How-to guide: Drafting a sale and supply of goods agreement (USA)

Introduction

This guide provides an overview of the law and practice relating to business-to-business (B2B) contracts for the sale and supply of goods. It explains how to draft a sale and supply of goods contract and the key terms and conditions to include.

Throughout this guide are references to Article 2 of the Uniform Commercial Code (UCC) which is a comprehensive set of laws governing many of the commercial transactions in the United States. Though not a federal law, the UCC has been adopted by nearly every state as well as the District of Columbia.

Since the UCC is the primary source of guidance, the recommendations are applicable to both sellers and buyers of goods.

This guide incorporates practical tips, examples and guidance to aid your compliance with the requirements of the law. It covers B2B transactions between parties in the United States, and is aimed at in-house lawyers and compliance professionals in organizations of all sizes and all sectors in the United States.

This guide covers:

1. Preliminary considerations
2. Drafting the contract

For further information, see Checklist: Review of terms and conditions for the purchase of goods and services from the perspective of the buyer. For information regarding transactions with parties outside the United States, see How-to guide: How to supply goods internationally.

Section 1 – Preliminary considerations

1.1 Legal framework

Your first step in drafting a sale and supply of goods agreement is to understand the legal framework within which your agreement will operate.

Article 2 of the Uniform Commercial Code (UCC) governs most contracts for the B2B or business-to-consumer (B2C) sale of goods in every US jurisdiction except for Louisiana, Puerto Rico, and American Samoa.

Article 2 sets out the general rules for sales, most of which may be changed or supplemented by agreement of the parties to a contract. Article 2 also sets out some crucial definitions, such as:

• Section 2-105 – ‘Goods’ means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action; and
• Section 2-106 – ‘contract’ and ‘agreement’ are limited to those relating to the present or future sale of goods. A ‘contract for sale’ includes both a present sale of goods and a contract to sell goods at a future time. A ‘sale’ consists of the passing of title from the seller to the buyer for a price. A ‘present sale’ means a sale that is accomplished by the making of a contract.

Article 6 of the UCC, which deals with bulk sales, has been repealed in every jurisdiction except for California. ‘Bulk sales’ are defined generally in Article 6 as sales ‘not in the ordinary course of the seller’s business of more than half of the seller’s inventory and equipment.’ In states other than California, such sales are governed by Article 2, or the local law relating to sales of goods in Louisiana or Puerto Rico.

A contract for the sale of goods could also involve Article 7 of the UCC, insofar as the delivery and shipment of goods by a third party is concerned. Article 7 applies to warehouse receipts and bills of lading.

1.2 Purpose of a sale and supply of goods agreement

Once you are familiar with the legal provisions that are likely to be relevant to your organization, ensure that you clearly understand what your organization’s goal is in entering into the contract.

This includes going beyond the bare terms of the transaction. The rule that governs contract interpretation and enforcement is to give effect to the contractual parties’ intentions. Knowing why your organization is selling goods to a particular buyer will shape how the agreement is drafted. For example, a sales contract for certain equipment to be leased or resold will be drafted differently from a contract to sell that same equipment to a buyer for direct use. Being clear on the parties’ intentions and purpose within the contract is important.

1.3 Pre-existing agreements

Consider whether there are any pre-existing third party agreements or current agreements with the potential party to the supply of goods agreement that may impact either party’s ability to enter into a new agreement.

1.4 Parties to the agreement

At the outset, clearly identify all of parties to the agreement and identify all of the persons or entities involved in the transaction.

While this may seem obvious, there are numerous situations where clarity will be important. For example, if an agreement to sell goods is an agreement between a holding company and one of its subsidiaries, that relationship must be set out clearly in the agreement terms. This is also important should any dispute arise and litigation become necessary.

The identity of the parties may affect whether a contract is for the sale of consumer goods, B2C (typically defined as being for the personal or household use of the buyer), or goods for a business purpose, B2B. 

Identifying the contracting parties will clarify the contractual obligations of each and will also help to delineate the parties against whom enforcement may be sought if necessary.

