UCC 2-201 (Legal Application: Essential Elements To Know)

What is UCC 2-201?

What is the legal requirement of § 2-201 of UCC?

What are the essential elements you should know!

Keep reading as we have gathered exactly the information that you need!

Let’s dig into our Uniform Commercial Code knowledge!

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UCC 2-201 Overview

What does 2-201 UCC entail?

Section 2-201 of UCC is titled “Formal Requirements; Statute of Frauds” and states that contracts for the sale of goods having a price greater than $500 or more are enforceable provided there is a written contract.

In other words, the party seeking the enforcement of the contract by way of action or defense must demonstrate that a contract for sale was effectively made between the parties.

This provision provides for a statutory requirement that a contract be in writing.

With this requirement, the court will not consider oral contracts as the legal basis to enforce a party’s rights.

If the contract omits or does not correctly provide for the agreement of the parties, it can be enforced under UCC 2-201(1) with regards to the quantity of goods shown in the contract.

UCC Section 2-201 provides for a special procedure between merchants who are given the possibility to enter into a contract without a written contract but exchange a written confirmation within a reasonable time after (UCC 2-201(2)).

We cover this in more detail under the section Merchant’s Confirmation below (be sure to keep reading!).

UCC 2-201(3) provides certain cases where a contract that does not satisfy the rule may be enforceable if the goods were specially manufactured, if a party admits it or there is payment and acceptance.

UCC 2-201 Application

UCC 2 201 applies to contracts relating to the sale of goods. 

For example, a distribution agreement for the sale of goods can be subject to the UCC 201.

It does not apply to agreements relating to the performance of services such as a service agreement, professional services, consulting services or other.

A contract for the sale of goods can be:

  • Sale of products
  • Sale of merchandise
  • Sale of parts
  • Distribution agreement
  • Reseller agreement

Whenever there is a product (or goods) sold, that contract may be subject to this provision if its value is over $500.

Merchant’s Confirmation 

UCC 2-201(2) provides certain guidelines with respect to contracts entered into between merchants.

In essence, the requirements of UCC 2-201(1) are satisfied if merchants entering into an agreement with one another: 

  • Within a reasonable timeframe 
  • Send a written confirmation of the contract
  • The party receiving the confirmation has reasons to know its content 

Once written confirmation is sent by a merchant to the other, and there is no written objection within 10 days from the receipt of the confirmation, then the contract for the sale of goods is enforceable. 

On the other hand, if the receiving merchant sends a written objection, then the written confirmation will not satisfy the rule of 2-201.

In essence, an oral contract between merchants is enforceable if the merchant sends a confirmation shortly after the contract was formed and the other does not object.

Specially Manufactured Goods

Are there any exceptions to 2 201 UCC?

A contract for the sale of goods that do not specifically satisfy the rule but otherwise a valid contract can be enforced when the goods were specially manufactured.

The Uniform Commercial Code further states that if the goods are unable to be sold to others in the normal course of business and the seller has started the manufacturing process or has made commitments for their procurement, the contract will be enforceable.

Admissions

A second exception to the UCC Section 2-201 is when a party admits the existence of a contract of sale.

The defendant can admit the existence of the contract of sale in its pleadings, testimony or make any other form of admission before the court that a contract for sale was entered into with the plaintiff.

If the admission is made, the law will consider the contract to be enforceable but not beyond the quantity of goods admitted.

Payment or Acceptance 

The third exception is provided that a contract not directly enforceable under UCC Section 2 201 will be enforceable if payment was made and accepted.

The law specifically indicates if payment was made and accepted or payment has been received and accepted to cover both the buyer and seller perspective.

Takeaways 

So how does UCC 2 201 apply? 

Let’s look at a summary of our findings.

UCC 2-201

  • UCC 2-201(1) states that a contract for the sale of goods is enforceable under this provision if it is in writing and is worth over $500
  • UCC 2-201(2) provides that an oral contract for goods between merchants can be confirmed in writing within a reasonable period of time after the contract was made and will be enforceable provided no objection is made within 10 days by the receiving party 
  • UCC 2-201(3) indicates that a valid contract, although not respecting the rule, will be enforceable if it is specially manufactured, if a party admits it in court or if there is payment and acceptance 
Commercial law 
Confirmatory memo role
Contract formation
Contract law 
Merchant law
Parol evidence rule
Professional services
Sale of goods
Service agreement
Statute of frauds exceptions
Statute of frauds requirements
Statute of frauds 
UCC 2-207
UCC sale of goods
Author