What rules govern a dispute over a sale of goods between businesses in New York?

This page explains New York law under Article 2 (Sales) of the New York Uniform Commercial Code (UCC), as published by the New York State Senate. KOR Law LLP's commercial litigation practice handles disputes arising under the Uniform Commercial Code concerning sales, negotiable instruments, fund transfers, and secured transactions. The firm also practices in New Jersey; this page covers New York law only.

When does Article 2 apply?

Article 2 "applies to transactions in goods" (UCC 2-102(1)). "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 used to pay, investment securities and things in action (UCC 2-105(1)).

Many deals mix goods and services. New York's current text addresses these "hybrid" transactions directly: if the sale-of-goods aspects predominate, Article 2 applies to the transaction, though other law may still govern the parts unrelated to the goods; if they do not predominate, only the provisions that relate primarily to the sale-of-goods aspects apply (UCC 2-102(2)).

Article 2 does not apply to a transaction that "operates only to create a security interest" (UCC 2-102(3)(a)). Loans secured by collateral fall under Article 9, a different set of rules explained in what a UCC foreclosure sale of an ownership interest is in New York.

Is there an enforceable contract, and on whose terms?

The statute of frauds. A contract for the sale of goods "for the price of $500 or more" is not enforceable unless there is a record sufficient to indicate a contract was made, signed by the party against whom enforcement is sought (UCC 2-201(1)).

The merchant confirmation rule. Between merchants, a confirmation sent within a reasonable time that binds the sender also satisfies the requirement against the recipient, if the recipient has reason to know its contents and does not object in a record "within ten days after it is received" (UCC 2-201(2)).

Exceptions. Even without a qualifying record, a contract is enforceable for specially manufactured goods the seller has substantially begun to make or procure, to the extent a party admits the contract in court, and for goods already paid for and accepted or received and accepted (UCC 2-201(3)).

The battle of the forms. When a purchase order and a seller's acknowledgment do not match, an acceptance can still form a contract even though it adds or changes terms, unless acceptance is "expressly made conditional" on assent to them (UCC 2-207(1)). Between merchants, additional terms become part of the contract unless the offer limited acceptance to its own terms, the new terms "materially alter it," or a timely objection is given (UCC 2-207(2)). If the paperwork never matches but both sides perform, the contract consists of the terms on which the writings agree plus supplementary terms supplied by other provisions of the UCC (UCC 2-207(3)).

What did the seller promise about the goods?

• Express warranties. Any affirmation of fact or promise about the goods, any description, and any sample or model that becomes "part of the basis of the bargain" creates an express warranty (UCC 2-313(1)). No formal words are needed, but a statement of value or the seller's opinion does not create one (UCC 2-313(2)).
• Merchantability. If the seller is a merchant in goods of that kind, the law implies a warranty that the goods are merchantable, which includes being "fit for the ordinary purposes for which such goods are used" (UCC 2-314).
• Fitness for a particular purpose. If the seller has reason to know the buyer's particular purpose and that the buyer is relying on the seller's skill or judgment to select suitable goods, the goods are impliedly warranted to be fit for that purpose (UCC 2-315).

Implied warranties can be disclaimed, but the rules are specific. To exclude merchantability the language "must mention merchantability" and, in a writing, be conspicuous; to exclude fitness, the exclusion must be in a writing and conspicuous (UCC 2-316(2)). Expressions such as "as is" or "with all faults" generally exclude all implied warranties (UCC 2-316(3)(a)).

When a seller's statement about the goods was knowingly false, the buyer may also consider a fraud claim, which has different elements, damages and deadlines, explained in what you have to prove to win a fraud claim in a New York business case.

How does a goods dispute unfold, step by step?

1. Delivery and inspection. A failure to reject counts as acceptance only after the buyer has had a reasonable opportunity to inspect the goods (UCC 2-606(1)(b)).
2. Reject or accept. Rejection "must be within a reasonable time after their delivery or tender" and "is ineffective unless the buyer seasonably notifies the seller" (UCC 2-602(1)).
3. If accepted, pay and give notice. The buyer "must pay at the contract rate for any goods accepted" (UCC 2-607(1)) and can no longer reject them (UCC 2-607(2)). The buyer "must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy" (UCC 2-607(3)(a)).
4. Revocation in serious cases. A buyer may revoke acceptance of goods whose non-conformity "substantially impairs" their value, if acceptance was based on an expected cure that did not come or on defects that were hard to discover or masked by the seller's assurances; revocation must come within a reasonable time and is not effective until the seller is notified (UCC 2-608).
5. Demand assurance when worried. When reasonable grounds for insecurity arise, either side may demand adequate assurance in writing and, if commercially reasonable, suspend its own performance; failing to provide adequate assurance within a reasonable time not exceeding 30 days after a justified demand is a repudiation (UCC 2-609).
6. File within four years. The action must be commenced within four years after the cause of action accrues (UCC 2-725(1)). Business claims with different clocks are compared in how long you have to sue for breach of contract, fraud, or a sale of goods in New York.
7. Choose the forum. "Transactions governed by the Uniform Commercial Code" are a listed Commercial Division case type, subject to county monetary thresholds (22 NYCRR 202.70(b)(2)); the forum is explained in whether your business dispute belongs in the New York Commercial Division. Its document and deposition rules are covered in what discovery limits apply in the New York Commercial Division.

What can a buyer recover?

