Start Here: 5 Things You MUST Know
UCC Article 2 governs sales of goods (tangible, movable things) — NOT services, real estate, or stocks
UCC acceptance can include additional terms — no mirror image rule like common law
FOB Shipment = buyer's risk once on the truck. FOB Destination = seller's risk until arrival
Nonconforming goods shipped as an accommodation are NOT a breach of contract
COD sales = buyer pays on delivery with no right to inspect before paying
1. What is UCC Article 2?
Uniform Commercial Code (UCC)
A set of standardized laws adopted by all 50 states to govern commercial transactions. Article 2 specifically covers the sale of goods — tangible, movable things like cars, furniture, and electronics. It does NOT cover services, real estate, or stocks.
Why Does Article 2 Matter?
Think of Article 2 as the "rulebook" for buying and selling physical stuff. When a sales contract is silent on certain terms (like delivery time or what happens if goods are damaged in shipping), UCC Article 2 fills in the blanks automatically.
UCC Article 2 vs. Common Law Contracts
UCC Article 2 (Goods)
- Acceptance can include additional or different terms
- Between merchants, additional terms can become part of the contract
- More flexible approach to contract formation
- Gap-filling provisions when terms are missing
Common Law (Services/Real Estate)
- Strict "mirror image" rule — acceptance must match offer exactly
- Any change in terms = counteroffer, not acceptance
- More rigid approach
- No automatic gap-filling
Real-World Scenario: UCC Flexible Acceptance
The Setup: MegaCorp sends a purchase order to SteelCo for 500 tons of steel at $200/ton.
What Happens: SteelCo sends back an acceptance that adds "Delivery within 60 days" — a term not in the original order.
The Result: Under UCC Article 2, this IS a valid acceptance (not a counteroffer). Since both are merchants, the 60-day delivery term likely becomes part of the contract unless MegaCorp objects within a reasonable time.
2. Nonconforming Goods — When It Is NOT a Breach
A shipment of nonconforming goods (goods that do not match the order) does NOT automatically constitute a breach in two key situations:
Accommodation Shipment
The seller notifies the buyer that the shipment is only an accommodation — meaning "I am trying to help; here is what I have; take it or leave it."
NOT A BREACH
Seller's Right to Cure
If the buyer rejects goods before the contractual performance time expires, the seller can notify the buyer of intent to cure by delivering conforming goods.
NOT A BREACH (IF CURED)
Real-World Scenario: Accommodation Shipment
The Setup: A restaurant orders 100 cases of Coca-Cola from a distributor.
What Happens: The distributor is out of Coke and ships 100 cases of Pepsi instead, with a note saying "This is an accommodation — we are out of Coke, sending Pepsi as a substitute."
The Result: This is NOT a breach. The restaurant can accept or reject the Pepsi. If rejected, the distributor owes nothing more.
3. Shipping Terms — Who Bears the Risk?
Exam Alert!
Shipping terms determine when ownership (title) and risk of loss shift from seller to buyer. This is the #1 tested concept in this assignment.
FOB (Free on Board) — The Big Two
FOB Place of Shipment
Seller delivers goods to the carrier at the seller's location. Risk and expense shift to the buyer once goods are given to the carrier.
Plain English: "Once I put it on the truck at my warehouse, it is YOUR problem."
FOB Place of Destination
Ownership passes when the carrier delivers goods to the buyer's location. Seller bears all risk during transit.
Plain English: "It is MY problem until it arrives at YOUR door."
FOB Shipment — Risk Transfer Flow
Seller's Warehouse
Seller's risk
Handed to Carrier
RISK SHIFTS HERE
In Transit
Buyer's risk
Buyer's Location
Buyer's risk
Other Key Shipping Terms
CIF (Cost-Insurance-Freight)
Seller pays for insurance AND freight charges for delivery. Risk shifts once goods reach the carrier.
CAF (Cost and Freight)
Seller pays freight charges but NOT insurance. Same as CIF minus the insurance.
