D R A F T

FOR APPROVAL

PROPOSED AMENDMENTS TO

UNIFORM COMMERCIAL CODE ARTICLE 2 - SALES

_______________________________________________

NATIONAL CONFERENCE OF COMMISSIONERS

ON UNIFORM STATE LAWS

______________________________________________________

MEETING IN ITS ONE-HUNDRED-AND-ELEVENTH YEAR

TUCSON, ARIZONA

JULY 26 - AUGUST 2, 2002

PROPOSED AMENDMENTS TO

UNIFORM COMMERCIAL CODE ARTICLE 2 - SALES

WITH PREFATORY NOTE AND PROPOSED COMMENTS

Copyright © 2002

By

THE AMERICAN LAW INSTITUTE

and

NATIONAL CONFERENCE OF COMMISSIONERS

ON UNIFORM STATE LAWS

COMMITTEE TO PREPARE AMENDMENTS TO UNIFORM COMMERCIAL CODE ARTICLE 2 - SALES

BORIS AUERBACH, 332 Ardon Lane, Wyoming, OH 45215, Chair

MARION W. BENFIELD, JR., 10 Overlook Circle, New Braunfels, TX 78132

AMELIA H. BOSS, Temple University, School of Law, 1719 N. Broad Street, Philadelphia, PA 19122, American Law Institute Representative

NEIL B. COHEN, Brooklyn Law School, Room 904A, 250 Joralemon Street, Brooklyn, NY 11201, American Law Institute Representative

HENRY DEEB GABRIEL, JR., Loyola University School of Law, 526 Pine Street, New Orleans, LA 70118, National Conference Reporter

BYRON D. SHER, State Capitol, Suite 2082, Sacramento, CA 95814, Enactment Plan Coordinator

JAMES J. WHITE, University of Michigan Law School, Room 300, 625 S. State Street, Ann Arbor, MI 48109-1215

LINDA J. RUSCH, Hamline University School of Law, 1536 Hewitt Ave., St. Paul, MN 55104, Associate Reporter from 1996 to 1999

RICHARD E. SPEIDEL, Northwestern University, School of Law, 357 E. Chicago Ave., Chicago, IL 60611, Reporter from 1991 to 1999

EX OFFICIO

K. KING BURNETT, P.O. Box 910, Salisbury, MD 21803-0910, President

CARL LISMAN, 84 Pine St., P.O. Box 728, Burlington, VT 05402, Division Chair

AMERICAN BAR ASSOCIATION ADVISORS

THOMAS J. McCARTHY, 7 Southview Path, Chaddsford, PA 19317-9179

EXECUTIVE DIRECTOR

WILLIAM H. HENNING, University of Missouri-Columbia, School of Law, 313 Hulston Hall,

Columbia, MO 65211, Executive Director

FRED H. MILLER, University of Oklahoma, College of Law, 300 Timberdell Road, Norman,

OK 73019, Executive Director Emeritus

WILLIAM J. PIERCE, 1505 Roxbury Road, Ann Arbor, MI 48104, Executive Director Emeritus

Copies of this Act may be obtained from:

NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS

211 E. Ontario Street, Suite 1300, Chicago, Illinois 60611 | tel: 312/915-0195 | www.nccusl.org

PROPOSED AMENDMENTS TO

UNIFORM COMMERCIAL CODE ARTICLE 2 - SALES

TABLE OF CONTENTS

PART 1
SHORT TITLE, GENERAL CONSTRUCTION AND SUBJECT MATTER

SECTION 2-102. SCOPE; CERTAIN SECURITY AND OTHER TRANSACTIONS EXCLUDED FROM THIS ARTICLE. 1

SECTION 2-103. DEFINITIONS AND INDEX OF DEFINITIONS. 4

SECTION 2-104. DEFINITIONS: "MERCHANT"; "BETWEEN MERCHANTS"; "FINANCING AGENCY". 11

SECTION 2-105. DEFINITIONS: TRANSFERABILITY; "GOODS"; "FUTURE" GOODS; "LOT"; "COMMERCIAL UNIT". 12

SECTION 2-108. TRANSACTIONS SUBJECT TO OTHER LAW. 13

PART 2
FORM, FORMATION, TERMS AND READJUSTMENT OF CONTRACT; ELECTRONIC CONTRACTING

SECTION 2-201. FORMAL REQUIREMENTS; STATUTE OF FRAUDS. 16

SECTION 2-202. FINAL WRITTEN EXPRESSION IN A RECORD: PAROL OR EXTRINSIC EVIDENCE. 20

SECTION 2-203. SEALS INOPERATIVE. 22

SECTION 2-204. FORMATION IN GENERAL. 22

SECTION 2-205. FIRM OFFERS. 24

SECTION 2-206. OFFER AND ACCEPTANCE IN FORMATION OF CONTRACT. 24

SECTION 2-207. ADDITIONAL TERMS IN ACCEPTANCE OR TERMS OF CONTRACT; EFFECT OF

CONFIRMATION. 25

SECTION 2-208. COURSE OF PERFORMANCE ON PRACTICAL CONSTRUCTION RESERVED. 29

SECTION 2-209. MODIFICATION; RESCISSION AND WAIVER. 29

SECTION 2-210. DELEGATION OF PERFORMANCE; ASSIGNMENT OF RIGHTS. 30

SECTION 2-211. LEGAL RECOGNITION OF ELECTRONIC CONTRACTS, RECORDS AND SIGNATURES. 35

SECTION 2-212. ATTRIBUTION. 36

SECTION 2-213 . ELECTRONIC COMMUNICATION. 38

PART 3
GENERAL OBLIGATION AND CONSTRUCTION OF CONTRACT

SECTION 2-302. UNCONSCIONABLE CONTRACT OR CLAUSE TERM. 39

SECTION 2-304. PRICE PAYABLE IN MONEY, GOODS, REALTY, OR OTHERWISE. 40

SECTION 2-305. OPEN PRICE TERM. 41

SECTION 2-308. ABSENCE OF SPECIFIED PLACE FOR DELIVERY. 42

SECTION 2-309. ABSENCE OF SPECIFIC TIME PROVISIONS; NOTICE OF TERMINATION. 42

SECTION 2-310. OPEN TIME FOR PAYMENT OR RUNNING OF CREDIT AUTHORITY TO SHIP UNDER RESERVATION. 43

SECTION 2-311. OPTIONS AND COOPERATION RESPECTING PERFORMANCE. 44

SECTION 2-312. WARRANTY OF TITLE AND AGAINST INFRINGEMENT; BUYER'S OBLIGATION AGAINST INFRINGEMENT. 45

SECTION 2-313. EXPRESS WARRANTIES BY AFFIRMATION, PROMISE, DESCRIPTION, SAMPLE; REMEDIAL PROMISE. 48

SECTION 2-313A. OBLIGATION TO REMOTE PURCHASER CREATED BY RECORD PACKAGED WITH OR ACCOMPANYING GOODS. 52

SECTION 2-313B. OBLIGATION TO REMOTE PURCHASER CREATED BY COMMUNICATION TO THE

PUBLIC. 57

SECTION 2-314. IMPLIED WARRANTY: MERCHANTABILITY; USAGE OF TRADE. 60

SECTION 2-316. EXCLUSION OR MODIFICATION OF WARRANTIES. 64

SECTION 2-318. THIRD PARTY BENEFICIARIES OF WARRANTIES EXPRESS OR IMPLIED. 69

SECTION 2-319. F.O.B. AND F.A.S. TERMS RESERVED. 71

SECTION 2-320. C.I.F. AND C. & F. TERMS RESERVED. 73

SECTION 2-321. C.I.F. OR C. & F.: "NET LANDED WEIGHTS"; "PAYMENT ON ARRIVAL"; WARRANTY OF CONDITION ON ARRIVAL RESERVED. 74

SECTION 2-322. DELIVERY "EX-SHIP" RESERVED. 75

SECTION 2-323. FORM OF BILL OF LADING REQUIRED IN OVERSEAS SHIPMENT; "OVERSEAS"