1.5 The goods being sold

Identification of the goods being sold is essential to an enforceable agreement, even if that identification is only a general description of a quantity of a certain type of product. Note, however, that this description may be made more specific to include model numbers or other identifying information. Essential terms should be defined, especially if there is a possibility that a different meaning may reasonably apply to the goods. If there is no consensus or common understanding of a key term, a contract could be rendered unenforceable. See, eg, Frigaliment Importing Co v BNS International Sales Corp, 190 F Supp 116 (SDNY 1960) (parties differed on the meaning of ‘chicken,’ and there was no industry consensus as to what the term meant). This is examined further in Section 2 below.

1.6 Blend of goods and services

It is important to understand that blended contracts (ie, those that encompass the sale of both goods and services) may have a different governance structure because UCC Article 2 only applies to the sale of goods and does not apply to the sale of services. Contracts for services are typically governed by the common law, or, in some instances in some jurisdictions, by professional or occupational licensing requirements. The question of whether the contract is governed by the UCC or by some other law is determined by the ‘predominate purpose test.’ That test provides that if the majority of the contract is for the sale of goods, then Article 2 governs. If the majority of the contract is for the sale of services, then other statutory or common law provisions apply.

A ‘predominate purpose test’ inquiry considers factors such as:

• the terminology of the contract;
• the objective of the parties in entering the contract;
• the ratio of the price of the goods to the whole price of the contract;
• the nature of the business of the supplier; and
• the intrinsic value of the goods without the service.

1.7 Formation of contract under the UCC – offer and acceptance

It is important to recognize that the conduct or action of the parties during the preliminary stages could form a contract for the sale of goods, even if it is unintentional. In the preliminary stages be sure that your counterparts understand that your conduct or actions (or those of your company or client, such as through calls or emails) are not creating contractual obligations. According to UCC section 2-204(1), a contract for the sale of goods may be made in any manner sufficient to show agreement. This may include conduct by both parties which recognizes the existence of such a contract.

Further, under UCC section 2-204(2), an agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined. This primarily concerns the situation where the exchanged correspondence does not disclose the exact point at which the deal was closed, but the actions of the parties indicate that a binding obligation has been undertaken.

Last, under UCC section 2-204(3), even though one or more terms are left open, a contract for sale does not fail for indefiniteness if the parties intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. Conduct or context when sending emails, correspondence, making telephone calls or other informalities can be scrutinized collectively as potentially creating binding obligations.

According to UCC section 2-206 acceptance of an offer can be made in any manner and by any medium reasonable in the circumstances, unless otherwise provided in the offer. For example, if the offer states that it must be accepted in a signed writing, it may be considered insufficient to e-mail acceptance without an electronic signature. An order or offer to buy goods for prompt or current shipment is construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of goods, UCC section 2-206. Again, the reasonableness and circumstances surrounding party conduct can be analyzed to determine whether a contract has formed, so be cautious when engaging in negotiations to buy or sell goods.

An expression of acceptance or a written confirmation operates as an acceptance of an offer and will form a contract, even if the acceptance includes terms that are additional to or different from those offered or agreed on, unless the acceptance is expressly made conditional on assent to the additional or different terms. If acceptance is not conditioned on those additional terms, the additional terms are regarded as proposals for an addition to the contract. In a B2B contract, the additional terms will become a part of the contract unless:

• the offer expressly limits acceptance to the terms of the offer;
• the new terms materially alter the contract; or
• notification of objection to the new terms has already been given or is given within a reasonable time.

Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale even though the writings of the parties do not otherwise establish a contract, UCC section 2-207.

1.8 Firm offer for sale of goods: how long is the offer held open?

A written, signed offer to buy or sell goods that states that the offer will be held open, is not revocable for lack of consideration during the time stated, UCC section 2-205. If no time period is stated, then the offer can be held open for a reasonable time, but no longer than three months.

