Last updated: October 2026
Business-to-business contracts in California are governed by two different bodies of law, and which one applies changes the answer to almost every question. Agreements for the sale of goods fall under the Commercial Code, which supplies terms you never negotiated, allows a contract to form even when the paperwork does not match, and imposes warranties by default. Everything else runs on common law contract rules. Bay Legal, P.C. drafts, reviews, and enforces commercial agreements for California businesses.
Definition: A commercial contract is an agreement between businesses governing the supply of goods or services, as distinct from a consumer or employment agreement.
Does the Commercial Code apply to your contract?
It depends on what is being sold. Division 2 of the California Commercial Code governs transactions in goods — movable things. Services are governed by common law. Mixed contracts are characterised by their predominant purpose, which is why a software licence, an equipment installation, or a maintenance-plus-parts agreement can be genuinely uncertain until someone analyses it.
| Sale of goods (Commercial Code) | Services (common law) | |
|---|---|---|
| Statute of frauds threshold | $500 or more — § 2201 | Depends on the category — Civ. Code § 1624 |
| Terms not agreed | Gap-filling provisions supply price, delivery, and timing | Contract may fail for uncertainty |
| Conflicting forms | A contract can still form — battle of the forms rules apply | Mirror image rule; a counter-offer generally rejects |
| Implied warranties | Merchantability and fitness arise by default unless disclaimed | None implied by statute |
| Limitation period | Generally four years, and the parties may shorten it | Four years written, two oral |
What happens when the forms do not match?
A buyer sends a purchase order with its terms on the back. The seller responds with an acknowledgement carrying different terms. Neither reads the other’s, goods ship, and both assume there is a contract on their own terms. There usually is a contract, but not necessarily on either party’s terms.
Under common law the mirror image rule would treat the acknowledgement as a counter-offer, so the last form sent before performance would govern. The Commercial Code takes a different approach at section 2207: an acceptance with additional or different terms can still form a contract, and whether those terms become part of it depends on the parties, whether they materially alter the deal, and whether objection was made.
The practical consequence is that a business relying on standard terms printed on the back of its documents may find some of them absent from the contract. The remedy is unglamorous: a signed agreement superseding both sets of forms, or an express objection to conflicting terms in the acknowledgement.
What warranties apply whether or not you mention them?
Two matter most. The implied warranty of merchantability, under Commercial Code section 2314, arises where the seller is a merchant in goods of that kind and requires the goods to be fit for their ordinary purpose. The implied warranty of fitness for a particular purpose, under section 2315, arises where the seller knows the buyer’s particular purpose and the buyer relies on the seller’s skill in selecting the goods.
Both can be disclaimed, but not casually. A disclaimer of merchantability must generally mention merchantability and, if written, be conspicuous. A disclaimer buried in small print among other terms may fail, which means a seller who intended to sell goods as-is can find themselves warranting them.
For buyers the point runs the other way: a warranty you never negotiated may already exist, and a disclaimer that does not meet the statutory requirements may not have removed it.
Which clauses decide how a dispute goes?
- Limitation of liability. Caps on exposure and exclusions of consequential loss. Frequently the most valuable clause in the agreement and usually the least negotiated.
- Indemnity. Who pays when a third party sues. Scope, trigger, and control of the defence all matter, and defence obligations can be broader than indemnity obligations.
- Fee-shifting. There is no general right to attorney fees in California, so this clause changes what each side risks by litigating.
- Dispute resolution and venue. Arbitration or court, in which county or state, under whose law. A forum selection clause agreed casually can mean litigating somewhere inconvenient.
- Termination. For cause, for convenience, notice periods, and what survives. Businesses routinely discover they cannot exit an agreement they have outgrown.
- Notice provisions. Method and address for formal notices. Serving a breach notice by the wrong method can invalidate it.
How long do you have to sue?
For a contract for the sale of goods, generally four years, with the parties able to shorten the period by agreement within limits. For other written contracts, four years under Code of Civil Procedure section 337; for oral contracts, two years under section 339. The period runs from the breach rather than from when the problem became apparent.