RESERVED. 76

SECTION 2-324. "NO ARRIVAL, NO SALE" TERM RESERVED. 77

SECTION 2-325. "LETTER OF CREDIT" TERM; "CONFIRMED CREDIT" FAILURE TO PAY BY AGREED LETTER OF CREDIT. 78

SECTION 2-326. SALE ON APPROVAL AND SALE OR RETURN; CONSIGNMENT SALES AND RIGHTS OF CREDITORS. 79

SECTION 2-328. SALE BY AUCTION. 80

PART 4
TITLE, CREDITORS AND GOOD FAITH PURCHASERS

SECTION 2-401. PASSING OF TITLE; RESERVATION FOR SECURITY; LIMITED APPLICATION OF THIS SECTION. 82

SECTION 2-402. RIGHTS OF SELLER'S CREDITORS AGAINST SOLD GOODS. 83

SECTION 2-403. POWER TO TRANSFER; GOOD FAITH PURCHASE OF GOODS; "ENTRUSTING". 84

PART 5
PERFORMANCE

SECTION 2-501. INSURABLE INTEREST IN GOODS; MANNER OF IDENTIFICATION OF GOODS. 86

SECTION 2-502. BUYER'S RIGHT TO GOODS ON SELLER'S INSOLVENCY. 87

SECTION 2-503. MANNER OF SELLER'S TENDER OF DELIVERY. 88

SECTION 2-504. SHIPMENT BY SELLER. 90

SECTION 2-505. SELLER'S SHIPMENT UNDER RESERVATION. 90

SECTION 2-506. RIGHTS OF FINANCING AGENCY. 91

SECTION 2-507. EFFECT OF SELLER'S TENDER; DELIVERY ON CONDITION. 92

SECTION 2-508. CURE BY SELLER OF IMPROPER TENDER OR DELIVERY; REPLACEMENT. 93

SECTION 2-509. RISK OF LOSS IN THE ABSENCE OF BREACH. 95

SECTION 2-510. EFFECT OF BREACH ON RISK OF LOSS. 97

SECTION 2-512. PAYMENT BY BUYER BEFORE INSPECTION. 97

SECTION 2-513. BUYER'S RIGHT TO INSPECTION OF GOODS. 98

SECTION 2-514. WHEN DOCUMENTS DELIVERABLE ON ACCEPTANCE; WHEN ON PAYMENT. 99

PART 6
BREACH, REPUDIATION AND EXCUSE

SECTION 2-601. BUYER'S RIGHTS ON IMPROPER DELIVERY. 100

SECTION 2-602. MANNER AND EFFECT OF RIGHTFUL REJECTION. 100

SECTION 2-603. MERCHANT BUYER'S DUTIES AS TO RIGHTFULLY REJECTED GOODS. 101

SECTION 2-604. BUYER'S OPTIONS AS TO SALVAGE OF RIGHTFULLY REJECTED GOODS. 102

SECTION 2-605. WAIVER OF BUYER'S OBJECTIONS BY FAILURE TO PARTICULARIZE. 103

SECTION 2-606. WHAT CONSTITUTES ACCEPTANCE OF GOODS. 105

SECTION 2-607. EFFECT OF ACCEPTANCE; NOTICE OF BREACH; BURDEN OF ESTABLISHING BREACH AFTER ACCEPTANCE; NOTICE OF CLAIM OR LITIGATION TO PERSON ANSWERABLE OVER. 106

SECTION 2-608. REVOCATION OF ACCEPTANCE IN WHOLE OR IN PART. 108

SECTION 2-609. RIGHT TO ADEQUATE ASSURANCE OF PERFORMANCE. 110

SECTION 2-610. ANTICIPATORY REPUDIATION. 110

SECTION 2-611. RETRACTION OF ANTICIPATORY REPUDIATION. 111

SECTION 2-612. "INSTALLMENT CONTRACT"; BREACH. 112

SECTION 2-613. CASUALTY TO IDENTIFIED GOODS. 113

SECTION 2-615. EXCUSE BY FAILURE OF PRESUPPOSED CONDITIONS. 113

SECTION 2-616. PROCEDURE ON NOTICE CLAIMING EXCUSE. 114

PART 7
REMEDIES

SECTION 2-702. SELLER'S REMEDIES ON DISCOVERY OF BUYER'S INSOLVENCY. 115

SECTION 2-703. SELLER'S REMEDIES IN GENERAL. 117

SECTION 2-704. SELLER'S RIGHT TO IDENTIFY GOODS TO THE CONTRACT NOTWITHSTANDING BREACH OR TO SALVAGE UNFINISHED GOODS. 119

SECTION 2-705. SELLER'S STOPPAGE OF DELIVERY IN TRANSIT OR OTHERWISE. 120

SECTION 2-706. SELLER'S RESALE INCLUDING CONTRACT FOR RESALE. 121

SECTION 2-707. "PERSON IN THE POSITION OF A SELLER". 126

SECTION 2-708. SELLER'S DAMAGES FOR NON-ACCEPTANCE OR REPUDIATION. 127

SECTION 2-709. ACTION FOR THE PRICE. 131

SECTION 2-710. SELLER'S INCIDENTAL AND CONSEQUENTIAL DAMAGES. 132

SECTION 2-711. BUYER'S REMEDIES IN GENERAL; BUYER'S SECURITY INTEREST IN REJECTED

GOODS. 133

SECTION 2-712. "COVER"; BUYER'S PROCUREMENT OF SUBSTITUTE GOODS. 136

SECTION 2-713. BUYER'S DAMAGES FOR NON-DELIVERY OR REPUDIATION. 137

SECTION 2-714. BUYER'S DAMAGES FOR BREACH IN REGARD TO ACCEPTED GOODS. 140

SECTION 2-716. BUYER'S RIGHT TO SPECIFIC PERFORMANCE OR; BUYER'S RIGHT REPLEVIN. 140

SECTION 2-717. DEDUCTION OF DAMAGES FROM THE PRICE. 142

SECTION 2-718. LIQUIDATION OR LIMITATION OF DAMAGES; DEPOSITS. 142

SECTION 2-722. WHO CAN SUE THIRD PARTIES FOR INJURY TO GOODS. 145

SECTION 2-723. PROOF OF MARKET: TIME AND PLACE. 146

SECTION 2-724. ADMISSIBILITY OF MARKET QUOTATIONS. 147

SECTION 2-725. STATUTE OF LIMITATIONS IN CONTRACTS FOR SALE. 147

PART 8
TRANSITION PROVISIONS

SECTION 2-801. EFFECTIVE DATE. 152

SECTION 2-802. AMENDMENT OF EXISTING ARTICLE 2. 152

SECTION 2-803. APPLICABILITY. 152

SECTION 2-804. SAVINGS CLAUSE. 153

PROPOSED AMENDMENTS TO

SECTION 2-102. SCOPE; CERTAIN SECURITY AND OTHER TRANSACTIONS EXCLUDED FROM THIS ARTICLE.

Unless the context otherwise requires, this Article applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.

(1) Unless the context otherwise requires, and subject to Section 2-108, this article applies to transactions in goods. This Article does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction.

(2) Except as provided in subsection (4), in the case of a transaction involving both goods and non-goods, a court may resolve a dispute by the application of this article to the entire transaction, by the application of other law to the entire transaction, or by the application of this article to part of the transaction and other law to part of the transaction. In making the determination as to the law applicable to the transaction, the court shall take into consideration the nature of the transaction and of the dispute.

(3) This article does not apply to transactions that do not involve goods.

(4) A transaction in a product consisting of computer information and goods that are solely the medium containing the computer information is not a transaction in goods, but a court is not precluded from applying provisions in this article to a dispute concerning whether the goods conform to the contract.

(5) Nothing in this article alters, creates, or diminishes rights in intellectual property.

1. This Article applies to transactions in goods. The term "goods" is defined in Section 2-103(1)(m).

2. A great many transactions involve both goods and non-goods. Some transactions involve goods and services. Others involve goods and property other than goods, such as realty, intellectual property, or other intangible personal property. As subsection (2) makes clear, there is no hard and fast rule that determines whether, and the extent to which, this Article applies to disputes arising out of such transactions. There is a large body of case law concerning transactions involving goods and services, and somewhat less precedent concerning other such transactions. The variety of combinations of goods and non-goods that may comprise a transaction, and the types of disputes that a court may be called upon to resolve, make it inadvisable to enact firm principles to determine the applicable body of law. Subsection (2) recognizes that principles that work well in some contexts may not work well in others. Accordingly, it directs courts, in determining whether this Article or other law governs a particular matter before it, to take into consideration the nature of the transaction and of the dispute. Courts should not apply this Article or other law without careful consideration of these matters. In a particular transaction, the non-goods aspect or the goods aspect may predominate. Even though one aspect predominates, however, the core of the dispute may relate to the aspect that does not predominate. Moreover, there may be times when the provisions in this Article, which are designed for goods, simply are not appropriate for application to other aspects of the transaction, and the same may at times be true regarding application of other law to the goods aspect. Finally, in a transaction that is not easily severable into goods and non-goods aspects, a court might decide that it is appropriate to apply one body of law to the entire transaction.

As the nature of transactions evolves over time, the character of those transactions is impossible to predict. Accordingly, this section neither endorses nor rejects any particular approach for determining the applicability of Article 2 to disputes arising from any particular transaction. [At this point, the comment will provide seven examples (assuming that we can find them) of approaches that courts have used in some cases (with neither indorsement nor condemnation). The seven examples, taken as a whole, are completely neutral inasmuch as the first six consist of mirror-image pairs, while the seventh involves breaking the transaction into goods and non-goods components. The seven examples are: (i) Article 2 applied because goods predominate, (ii) other law applied because non-goods predominate, (iii) Article 2 applied because goods are gravamen, even though goods do not predominate (or without regard to whether they do), (iv) other law applied, because non-goods are gravamen, even though goods predominate (or without regard to whether they do), (v) Article 2 applied to an integrated product, even though it contains information, (vi) other law applied to an integrated product, even thought it contains goods, (vii) transaction broken down into its elements, with Article 2 applying only to the goods.]

