Computer Software Contracts: A Review of the Case Law(1)
By Professor Andrew Beckerman-Rodau(2)
Suffolk University Law School
120 Tremont Street
Boston, MA 02108
Copyright 1987 Akron Law Review. Reprinted by permission of the Akron Law Review.
Originally published in 21 Akron Law Review 45 (1987)
The pervasiveness of computers in our society(3) has led to numerous legal controversies
involving computers and computer transactions.(4) Conflicts between buyers and sellers of
computer software(5) have resulted in, and will continue to result in, both tort and breach of
contract actions to redress disputes.(6) This article focuses on those contract actions involving
A fundamental issue in resolving a contract dispute involving a software transaction is
whether article 2 of the Uniform Commercial Code (hereinafter UCC) or the common law
governs.(8) It has been recognized that whether article 2 applies to computer software contracts is
very significant especially in the areas of warranties, consequential damages, and limitations on
liability.(9) However, commentators have disagreed on the answer to this question.(10) This article
categorizes and examines the judicial decisions that have confronted this question. An analysis of
these decisions demonstrates that although only a limited number of courts have faced this
question the courts usually apply article 2(11) and the decisions are generally consistent and
reconcilable when viewed in the context of commercial transactions generally.
TRANSACTIONS INVOLVING THE PURCHASE OR LICENSE OF SOFTWARE
WITHOUT COMPUTER HARDWARE
Review of the Case Law
In RRX Industries v. Lab-Con, Inc.,(12) the court found the California version of the UCC
applicable to a contract for the purchase of software. The court, noting that for the UCC to apply
the software must be a good, had no difficulty concluding without analysis that the software was a
good under section 2-105(13) of article 2.(14) The court then made a factual determination as to
whether the services provided with the sale of the software were a predominant or incidental part
of the transaction. This determination was necessary because, under California law, a contract for
the sale of goods would be classified as a service contract outside the domain of article 2 if
services provided with the sale of goods were the predominant aspect of the transaction. It
follows from this decision that the court views software as a good; the investigation of the
services provided in a particular transaction was merely to ascertain whether the predominant
feature of the transaction was the sale of goods or the providing of services. The court concluded
that the seller's contractual obligation to install the software, to repair any software errors, and to
train the buyer's employees in the operation of the software were merely incidental services, and
therefore the transaction fell within article 2.(15)
A contract for the purchase of software in Compu-Med Systems, Inc. v. Cincom Systems,
Inc.,(16) resulted in an action for fraud and breach of contract against the seller when the software
allegedly failed to perform as represented by the seller. In denying the seller's motion to dismiss
the complaint or in the alternative to grant summary judgement the court relied upon two sections
of article 2. The court found that the buyer had given the seller adequate notice of the alleged
breach of contract, as required by section 2-607(3)(a),(17) and therefore the buyer was not barred
from bringing the action. Additionally, the court found section 2-719(2)(18) applicable to the
question of whether the contract provided an exclusive remedy that precluded the buyer's
recovery of consequential, special, or indirect damages. The court applied article 2, under Ohio
Law, to this transaction without addressing the threshold question of whether software was a
good. Therefore, it must be assumed that the court viewed software as a good within the domain
of article 2.
In Harford Mutual Insurance Co. v. Seibels, Bruce & Co.,(19) a buyer obtained software
under a license agreement and brought suit under South Carolina law in tort and under the
warranty provisions of article 2(20) when the software allegedly failed to operate properly. The
court dismissed the tort claim on a motion for summary judgment but denied a motion for
summary judgment with regard to the warranty claim.(21) The court recognized that the application
of article 2 depended upon a finding that the license agreement was a contract for sale and that the
software in question was a good as opposed to a service. However, the court declined to decide
these issues since the court was deciding a motion for summary judgment and facts relevant to
these questions were in dispute.(22)
Analysis of the Case Law
These three cases involved transactions to provide software without computer hardware.
In both cases involving the sale of software article 2 was applied to the transaction. In Compu-Med Systems article 2 was applied without any discussion of whether software must be a good for
article 2 to apply, the court applied article 2 without any discussion of whether it was a good.
The cursory nature of these analyses indicates little judicial hesitancy with the conclusion that
software is a good under article 2. In RRX Industries the main thrust of the court's analysis was
its finding that the sale of software with accompanying services was within article 2. The court
relied on the predominant feature test to reach its conclusion. Under this test a contract involving
both sale and service aspects is classified according to which aspect predominates.(23) This
approach is consistent with judicial treatment of commercial contracts in other contexts since the
predominant feature test is the most frequently used test to evaluate whether a transaction
involving both goods and services falls within article 2.(24) RRX Industries indicates, therefore, that
conventional legal doctrine applicable generally to commercial contracts is still relevant and will
be applied to the sale of software.