Section 2 – Drafting the contract

Contracts are incredibly important in business, and they frequently play a key part in a company’s success. Companies can benefit from well-drafted contracts in a variety of ways, from preventing contract breaches and litigation to improving business relationships. The following guidance will help sellers or buyers of goods craft effective contracts.

2.1 Purpose of agreement – preamble and recitations

While the preamble to a contract is sometimes dismissed as mere boilerplate, a well-drafted preamble, along with a set of recitations, can ensure that the contract is interpreted in a way that benefits your organization. The preamble may identify the parties and may make certain other issues explicit, such as whether the contract is for a commercial or a consumer transaction.

Two important rubrics regarding the interpretation of contracts are as follows:

• courts will rarely interpret a contract contrary to the express terms of a written agreement. A written preamble or recitation may be used as proof of what the parties intended to accomplish by their agreement, and how it was intended to be accomplished; and
• any ambiguities in a contractual term are construed against the party who drafted the contract. An ambiguity, in this context, means that a disputed term has more than one reasonable meaning in the context in which it is being used.

2.2 Definitions of terms used in agreement

Contracts are generally interpreted according to the plain meaning of the contractual terms. If a term that is used has a special definition when applied to the agreement, that definition should be set out explicitly. Most courts will give effect to terms of art or special terminology used in a particular trade or industry. It is nonetheless best practice to define those terms clearly, especially if the purchasing party does not regularly do business in the industry.

2.3 Identify goods to be sold

A valid sales contract can be made to sell either present or future goods. ‘Future goods’ are defined as ‘[g]oods which are not both existing and identified.’ See UCC section 2-105. The UCC does not contain a formal definition of ‘present goods,’ but it may be inferred that ‘present goods’ are goods that are not ‘future goods.’ Goods must be both existing and identified before any interest in them can pass.

Description

Avoid vague descriptions of goods. If there is a brand or model number, it is good practice to include it in the contract. If the contract is for the sale of one item, consider attaching a photograph of the item and incorporating it into the contract.

Specifications

The specifications add to the descriptiveness of the goods. Specifications are essential when the item being sold is specially manufactured or procured. Exact specifications may be crucial if a product malfunctions and causes injury, as they will show how the product was intended to perform. If there is any confusion as to the specification of a product, then diagrams, plans, engineering drawings, or similar exhibits may be attached to the contract in order to ensure complete clarity.

Quantity

Set out the quantity of the goods purchased, or the means for calculating the quantity to be sold. A contract may be based on the output of the seller or the requirements of the buyer, and will be construed as calling for the entire output or requirements as may occur in good faith, if the quantity is not unreasonably disproportionate to any stated estimate, or in the absence of a stated estimate, to any normal or otherwise comparable prior output or requirements that may be tendered or demanded, UCC section 2-306.

Price

The price term could be fixed or a price per unit. The price may be calculated according to external resources such as a market price on a commodities exchange or by use of some other industry means. The means by which the price is determined between the parties should be done in good faith. If the parties intend not to be bound unless the price is fixed or agreed and it is not fixed or agreed, then there is no contract, UCC section 2-305. The purpose of this UCC section is to give effect to what the parties have consented to in their agreement. That effect, however, is always conditioned by the requirement of good faith action by the parties.

2.4 Payment

There is great flexibility regarding mutual agreement as to how payment may be made. Payment could be made in advance, on delivery, 30 days after invoice, by deposit, by letter of credit, or by other terms. The method of payment can be through a wire transfer, automated clearing house, check, cash, or any other manner used in conducting ordinary business. When determining the method of payment, be sure that your business has the appropriate infrastructure to process payment. Confirm wire transfer capabilities, fees associated with wire transfers and credit card payments, check clearing requirements, and how cash will be collected, tracked and deposited. Internally, a payment processing protocol should be in place.

2.5 Duration or term of agreement

The duration or term of agreement clause specifies how long the agreement will control the parties’ relationship. Agreements that are intended to cease when a one-time transaction is completed may not require a termination provision.

A sale of a single item or a single quantity of an item does not call for any term regarding duration. Such a contract is typically ‘one and done,’ subject to any warranty or service period.