3. Subsection (3) states explicitly what has always been true - this Article does not apply to transactions that do not involve goods. Thus, for example, this Article does not govern a contract solely for services or solely for information. When a dispute in such a transaction is before a court, unless a different statute controls, the court is left to do what common-law courts traditionally have done - determine the best rule for the situation before it.

4. Subsection (4) recognizes that transactions in which the only goods involved are a medium containing computer information are essentially information transactions and, thus, should not be categorized as transactions in goods. In such a case, however, there may be a dispute about whether the medium itself (the goods) is defective, and the court is not precluded from applying relevant provisions of this Article.

5. Subsection (5) makes it clear that application of this Article to the informational aspect of a transaction does not alter, create, or diminish rights in intellectual property. To the extent that such rights are governed by other state law, nothing in this Article changes that state law. To the extent that such rights are governed by federal law, under the Supremacy Clause of the Constitution of the United States, nothing in this Article can determine those rights. The fact that a court under subsection (2) applies this Article to a transaction in which goods containing copyrighted information are transferred does not mean that the information itself has been sold for purposes of state law (see next paragraph) and does not determine whether the transfer constitutes a "first sale" for purposes of federal copyright law.

In transactions that involve information, the agreement between the parties sometimes contains restrictions on certain uses or future transfers of the information. As is true with analogous restrictions with respect to goods, this Article does not address the enforceability of these restrictions. If the restrictions are effective under other law, this Article does not invalidate them; if they are ineffective under other law, nothing in this Article validates them. See Section 1-103.

SECTION 2-103. DEFINITIONS AND INDEX OF DEFINITIONS.

(1) In this article unless the context otherwise requires

(a) "Buyer" means a person who that buys or contracts to buy goods.

(b) "Computer information" means information in electronic form which is obtained from or through the use of a computer or which is in a form capable of being processed by a computer.

Information is not computer information unless it is in electronic form. Thus, information printed on paper is not computer information.

(c) "Conspicuous", with reference to a term, means so written, displayed, or presented that a reasonable person against which it is to operate ought to have noticed it. A term in an electronic record intended to evoke a response by an electronic agent is conspicuous if it is presented in a form that would enable a reasonably configured electronic agent to take it into account or react to it without review of the record by an individual. Whether a term is "conspicuous" or not is a decision for the court. Conspicuous terms include the following:

(i) for a person:

(A) a heading in capitals equal to or greater in size than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same or lesser size;

(B) language in the body of a record or display in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from surrounding text of the same size by symbols or other marks that call attention to the language; and

(ii) for a person or an electronic agent, a term that is so placed in a record or display that the person or electronic agent cannot proceed without taking action with respect to the particular term.

The definition of "conspicuous" may be moved to revised Article 1. The first sentence is based on original Section 1-201(10) but the concept is expanded to include terms in electronic records. The general standard is, that to be conspicuous, a term ought to be noticed by a reasonable person. The second sentence states a special rule for situations where the sender of an electronic record intends to evoke a response from an electronic agent; the presentation of the term must be capable of evoking a response from a reasonably configured electronic agent. Whether a term is conspicuous is an issue for the court.

Paragraphs (i) and (ii) set out several methods for making a term conspicuous. The requirement that a term be conspicuous functions both as notice (the term ought to be noticed) and as a basis for planning (giving guidance to the party that relies on the term about how that result can be achieved).

Paragraph (i), which relates to the general standard for conspicuousness, is based on original Section 1-201(10) but is intended to give more guidance. Paragraph (ii) is new and relates to the special standard for electronic records intended to evoke a response from an electronic agent. Although these paragraphs indicate some of the methods for making a term attention-calling, the test is whether attention can reasonably be expected to be called to it. The statutory language should not be construed to permit a result that is inconsistent with that test.

(d) "Consumer" means an individual who buys or contracts to buy goods that, at the time of contracting, are intended by the individual to be used primarily for personal, family, or household purposes.

The definition is significant in determining whether a contract qualifies as a consumer contract. A consumer is a natural person (cf. Section 1-201(30)) who enters into a transaction for a purpose typically associated with consumers - i.e., a personal, family or household purpose. The requirement that the buyer intend that the goods be used "primarily" for personal, family or household purposes is generally consistent with the definition of consumer goods in revised Article 9. See Section 9-102(a)(23).

(e) "Consumer contract" means a contract between a merchant seller and a consumer.

This term is limited to a contract for sale between a seller that is a "merchant" and a buyer that is a "consumer". Thus, neither a sale by a consumer to a consumer nor a sale by a merchant to an individual who intends that the goods be used primarily in a home business qualify as a consumer contract.

(f) "Delivery" means the voluntary transfer of physical possession or control of goods.

The definition of "delivery" as it applies to goods may be moved to revised Article 1, which already contains a definition of the term as it applies to an instrument, document of title or chattel paper.

(g) "Electronic" means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.

The definition of "electronic" may be moved to revised Article 1. The electronic contracting provisions, including the definitions of "electronic," "electronic agent," "record," "electronic record," "information processing system," and certain the electronic aspects of "receive" are based on the provisions of the Uniform Electronic Transactions Act and are consistent with the federal Electronic Signatures in Global and National Commerce Act (15 U.S.C. SECTION 7001 et seq.).

(h) "Electronic agent" means a computer program or an electronic or other automated means used independently to initiate an action or respond to electronic records or performances in whole or in part, without review or action by an individual.

The definition of "electronic agent" may be moved to revised Article 1.

(i) "Electronic record" means a record created, generated, sent, communicated, received, or stored by electronic means.

The definition of "electronic record" may be moved to revised Article 1.

(j) "Foreign exchange transaction" means a transaction in which one party agrees to deliver a quantity of a specified money or unit of account in consideration of the other party's agreement to deliver another quantity of different money or unit of account either currently or at a future date, and in which delivery is to be through funds transfer, book entry accounting, or other form of payment order, or other agreed means to transfer a credit balance. The term includes a transaction of this type involving multiple moneys and spot, forward, option, or other products derived from underlying moneys and any combination of these transactions. The term does not include a transaction involving multiple moneys in which one or both of the parties is obligated to make physical delivery, at the time of contracting or in the future, of banknotes, coins, or other form of legal tender or specie.

This definition, which is new, is used in the definition of goods in Section 2-103(1)(l), which now excludes "the subject matter of foreign exchange transactions."

(b) (k) "Good faith" in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.

Legislative Note: This definition should not be adopted if the jurisdiction has enacted revised Article 1.

(l) "Goods" means all things that are movable at the time of identification to a contract for sale. The term includes future goods, specially manufactured goods, the unborn young of animals, growing crops, and other identified things attached to realty as described in Section 2-107. The term does not include information, the money in which the price is to be paid, investment securities under Article 8, the subject matter of foreign exchange transactions, and choses in action.

The definition of "goods" has been amended to exclude information. See Section 2-103(1)(m). It has also been amended to exclude the subject matter of "foreign exchange transactions." See Section 2-103(1)(j). Although a contract in which currency is the commodity exchanged is a sale of goods, an exchange in which delivery is "through funds transfer, book entry accounting, or other form of payment order, or other agreed means to transfer a credit balance" is not a sale of goods and is not governed by Article 2. In the latter case, Article 4A or other law applies. On the other hand, if the parties agree to a forward transaction where, after January 1, 2002, dollars are to be physically delivered in exchange for the delivery of Euros, the transaction is not within the "foreign exchange" exclusion and Article 2 applies.

(m) "Information" means data, text, images, sounds, mask works, computer programs, software, databases, or the like, including collections and compilations. The term includes computer information.

(c) (n) "Receipt of goods" means taking physical possession of them.

(o) "Record" means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

Legislative Note: This definition should not be adopted if the jurisdiction has enacted revised Article 1.

(p) "Remedial promise" means a promise by the seller to repair or replace the goods or to refund all or part of the price upon the happening of a specified event.

A "remedial promise" is a promise by the seller to take remedial action upon the happening of a specified event. The types of remediation contemplated are specified in the definition - repair or replacement of the goods, or refund of all or part of the price. No other promise by a seller qualifies as a remedial promise. Further, the seller is entitled to specify precisely the event that will trigger its obligation. Typical examples include a commitment to repair any parts that prove to be defective, or a commitment to refund the purchase price if the goods fail to perform in a certain manner. A post-sale promise to fix a problem that the seller is not obligated to fix in order to placate a dissatisfied customer is not within the definition of remedial promise.

