Contracts: UCC Article 2 vs Common Law
Contracts: UCC Article 2 vs Common Law
Contract law in the United States is not a single, uniform system. Two major frameworks govern most private agreements: common law (judge-made law developed through cases) and Uniform Commercial Code (UCC) Article 2 (a statutory scheme adopted in some form by every state to govern sales of goods). Knowing which regime applies is not academic. It changes what counts as acceptance, how missing terms are handled, whether modifications need new consideration, what warranties exist, and how disputes over conflicting paperwork are resolved.
The first question: Is the contract for goods or services?
UCC Article 2 applies to transactions in goods. “Goods” are generally tangible, movable items: inventory, equipment, consumer products, raw materials. Common law governs services, real estate, employment, and many other agreements outside Article 2.
Mixed contracts: the “predominant purpose” test
Many real-world deals involve both goods and services. A contractor might supply and install HVAC equipment. A software vendor might deliver hardware plus training and maintenance. Courts commonly use a predominant purpose (or predominant factor) test: if the main thrust is the sale of goods with services incidental, Article 2 applies; if the main thrust is services with goods incidental, common law applies.
This classification drives the rest of the analysis: formation rules, implied terms, and remedies can look very different depending on the label.
Contract formation: flexibility under the UCC, stricter symmetry under common law
Both systems require the basic elements of contract formation: offer, acceptance, and consideration. But Article 2 is built for commercial practice, where parties may act first and paper the details later.
Formation with open terms
Under common law, an agreement typically must be reasonably definite, especially on key terms like price and quantity. Article 2 is more tolerant of open terms so long as the parties intended to make a contract and there is a reasonably certain basis for a remedy. Price, delivery, and other terms can often be “filled” with statutory defaults.
One limit matters: in Article 2, quantity is usually essential. Without a quantity term, a sales contract often fails, except in special arrangements like requirements and output contracts where quantity is measured by actual business needs or production.
The mirror image rule vs the UCC’s approach to additional terms
Common law traditionally uses the mirror image rule: an acceptance must match the offer. A response that adds or changes terms is a counteroffer, not an acceptance.
Article 2 relaxes this approach. A definite and seasonable expression of acceptance can form a contract even if it includes additional or different terms, unless acceptance is expressly made conditional on assent to those new terms. This is one reason sales contracts can exist even when purchase orders and acknowledgments do not align perfectly.
The battle of forms: why merchants need to care
Commercial sales often involve competing forms: a buyer sends a purchase order; the seller replies with an acknowledgment; both contain boilerplate. This is the classic battle of forms problem.
Under Article 2, a contract may be formed despite the conflicting paperwork. The key practical question becomes: which terms control?
Merchant rules and additional terms
Article 2 gives special treatment to merchants, meaning parties who deal in goods of the kind or otherwise hold themselves out as having special knowledge of the practices involved. When both parties are merchants, additional terms in an acceptance can become part of the contract unless:
- the offer expressly limits acceptance to its terms,
- the additional terms materially alter the deal, or
- the offeror objects within a reasonable time.
In contrast, if one party is not a merchant, additional terms are typically treated as proposals that require express agreement.
Common law does not have a comparable merchant framework. It generally resolves conflicts through offer and acceptance doctrine, counteroffers, and sometimes performance-based acceptance.
Contract modification: consideration vs good faith
A major operational difference shows up after the deal is made.
Common law: consideration is usually required
Under common law, a contract modification generally requires new consideration. If a party agrees to do what it was already obligated to do, that promise usually cannot support a modification. There are exceptions and modern doctrines that soften the edges, but the baseline rule remains important in many service and employment contexts.
UCC Article 2: no consideration, but good faith is required
Article 2 allows modifications without new consideration. The tradeoff is that modifications must be made in good faith. In commercial practice, this reflects reality: supply disruptions, price changes, and logistics issues arise, and parties often renegotiate to keep business moving. A bad-faith demand for a price increase leveraging the other side’s vulnerability may be challenged even if “agreed” to on paper.
Warranties: broader default protection in sales of goods
Warranty law is one of the clearest areas where Article 2 differs from common law.
Express warranties
Both regimes enforce express promises about quality or performance. Under Article 2, express warranties can arise from affirmations of fact, descriptions, samples, or models that become part of the basis of the bargain.
Implied warranties (Article 2’s major impact)
Article 2 recognizes key implied warranties unless properly disclaimed:
- Implied warranty of merchantability: if the seller is a merchant of goods of that kind, the goods must be fit for ordinary purposes, adequately packaged, and conform to labeling and ordinary expectations.
- Implied warranty of fitness for a particular purpose: arises when the seller knows the buyer’s particular purpose and knows the buyer is relying on the seller’s skill or judgment to select suitable goods.
Service contracts governed by common law may include quality obligations, but they are typically framed through negligence, professional standards, or express terms rather than Article 2’s structured implied warranties.
Disclaimers and limitation of remedies
Article 2 also gives a detailed approach to disclaiming implied warranties and limiting remedies. In practice, this is why sales contracts often include conspicuous “AS IS” language, warranty limitation clauses, and carefully drafted remedy provisions. The enforceability of these clauses can depend on factors like clarity, conspicuousness, and whether limitations fail of their essential purpose.
Practical consequences for drafting and dispute resolution
Choosing the wrong framework can lead to unpleasant surprises. The same set of facts can produce different outcomes depending on whether the dispute is treated as a sale of goods or a services contract.
Pricing, delivery, and gap-filler terms
Article 2’s gap-fillers can supply terms for price, time, place of delivery, and other details. This can preserve a deal even when the paperwork is incomplete. Under common law, missing essential terms are more likely to create enforceability problems.
Acceptance by performance and real-world conduct
Article 2 is comfortable treating conduct as contract formation. If parties act like they have a deal, ship goods, accept delivery, and pay invoices, a court may find a contract and then determine the terms from the writings and the UCC’s defaults. Common law can also recognize contracts by performance, but it is generally less systematic in providing statutory defaults tailored to commerce.
Litigation risk: the forms matter more than people expect
Businesses often assume their standard terms “control.” In a battle of forms, that assumption can be wrong. Terms like arbitration clauses, limitation of liability, warranty disclaimers, and attorney fee provisions may or may not make it into the final contract depending on merchant status, objections, and whether a term materially alters the bargain.
A simple decision checklist
When analyzing any contract dispute, start with a few disciplined questions:
- Is the subject matter goods or services? If mixed, what is the predominant purpose?
- Are the parties merchants? Merchant status can change how additional terms are treated.
- Do the writings match? If not, is there still contract formation through Article 2 rules or performance?
- Was there a modification? If yes, does it require consideration (common law) or good faith (UCC)?
- What warranties apply? Look for express warranties and implied warranties, plus any disclaimers.
Conclusion: two systems, two sets of expectations
Common law contract principles emphasize precise offer and acceptance, definable terms, and consideration-backed modifications. UCC Article 2 is designed for commercial sales of goods, where transactions move quickly, forms conflict, and businesses rely on standardized expectations like merchant warranties and flexible formation rules.
For anyone drafting, negotiating, or litigating agreements, the most important step is classification. Once you know whether Article 2 or common law governs, the rest of the analysis becomes clearer, and the risks in the deal become easier to manage.