Only in Harford Mutual Insurance was article 2 not applied to a software transaction. In
this case the court left open the question of article 2's applicability because the court was only
deciding a motion for summary judgment. However, this result is reconcilable with Compu-Med
Systems and RRX Industries. Both of these cases involved sales which are covered by article 2.
In Harford Mutual Insurance, however, the software was provided via a license, which is a non-sale transaction. As will be discussed infra, the treatment of non-sale transactions varies among
jurisdictions.(25) Therefore, the court's uncertainty about whether article 2 applied in Harford
Mutual Insurance is consistent with the judicial disagreement generally with regard to applying
article 2 to non-sale transactions.(26)
Additionally, as will be discussed infra, the type of software involved in the transaction is
relevant.(27) Providing custom designed software(28) may be predominantly a service contract outside
the scope of article 2 while providing standardized software may be within article 2.
Consequently, uncertainty about the type of software provided in Harford Mutual Insurance may
explain the court's deferral of its determination of whether article 2 applied to the transaction.
TRANSACTIONS INVOLVING HARDWARE AND SOFTWARE SUPPLIED UNDER A
Review of the Case Law
In Dreier Co., Inc. v. Unitronix Corp.,(29) the plaintiff Dreier entered into a written contract
for the purchase of a computer system consisting of both hardware and custom programmed
software. The software allegedly never operated properly and Dreier brought an action for fraud
and for breach of warranty under article 2 of the UCC. The trial court found the action time-barred by the statute of limitations and granted summary judgment for Unitronix. However, the
appellate court reversed and remanded for a determination of when tender of delivery occurred
because tender controls when the statute of limitations starts to run under section 2-725(30) of
article 2. The court confronted the question of whether article 2 applied to the transaction and
concluded that general agreement exists that the sale of a computer system comprising both
hardware and software is a sale of goods under article 2. However, the court's discussion
indicates that the court viewed the providing of custom software, as in this case, as simply being
an incidental service aspect of the overall transaction.
A computer system comprising both hardware and software was sold in Redmac, Inc. v.
Computerland.(31) The system failed to work properly and an action was brought under Illinois law
for breach of express warranty under section 2-313(32) of article 2. The court applied article 2 to
the transaction without discussion and found that the seller had breached the section 2-313
express warranty and that the buyer had a right tor evoke acceptance of the system under section
In Triangle Underwriters, Inc. v. Honeywell, Inc.,(34) the sale of a computer system
consisting of hardware, standard software, and custom software resulted in breach of contract
claims when the system failed to function properly because the software did not operate as
promised. The court concluded that the transaction involved the sale of goods under article 2.(35)
Therefore, the contract action was barred by the four year statute of limitations under section 2-725(36) of article 2 which applied in lieu of the six year statute of limitations which applied to
contracts outside the domain of article 2 in New York state.(37)
The plaintiff in Rochester Welding Supply Corp. v. Burroughs Corp.(38) Contracted to buy
two different computers from Burroughs. Under both contracts Burroughs was obligated to
program the computers, but after several unsuccessful efforts Burroughs conceded that it was
unable to properly program the computers. Rochester sued Burroughs for breach of contract, but
the trial court dismissed after concluding the statute of limitations under section 2-725(39) of article
2 had expired. On appeal the court found that the statute of imitations had not run and trial court
was reversed.(40) Both the majority and dissent applied article 2 to the transaction without
discussion of its application. Their disagreement centered on how to apply section 2-725, not on
whether the transaction was within the scope of article 2.(41)
In Samuel Black Co. v. Burroughs Corp.,(42) a buyer contracted to purchase a computer as
well as software for the computer. The software was never completed, and the buyer returned the
computer and sued the seller for, among other things, breach of contract. The court found that
Michigan law controlled the transaction and stated that "there is reason to doubt whether the
courts of Michigan would treat the computer system transaction . . . as falling within the scope . .
. of the Uniform Commercial Code's ("UCC") article on sales."(43) The court then declined to
resolve the question of the applicability of article 2 because it felt the outcome of the case would
be the same whether article 2 did or did not apply. Based on this reasoning the court simply
applied article 2 to the transaction by analogy.(44)
In United States Welding v. Burroughs Corp.,(45) dissatisfaction with the operation of a
leased computer and operating software resulted in an action for negligent misrepresentation and
breach of an implied warranty of fitness.(46) In denying the motion to dismiss the negligent
misrepresentation claim the court held, under Colorado law, that the contemporaneous contract
claim (the breach of warranty claim) did not preclude the negligent misrepresentation claim.(47)
Additionally, the court simply presumed without any analysis that article 2 applied to the overall
lease transaction under Colorado law.
