which it has made to buy or sell goods based on lack of consideration. See, T.C.A. 47-2-205
- Unlike under Tennessee common law, or under Article 2 when the transaction is not between merchants, under a transaction between merchants, additional or different terms may become part of a contract even when they were not agreed upon originally. See, T.C.A. 47-2-207 (sometimes referred to as the “battle of the forms” statute)
Article 2 Has Its Own Statute of Frauds
A statute of frauds, generally speaking, requires an agreement to be written and signed to be enforceable. The Tennessee statute of frauds codified at T.C.A § 29-2-101 does not apply to contracts for the sales of goods, but Article 2 has its own statute of frauds which applies to the sales of goods for a price of $500 or more. See, T.C.A. §47-2-201. Even if the requirement of a writing is not met, the contract may still be enforceable under Article 2 where:
- The transaction involves specially manufactured goods
- The party against whom enforcement is sought admits to the contract (in which event the contract is enforceable only to the extent of the quantity of the goods admitted)
- The goods have been accepted and paid for, or received and accepted
A Seller of Goods Can Accept a Buyer’s Offer by Promptly Shipping the Goods
Under T.C.A. §47-2-206, where a buyer communicates an offer to buy goods offered by the seller, the seller can accept, and thus form an enforceable contract, by either promptly promising to ship or just promptly shipping.
A Modification of an Agreement for the Sale of Goods Requires No Additional Consideration
In a marked deviation from Tennessee common law, a modification of a contract covered by Article 2 requires no additional consideration to be binding. See, T.C.A. §47-2-209. That is the general rule set out in the aforementioned statute, but read it carefully as it has some twists and turns.
An Enforceable Contract for the Sale of Goods Can be Formed Even Where the Parties Have Not Agreed on Price
In my opinion, this may be the biggest difference between Tennessee common law that applies to breach of contract cases and Article 2. Under Tennessee common law, generally speaking, if the parties don’t agree on a price, their purported contract is nothing more than an unenforceable “agreement to agree.” The drafters of the UCC, realizing that agreements for the sales of goods with open price terms might promote the interests of commerce, included a provision in Article 2 to abrogate the common law rule. See, T.C.A. §47-2-305. The statute specifies how an open price term is to be determined.
Under Article 2, a Party Has Two Years Less to File Its Lawsuit
For breach of contract cases in Tennessee, other than breach of contract cases for the sales of goods, a six-year statute of limitation applies in almost all cases. Under Article 2, the statute of limitations for a breach of contract case for the sale of goods is four years. See, T.C.A. 47-2-725