When the seller fails to deliver or repudiates, or the buyer rightfully rejects or justifiably revokes acceptance, the buyer may cancel and recover so much of the price as has been paid, plus damages (UCC 2-711(1)). The two main measures are:

• Cover. Buy substitute goods "in good faith and without unreasonable delay" and recover the difference between the cost of cover and the contract price (UCC 2-712). Failing to cover does not bar other remedies (UCC 2-712(3)).
• Market damages. The difference between the market price when the buyer learned of the breach and the contract price (UCC 2-713(1)).

If the buyer kept the goods and gave timely notice, the warranty measure is generally the difference, at the time and place of acceptance, between the value of the goods as accepted and the value they would have had as warranted (UCC 2-714(2)). Incidental damages, such as inspection, transport and cover expenses, and consequential damages from needs the seller had reason to know of that cover could not reasonably prevent, may be added (UCC 2-715). Where the seller fails to deliver or repudiates, the buyer may also recover identified goods or, in a proper case, obtain specific performance or replevy them (UCC 2-711(2)), and urgent cases may call for the court relief described in how fast you can get a TRO or preliminary injunction in a New York business dispute.

What can a seller recover?

When the buyer wrongfully rejects, revokes, fails to make a payment due on or before delivery, or repudiates, the seller may withhold or stop delivery, resell, recover damages, sue for the price in a proper case, or cancel (UCC 2-703). The measures:

• Resale. The difference between a good-faith, commercially reasonable resale price and the contract price; a private resale requires reasonable notice to the buyer of the intention to resell (UCC 2-706).
• Market or lost profit. The difference between market price and the unpaid contract price, or, if that is inadequate, the profit (including reasonable overhead) the seller would have made from full performance (UCC 2-708).
• The price. For goods the buyer accepted, or identified goods the seller cannot resell at a reasonable price after reasonable effort (UCC 2-709).

Winning a money judgment is only half of a seller's problem; turning it into payment is covered in what happens after a money judgment is entered in New York.

Can the contract limit the remedies?

Yes, within limits. The agreement may limit the buyer's remedies, for example to return and refund or to repair and replacement, and an agreed remedy is optional unless it is "expressly agreed to be exclusive" (UCC 2-719(1)). Where circumstances cause an exclusive or limited remedy "to fail of its essential purpose," the other UCC remedies become available (UCC 2-719(2)). Consequential damages may be limited or excluded unless the limitation is unconscionable, and limiting damages "where the loss is commercial" is not prima facie unconscionable (UCC 2-719(3)).

What changes the answer?

• Goods or services. In hybrid deals, it matters which aspects predominate (UCC 2-102(2)).
• Merchant status. Several rules apply only to merchants (UCC 2-201(2), 2-207(2), 2-314(1)).
• The paperwork. Disclaimers and limited-remedy clauses reshape the claim (UCC 2-316, 2-719).
• Inspection before the deal. Examination, or refusal to examine, removes implied warranties for defects that should have been seen (UCC 2-316(3)(b)).
• Acceptance and notice timing. Acceptance ends the right to reject, and late notice can bar every remedy (UCC 2-606, 2-607(3)(a)).
• Warranties of future performance. A warranty breach normally accrues at tender of delivery, but where a warranty "explicitly extends to future performance," the claim accrues when the breach is or should have been discovered (UCC 2-725(2)).

For example: a shipment of compressors that fails in the field

Common mistakes

• Using defective goods before complaining. Acts inconsistent with the seller's ownership can be acceptance (UCC 2-606(1)(c)).
• Giving vague or late notice. Failure to notify within a reasonable time can bar any remedy (UCC 2-607(3)(a)).
• Ignoring a confirmation. A merchant that does not object in a record within ten days may be bound by it (UCC 2-201(2)).
• Suspending performance without a written demand. The UCC's route for insecurity is a written demand for adequate assurance, after which performance may be suspended if commercially reasonable (UCC 2-609).
• Overlooking a shortened deadline. The contract may cut the four-year period to as little as one year (UCC 2-725(1)).

What to do this week

1. Collect the purchase orders, acknowledgments, invoices and confirmations, and note which form came last.
2. Find any warranty, disclaimer, limited-remedy and limitation-period clauses.
3. If you are the buyer, send a written notice of breach describing the problem, and keep the goods safe and documented.
4. If you are worried about the other side's performance, send a written demand for adequate assurance.
5. Calculate damages under the right measure (cover, market, accepted goods, resale or price) and keep receipts for incidental costs.
6. Calendar the delivery date and the contract's limitation period.

Frequently asked questions

Does Article 2 cover a contract to install equipment?

It can. In a hybrid transaction where the sale-of-goods aspects predominate, Article 2 applies, though other law may govern the parts unrelated to the goods (UCC 2-102(2)(b)). Where installation or other services predominate, only the Article 2 provisions relating primarily to the goods apply (UCC 2-102(2)(a)).

When does the four-year clock start on a warranty claim?

Generally when tender of delivery is made, "regardless of the aggrieved party's lack of knowledge of the breach" (UCC 2-725(2)). The exception is a warranty that explicitly extends to future performance, where the claim accrues when the breach is or should have been discovered.

Can a seller recover its lost profit if the buyer backs out?

Yes, where the market-price measure is inadequate, the measure becomes the profit, including reasonable overhead, from full performance (UCC 2-708(2)).

If I reject goods, do I have to ship them back?

Not necessarily. A buyer in possession must hold rejected goods with reasonable care at the seller's disposition long enough for the seller to remove them, and otherwise has no further obligations regarding goods rightfully rejected (UCC 2-602(2)). A buyer who paid also has a security interest in the goods for those payments and certain expenses (UCC 2-711(3)).

Can a court case over goods be filed in federal court?

Only where federal jurisdiction exists; otherwise the case belongs in state court. The factors are compared in federal court or state court: where a New York business dispute should be filed.