The duration of the agreement may be fixed as a ‘period of supply’ term. If there is a duration term that has a more specific end date, consider using ‘effective’ and ‘ending’ dates. If the duration is not so specific, the duration term can be until a specified quantity is supplied or is terminated at the option of either party to the agreement.

2.6 Shipment

Usually, the seller selects the method of shipment and carrier, although the parties are free to agree otherwise. The seller may wish to name a specific carrier, or it may prefer to leave that term out, allowing the shipment method to be determined when it is time to ship. The contract can specify an allotted amount of time for the goods to ship. It is important to consider what happens if the delivery is late or delayed, and the best manner in which to manage supply chain disruptions. 

2.7 Risk of loss

A shipment of goods always presents some risk of loss. As a general rule, the party that has the risk of loss (whether by agreement or by operation of law) bears the responsibility for obtaining insurance to cover the shipment and associated goods. 

Standard contract terms regarding risk of loss during shipment are as follows:

• freight on board (FOB, sometimes referred to as ‘free on board’) – indicates the point at which the costs and risks of shipped goods shift from the seller to the buyer. The shift can take place either at the destination or shipping points. If the goods are shipped FOB destination, then the seller transfers title at the point the goods are delivered to the destination. If the goods are shipped to FOB shipping point, then the seller transfers title at the point the goods are delivered to the shipping point, and the risk of loss shifts from the seller to the buyer, UCC section 2-319;
• free alongside (FAS) – the goods are delivered when the carrier arrives alongside the buyer’s ship or destination port. The risk of loss then passes to the buyer, UCC section 2-319;
• cost, insurance, and freight (CIF) – the seller is liable for the cost, insurance, and freight until the goods arrive at the destination port, UCC section 2-320; and
• cost and freight (C&F) – the seller must pay the cost and freight of the goods, UCC section 2-320.

2.8 Delivery

2.8.1 Time and place of delivery

A contract should state explicitly where and when goods are to be delivered. If there is no such term, UCC section 2-308 provides that the place for delivery of goods is the seller’s place of business, or if there is none, then their residence. If the goods are identified and known at the time of contracting to be located somewhere other than the seller’s place of business or residence, that place will be the place for delivery.

If the contract does not set out a time for shipment or delivery, that time will be a ‘reasonable time,’ UCC section 2-309.

2.8.2 Liability for late or delayed delivery

Delays in shipment or deliveries can arise from numerous factors, such as natural disasters, supply chain disruptions, or logistical challenges. While unforeseen delays may be beyond the seller's control, they can still lead to significant consequences for all of the parties involved in the transaction. For buyers, a late delivery can result in operational interruptions, financial losses, or missed opportunities. For sellers, untimely deliveries can damage reputations and lead to strained business relationships.

To mitigate the risk of delays, a liquidated damages clause can be included in the contract. Such a clause specifies a predetermined amount of compensation the seller must pay if delivery is delayed beyond the agreed-upon deadline. By setting damages at a fixed amount, both parties gain clarity and predictability regarding potential liabilities, reducing the likelihood of future disputes.

The liquidated damages clause is as a safeguard for sellers, as it limits their exposure to claims for damages. It also incentivizes timely performance, as it sets out in advance clear consequences for delays. However, the amount fixed must be a reasonable estimate of the potential losses the buyer might incur, ensuring that it is not punitive in nature. If deemed a penalty, the clause could be challenged and invalidated.

2.8.3 Default of carrier

The loss of goods may be caused by the action or inaction of the carrier. When using a common carrier (an entity that transports goods or people from one place to another for a fee), a destination contract (fixing the risk of loss with the seller until the goods are delivered to the buyer), or a shipping point contract (fixing the risk of loss with the buyer when the goods are delivered to the carrier for delivery) may be used.

2.9 Warranties

A warranty guarantees to the purchasing party that the goods will meet certain standards regarding their condition, quality, or nature. A warranty can be either expressed or implied. 