It is irrelevant whether the promised remedy is exclusive under Section 2-719(1) or merely additional to the buyer's normal Code remedies. Whether the promised remedy is exclusive, and if so whether it has failed its essential purpose, is determined under Section 2-719.

Use of the term resolves a statute-of-limitations problem. Under original Section 2-725, a right of action for breach of an express warranty accrued at the time of tender unless the warranty explicitly extended to the future performance of the goods, in which case a discovery rule applied. By contrast, a right of action for breach of an ordinary (non-warranty) promise accrued when the promise was breached. A number of courts held that commitments by sellers to take remedial action in the event the goods proved to be defective during a specified period of time constituted warranties and applied the time-of-tender rule; other courts used strained reasoning that allowed them to apply the discovery rule even though the promise at issue referred to the future performance of the seller, not the goods.

This Article takes the position that a promise by the seller to take remedial action is not a warranty at all and therefore is not subject to either the time-of-tender or discovery rule. Section 2-725(2)(c) separately addresses the accrual of a right of action for a remedial promise. For further explanation, see Proposed Comment 2 to Section 2-725.

(d) (q) "Seller" means a person who that sells or contracts to sell goods.

(r) "Sign" means, with present intent to authenticate or adopt a record,

(i) to execute or adopt a tangible symbol; or

(ii) to attach to or logically associate with the record an electronic sound, symbol, or process.

The definition is broad enough to cover any record that is signed within the meaning of present Article 1 (Section 1-201(39)) or that contains an electronic signature within the meaning of the Uniform Electronic Transactions Act (Section 2(8)). It is consistent with the federal Electronic Signatures in Global and National Commerce Act (15 U.S.C. SECTION 7001 et seq.).

(2) Other definitions applying to this Article or to specified Parts thereof, and the sections in which they appear are:

"Acceptance". Section 2-606.

"Banker's credit". Section 2-325.

"Between merchants". Section 2-104.

"Cancellation". Section 2-106(4).

"Commercial unit". Section 2-105.

"Confirmed credit". Section 2-325.

"Conforming to contract". Section 2-106.

"Contract for sale". Section 2-106.

"Cover". Section 2-712.

"Entrusting". Section 2-403.

"Financing agency". Section 2-104.

"Future goods". Section 2-105.

"Goods". Section 2-105.

"Identification". Section 2-501.

"Installment contract". Section 2-612.

"Letter of Credit". Section 2-325.

"Lot". Section 2-105.

"Merchant". Section 2-104.

"Overseas". Section 2-323.

"Person in position of seller". Section 2-707.

"Present sale". Section 2-106.

"Sale". Section 2-106.

"Sale on approval". Section 2-326.

"Sale or return". Section 2-326.

"Termination". Section 2-106.

(3) The following definitions in other Articles apply to this Article:

"Check". Section 3-104(f).

"Consignee". Section 7-102.

"Consignor". Section 7-102.

"Consumer goods". Section 9-109.

"Dishonor". Section 3-502.

"Draft". Section 3-104(e).

"Injunction against honor". Section 5-109(b).

"Letter of credit". Section 5-102(a)(10).

(4) In addition Article 1 contains general definitions and principles of construction and interpretation applicable throughout this Article.

SECTION 2-104. DEFINITIONS: "MERCHANT"; "BETWEEN MERCHANTS"; "FINANCING AGENCY".

(1) "Merchant" means a person who that deals in goods of the kind or otherwise by his occupation holds himself out is held out by occupation as having as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom which such the knowledge or skill may be attributed by his the person's employment of an agent or broker or other intermediary who by his occupation holds himself out that is held out by occupation as having such the knowledge or skill.

(2) "Financing agency" means a bank, finance company or other person who that in the ordinary course of business makes advances against goods or documents of title or who that by arrangement with either the seller or the buyer intervenes in ordinary course to make or collect payment due or claimed under the contract for sale, as by purchasing or paying the seller's draft or making advances against it or by merely taking it for collection whether or not documents of title accompany the draft. "Financing agency" includes also a bank or other person who that similarly intervenes between persons who that are in the position of seller and buyer in respect to the goods (Section 2-707).

(3) "Between merchants" means in any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants.

SECTION 2-105. DEFINITIONS: TRANSFERABILITY; "GOODS"; "FUTURE" GOODS; "LOT"; "COMMERCIAL UNIT".

(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 in which the price is to be paid, investment securities (Article 8) and things in action. "Goods" also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (Section 2-107).

(2) (1) Goods must be both existing and identified before any interest in them can pass. Goods which are not both existing and identified are "future" goods. A purported present sale of future goods or of any interest therein operates as a contract to sell.

(3) (2) There may be a sale of a part interest in existing identified goods.

(4) (3) An undivided share in an identified bulk of fungible goods is sufficiently identified to be sold although the quantity of the bulk is not determined. Any agreed proportion of such a bulk or any quantity thereof agreed upon by number, weight or other measure may to the extent of the seller's interest in the bulk be sold to the buyer who that then becomes an owner in common.

(5) (4) "Lot" means a parcel or a single article which is the subject matter of a separate sale or delivery, whether or not it is sufficient to perform the contract.

(6) (5) "Commercial unit" means such a unit of goods as by commercial usage is a single whole for purposes of sale and division of which materially impairs its character or value on the market or in use. A commercial unit may be a single article (as a machine) or a set of articles (as a suite of furniture or an assortment of sizes) or a quantity (as a bale, gross, or carload) or any other unit treated in use or in the relevant market as a single whole.

SECTION 2-108. TRANSACTIONS SUBJECT TO OTHER LAW.

(1) A transaction subject to this article is also subject to any applicable:

(a) [list any certificate of title statutes of this State covering automobiles, trailers, mobile homes, boats, farm tractors, or the like], except with respect to the rights of a buyer in ordinary course of business under Section 2-403(2) which arise before a certificate of title covering the goods is effective in the name of any other buyer;

(b) rule of law that establishes a different rule for consumers; or

(c) statute of this State to which the transaction is subject, such as statutes dealing with:

(i) the sale or lease of agricultural products;

(ii) the transfer of blood, blood products, human tissues, or parts;

(iii) the consignment or transfer by artists of works of art or fine prints;

(iv) distribution agreements, franchises, and other relationships through which goods are sold;

(v) the misbranding or adulteration of food products or drugs; and

(vi) dealers in particular products, such as automobiles, motorized wheelchairs, agricultural equipment, and hearing aids.

(2) Except for the rights of a buyer in ordinary course of business under subsection (1)(a), in the event of a conflict between this article and a law referred to in subsection (1), that law governs.

(3) For purposes of this article, failure to comply with a law referred to in subsection (1) has only the effect specified in that law.

(4) This article modifies, limits, and supersedes the federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001 et seq., except that nothing in this article modifies, limits, or supersedes Section 7001(c) of that Act or authorizes electronic delivery of any of the notices described in Section 7003(b) of that Act.

1. Section 2-108, which is new, follows the form of Section 2A-104(1).

2. In subsection (1), it is assumed that Article 2 is subject to any applicable federal law, such as the United Nations Convention on Contracts for the International Sale of Goods (CISG) or the Magnuson-Moss Warranty Act.

3. Subsection (1)(a) permits the states to list any applicable certificate-of-title statutes and provides that Article 2 is subject to their provisions on the transfer and effect of title except for the rights of a buyer in ordinary course of business in certain limited situations. In entrustment situations, subsection (1)(a) overrides those certificate-of-title statutes that provide that a person cannot qualify as an owner unless a certificate has been issued in the person's name. By contrast, in those cases where an owner in whose name a certificate has been issued entrusts a titled asset to a dealer that then sells it to a buyer in ordinary course of business, this section provides that the priority issue between the owner and the buyer is to be resolved in the first instance by reference to the certificate-of-title statute.

Illustration #1. Suppose that a used car is stolen from Owner by Thief and Thief, by fraud, is able to obtain a clean certificate of title from State X. Thief sells the car to Buyer, a good faith purchaser for value but not a buyer in ordinary course of business, and transfers the certificate of title to Buyer. The exception in subsection (1)(a) does not apply to protect Buyer. Further, under Section 2-403(1) Buyer does not get good title from Thief, regardless of the certificate. The same result follows if the applicable state certificate of title law makes the certificate prima facie evidence of ownership. Buyer will prevail, however, if the applicable law conflicts with the result obtained under this Article by making issuance of the certificate conclusive on title.

Illustration #2. Dealer sells a new car to Buyer #1 and signs a form permitting Buyer #1 to apply for a certificate of title. Buyer #1 leaves the car with Dealer so that Dealer can finish its preparation work on the car. While the car remains in Dealer's possession and before the state issues a certificate of title in Buyer #1's name, Buyer #2 makes Dealer a better offer on the car, which Dealer accepts. Buyer #1 entrusted the car to Dealer, and if Buyer #2 qualifies as a buyer in ordinary course of business its title to the car will be superior to that of Buyer #1.

