What is UCC 2-205?
What does UCC 2 205 relate to?
What are the essential elements you should know!
In this article, I will break down the notion of UCC 2-205 so you know all there is to know about it!
Keep reading as I have gathered exactly the information that you need!
Let’s look at UCC §2-205 on Firm Offers to better understand how it works!
Are you ready?
Let’s get started!
UCC 2-205 Overview
UCC 2-205 refers to Section 2-205 of the Uniform Commercial Code relating to firm offers.
A firm offer is an offer that remains legally open for a certain period of time (or until the materialization of a certain event) during which the offeror cannot revoke the same.
For UCC Section 2-205 to apply, you’ll need the following elements:
- A merchant
- Making an offer
- To buy or sell goods
- In writing
- Signed by the offeror (the merchant)
An offer refers to a “promise” by one party to perform something (or not to perform something) in exchange for the other party to perform something else.
The person making the offer is the “offeror” and the person receiving the offer is the “offeree”.
When the offeree accepts the offer, you have the formation of a legally binding contract.
The offeror is the person who determines the content of the offer and the means by which it can be accepted.
As such, the offeror can include things like details relating to the performance, time period the offer is open, how the offer can be accepted, and so on.
Typically, the offeror can legally revoke his or her offer before the offeree accepts the same.
The idea of a “non-revocable offer” is an exception to the general rule that an offer can legally revoke his or her offer prior to its acceptance by the offeree.
However, the Uniform Commercial Code provides for an exception to this widely recognized rule stating that a merchant’s offer to buy or sell goods in signed writing will be firm and could not be revoked.
What’s more, even if the merchant’s offer is without a “consideration”, the offer will remain non-revocable nonetheless.
Consideration is something of “value” that the contracting parties intend to exchange by entering into a contract.
For example, consideration can include:
- A monetary payment
- A promise to do something
- A promise not to do something
For a contract to be legally formed, one of the key elements required is “consideration”.
However, Section 2-205 of UCC makes an exception to this rule where a merchant’s offer, not supported by consideration, can be a firm offer and be legally binding.
If the merchant’s offer stipulates a time period, then the offer will remain open for that time period.
However, if the offer does not contain a time period, then the offer irrevocability will be for a period not to exceed three months.
It’s important to note that if the irrevocability period of the offer expires, it’s still possible for the offer to remain open under the general rules of contracts until the offer is expired, rejected, or revoked by the offeror.
Purpose of UCC 2-205
The purpose of Section 2 205 of the Uniform Commercial Code is to require that a merchant be bound to a firm offer even without the element of consideration and to have a merchant be bound by the terms of an offer it expresses in writing (and signs).
Generally, under the general rules of a contract, a contract is formed when there is offer, acceptance, consideration, capacity, and legality.
Typically, the offer submitted by the offeror will contain all the essential elements of a potential contract to be formed and is sustained by a consideration.
However, under the UCC 2-205 rule, an offer made by a merchant to buy or sell goods, even within it is not sustained by consideration, can be a firm offer.
Essentially, UCC’s objective here is to give act to a merchant’s deliberate intention to make a current and binding firm offer.
Elements of UCC 2-205
An offer by a “merchant” to buy or sell goods in a “signed” “writing” is not revocable even without consideration during the term of the offer or for a period of up to three months.
Let’s look at each of these aspects.
UCC 2-104(1) defines a merchant to be:
a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.
Signed writing can include the signature of a document, contract, letter, memorandum, purchase order form, or any other document expressing the intention of the merchant.
The notion of “signed” can also include the authentication of a document to the extent the merchant’s conduct demonstrates his or her intention to be legally bound in a firm offer.
The manner a document is signed or authenticated must be reviewed by the court but the act of signing, initially, or putting a mark on a clause could satisfy the definition of a “signed” document.