In Jaskey Finance and Leasing v. Display Data Corp.,(48) the plaintiff, Jaskey, purchased a
computer system, consisting of both hardware and software from Display Data. The transaction
involved a contract covering the computer system and any accompanying programming and
installation, and a separate maintenance contract for the computer system. Dissatisfaction with
the operation of the system resulted in an action by Jaskey against Display Data for breach of
express(49) and implied warranties.(50) In deciding a motion to dismiss, the court applied Maryland
law and found any express warranties in the advertising or promotional material to be excluded
under section 2-202(51) of article 2.(52) Additionally, the contract effectively disclaimed any express
or implied warranties of fitness under section 2-316,(53) although any implied warranty of
merchantability was not disclaimed under section 2-316.(54) The court applied article 2 to both
contracts without discussion of the scope of article 2 or its application to the transactions
In Aplications, Inc. v. Hewlett Packard Co.,(55) Aplications purchased a Hewlett Packard
computer programmed with a Hewlett Packard computer language for resale to a third party.
After Aplications installed the computer, it alleged the computer language did not perform as
warranted and Aplications sued Hewlett Packard for breach of express(56) and implied warranty.(57)
The court granted summary judgment for Hewlett Packard with regard to the breach of warranty
claims because the court found, under California law, that any warranties had been effectively
disclaimed under section 2-316.(58) The court applied article 2 in this case without any discussion
of its applicability to the transaction involved.
In Kalil Bottling co. v. Burroughs Corp.,(59) Kalil signed a contract to purchase a computer
and software on credit. Subsequent to the installation of the computer, Burroughs rejected Kalil's
application for credit and a third party purchased the computer and software from Burroughs and
leased it to Kalil. The computer did not operate properly and Burroughs failed to install all the
software required in the original contract. Kalil sued Burroughs for breach of contract and breach
of warranty.(60) The parties proceeded at trial and on appeal on the theory that a contract existed
between Kalil and Burroughs and therefore the court decided the case under Arizona law based
on this theory.(61) In reversing a jury award for Kalil and remanding for a new trial, the appellate
court found an implied warranty exclusion valid under section 2-3165 (renumbered A.R.S. 44-2333 in Arizona).(62) Additionally, the court found any alleged representation made prior to
executing the contract inadmissible due to section 2-202 (A.R.S. 44-2309 in Arizona).(63) Finally, a
contract clause limiting damages and only requiring repair and replacement of any defective parts
was found to be a nonexclusive remedy under section 2-719 (A-R.S. 44-2398 in Arizona).(64)
Article 2 was applied in this case without any discussion of its scope or application to the
transaction at issue.
In Chatlos Systems v. National Cash Register Corp.,(65) National Cash Register (NCR) sold
Chatlos a computer via a sale/leaseback arrangement which involved sale of the computer by
NCR to a bank which then leased it back to Chatlos. Under the terms of the arrangement NCR
also provided programming services to Chatlos which entailed installation of software in the
computer by NCR personnel. The software never worked properly and in an action by Chatlos
against NCR the court held, under New Jersey law, that NCR had breached both an express
warranty(66) and an implied warranty of fitness.(67) Damages were consequently awarded under
section 2-714.(68) The court addressed the question of the applicability of article 2 and stated that
the transaction involved the sale of goods despite the lease arrangement and the programming
services which it viewed as only incidental service aspects of the overall transaction.(69)
In Carl Beasley Ford, Inc. v. Burroughs Corp.,(70) Burroughs sold Ford a computer and
accompanying software via a "bundled" transaction.(71) The agreement obligated Burroughs to
furnish, install, and test thirteen computer programs. Twelve of the programs were installed late
and three crucial programs failed to work properly rendering the computer useless to Ford. Ford
then rejected the computer and software and brought a successful breach of contract action
against Burroughs to recover the purchase price and consequential damages. The court applied
article 2, under Pennsylvania law, to the transaction without discussion.(72) The court found that
Ford had made a valid rejection of goods under sections 2-602(73) and 2-606.(74) It then awarded
damages based on sections 2-711,(75) 2-712,(76) and 2-715.(77)
In O J & C Co. v. General Hospital Leasing,(78) O J & C obtained a computer ad
accompanying software via a sale/leaseback arrangement under which the computer manufacturer
sold the computer to General Hospital Leasing who then leased it to O J & C. The lease was for
five years with an option to renew the lease on an annual basis at the end of the five year period.