Illustration #3. Owner in whose name a certificate of title has been issued leaves a car with Dealer for repair. Dealer sells the car to Buyer, who qualifies as a buyer in ordinary course of business. If the certificate-of-title law in the state resolves the priority contest between Owner and Buyer, that solution should be implemented. Otherwise, Buyer prevails under Section 2-403(2).

4. This section also deals with the effect of a conflict or failure to comply with any other state law that might apply to a transaction governed by this Article. Subsection (1) provides that a transaction subject to this Article is also subject to other applicable law, and subsection (2) provides that in the event of a conflict the other law governs (except for the rights of a buyer in ordinary course of business under subsection (1)(a)).

Subsection (1)(b) provides that this Article is also subject to any rule of law that establishes a different rule for consumers. "Rule of law" includes a statute, an administrative rule properly promulgated under the statute, and final court decision.

The relationship between Article 2 and federal and state consumer laws will vary from transaction to transaction and from State to State. For example, the Magnuson-Moss Warranty Act, 15 U.S.C.A. SECTION 2301 et. seq., may or may not apply to the consumer dispute in question and the applicable state "lemon law" may provide more or less protection than Magnuson-Moss. To the extent of application, the other laws control. Otherwise, Article 2 controls.

Subsection (1)(c) provides an illustrative but not exhaustive list of other applicable state statutes that may preempt all or part of Article 2. For example, franchise contracts may be regulated by state franchise acts, the seller of unmerchantable blood or human tissue may be insulated from warranty liability and disclaimers of the implied warranty of merchantability may be invalidated by non-uniform amendments to Article 2. The existence, scope, and effect of these statutes must be assessed from State to State.

Assuming that there is a conflict, subsection (3) deals with the failure of parties to the contract to comply with the applicable law. The failure has the "effect specified" in the law. Thus, the failure to obtain a required license may make the contract illegal, and therefore unenforceable, while the nonnegligent supply of unmerchantable blood under a "blood shield" statute may mean only that the supplier is insulated from liability for injury to person or property.

5. Subsection (4) takes advantage of a provision of the federal Electronic Signatures in Global and National Commerce Act (E-Sign). E-Sign permits state law to modify, limit or supersede its provisions if the state law is consistent with Titles I and II of E-Sign, gives no special legal effect or validity to and does not require the implementation or application of specific technologies or technical specifications, and if enacted subsequent to E-Sign makes specific reference to E-Sign. Subsection (4) does not apply to section 101(c) of E-Sign, nor does it authorize electronic delivery of the notices described in section 103(b) of E-Sign.

FORM, FORMATION, TERMS AND READJUSTMENT OF CONTRACT; ELECTRONIC CONTRACTING

SECTION 2-201. FORMAL REQUIREMENTS; STATUTE OF FRAUDS.

(1) Except as otherwise provided in this section a A contract for the sale of goods for the price of $500 $5,000 or more is not enforceable by way of action or defense unless there is some writing record sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom which enforcement is sought or by his the party's authorized agent or broker. A writing record is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this subsection beyond the quantity of goods shown in such the writing record.

(2) Between merchants if within a reasonable time a writing record in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party the recipient unless written notice of objection to its contents is given in a record within 10 days after it is received.

(3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable

(a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or

(b) if the party against whom which enforcement is sought admits in his the party's pleading, or in the party's testimony or otherwise in court under oath that a contract for sale was made, but the contract is not enforceable under this provision paragraph beyond the quantity of goods admitted; or

(c) with respect to goods for which payment has been made and accepted or which have been received and accepted (Sec. 2-606).

(4) A contract that is enforceable under this section is not rendered unenforceable merely because it is not capable of being performed within one year or any other applicable period after its making.

1. The record required by subsection (1) need not contain all the material terms of the contract and the material terms that are stated need not be precise or accurate. All that is required is that the record afford a basis for believing that the offered oral evidence rests on a real transaction. The record may be written in lead pencil on a scratch pad or entered into a laptop computer. It need not indicate which party is the buyer and which party is the seller. The only term which must appear is the quantity term, which need not be accurately stated but recovery is limited to the amount stated. A term indicating that the quantity is based on the output of the seller or the requirements of the buyer is a quantity term for purposes of this section. The price, time and place of payment or delivery, the general quality of the goods, or any particular warranties may all be omitted.

Special emphasis must be placed on the permissibility of omitting the price term. In many valid contracts for sale the parties do not mention the price in express terms. The buyer is bound to pay and the seller to accept a reasonable price, which the trier of the fact will determine. Frequently the price is not mentioned since the parties have based their agreement on a price list or catalogue known to both of them, and the list or catalogue serves as an efficient safeguard against perjury. Finally, "market" prices and valuations that are current in the vicinity constitute a similar check. Of course, if the "price" consists of goods rather than money, the quantity of goods must be stated.

There are only three definite and invariable requirements as to the memorandum made by subsection (1). First, the memorandum must evidence a contract for the sale of goods; second, the memorandum must be signed; and third, the memorandum must have a quantity term.

2. The phrase "Except as otherwise provided in this section" has been deleted from subsection (1). This means that the statement in subsection (3) of three statutory exceptions to subsection (1) does not preclude the possibility that a promisor will be estopped to raise the statute-of-frauds defense in appropriate cases.

3. "Partial performance" as a substitute for the required record can validate the contract only for the goods which have been accepted or for which payment has been made and accepted.

Receipt and acceptance either of goods or of the price constitutes an unambiguous overt admission by both parties that a contract actually exists. If the court can make a just apportionment, therefore, the agreed price of any goods actually delivered can be recovered without a writing or, if the price has been paid, the seller can be forced to deliver an apportionable part of the goods. The overt actions of the parties make admissible evidence of the other terms of the contract necessary to a just apportionment. This is true even though the actions of the parties are not in themselves inconsistent with a different transaction such as a consignment for resale or a mere loan of money.

Part performance by the buyer requires that the buyer deliver something that is accepted by the seller as the performance. Thus, part payment may be made by money or check, accepted by the seller. If the agreed price consists of goods or services, then they must also have been delivered and accepted. When the seller accepts partial payment for a single item the statute is satisfied entirely.

4. Between merchants, failure to answer a confirmation of a contract in a record that satisfies the requirements of subsection (1) against the sender within ten days of receipt renders the record sufficient against the recipient. The only effect, however, is to take away from the party that fails to answer the defense of the Statute of Frauds; the burden of persuading the trier of fact that a contract was in fact made orally prior to the record confirmation is unaffected.

A merchant includes a person "that by occupation purports to have knowledge or skill peculiar to the practices or goods involved in the transaction." Section 2-104(1)(emphasis supplied). Thus, a professional or a farmer should be considered a merchant because the practice of objecting to an improper confirmation ought to be familiar to any person in business.

5. Failure to satisfy the requirements of this section does not render the contract void for all purposes, but merely prevents it from being judicially enforced in favor of a party to the contract. For example, a buyer that takes possession of goods as provided in an oral contract which the seller has not meanwhile repudiated is not a trespasser. Nor would the statute-of-frauds provisions of this section be a defense to a third person that wrongfully induces a party to refuse to perform an oral contract, even though the injured party cannot maintain an action for damages against the party so refusing to perform.

6. It is not necessary that the record be delivered to anybody, nor is this section intended to displace decisions that have given effect to lost records. It need not be signed by both parties, but except as stated in subsection (2) it is not sufficient against a party that has not signed it. Prior to a dispute, no one can determine which party's signature may be necessary, but from the time of contracting each party should be aware that it is the signature of the other which is important.

7. If the making of a contract is admitted in court, either in a written pleading, by stipulation or by oral statement before the court, or is admitted under oath but not in court, as by testimony in a deposition or an affidavit filed with a motion, no additional record is necessary. Subsection (3)(b) makes it impossible to admit the contract in these contexts and still use the Statute of Frauds as a defense. However, the contract is not thus conclusively established. The admission is evidential against the maker of the truth of the facts admitted and of nothing more; as against the other party, it is not evidential at all.

8. Subsection (4), which is new, repeals the "one year" provision of the Statute of Frauds for contracts for the sale of goods. The phrase "any other applicable period" recognizes that some state statutes apply to periods longer than one year. The confused and contradictory interpretations under the so-called "one year" clause are illustrated in C.R. Klewin, Inc. v. Flagship Properties, Inc., 600 A.2d 772 (Conn. 1991) (Peters, J.).

SECTION 2-202. FINAL WRITTEN EXPRESSION IN A RECORD: PAROL OR EXTRINSIC EVIDENCE.

(1) Terms with respect to which the confirmatory memoranda records of the parties agree or which are otherwise set forth in a writing record intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented by evidence of:

(a) by course of dealing or usage of trade (Section 1-205) or by course of performance (Section 2-208) course of performance, course of dealing or usage of trade (Section 1-303); and

(b) by evidence of consistent additional terms unless the court finds the writing record to have been intended also as a complete and exclusive statement of the terms of the agreement.