Writing can include a wide variety of documents, such as:
- A contract
- A document
- A form
- A letter
- A letter on letterhead
- A memorandum
- A purchase order
The notion of “firm offer” must be nuanced from long-term options.
UCC requires that the merchant’s offer give the assurance that it will remain open.
For example, if a document says that the offer is “guaranteed” or “firm”, then it is an assurance to the offeree that the merchant intended for the offer to be firm.
For an offer to be considered as a firm offer, it does not necessarily need to have a statement setting out the number of days it is open or by what date it will expire.
If an offer is not supported with consideration and does not specify a time period, it will remain open for up to three months by operation of the law.
However, if an offer is supported by consideration, it can remain open and firm for a period exceeding three months to the extent it was the offeror’s expressed intention.
UCC 2-205 Firm Offer
UCC 2 205, titled “Firm Offers”, states:
An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.
In other words, a firm under the Uniform Commercial Code (UCC) is one where:
- An offer
- By a merchant
- To buy goods or sell goods
- In a signed writing
- With the assurance that it will remain open
- Is not revocable
- During the time stated or for up to 3 months
2-205 UCC Takeaways
So there you have it folks!
What is UCC 2-205?
What does UCC 2205 relate to?
In essence, UCC § 2-205 is a provision of the Uniform Commercial Code stating that a merchant’s offer to buy or sell goods, provided in a signed writing, even without consideration, will remain open for a period stated or a reasonable period of time (not exceeding three months).
Section 2-205 UCC can be summed up as follows:
- A merchant who makes an offer in writing
- Cannot revoke the offer for a period of three months
- To the extent the offer provides the assurance that it will be held open
- Even without the element of consideration
In other words, when a merchant presents an offer to buy or sell goods with the assurance that it will remain open, even without consideration, it will be legally bound by the offer to the extent it is accepted by the offeree before the stated time period or within a reasonable period of time (not to exceed three months).
If you are a merchant dealing goods and subject to the UCC, it’s important that you ensure you make your offers as clear as possible to avoid any misunderstanding and legal disputes.
If you can clearly stipulate that your offer is firm or not, how the offer can be accepted, if the offer is revocable or not, and include any other important contract language, you can avoid a lot of legal headaches.
If you are not sure, don’t hesitate to consult a contract lawyer or an attorney specializing in contracts and your legal obligations.
I hope this article gave you a proper level of understanding relating to UCC2-205.
Good luck with your firm offer!
My Investing, Business, Contracts and Law Blog
By the way, on this blog, I focus on topics related to starting a business, business contracts, and investing, making money geared to beginners, entrepreneurs, business owners, or anyone eager to learn.
Just so you know who I am and where I come from, a little about me…
I have a university degree in finance and law.
I have worked in an international financial institution dealing with the stock market, stock, bonds, corporate financing, and securities.
I practiced law in private practice where I advised and consulted entrepreneurs and business owners on many aspects of their business, such as how to start new business ventures, how to scale their business, how to navigate commercial contracts, and how to set themselves up for success.
I also acted as an in-house counsel and eventually as the General Counsel in a rapidly growing technology company going through hypergrowth, dealing with international Fortune 500 clients, and operating internationally.
Let me tell you, in my career, I’ve learned a lot about business, investing, investment decisions, business decisions, and law.
I started this blog out of my passion to share my knowledge with you in the areas of finance, investing, business, and law, topics that I truly love and have spent decades perfecting.
You may find useful nuggets of wisdom to help you in your entrepreneurship journey and as an investor.
I’d love to share the insider knowledge that I’ve acquired over the years helping you achieve your business and financial goals.
Now, let’s look at a summary of our findings.
UCC Section 2 205
If you enjoyed this article on UCC 2-205, I recommend you look into the following terms and concepts. Enjoy!
You May Also Like Related to Contracts And Contract Law
Accord and satisfaction
Frustration of purpose
Invitation to treat
Lack of capacity
Mirror image rule
Offer and acceptance
Privity of contract
Statute of frauds