The lease did not include an obligation or option to purchase on the part of O J & C. In a
successful action to recover unpaid rent due on the computer from O J & C, the court determined
under Texas law that section 2-302(79) of article 2 was not relevant with regard to whether the
warranty provision of the lease was unconscionable.(80) The court rejected application of section 2-302 because the court said article 2 was limited to sales.(81)
The Court of Appeals for the Third Circuit reviewed the allowance of a claim in a
bankruptcy proceeding in the Matter of Community Medical Center.(82) The transaction involved a
three year contract which provided that the claimant would provide data processing services to
the debtor. The claimant leased computers from a computer manufacturer which were installed
on the debtor's premises. These leased computers were then linked to claimant's central
computer, located on claimant's premises, which served the needs of all claimant's customers
including the debtor. The claimant also provided programming services, maintained the
computers, and trained the debtor's personnel in the operation of the system. In determining the
proper amount of the claim under New Jersey law the court noted in dicta that the transaction was
not within the domain of article 2.(83) The court stated that the transaction involved a lease that
was not the practical equivalent of a sale because the computers involved were leased by the
claimant and therefore they could not be sold to the debtor. Additionally, the debtor did not have
an option to purchase them at the end of the lease for a nominal sum.(84) Consequently, the court
determined that a contract for the sale of services, outside the scope of article 2, existed.(85)
In Aubrey's R.V. Center v. Tandy, Corp.,(86) Aubrey's obtained a computer system
comprised of hardware and software from Tandy. Inventory software was purchased directly
from the software producer with a Tandy employee acting as an agent for the sale. The hardware
and the remainder of the software were obtained via a sale/leaseback arrangement in which a third
party purchased the system from Tandy and leased it back to Aubrey's. The sale/leaseback
arrangement was used as a financing scheme and it allowed Aubrey's to purchase the system at
the end of the lease. The inventory software and some of the other software filed to function
properly and Aubrey's sought contract rescission and damages for violation of the state consumer
protection act.(87) In affirming the trial court's rescission of the contract the appellate court noted
that such a remedy was codified in section 2-608(88) of article 2 although in code language it was
called "revocation of acceptance."(89) The court, noting that both parties agreed that article 2
applied, applied article 2 under Washington law without any discussion of its application to
In Neilson Business Equipment v. Monteleone,(91) a physician in private practice obtained a
computer system consisting of hardware, software, and accompanying services via a
sale/leaseback arrangement. The software filed to generate proper patient bills or maintain
adequate records, and the physician thereafter terminated the computer system lease and sued for
damages. The trial court awarded damages to the physician, under Delaware law, for breach of
the warranties of merchantability(92) and fitness(93) under article 2 of the UCC. In affirming the trial
court decision, the Delaware Supreme Court recognized that the central issue was whether the
transaction involved goods(94) because article 2 is limited in its application to transactions in
goods.(95) The court dismissed the argument that software is an intangible and therefore not a good
by concluding that the computer hardware, software, and services were purchased as a package.(96)
The court recognized that the transaction involved service aspects, but it upheld the trial court's
application of the predominant feature test(97) because substantial evidence supported the
conclusion that the transaction involved goods. The court was also not deterred from applying
article 2 because the computer system was obtained via a lease. The court concluded that the
sale/leaseback arrangement was the equivalent of a sale and that it was used merely to obtain
favorable cash flow and tax treatment.
Analysis of the Case Law
A total of nine decisions involved the sale of hardware and software under a single
agreement. In seven of these decisions article 2 was applied to the transaction. Triangle
Underwriters addressed the threshold question of whether software was a good under article 2.
The court, sitting in diversity concluded that a New York court would treat both the computer
hardware and software as goods under article 2.(98) Dreier also confronted this question and
It is clear that the sale of a computer system consists not only of physical goods,
but of substantial services essential in producing the final product. Nevertheless,
most authorities agree that the sale of a computer system involving both hardware
and software is a "sale of goods" notwithstanding the incidental service aspects of
the sale; therefore Article 2 of the Uniform Commercial Code . . . applies.(99)
In Samuel Black the court was unsure whether the computer transaction was within the
scope of article 2 of the UCC. Nevertheless, the court applied article 2 without resolving this
scope question because it concluded that the outcome in this case was the same under both the
common law and under article 2. In the remaining five cases that involved the sale of hardware
and software under a single agreement, article 2 was applied to the transaction without discussion.
Although judicial decisions have found article 2 applicable to most sales of hardware and
software under a single agreement, less consistent results exist when the computer hardware and
software is leased rather than sold. In United States Welding a lease of computer hardware and
software was subject to article 2 under Colorado law. However, in the Matter of Community
Medical Center the court noted that a lease of computer hardware which included programming
services was not covered by article 2 under New Jersey law.