(2) Terms in a record may be explained by evidence of course of performance, course of dealing, or usage of trade without a preliminary determination by the court that the language used is ambiguous.

1. Subsection (1) codifies the parol evidence rule, the operation of which depends on the intention of both parties that the terms in a record are the "final expression of their agreement with respect to the included terms." Without this mutual intention to integrate the record, the parol evidence rule does not apply to exclude other terms allegedly agreed to prior to or contemporaneously with the record. Unless there is a final record, these alleged terms are provable as part of the agreement by relevant evidence from any credible source. When each party sends a confirmatory record, mutual intention to integrate is presumed for terms "with respect to which the confirmatory records of the parties agree."

2. Because a record is final for the included terms (an integration), this does not mean that the parties intended that the record contain all the terms of their agreement (a total integration). If a record is final but not complete and exclusive, it cannot be contradicted by evidence of prior agreements reflected in a record or prior or contemporaneous oral agreements, but it can be supplemented by other evidence, drawn from any source, of consistent additional terms. Even if the record is final, complete and exclusive, it can be supplemented by evidence of noncontradictory terms drawn from an applicable course of performance, course of dealing, or usage of trade unless those sources are carefully negated by a term in the record. If the record is final, complete and exclusive it cannot be supplemented by evidence of terms drawn from other sources, even terms that are consistent with the record.

3. The cross-references in subsection (1)(a) have been changed to correspond with revised Article 1.

4. Whether a writing is final, and whether a final writing is also complete, are issues for the court. This section rejects any assumption that because a record has been worked out which is final on some matters, it is to be taken as including all the matters agreed upon. If the additional terms are those that, if agreed upon, they would certainly have been included in the document in the view of the court, then evidence of their alleged making must be kept from the trier of fact. This article takes no position on the evidentiary strength of a merger clause as evidence of a mutual intent that the record be final and complete since that depends upon the particular circumstances involved.

5. This section does not exclude evidence introduced to show that the contract is avoidable for misrepresentation, mistake, or duress, or that the contract or a term is unenforceable because of unconscionability. Similarly, this section does not operate to exclude evidence of a subsequent modification or evidence that, for the purpose of claiming excuse, both parties assumed that a certain event would not occur.

6. Issues of interpretation are generally left to the courts. In interpreting terms in a record, subsection (2) permits either party to introduce evidence drawn from a course of performance, a course of dealing, or a usage of trade without any preliminary determination by the court that the term at issue is ambiguous. The subsection deals with that circumstance and no other. This article takes no position on whether a preliminary determination of ambiguity is a condition to the admissibility of evidence drawn from any other source or on whether a contract clause can exclude an otherwise applicable implied-in-fact source.

Legislative Note: The cross-references in subsection (1)(a) should not be changed if the jurisdiction has not adopted revised Article 1.

SECTION 2-203. SEALS INOPERATIVE. The affixing of a seal to a writing record evidencing a contract for sale or an offer to buy or sell goods does not constitute the writing record a sealed instrument and the law with respect to sealed instruments does not apply to such a contract or offer.

SECTION 2-204. FORMATION IN GENERAL.

(1) A contract for sale of goods may be made in any manner sufficient to show agreement, including offer and acceptance, conduct by both parties which recognizes the existence of such a contract, the interaction of electronic agents, or the interaction of an electronic agent and an individual.

(2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.

(3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

(4) Except as otherwise provided in Sections 2-211 through 2-213, the following rules apply:

(a) A contract may be formed by the interaction of electronic agents of the parties, even if no individual was aware of or reviewed the electronic agents' actions or the resulting terms and agreements.

(b) A contract may be formed by the interaction of an electronic agent and an individual acting on the individual's own behalf or for another person. A contract is formed if the individual takes actions that the individual is free to refuse to take or makes a statement that the individual has reason to know will:

(i) cause the electronic agent to complete the transaction or performance; or

(ii) indicate acceptance of an offer, regardless of other expressions or actions by the individual to which the electronic agent cannot react.

1. Subsection (1) sets forth the basic policy of recognizing any manner of expression of agreement. In addition to traditional contract formation by oral or written agreement, or by performance, subsection (1) provides that an agreement may be made by electronic means. Regardless of how the agreement is formed under this section, the legal effect of the agreement is subject to the other provisions of this Article.

2. Under subsection (1), appropriate conduct by the parties may be sufficient to establish an agreement. Subsection (2) is directed primarily to the situation when the correspondence does not disclose the exact point at which the deal was closed, but the conduct of the parties indicate that a binding obligation has been undertaken.

3. Subsection (3) states the principle for "open terms" which underlies later sections of this Article. If the parties intend to enter into a binding agreement, this subsection recognizes the agreement as valid in law, despite missing terms, if there is any reasonably certain basis for granting a remedy based on commercial standards of indefiniteness. Neither certainty for what the parties were to do nor a finding of the exact amount of damages is required. Neither is the fact that one or more terms are left to be agreed upon enough by itself to defeat an otherwise adequate agreement. This Act makes provision elsewhere for missing terms needed for performance, open price, remedies and the like.

The more terms the parties leave open, the less likely it is that the parties have intended to conclude a binding agreement, but their actions may be conclusive on the matter despite the omissions.

4. Subsections (4)(a) and (b) are derived from Sections 14(a) and (b) of the Uniform Electronic Transactions Act (UETA). Subsection (4)(a) confirms that contracts may be formed by machines functioning as electronic agents parties to a transaction. This subsection is intended to negate any claim that lack of human intent, at the time of contract formation, prevents contract formation. When machines are involved, the requisite intention to contract flows from the programing and use of the machine. This provision, along with sections 2-211, 2-212, and 2-213, is intended to remove barriers to electronic contract formation.

5. Subsection (4)(b) validates contracts formed by an individual and an electronic agent. This subsection substantiates an anonymous click-through transaction. As with subsection (4)(a), the intent to contract by the electronic agent flows from the programing and use of the machine. The requisite intent to contract by the individual is found by the acts of the individual that the individual has reason to know will be interpreted by the machine as allowing the machine to complete the transaction or performance, or that will be interpreted by the machine as signifying acceptance on the part of the individual. This intent is only found, though, when the individual is free to refuse to take the actions that the machine will interpret as acceptance or allowance to complete the transaction. For example, if A goes to a website that provides for purchasing goods over the Internet, and after choosing items to be purchased is confronted by a screen which advises her that the transaction will be completed if A clicks "I agree" then A will be bound by the click if A knew or had reason to know that the click would be interpreted as signifying acceptance and A was free to refuse the click.

6. Nothing in this section is intended to restrict equitable defenses, such as fraud or mistake, in electronic contract formation. However, because the law of electronic mistake is not well developed, and because factual issues may arise that are not easily resolved by legal standards developed for nonelectronic transactions, courts should not automatically apply standards developed in other contexts. Courts should also factor in the specific differences between electronic and nonelectronic transactions to resolve equitable claims in electronic contracts.

SECTION 2-205. FIRM OFFERS. An offer by a merchant to buy or sell goods in a signed record which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form in a form record supplied by the offeree must be separately signed by the offeror.

SECTION 2-206. OFFER AND ACCEPTANCE IN FORMATION OF CONTRACT.

(1) Unless otherwise unambiguously indicated by the language or circumstances

(a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances;

(b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a the shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.

(2) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who that is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.

(3) A definite and seasonable expression of acceptance in a record operates as an acceptance even if it contains terms additional to or different from the offer.

1. Subsection (1)(b) deals with the situation where a shipment which is made following an order contains defective goods. The nonconforming shipment is normally understood as intended to close the bargain even though it constitutes a breach. However, the seller by stating that the shipment is nonconforming and is offered only as an accommodation to the buyer keeps the shipment of from operating as an acceptance.

2. The mirror image rule is rejected in subsection (3), but any responsive record must still be fairly regarded as an "acceptance" and not as a proposal for a different transaction such that it should be construed to be a rejection of the offer.

SECTION 2-207. ADDITIONAL TERMS IN ACCEPTANCE OR TERMS OF CONTRACT; EFFECT OF CONFIRMATION.

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

(a) the offer expressly limits acceptance to the terms of the offer;

(b) they materially alter it; or

(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

If (i) conduct by both parties recognizes the existence of a contract although their records do not otherwise establish a contract, (ii) a contract is formed by an offer and acceptance, or (iii) a contract formed in any manner is confirmed by a record that contains terms additional to or different from those in the contract being confirmed, the terms of the contract, subject to Section 2-202, are:

(a) terms that appear in the records of both parties;

(b) terms, whether in a record or not, to which both parties agree; and

(c) terms supplied or incorporated under any provision of this Act.