2.9.1 Express warranties

An express warranty is an affirmative promise about the quality or features of the goods. Express warranties are expressed terms that are generally stated in the contract using the formal words ‘warranty’ or ‘guarantee’ (UCC section 2-313).

2.9.2 Implied warranties

Implied warranties are presumed to exist in contracts for the sale of goods whether expressed or not. These warranties allow buyers to purchase goods with the assurance that they meet certain minimum standards, without securing guarantees on each individual standard (UCC section 2-314). Implied warranties may include:

• merchantability – the goods reasonably conform to an ordinary buyer’s expectation, (ie, the goods are what they say they are);
• fitness for a particular purpose – the buyer relies on the seller to select goods for a particular purpose;
• title – the seller has the right to sell the goods; and
• against intellectual property infringement – a warranty that implies the goods will be delivered free from infringement on a third party’s intellectual property rights.

It is possible to disclaim any implied warranty. Disclaimers are explained further in 2.10.

2.10 Disclaimers

Disclaimer of warranties is allowed under the UCC. It is good practice to draft a disclaimer clause stating that there are ‘no further representations or warranties’ to preclude outside discussions or correspondence from being considered a part of the contract. An implied warranty can also be excluded or modified by a course of dealing or course of performance or usage of trade. See UCC section 2-316.

An implied warranty of fitness for a particular purpose may not be disclaimed or excluded, except in a writing that makes the disclaimer conspicuous, because such a warranty flows from the actions of a seller in making a recommendation to the buyer (UCC section 2-316).

2.11 Course of dealing/usage of trade

Certain warranties may be implied through the course of dealing between the parties, or by the usage of trade. ‘Course of dealing’ is defined as the way the parties have acted towards each other in the past. ‘Usage of trade’ is the customary usage within a particular industry, trade, or community. The existence and scope of such a usage must be proved as facts (UCC section 1-303).

2.12 Acceptance of goods

Acceptance of goods tendered in a sales contract is the function of the buyer, and the buyer controls much of that process. The seller may include contractual provisions to make the process more transparent for both parties.

2.13 Inspection/samples

Unless the contract provides otherwise, a buyer may inspect goods before payment or acceptance. Inspection is at the buyer’s expense, and that expense may be recovered from the seller if the goods are rejected as non-conforming. Inspection may be at any reasonable place and time and in any reasonable manner (UCC section 2-513).

2.14 Satisfaction

A contract may provide that a buyer is obligated to accept performance only if they are satisfied with the seller’s tender. In commercial contracts, any dissatisfaction that would justify rejection of the goods must be reasonable. ‘Reasonable,’ in this context, generally means that the buyer is able to articulate a specific, good faith reason for their dissatisfaction.

2.15 Return of non-conforming goods

‘Conforming’ goods are those that are in accordance with the seller’s contractual obligations (UCC section 2-106). Unless otherwise agreed by the parties, if the goods or the tender of delivery of goods fail in any respect to conform to the contract, the buyer may either:

• reject the whole;
• accept the whole; or
• accept any commercial unit or units and reject the rest.

If the sales contract identifies the goods to be sold when the contract is made, and the goods are damaged without fault of either party before the risk of loss passes to the buyer, the contract is avoided in the event of a total loss. If the loss is partial or the goods have so deteriorated as to no longer conform to the contract, the buyer may demand inspection and at their option either treat the contract as avoided or accept the goods with due allowance from the contract price for the deterioration or the deficiency in quantity. If the buyer accepts the goods, they will have no further right against the seller (UCC section 2-613).

Rejection or refusal of received goods revests title of goods in the seller by operation of law (UCC section 2-401). If the time to perform has not expired, the seller may notify the buyer of the intention to cure and deliver conforming goods within the contract time (UCC section 2-508).