Judicial decisions exhibit similar conflicting results when hardware and software are
obtained via sale/leaseback arrangements. In Neilson Business Equipment Center article 2 was
applied to a sale/leaseback arrangement under Delaware law. In Kalil Bottling article 2 was
applied to a sale/leaseback transaction under Arizona law. An analogous transaction was covered
by article 2 under New Jersey law in Chatlos Systems. In Aubrey's R.V. Center, article 2 was
applied under Washington law in a transaction involving both the direct sale of software and
sale/leaseback of hardware and software. However, in O J & C application to a sale/leaseback
transaction was unequivocally rejected under Texas law.
This inconsistent application of article 2 to transactions involving leases and sale/leaseback
arrangements does not represent confusion over whether article 2 applies to software. Instead it
merely exemplifies the judicial disagreement over the extension of article 2 generally to non-sale
transactions such as leases.(100) A few courts have extended article 2 to true leases(101) while other
courts have only extended article 2 to leases that are analogous or equivalent to a sale.(102)
Additionally, some courts have limited the scope of article 2 to sales thereby excluding leases
from the scope of article 2.(103)
The Texas courts have consistently held that article 2 is limited in scope to sale
transactions.(104) Therefore, the failure of the Texas court in O J & C to apply article 2 to a
sale/leaseback transaction involving computer hardware and software is consistent with the Texas
court's interpretation of the scope of article 2. In contrast to Texas, the Arizona courts have
extended article 2 to lease transactions.(105) Therefore the application of article 2 to the
sale/leaseback arrangement in Kalil Bottling is consistent with the Arizona court's interpretation
of article 2. Likewise, Washington courts have concluded that article 2 covers leases and
bailments.(106) Consequently, the application of article 2 to the transaction in Aubrey's R.V. Center
is consistent with state law in Washington.
In an early decision extending the implied warranty of fitness to a leased truck, the New
Jersey Supreme Court noted, in dicta, that article 2 could extend beyond sales.(107) Based on this
and decisions in other states extending article 2 to lease transactions, the application of article 2 in
Chatlos Systems seems logical. Despite Chatlos Systems, a federal court noted in Community
Medical Center that under New Jersey law a lease arrangement was not within the scope of
article 2. These decisions are reconcilable, however, in light of the trend of only extending article
2 to lease transactions that are analogous or equivalent to sales.(108)
In Chatlos Systems a sales/lease back arrangement was used merely for financing
purposes. In this case a computer manufacturer was unable to sell a computer system directly to
a customer because the customer failed to meet the credit standards of the manufacturer. To
prevent loss of the sale, the manufacturer sold the computer system to a bank which then leased it
to the customer. Despite the use of a lease, the underlying purpose of the transaction was to
accomplish a sale, and therefore the technical lease arrangement was really equivalent to a sale by
the manufacturer to the customer.
In Community Medical Center, the court noted that some leasing arrangements are within
the scope of article 2 when they are equivalent to sales. However, the court did not believe the
lease arrangement in this case was equivalent or analogous to a sale and therefore article 2 was
Finally, in United States Welding a federal court sitting in diversity, concluded, without
analysis, that under Colorado law article 2 applied to a lease transaction despite a lack of
Colorado precedents on this question.(109) Such a result is consistent with other jurisdictions which
have extended articl3 2 to lease transactions.
A review of the caselaw indicates that the sale of computer hardware and software under a
single agreement is treated as being within the scope of article 2 by most courts. However, when
a lease transaction is involved, the courts are divided on whether article 2 applies. An
examination of the treatment of leases generally under article 2 reveals that the courts are divided
on the treatment of leases.(110) Therefore, the different state-to-state treatment of computer lease
transactions is consistent with the varied treatment of leases in general.
TRANSACTIONS TO OBTAIN BOTH COMPUTER HARDWARE AND SOFTWARE
INVOLVING SEPARATE HARDWARE AND SOFTWARE AGREEMENTS
Review of the Case Law
In W.R. Weaver Co. v. Burroughs Corp.(111) A computer user leased a Burroughs computer
from the defendant and purchased application software to run on the computer from the
defendant. When the computer and software failed to operate as warranted the computer user
sought consequential damages based on theories of express(112) and implied warranty(113) and strict
liability. The appellate court specifically found article 2 inapplicable to the computer hardware
portion of the transaction because the hardware was leased and article 2, at least in Texas, is
limited to sales.(114) Article 2 was held applicable to the software sale, however, and therefore the
statute of limitations embodied in section 2-725(115) and the warranty exclusion contained in section
2-316(116) were applicable to the software sale.(117) Although the court did not directly address
whether the software was a good, such a conclusion is implicit in the court's application of article
2 to the software transaction.(118)
A buyer entered into two contracts for the purchase of computer hardware and
accompanying training, support services and other material in Hi Neighbor Enterprises v.
