Under UCC 2-615, allocation of goods is what a seller must do when an unforeseen event cuts into their ability to fulfill every contract: divide the remaining supply among buyers in a fair and reasonable way, notify each affected buyer of their reduced quota, and let those buyers decide whether to accept the smaller share or walk away. The statute doesn’t let a seller cancel everything because something went wrong. Partial capacity means partial delivery, distributed on a defensible basis.1Legal Information Institute. UCC 2-615 Excuse by Failure of Presupposed Conditions
When the Duty to Allocate Kicks In
Allocation becomes mandatory the moment a seller recognizes that an unforeseen contingency has reduced capacity but not eliminated it. The triggering event has to be something whose non-occurrence was a basic assumption of the contract: a wartime embargo, an unexpected shutdown of a major supply source, a regional crop failure, a government order that makes delivery illegal.1Legal Information Institute. UCC 2-615 Excuse by Failure of Presupposed Conditions A price spike or a bad commodity bet doesn’t qualify; that’s the ordinary business risk a fixed-price contract is designed to cover.
If some delivery is still feasible, total non-performance is not an option. A seller who treats a partial disruption as grounds for walking away from every contract loses the protection of UCC 2-615 entirely and faces breach claims for the full shortfall.
Who Goes Into the Allocation Pool
Every customer with an existing contract must be included. Beyond that mandatory core, the seller has discretion to add two additional categories: regular customers who don’t currently have a contract but typically rely on the seller for supply, and the seller’s own needs for further manufacturing.1Legal Information Institute. UCC 2-615 Excuse by Failure of Presupposed Conditions Bringing non-contract regulars into the pool is permitted, not required.
Self-dealing is the clearest limit. The UCC’s official comments warn that any allocation to the seller’s own manufacturing needs that exceeds normal past requirements won’t be treated as reasonable. A seller who suddenly reserves 60 percent of available supply for internal use when the historical figure was 20 percent will not survive a fairness challenge.
What “Fair and Reasonable” Looks Like
The statute requires that the allocation be fair and reasonable but doesn’t dictate a formula. A pro-rata approach based on historical purchase volumes is the most common and the easiest to defend. If a seller is running at 50 percent of normal capacity, giving each buyer 50 percent of their typical order is straightforward.
Allocation gets harder when market prices have climbed since the contracts were signed. The UCC’s drafters addressed this directly. When prices have advanced, contract customers should be favored over spot buyers, and supplies should be prorated evenly among contract customers regardless of the price each one is paying. Steering scarce goods toward newer, higher-paying customers at the expense of long-standing contract buyers is the fact pattern courts treat most skeptically.
Documentation is what turns a defensible allocation into a provable one. A seller should be able to show every affected buyer the data behind their quota:
- Total available supply
- The full list of claimants included in the allocation pool
- Historical volumes used to calculate each share
- The final allocation figure for each buyer
If a buyer later challenges the plan as arbitrary, those records are the primary defense. A transparent, consistently applied methodology also satisfies the good faith requirement running through the UCC.
Notice to Affected Buyers
The seller must notify every affected buyer “seasonably” that there will be a delay or non-delivery. When allocation is required, that notice must also state the estimated quota for that buyer.1Legal Information Institute. UCC 2-615 Excuse by Failure of Presupposed Conditions Both pieces of information are mandatory, and they go in the same communication.
“Seasonably” isn’t tied to a specific day count. Under UCC 1-205, an action is seasonable if it is taken within any time agreed upon or, if no time was agreed, within a reasonable time measured by the nature, purpose, and circumstances of the action.2Legal Information Institute. UCC 1-205 Reasonable Time; Seasonableness In practice, that means notifying buyers as soon as the seller can reasonably assess the scope of the shortage. Sitting on the information while buyers plan around the original schedule exposes the seller to liability for losses that earlier notice would have prevented.
The notice needs to be concrete. State plainly that full delivery won’t happen, identify the cause, and give the buyer their specific quota in units or percentage terms. Vague references to “potential disruptions” don’t meet the requirement. The buyer needs enough information to decide whether to accept the reduced delivery or arrange substitute supply elsewhere.
How Buyers Respond: The 30-Day Window
Once a buyer receives a valid allocation notice, UCC 2-616 gives them two options. They can terminate the unexecuted portion of the contract, discharging both sides from further obligations on the affected deliveries. Or they can modify the contract by agreeing in writing to accept the reduced quota as a substitute for the original order.3Legal Information Institute. UCC 2-616 Procedure on Notice Claiming Excuse
The deadline is strict. A buyer who fails to respond in writing within a reasonable time, and in no event more than 30 days after receiving the seller’s notice, loses the right to choose. The contract lapses with respect to the affected deliveries.3Legal Information Institute. UCC 2-616 Procedure on Notice Claiming Excuse Silence is not a holding pattern. Treating the notice as an opening offer or ignoring it in hopes of negotiating later means the contract terminates by default on day 31.
If the shortage substantially impairs the value of the entire contract rather than just a single delivery, the buyer’s rights extend to the whole agreement, which matters most in long-term supply arrangements. And UCC 2-616 can’t be contracted around except where the seller has already assumed a greater obligation; a clause stripping buyers of these response rights won’t hold up.3Legal Information Institute. UCC 2-616 Procedure on Notice Claiming Excuse
What Happens When Allocation Goes Wrong
A seller who fails to allocate at all when partial performance was feasible loses the impracticability defense. Full non-delivery in that situation reads as straight breach, and the buyer can pursue damages for the entire shortfall. The protections in UCC 2-615 are conditional on actually running the allocation and giving proper notice.
A seller who allocates but does so unfairly can face liability too. A buyer who gets a disproportionately small share relative to historical volumes can challenge the plan, and remedies can include damages for the shortfall or, in urgent cases, a court order requiring the seller to revise the allocation. The scrutiny is heaviest when prices have risen and the seller’s allocation appears to favor higher-paying customers over existing contract buyers.
Two Things That Can Override the Default
UCC 2-615 is a backstop, not a trump card. Two provisions can displace it before the allocation framework even applies.
The first is UCC 2-614 on substituted performance. If the agreed delivery method becomes unavailable but a commercially reasonable alternative exists (a different carrier, a different port, a different packaging method for the same goods), the seller must use the substitute rather than claiming impracticability. Jumping to allocation when a workable delivery alternative is available is a common and costly mistake.
The second is the contract itself. UCC 2-615 opens with “except so far as a seller may have assumed a greater obligation,” which means a force majeure clause or other contractual provision can override the default.1Legal Information Institute. UCC 2-615 Excuse by Failure of Presupposed Conditions A force majeure clause imposing stricter obligations on the seller controls over the statute. A clause that is narrower doesn’t automatically help the seller, because the UCC’s default protections for the buyer may still apply. Where this matters most is in the allocation duty itself: a contract might purport to excuse delivery entirely during a force majeure event, but if the clause doesn’t address allocation and a court finds it doesn’t cover the specific situation, the UCC default springs back and partial delivery is required. Compare the clause against the statutory baseline before relying on either one.