1. This section applies to all contracts for the sale of goods, and it is not limited only to those contracts where there has been a "battle of the forms."

2. This section applies only when a contract has been formed under other provisions of Article 2. This section functions solely to define the terms of the contract. When forms are exchanged before or during performance, the result from the application of this section differs from the original Section 2-207 and the common law in that this section gives no preference to the first or the last form; it applies the same test to the terms in each. Terms in a record that insist on all of that record's terms and no others as a condition of contract formation have no effect on the operation of this section. When one party's record insists on its own terms as a condition to contract formation, if that party does not subsequently perform or otherwise acknowledge the existence of a contract, if the other party does not agree to those terms, the record's insistence on its own terms will keep a contract from being formed under Sections 2-204 or 2-206, and this section is not applicable. As with original Section 2-207, courts will have to distinguish between "confirmations" that are addressed in this section and "modifications" that are addressed in Section 2-209.

3. By inviting a court to determine whether a party "agrees" to the other party's terms, the text recognizes the enormous variety of circumstances that may be presented under this section, and the section gives the court greater discretion to include or exclude certain terms than original Section 2-207 did. In many cases, performance alone should not be construed to be agreement to the terms in another's record by one that has sent or will send its own record with additional or different terms. Thus a party that sends a record (however labeled or characterized, including an offer, counteroffer, acceptance, acknowledgment, purchase order, confirmation or invoice) with additional or different terms should not be regarded as having agreed to any of the other party's additional or different terms by performance. In that case, the terms are determined under paragraph (a) (terms in both records) and paragraph (c) (supplied or incorporated by this Act). Concomitantly, performance after an original agreement between the parties (orally, electronically or otherwise) should not normally be construed to be agreement to terms in the other's record unless that record is part of the original agreement.

The result would be different where no agreement precedes the performance and only one party sends a record. If, for example, a buyer sends a purchase order and there is no oral or other agreement, and the seller delivers in response to the purchase order but the seller does not send the seller's own acknowledgment or acceptance, the seller should normally be treated as having agreed to the terms of the purchase order.

Of course, an offeree's unqualified response, such as "I accept," to an offer that contained many terms would show agreement to all of the offer's terms. In some cases an expression of acceptance accompanied by one or more additional terms also might demonstrate the offeree's agreement to the terms of the offer. For example, consider a buyer that sends a purchase order with technical specifications and a seller that responds with a record stating "Thank you for your order. We will fill it promptly. Note that we do not make deliveries after 3:00 p.m. on Fridays." Here a court could find that both parties agreed to the technical specifications.

In some cases a court might find nonverbal agreement to additional or different terms that appear in only one record. If, for example, both parties' forms called for the sale of 700,000 nuts and bolts but the purchase order or another record of the buyer conditioned the sale on a test of a sample to see if the nuts and bolts would perform properly, the seller's sending a small sample to the buyer might be construed to be an agreement to buyer's condition. A court could find that the contract called for arbitration where both forms provided for arbitration but each contained immaterially different arbitration provisions. It is possible that trade practice in a particular trade or course of dealing between contracting parties might treat the offeree's performance as acceptance of the offeror's terms even when the offeree sent its own record; conversely trade practice or course of dealing might bind the offeror to terms in the offeree's form when the expectation in the trade or in the course of dealing so directs.

In a rare case terms in the records of both parties might not become part of the contract; that might happen where the parties contemplated agreement to a single negotiated record, each exchanged similar proposals and commenced interim performance but never reached a negotiated agreement because of differences over crucial terms. There is a limitless variety of verbal and nonverbal behavior that may be claimed to be an agreement to another's record. The section leaves the interpretation of that behavior to the wise discretion of the courts.

4. An "agreement" may include terms derived from a course of performance, a course of dealing, and usage of trade. See Section 1-201. If the members of a trade or if the contracting parties expect to be bound by a term that appears in the record of only one contracting party, that term is part of the agreement. However, repeated use of a particular term or repeated failure to object to a term on another's record is not normally sufficient in itself to establish a course of performance, a course of dealing or a trade usage.

5. The section omits any specific treatment of terms on or in the container in which the goods are delivered. Amended Article 2 takes no position on the question whether a court should follow the reasoning in Hill v. Gateway 2000, 105 F.3d 1147 (7th Cir. 1997) (Section 2-207 does not apply to these cases; the "rolling contract"is not made until acceptance of the seller's terms after the goods and terms are delivered) or the contrary reasoning in Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3d Cir.1991) (contract is made at time of oral or other bargain and "shrink wrap" terms or those in the container become part of the contract only if they comply with provisions like Section 2-207).

SECTION 2-208. COURSE OF PERFORMANCE ON PRACTICAL CONSTRUCTION RESERVED.

(1) Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement.

(2) The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever reasonable as consistent with each other; but when such construction is unreasonable, express terms shall control course of performance and course of performance shall control both course of dealing and usage of trade (Section 1-205).

(3) Subject to the provisions of the next section on modification and waiver, such course of performance shall be relevant to show a waiver or modification of any term inconsistent with such course of performance.

This section has been moved to revised Article 1 (Section 1-303).

Legislative Note: This section should not be repealed if the jurisdiction has not adopted revised Article 1.

SECTION 2-209. MODIFICATION; RESCISSION AND WAIVER.

(1) An agreement modifying a contract within this Article needs no consideration to be binding.

(2) A signed agreement An agreement in a signed record which excludes modification or rescission except by a signed writing record cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form in a form record supplied by the merchant must be separately signed by the other party.

(3) The requirements of the statute of frauds section of this Article (Section 2-201) must be satisfied if the contract as modified is within its provisions.

(4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.

(5) A party who that has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

SECTION 2-210. DELEGATION OF PERFORMANCE; ASSIGNMENT OF RIGHTS.

(1) A party may perform his duty through a delegate unless otherwise agreed or unless the other party has a substantial interest in having his original promisor perform or control the acts required by the contract. No delegation of performance relieves the party delegating of any duty to perform or any liability for breach.

(2) Unless otherwise agreed all rights of either seller or buyer can be assigned except where the assignment would materially change the duty of the other party, or increase materially the burden or risk imposed on him by his contract, or impair materially his chance of obtaining return performance. A right to damages for breach of the whole contract or a right arising out of the assignor's due performance of his entire obligation can be assigned despite agreement otherwise.

(3) Unless the circumstances indicate the contrary a prohibition of assignment of "the contract" is to be construed as barring only the delegation to the assignee of the assignor's performance.

(4) An assignment of "the contract" or of "all my rights under the contract" or an assignment in similar general terms is an assignment of rights and unless the language or the circumstances (as in an assignment for security) indicate the contrary, it is a delegation of performance of the duties of the assignor and its acceptance by the assignee constitutes a promise by him to perform those duties. This promise is enforceable by either the assignor or the other party to the original contract.

(5) The other party may treat any assignment which delegates performance as creating reasonable grounds for insecurity and may without prejudice to his rights against the assignor demand assurances from the assignee (Section 2-609).

(1) If the seller or buyer assigns rights under a contract, the following rules apply:

(a) Subject to paragraph (b) and except as otherwise provided in Section 9-406 or as otherwise agreed, all rights of either seller or buyer may be assigned unless the assignment would materially change the duty of the other party, increase materially the burden or risk imposed on that party by the contract, or impair materially that party's chance of obtaining return performance. A right to damages for breach of the whole contract or a right arising out of the assignor's due performance of its entire obligation can be assigned despite an agreement otherwise.

(b) The creation, attachment, perfection, or enforcement of a security interest in the seller's interest under a contract is not an assignment that materially changes the duty of or materially increases the burden or risk imposed on the buyer or materially impairs the buyer's chance of obtaining return performance within paragraph (a) unless, and then only to the extent that, enforcement of the security interest results in a delegation of a material performance of the seller. Even in that event, the creation, attachment, perfection, and enforcement of the security interest remain effective. However, the seller is liable to the buyer for damages caused by the delegation to the extent that the damages could not reasonably be prevented by the buyer, and a court having jurisdiction may grant other appropriate relief, including cancellation of the contract or an injunction against enforcement of the security interest or consummation of the enforcement.

(2) If the seller or buyer delegates performance of its duties under a contract, the following rules apply:

(a) A party may perform its duties through a delegate unless otherwise agreed or unless the other party has a substantial interest in having the original promisor perform or control the acts required by the contract. No delegation of performance relieves the party delegating of any duty to perform or any liability for breach.

(b) Acceptance of a delegation of duties by the assignee constitutes a promise to perform those duties. This promise is enforceable by either the assignor or the other party to the original contract.

(c) The other party may treat any delegation of duties as creating reasonable grounds for insecurity and may without prejudice to its rights against the assignor demand assurances from the assignee under Section 2-609.

(d) A contractual term prohibiting the delegation of duties otherwise delegable under paragraph (a) is enforceable, and an attempted delegation is not effective.