2.16 Liability

2.16.1 Limitation of liability

A limitation of liability clause is a provision that caps the potential liability of one or both parties to the agreement. It is a risk management tool that limits a party’s maximum exposure for damages to a certain amount, or to a certain category of damages. Limitation of liability clauses generally expedite the process of negotiating damages when one or both parties are dissatisfied with the performance of the other under the terms of the agreement. Generally, this helps to avoid expensive litigation and also helps to preserve the relationship of the buyer and seller.

A limitation of liability clause is not an exculpatory clause, nor is it a release from liability. The clause states that, if a party should be held liable for a given type of injury, the damages for which the party is liable will be capped in some way. It does not say that a party is not liable, or will not be liable, for a certain injury.

For further information, See How-to guide: How to draft and negotiate limitation of liability clauses.

2.16.2 Maximum dollar amount of damages

A common type of limitation of liability clause sets a cap on the damages that may be recovered. The cap may set a certain amount as the maximum damages recoverable or may limit the recovery to the price paid under the contract. Damages may be limited to an amount calculable at the time of a breach or even to the available insurance coverage. A limitation clause may also be a combination of limits.

These clauses are disfavored and may be unenforceable in some jurisdictions. They will also commonly be held to be unenforceable in matters involving intentional acts, gross negligence, or recklessness.

2.16.3 Indemnification against claims of third parties

An indemnification clause provides protection against the claims of third parties. In essence, such a clause provides that the buyer will assume responsibility for damages incurred or alleged by those third parties. For example, a seller may include a clause saying that the seller may not be held liable for damages incurred by a party who buys or leases a product from the original buyer. An indemnification clause can be either partial or full. ‘Partial indemnification’ is a contractual agreement in which the indemnitee may be compensated for the portion of a loss that was not caused by the indemnitee’s own fault, even if the indemnitee’s own negligence contributed to the loss in part. This is typically viewed in the same way as common law contribution claims, in which the paying party can recover monies paid in excess of its share of obligation from joint tortfeasors. In contrast, under ‘full indemnification’ or ‘total indemnity,’ regardless of comparative culpability, the indemnitor must pay any and all liability incurred by the indemnitee.

2.16.4 Insurance coverage

As discussed previously in Section 2.7, the need for insurance, whether procured by the buyer or the seller, is determined by the risk of loss allocation in the contract. Industry standards on the type and amount of insurance should be reviewed. Before determining the types of insurance to be required, you must have some idea of the types of harm that could arise from the activities contemplated under the contract.

Insurance requirements in a contract ensure that the organization you are contracting with will have adequate assets available in the event of a loss arising out of the commercial transaction. Consulting with your insurance professional could assist in determining what coverage is or is not available for the transaction.

2.17 Additional terms

There are additional terms that may be needed or negotiated in the sale of goods transaction. Some of these provisions may or not be applicable in all contracts.

2.17.1 Liquidated damages

A liquidated damages clause is especially useful when seeking protection for losses caused by outside events where actual damages, though real, are difficult to prove, such as force majeure. Liquidated damages are meant to be a reasonable estimate of actual damages that are likely to occur and should not be punitive. If a defendant can show that the clause is punitive in nature (for example if the figure is an excessive amount), the clause may be unenforceable. See, eg, Action Orthopedics, Inc v Techmedica, Inc, 759 F Supp 1566, 1570 (MD Fla 1991) (‘Freedom of contract is a basic tenet of the UCC. However, any clause that fixes unreasonably large, liquidated damages is void as a penalty.’).

2.17.2 Seller’s delegation of performance

Sometimes situations arise where the seller cannot perform some or all of their contractual obligations. A seller may perform his duty by delegating it to another party unless contracted to the contrary or unless the buyer has a substantial interest in having the original seller perform or control the acts required by the contract (UCC section 2-210). For example, a contract for the sale of specially designed or built goods is probably based on the buyer’s evaluation of the seller’s individual skill, and so could not be delegated. Importantly, all rights of either seller or buyer can be assigned except where the assignment would materially:

• change the duty of the other party;
• increase the burden or risk imposed on the other party by the contract; or
• impair the other party’s chance of obtaining return performance.