COD (Collect on Delivery)
Buyer pays when goods are delivered. No right to inspect goods before payment.
FAS (Free Alongside) Vessel
Risk shifts when seller delivers goods alongside the ship for loading. Used in maritime shipping.
FOB Vessel
Goods loaded on board the vessel at seller's risk. One step further than FAS — seller pays for loading too.
Real-World Scenario: FOB Shipment Disaster
The Setup: A furniture manufacturer in North Carolina ships a $50,000 order of custom office furniture to a buyer in New York. The contract says "FOB Shipment Point."
What Happens: The delivery truck overturns on the highway in New Jersey. All furniture is destroyed.
The Result: The buyer bears the loss. Under FOB Shipment, risk shifted to the buyer as soon as the goods were handed to the carrier in North Carolina. The buyer must still pay and should have purchased transit insurance.
4. Inspection & Delivery Time
Buyer's Right to Inspect
The buyer generally has the right to inspect goods before accepting and paying.
Exception: COD sales — buyer must pay first, then inspect.
Time for Delivery
If no delivery time is specified in the contract, delivery must occur within a reasonable time. What counts as "reasonable" depends on the circumstances.
Real-World Scenario: COD No-Inspection Trap
The Setup: A small business orders 50 custom phone cases from an online wholesaler. The terms are COD.
What Happens: The delivery arrives. The business owner wants to open the boxes and check quality before paying the driver, but the driver refuses.
The Result: The driver is correct. Under COD terms, the buyer has no right to inspect before paying. The business must pay first, then check the goods. If the cases are defective, the buyer can pursue remedies afterward but must pay upfront.
Cheat Sheet
Print this page for quick referenceUCC Article 2 Basics
- Covers sales of GOODS only (tangible, movable)
- More flexible than common law (no mirror image rule)
- Between merchants, additional terms can become part of contract
- Accommodation shipments are NOT a breach
- Seller has right to cure nonconforming goods before deadline
Shipping Terms Quick Guide
- FOB Shipment = buyer's risk at seller's location
- FOB Destination = seller's risk until buyer's location
- CIF = seller pays cost + insurance + freight
- CAF = seller pays cost + freight (no insurance)
- COD = buyer pays on delivery, no inspection right
- FAS Vessel = risk shifts alongside the ship
Exam Trap Alerts
1. FOB Shipment vs. FOB Destination
This is the #1 tested shipping concept. FOB Shipment = risk shifts at seller's location when goods reach the carrier. FOB Destination = risk stays with seller until goods reach the buyer. Do NOT confuse them.
2. UCC Acceptance Is NOT Like Common Law
Under UCC, an acceptance with additional terms is STILL a valid acceptance (not a counteroffer). This is the opposite of common law's mirror image rule. Between merchants, additional terms can become part of the deal.
3. Accommodation Shipment Is NOT a Breach
When a seller ships substitute goods with a notice that it is an accommodation, this is NOT a breach and NOT an acceptance of the offer. The buyer can simply reject the substitutes.
4. CIF vs. CAF — One Letter, Big Difference
CIF includes insurance. CAF does NOT include insurance. The "I" in CIF stands for Insurance. If the exam asks who pays for insurance during transit, the answer depends on whether the contract says CIF or CAF.
5. COD = No Inspection Before Payment
In a COD sale, the buyer MUST pay before inspecting. This is a major exception to the general rule that buyers can inspect before paying.
Quick Reference Summary
UCC Article 2
Governs sales of goods. All 50 states. More flexible than common law.
Mirror Image Rule
Does NOT apply under UCC. Acceptance with additional terms is valid.
Accommodation
Substitute goods shipped with notice. Not a breach. Buyer can reject.
FOB Shipment
Risk shifts to buyer at seller's location when carrier receives goods.
FOB Destination
Risk stays with seller until goods arrive at buyer's location.
COD Sales
Buyer pays on delivery. No right to inspect before payment.