Because goods contracts can carry a contractually shortened period, the agreement is worth checking before assuming any of these. A supply contract limiting claims to one year is not unusual and is easy to miss.
Who handles commercial contracts at Bay Legal?
Managing attorney Jayson R. Elliott leads the firm’s business practice, covering drafting, review, and negotiation of supply, service, distribution, and vendor agreements. Lead litigation attorney Evan Livingstone heads the litigation group, which handles commercial contract disputes.
Bay Legal, P.C. serves businesses statewide from offices in Palo Alto and Los Angeles, including across San Francisco and the wider Bay Area. Commercial contract actions are filed in the Superior Court of the county where the defendant resides or where the contract was to be performed, unless the agreement provides otherwise. The California Courts publish local rules, which differ by county.
Frequently Asked Questions
Does the UCC apply to my contract?
It applies to transactions in goods — movable things — under Division 2 of the California Commercial Code. Services run on common law rules. A mixed contract is characterised by its predominant purpose, which makes software licences, equipment installations, and parts-plus-maintenance agreements genuinely uncertain until analysed.
What is the battle of the forms?
When a buyer’s purchase order and a seller’s acknowledgement carry conflicting terms. Commercial Code section 2207 allows a contract to form anyway, and whether the extra terms become part of it depends on whether both parties are merchants, whether the terms materially alter the deal, and whether objection was made. Standard terms on the back of a form may not survive.
What warranties apply if my contract is silent?
For goods, merchantability under section 2314 where the seller deals in goods of that kind, and fitness for a particular purpose under section 2315 where the seller knew the buyer’s purpose and the buyer relied on their skill. Both can be disclaimed, but a disclaimer of merchantability must generally mention it and be conspicuous.
Can I limit my liability in a commercial contract?
Generally yes between businesses, through caps and exclusions of consequential damages, subject to limits including unconscionability. It is frequently the most valuable clause in the agreement and the least negotiated. Buyers should check what is excluded before relying on a remedy that may not be available.
How long do I have to sue on a supply contract?
Generally four years for a sale of goods, and the parties may shorten that by agreement within limits — a one-year limit in a supply contract is not unusual and is easy to miss. For other written contracts four years under Code of Civil Procedure section 337, and two years for oral contracts under section 339.
Do I need a written contract with a supplier?
For goods of $500 or more, the Commercial Code statute of frauds generally requires a writing. Beyond that threshold the practical case is stronger: without a document the gap-filling provisions supply terms you never chose, and proving what was actually agreed becomes the dispute.
Related Questions
What is a requirements contract?
An agreement to buy all of a stated need from one supplier. Enforceable despite the quantity being open, but it carries good-faith limits on how far requirements may swing.
Can I change my standard terms?
For future orders, yes with notice. Existing contracts generally continue on the terms already agreed, which is why terms-of-supply changes need managing rather than posting.
What survives termination?
Whatever the survival clause says — typically confidentiality, indemnity, limitation of liability, and dispute resolution. A contract without one leaves that argument to be had later.
Is an email exchange a binding contract?
It can be, where the essential terms are agreed and both sides intend to be bound. Businesses frequently form contracts by email while believing they are still negotiating.
Talk to a California commercial contract attorney
Whether the Commercial Code applies changes the warranties, the forms analysis, and the deadline. To have a supply or service agreement reviewed, or to enforce one, call the office nearest you or email intake.
Bay Legal, P.C. — serving California statewide
Northern California office
667 Lytton Ave Ste 3, Palo Alto, CA 94301
(650) 668-8000
Southern California office
3211 Cahuenga Blvd W Ste 212, Los Angeles, CA 90068
(213) 668-8000
Intake: intake@baylegal.com
Fax: (650) 963-0041
Website: https://baylegal.com
This page is general information about California law and does not constitute legal advice or create an attorney-client relationship. For advice on your specific situation, contact a licensed California attorney.