Burroughs Corp.(119) The buyer also executed two contracts for the purchase of software and
computer education courses. Dissatisfaction with the seller's performance under the contracts led
the buyer to sue for breach of contract and fraud. In analyzing the enforceability of the damage
and warranty limitation clauses of the contracts, the court applied Florida law and determined that
sections 2-719(120) and 2-316(121) of article 2 rendered the clauses valid.(122) The court failed to
expressly address whether software was a good and simply implied this conclusion by finding
article 2 applicable to the contracts for the sale of software.(123) In Office Supplies, Inc. v.
Basic/Four Corp.,(124) the plaintiff purchased computer hardware and leased software to be used
with the hardware. The plaintiff brought an action for beach of contract alleging defects in both
the hardware and software, but the action was dismissed pursuant to defendant's motion for
summary judgment.(125) In the court's analysis, the statute of limitations under the Wisconsin
version of section 2-725(126) was relied on.(127) In addition, relying on California law, a warranty
disclaimer was found not to be conspicuous as required by section 2-316,(128) and a damage
limitation was found to be void and to have failed of its essential purpose under section 2-719.(129)
In reaching its decision, the court treated the lease of software as a sale of software noting in a
footnote that the software was leased for copyright purposes and that neither party to the action
contended that this had any significance with regard to the application of article 2.(130)
A beer distributor contracted with Burroughs to buy a computer and for the right to use
certain programs provided by Burroughs in Quad Cty. Distributing co. v. Burroughs, Corp.(131)
The distributor also paid Burroughs $14,000 to have Burroughs develop software for the
distributor. The programs to be developed never worked properly and the buyer covered by
purchasing the programs elsewhere for $18,718.28 and sued for breach of contract under Illinois
law. The court stated that the measure of damages for breach of a contract for the sale of
personal property was the difference between the contract price and the market price at the time
of the breach.(132) The court then found damages to be the difference between the contract price
and the cost of cover.(133) The court failed to identify whether the common law or article 2 applied
since the court noted the common law measure of damages in this case was the same as under the
applicable article 2 provision (section 2-712).(134) It follows, however, from the court's analysis
that it at least viewed software as personal property even though the court failed to explicitly
determine whether the common law or article 2 controlled the transaction.
In Westfield Chemicals Corp. v. Burroughs Corp.,(135) Burroughs sold a computer with a
one year service contract to Westfield. Westfield alleged that the computer did not work property
and sued for damages based on breach of contract and breach of express(136) and implied
warranties.(137) The court applied article 2 under Massachusetts law without discussion. The court
dismissed the action because it determined the contract was not unconscionable based on
Comment one to section 2-302.(138) The court found the contract defectively disclaimed all
warranties under 2-316,(139) and that the contract defectively limited Westfield's remedy to repair
or replacement of defective computer parts under section 2-719.(140) The court also noted in dicta
that the parties signed a second software contract under which Burroughs was to program the
computer for Westfield. The court stated that the provisions of this contract also disclaimed all
warranties and limited liability as in the sales contract, although the court failed to state explicitly
that article 2 applied to the software contract.(141)
In H.M.O. Systems v. Choicecare Health Services,(142) H.M.O. purchased computer
hardware from Hewlett Packard on credit. H.M.O. then leased this hardware to Choicecare and
Choicecare made monthly lease payments equal to H.M.O.'s monthly payments directly to the
bank that financed the transaction between Hewlett Packard and H.M.O. Choicecare was
responsible for all maintenance of the hardware and had an option to purchase the hardware at the
end of the lease. Choicecare also entered into an agreement with H.M.O. under which H.M.O.
granted Choicecare a non-expiring license for $15,000 to use software developed by H.M.O.
especially for Choicecare. The software agreement also provided that Choicecare would make
space available to H.M.O. to demonstrate the software to other potential customers in return for
Choicecare receiving a royalty for each system sold. Choice care subsequently became insolvent
and was placed in receivership. H.M.O. then sued, under Colorado law, for breach of the
hardware lease and breach of contract with regard to the software agreement. The court held that
the lease agreement was governed by article 9 of the UCC(143) since the intent of the parties was to
create a security interest in the computer hardware.(144) The breach of the software agreement,
however, was treated as a breach of contract claim and damages were determined based on the
common law without any discussion as to whether article 2 should apply to the software
Analysis of the Caselaw
A total of six decisions involved transactions to provide computer systems in which a
separate agreement was executed for the hardware and software segments of the system. Article
2 was consistently applied to contracts for the sale of software in W.R. Weaver and Hi Neighbor.
However, the decisions are less consistent when custom software(146) is involved or the software is
provided via a non-sale transaction such as a lease or license.