When drafting a sale of goods contract, consider whether to permit or exclude the right to assign rights in the agreement, also known as an ‘assignment of rights.’

2.17.3 Subcontractors

Subcontractors may be subject to a level of quality or standard requirement. It is usually to the seller’s advantage to reserve the right to subcontract performance. The buyer must be assured that subcontractors will perform adequately. Although the buyer will probably be able to recover from the seller for the inadequate performance of a subcontractor, it is always best to try to eliminate the need for a post facto remedy in favor of receiving adequate performance from start.

2.17.4 Other sellers/manufacturers

Other sellers or manufacturers may be used to provide performance, unless prohibited by the contract. For example, a manufacturer may find that it is less costly to purchase components for a product from another manufacturer, rather than fabricating those components itself. Note that a contract may specify delivery of goods with a certain brand name; however, rebranding of another manufacturer’s product, if allowed by that manufacturer, would not necessarily violate such a specification.

2.17.5 Enforcement

Terms should be included in a contract as to what actions a party can take should an issue or claim arise. This would include remedies that might not necessarily be ordered by a court in the event of a dispute, but which may be agreed upon by the parties. For example, a buyer may wish to repudiate a contract if the delivery of one shipment of the goods is late. A court might regard such a repudiation as a breach, depending on the seriousness of the delay, but the parties may agree to allow repudiation in such a circumstance.

2.17.6 Notice of breach – opportunity to cure

As noted above, in 2.15, if the time to perform has not expired, the seller may notify the buyer of the intention to cure, and deliver conforming goods within the contract time, UCC section 2-508. A cure provision can be written expressly in the agreement, allowing for a reasonable period of time for the seller to cure the non-conformity.

The ability to provide a ‘notice of breach’ and the parameters relating to it should be provided for in the contract. This provision should include the manner of giving notice, and the time for giving notice.

2.17.7 Arbitration/mediation

Contractual clauses calling for arbitration or mediation of disputes have become increasingly common in contracts for the sale of goods. An arbitration or mediation clause is a type of forum selection clause that provides for parties to handle their disputes outside of the courts. An arbitration clause requires the parties to resolve their disputes through arbitration. The mediation clause requires the parties to resolve their disputes through mediation. Arbitration clauses are generally preferable in B2B matters due to their binding nature, unlike mediation clauses.

Courts will generally enforce either type of clause, and will almost invariably enforce an award made by an arbitrator. A company’s position in the market should be considered when deciding whether to use either type of clause. Larger companies tend to be subject to more litigation than smaller companies. An arbitration provision could help to reduce litigation costs. Importantly, the decisions of these tribunals are binding on the parties and cannot be appealed. However, the decision of who picks and who pays for the arbitrator can be determined by the negotiated arbitration clause. Other advantages of arbitration include avoidance of hostility, lower litigation costs, speed, flexibility, simplified rules of evidence and procedure, and privacy. There are some disadvantages, such as limited recourse, uneven playing field if the arbitration clause is poorly drafted, lack of transparency to the public, and potential questionable objectivity if the arbitrator selected is not objective.

2.17.8 Choice of law/choice of forum

There can sometimes be meaningful differences between the laws of various jurisdictions that might have some relationship to your agreement or the negotiations that lead to its eventual execution. The primary purpose of a ‘choice of law’ clause is to avoid uncertainty over the law that would govern any disputes that may arise out the contractual relationship. The purpose of a choice of law clause is to provide certainty as to the applicable governing law in the case of a dispute. A choice of law clause specifies that any disputes arising out of the contract shall be governed in accordance with the law in a particular jurisdiction. Choice of forum can be exclusive to a specific forum or non-exclusive by authorizing more than one jurisdiction to resolve a dispute that arises under the contract. Courts will enforce such a clause, provided there is some relationship between the forum or law selected and the contract at issue.

A choice of law clause is an important feature of any written agreement and can help provide assurance about the parties’ agreed on terms. Note that, by failing to assure that both tort and contract claims are regulated by the same law, such a clause can generate the very uncertainty it was intended to eliminate.