(3) An assignment of "the contract" or of "all my rights under the contract" or an assignment in similar general terms is an assignment of rights and unless the language or the circumstances, as in an assignment for security, indicate the contrary, it is also a delegation of performance of the duties of the assignor.

(4) Unless the circumstances indicate the contrary a prohibition of assignment of "the contract" is to be construed as barring only the delegation to the assignee of the assignor's performance.

1. This section is consistent with original Section 2-210 but follows a different organizational approach. Subsection (1) deals with the assignment of rights, subsection (2) deals with the delegation of duties, and subsections (3) and (4) are interpretive rules of general applicability. The section has also been changed to conform with revised Article 9.

2. Generally, this section recognizes both the assignment of rights and the delegation of duties as normal and permissible incidents of a contract for the sale of goods.

3. Subsection (1)(a) treats the effect of an assignment by either the seller or the buyer of the rights but not the duties arising under the contract for sale. These rights may be effectively assigned to a third person unless the assignment materially increases the duty, burden or risk, or materially impairs expected performance to the other party, or, subject to subsection (1)(b) and Section 9-406 (discussed below), otherwise agreed. Even then a right to damages for breach of the whole contract or a right arising out of the assignor's due performance of its entire obligation can be assigned despite contrary agreement.

An assignment, however, is not effective if it would "materially change the duty of the other party, increase materially the burden or risk imposed on that party by the contract, or increase materially that party's likelihood of obtaining return performance." Subsection (1)(a). The cases where these limitations apply are rare. For example, a seller that has fully performed the contract should always be able to assign the right to payment. This is the basis for most accounts receivable financing. If, however, the contract is still executory, the assignment of the right to payment to a third person might decrease the seller's incentive to perform and, thus, increase the buyer's risk. Similarly, the buyer's assignment of the right to receive a fixed quantity of goods should not usually be objectionable but if the parties have a "requirements" contract, the assignment could increase materially the seller's risk.

Subsection (1)(a) is subject to Section 9-406 of revised Article 9. That provision makes rights to payment for goods sold ("accounts"), whether or not earned, freely alienable by invalidating anti-assignment terms in agreements between account debtors and seller-assignors, and also by invalidating terms that render these assignments a breach.

4. Subsection (1)(a) is subject to subsection (1)(b), which conforms with revised Article 9. If an assignment of rights creates a security interest in the seller's interest under the contract, including a right to future payments, subsection (1)(b) states that there is no material impairment under subsection (1)(a) unless the creation, attachment, perfection and enforcement "results in a delegation of material performance of the seller." This is not likely in most assignments, and the buyer's basic protection is to demand adequate assurance of due performance from the seller if the assignment creates reasonable grounds for insecurity.

5. Occasionally a seller or buyer will delegate duties under the contract without also assigning rights. For example, a dealer might delegate its duty to procure and deliver a fixed quantity of goods to the buyer to a third party. In these cases, subsection (2) states the limitations on that power. A contract term prohibiting the delegation of duties renders an attempted delegation ineffective. Subsection (2)(d).

Second, if the third person accepts the delegation, an enforceable promise is made to both the delegator and the person entitled under the contract to perform those duties. Subsection (2)(b). In short, as to the person entitled under the contract a third party beneficiary contract is created. However, the delegator's duty to perform under the contract is not discharged unless the person entitled to performance agrees to substitute the delegatee for the delegator (a novation). See subsection (2)(a), last sentence.

Third, the person entitled under the contract may treat any delegation of duties as reasonable grounds for insecurity and may demand adequate assurance of due performance for the assignee-delegatee. Subsection (2)(c).

Finally, in any event, a delegation of duties is not effective if the person entitled under the contract has a "substantial interest in having the original promisor perform or control the performance required by the contract." Subsection (2)(a).

6. In the case of ambiguity, subsection (3) provides a rule of interpretation to determine when an assignment of rights should also be considered a delegation of duties. When there is ambiguity, the preference is to construe the language as both a delegation of duties as well as an assignment of rights.

7. This section is not intended as a complete statement of the law of delegation and assignment but is limited to clarifying a few points doubtful under the case law. Particularly, neither this section nor this Article touches directly on such questions as the need or effect of notice of the assignment, the rights of successive assignees, or any question of the form of an assignment, either as between the parties or as against any third parties. Some of these questions are dealt with in Article 9.

Legislative Note: The cross-reference to Section 9-406 in subsection (1)(a) will have to be deleted if the jurisdiction has not adopted revised Article 9.

SECTION 2-211. LEGAL RECOGNITION OF ELECTRONIC CONTRACTS, RECORDS AND SIGNATURES.

(1) A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.

(2) A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.

(3) This article does not require a record or signature to be created, generated, sent, communicated, received, stored, or otherwise processed by electronic means or in electronic form.

(4) A contract formed by the interaction of an individual and an electronic agent under Section 2-204(4)(b) does not include terms provided by the individual if the individual had reason to know that the agent could not react to the terms as provided.

1. This section is new. Subsections (1) and (2) are derived from Section 7(a) and (b) of the Uniform Electronic Transactions Act (UETA), and subsection (3) is derived from Section 5(b) of UETA. Subsection (4) is based on Section 206(c) of the Uniform Computer Information Transactions Act (UCITA). Each subsection conforms to the federal Electronic Signatures in Global and National Commerce Act (15 U.S.C. SECTION 7001 et seq.).

2. This section sets forth the premise that the medium in which a record, signature, or contract is created, presented or retained does not affect its legal significance. Subsections (1) and (2) are designed to eliminate the single element of medium as a reason to deny effect or enforceability to a record, signature, or contract. The fact that the information is set forth in an electronic, as opposed to paper, medium is irrelevant.

3. A contract may have legal effect and yet be unenforceable. See Restatement 2d Contracts Section 8. To the extent that a contract in electronic form may have legal effect but be unenforceable, subsection (2) validates its legality. Likewise, to the extent that a record or signature in electronic form may have legal effect but be unenforceable, subsection (1) validates the legality of the record or signature.

For example, though a contract may be unenforceable, the parties' electronic records may have collateral effects, as in the case of a buyer that insures goods purchased under a contract that is unenforceable under Section 2-201. The insurance company may not deny a claim on the ground that the buyer is not the owner, though the buyer may have no direct remedy against the seller for failure to deliver. See Restatement 2d Contracts, Section 8, Illustration 4. Whether an electronic record or signature is valid under other law is not addressed by this Act.

4. While subsection (2) validates the legality of an electronic contract, it does not in any way diminish the requirements of Sections 2-204 and 2-206 regarding the formation of contracts, and the requirements of those sections, where applicable, must be met for contract formation.

SECTION 2-212. ATTRIBUTION. An electronic record or electronic signature is attributed to a person if the record was created by or the signature was the act of the person or the person's electronic agent or the person is otherwise bound by the act under the law.

1. This section is new. It is based on Section 9 of the Uniform Electronic Transactions Act (UETA).

2. As long as the electronic record was created by a person or the electronic signature resulted from a person's action it will be attributed to that person. The legal effect of the attribution is to be derived from other provisions of this Act or from other law. This section simply assures that these rules will be applied in the electronic environment. A person's actions include actions taken by a human agent of the person as well as actions taken by an electronic agent, i.e., the tool, of the person. Although this section may appear to state the obvious, it assures that the record or signature is not ascribed to a machine, as opposed to the person operating or programming the machine.

3. In each of the following cases, both the electronic record and electronic signature would be attributable to a person under this section:

A. The person types his/her name as part of an e-mail purchase order;

B. The person's employee, pursuant to authority, types the person's name as part of an e-mail purchase order;

C. The person's computer, programmed to order goods upon receipt of inventory information within particular parameters, issues a purchase order which includes the person's name, or other identifying information, as part of the order.

In each of these cases, other law would ascribe both the signature and the action to the person if done in a paper medium. This section expressly provides that the same result will occur when an electronic medium is used.

4. Nothing in this section affects the use of an electronic signature as a means of attributing a record to a person. See Section 2-102(a)(1). Once an electronic signature is attributed to the person, the electronic record with which it is associated would also be attributed to the person unless the person established fraud, forgery, or other invalidating cause. However, an electronic signature is not the only method for attribution of a record.

5. In the context of attribution of records, normally the content of the record will provide the necessary information for a finding of attribution. It is also possible that an established course of dealing between parties may result in a finding of attribution. Just as with a paper record, evidence of forgery or counterfeiting may be introduced to rebut the evidence of attribution. The use of facsimile transmissions provides a number of examples of attribution using information other than a signature. A facsimile may be attributed to a person because of the information printed across the top of the page that indicates the machine from which it was sent. Similarly, the transmission may contain a letterhead which identifies the sender. Some cases have held that the letterhead actually constituted a signature because it was a symbol adopted by the sender with intent to sign the record. However, the signature determination resulted from the necessary finding of in