In Westfield Chemicals the court implied that a contract to provide custom software was
governed by article 2. However in Quad Cty. Distributing, the application of article 2 to a similar
custom software contract was left undecided because the outcome of the case was the same under
the common law or article 2. Additionally, article 2 was found applicable to leased software in
Office Supplies while H.M.O. Systems applied the common law to an agreement to license custom
These decisions indicate that software was viewed as a good covered by article 2 in the
majority of cases. The decisions in which article 2 was not applied or in which its application was
left undecided do not necessarily represent confusion with regard to whether article 2 applies to
software. Both of these decisions involved custom software which under existing law may not be
subject to the application of article 2. As will be discussed in the next section, such contracts may
be service contracts outside the domain of article 2.(147)
Additionally, the failure of H.M.O. Systems to apply article 2 may be due to the nature of
the transaction. H.M.O. Systems involved a license to use software which is a non-sale
transaction. As previously discussed, the treatment of non-sale transactions generally varies
among different jurisdictions.(148) In Colorado no state court precedents exist with regard to the
extension of article 2 to non-sale transactions.(149) Therefore, the failure to apply article 2 may
indicate reluctance of the intermediate appellate court in H.M.O. Systems to apply article 2 to a
non-sale transaction absent Colorado precedents.
AGREEMENT TO DEVELOP CUSTOM SOFTWARE
Review of the Case Law
In Data Processing Services Inc. v. L.H. Smith Oil Corp.,(150) the court squarely addressed
the issue, under Indiana law, of whether a contract to develop custom software(151) designed to
meet the specific needs of the user was a contract for the sale of goods subject to article 2, or a
contract to perform services subject to the common law.(152) The trial court found article 2
applicable and awarded $33,000 damages for breach of contract based on a finding that the
software failed to perform as promised. On appeal, the court affirmed the award of damages but
its decision was based on the common law since the appellate court determined that the contract
to develop software was a contract to provide services and not a contract to sell goods.(153) It
should be noted that the court distinguished the custom software involved in this case from the
sale of "generally-available standardized software" which other courts have held to be within
In Data Processing Services the court confronted the question of whether a contract to
develop custom software was a contract for the sale of goods or a service contract.(155) The court
concluded that the development contract was a service contract and therefore article 2 did not
apply since the scope of article 2 does not extend to service contracts.(156) However, the court
recognized that it was dealing with custom made software and that its decision might not apply to
standardized software which is sold as a mass-marketed commodity.(157)
The distinction between standardized software and custom made software with regard to
the application of article 2 is analogous to the application of article 2, by some courts, in other
commercial transactions. For example, in Art Metal Products Co. v. Royal Equipment Co.,(158) a
contract to supply and install custom built athletic lockers was held to be outside the scope of
article 2. The court reasoned that the main purpose or predominant feature of the contract was to
install the custom lockers. The providing of the lockers, which are goods under article 2, was
viewed as only an incidental aspect of the contract.(159) In reaching its conclusion, the court
distinguished Anderson Construction Co. Inc. v. Lyon Metal Products, Inc.,(160) in which a contract
to provide and install school lockers was held subject to article 2. In Anderson Construction, the
lockers were standard lockers and therefore the court concluded the sale of the lockers was the
predominant feature of the contract. Therefore, a determination that standard software is a good
and that custom software is not a good under article 2 is reconcilable with at least some existing
caselaw dealing with non-computer transactions.
AGREEMENT TO PROVIDE DATA PROCESSING SERVICES
Review of the Case Law
In Liberty Financial Mgmt. v. Beneficial Data,(161) Beneficial Data entered a contract to
provide on-line data processing services to Liberty, a consumer loan company. Dissatisfaction
with the services resulted in Liberty bringing a breach of contract action under Missouri law
which yielded a jury award of over one million dollars. On appeal, the trial court decision was
reversed and the case was remanded, in part, because a clause in the contract limiting
consequential damages for negligence was withdrawn from the consideration of the jury by the
trial court. In analyzing the validity of the clause limiting consequential damages, the appellate
court found the clause valid, but rejected application of section 2-719(162) of article 2 because it
concluded the scope of article 2 was limited to transactions in goods.(163) The court determined
that the contract in this case was primarily for data processing services with reels of tape and
other tangible items provided to Liberty being only incidental to the contract, and therefore the
contract was not within the scope of article 2.(164)
In Computer Servicenter, Inc. v. Beacon Manufacturing Co.,(165) an oral contract was
entered into which provided that Computer Servicenter would provide data processing services to
Beacon in the form of analysis, collection, storage, and reporting of certain data supplied by
Beacon. The services had been provided for three months when Beacon notified Computer
Servicenter that these services were no longer required. Computer Servicenter brought an action
for breach of contract but Beacon's motion for summary judgment was granted based on the oral
contract being unenforceable under the statute of frauds. In reaching its decision, the court
determined under South Carolina law that the transaction was a contract to provide services as
opposed to a contract for the sale of goods and therefore the common law statute of frauds
applied rather than section 2-201(166) of article 2.(167)
Analysis of the Case Law
In both Liberty Financial Mgmt. and Computer Servicenter, computer hardware and
software were used to provide services to customers. In Liberty Financial Mgmt., reels of tape
and other tangible things which are goods under article 2 were supplied to customers. In
Computer Servicenter, data supplied by the customer was collected and analyzed. Presumably
this data was reported to the customer in some tangible form which would also be a good under
article 2. However, in both cases, article 2 was found inapplicable because the predominant
feature or purpose of the transaction was found to be the providing of services with the goods
only being incidental to the transaction. This result is consistent with the predominant feature test
which has already been discussed.