2.17.9 Attorneys’ fees

If your sales of goods transaction leads to litigation or arbitration, a successful litigant may not recover their attorneys’ fees unless allowed to by the contract, or by another statute. A clause authorizing the recovery of attorneys’ fees should be included. Including this as the drafter of the contract could help to discourage the other party to initiate litigation since they may be held liable for recovery of attorney fees.

2.18 General terms

The phrase ‘boilerplate’ refers to the standardized language found at the end of a contract (typically in a section headed ‘miscellaneous’ or ‘general terms’). While boilerplate provisions are common in contracts, they should always be double-checked and customized to the specifics of the situation because they will address critical concerns that will determine the parties’ rights under the contract’s terms. Remember that any clause in a contract, even the boilerplate ones, can be negotiated.

2.18.1 Integration clause

An integration clause declares that the contract is the complete and final agreement between the parties. Evidence outside the written contract may not be considered. But see, eg, Allapattah Servs, Inc v Exxon Corp, 61 F Supp 2d 1308, 1316 (SD Fla 1999) (‘The UCC does not presume that a written contract sets forth the parties' entire agreement. Instead, the UCC focuses on the intention of the parties to determine the efficacy of an integration clause.’)

2.18.2 Severability

A severability clause specifies that if any term or part of the contract is found to be illegal or unenforceable, the rest of the contract remains in effect.

2.18.3 Modification

The parties may agree to a modification of a contract that conforms to UCC requirements without further consideration, UCC section 2-209.

2.18.4 Force majeure

Events often arise that are outside of a party’s control, such as severe weather, public health emergencies, and other supply chain disruptions. Force majeure clauses will allow a seller to insulate their organization from liability for such events, by providing that a delay or non-fulfillment due to force majeure is not a breach of contract. See also: How-to guide: Maximizing the use of boilerplate clauses to limit the risk of unforeseen events.

2.18.5 Waiver

A waiver provision allows the parties to waive their right to sue for breach of a specific agreement provision without giving up any future claims relating to that or any other agreement provision. The party drafting the contract should include language addressing non-waiver and no variation without written approval for terms that the parties do not want to be waivable.

2.18.6 Entire agreement

The parol evidence rule, in most US jurisdictions, bars consideration of matters outside the written contract. That rule, however, is subject to many exceptions, and will not always bar consideration of evidence of additional terms. A provision in an entire or integrated agreement that states that the written agreement contains the parties’ entire and final understanding regarding the subject matter may deter a customer from claiming that a pre-contract statement or misrepresentation was incorporated into the contract, allowing the seller to argue that the parol evidence rule applies. As a result, it is critical for the parties to verify that the contract contains all of the agreed conditions, as any clauses not explicitly included in the document will not be considered part of the parties’ agreement. The parties to an agreement should include a declaration that neither party has relied on any pre-contract statement or representation as part of, or in addition to, the full agreement clause, as it will aid in fighting against any claim that the customer relied on a misrepresentation.

Additional resources

Stacy-Ann Elvy, Contracting in the Age of the Internet of Things: Article 2 of the UCC and Beyond, 44 Hofstra L. Rev. 839 (2015-2016)
Henry Deeb Gabriel, The 2022 amendments to Article 9 of the American Uniform Commercial Code, 44 Law and Financial Markets Review 1 (2025)
Kenneth Kettering, Coordination of the Uniform Commercial Code and Common Law, November 1, 2021
Jennifer S. Martin, Colin P. Marks & Wayne Barnes, The Uniform Commercial Code Survey: Introduction, 75 Bus. Law. 2611 (2020)

Related Lexology Pro Content

How-to guides:

How to supply goods internationally
How to draft a supply of services contract
How to avoid liability for defective products in supply of goods agreements

Checklists:

Assessing whether standard terms and conditions should be used for the supply of goods and services
Delivery and acceptance of goods in a business-to-business sale of goods contract
Review of terms and conditions for the purchase of goods and services from the perspective of the buyer

Clauses:

Sale of goods

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