The conclusion that article 2 was inapplicable in both Liberty Financial Mgmt. and
Computer Servicenter, is also consistent with judicial decisions outside the computer area. A
contract to supply blood(168) as well as contracts for the installation of glass,(169) flooring,(170) carpet,(171)
and a sewer system(172) were all held to be service contracts outside the domain of article 2. In
each of these cases the goods involved in the transaction were found to be incidental to the
predominant service aspect of the transaction. The decisions in Liberty Financial Mgmt. and
Computer Servicenter are therefore consistent with an existing body of judicial decisions.
An overview of these decisions and the accompanying analyses indicates that the majority
of courts faced with transactions involving software have relied on the same analysis applied
generally to commercial transactions. The predominant feature test was used to determine if a
software transaction which includes services is a service contract outside article 2 or a contract
for the sale of goods within article 2. Such an analysis is generally consistent with commercial
decisions not involving computer hardware or software. Additionally, the judicial disagreement
over whether article 2 applies to software transactions involving a lease or sale/leaseback
arrangement is consistent with judicial decisions outside the computer area. Disagreement exists
generally over whether article 2 is applicable only to pure sales or to non-sale transactions such as
The different treatment of custom and standardized software is also consistent with
decisions outside the area of computers. The conclusion that a contract to develop custom
software is a service contract outside article 2 while the sale of standardized software is within
article 2 is analogous to the same distinction made by many courts between custom and standard
goods in general.
The judicial treatment of software is therefore consistent with judicial treatment of
commercial transactions generally. Any inconsistencies or conflicting results with regard to the
application of article 2 to different types of software transactions are a product of varying judicial
treatment of commercial transactions generally rather than confusion over how to deal with
1. Article reprinted in 2 Software L.J. 77 (1987)(Software Law Journal
subsequently merged into The John Marshal Journal of Computer & Information Law).
2. Visiting Assistant Professor of Law, The Claude W. Pettit College of Law, Ohio
Northern University; B.S., Hofstra University, 1976; J.D., Western New England College School
of Law, 1981; LL.M., Temple University School of Law, 1986.
3. The computer industry has been one of the fastest growth industries in the United States
with companies in this field having average annual growth rates of 11.1% for the twenty-five year
period ending in 1980. Note, U.C.C. Section 2-719 as Applied to Computer Contracts-Unconscionable Exclusions of Remedy?: Chatlos Systems, Inc. v. National Cash Register Corp.,
14 Conn. L. Rev. 71, 93 n.100 (1981). See also Samuelson, Our Computerized Society,
Newsweek, Sept. 9, 1985 at 73 (estimated that 10 million small home computers will be in use by
1990); Reed, Decades Top Jobs-Where to Write for Details on 20 Fastest-Growing Careers,
N.Y. Times, Oct. 13, 1985 at 17J (during next decade the number of computers in use is expected
to increase by a factor of ten).
4. One computer vendor had approximately 165 suits brought against it relating to their line
of small business computers. Another major computer seller had a $2.7 million judgment awarded
against them. Zammit, Computers, Software, and the Law, 68 A.B.A.J. 970 (1982). See also,
Holmes, Application of Article Two of the Uniform Commercial Code to Computer System
Acquisitions, 9 Rutgers Computer & Tech. L.J. 1, 4, n.10 (1982) (one major computer
manufacturer had more than two hundred and fifty lawsuits brought against them by dissatisfied
purchasers of their computers).
Additionally, controversy has existed over whether computer software is taxable,
admissible as evidence, or eligible for patent or copyright protection. Note, Computer Programs
as Goods Under the UCC, 77 Mich. L. Rev. 1149 (1979). See also Rodau, Protecting Computer
Software: After Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240 (3d Cir.
1983), Does Copyright Provide the Best Protection?, 57 Temple L.Q. 527 (1984) (discusses the
application of patent and copyright law to computer software).
5. Computer software, also called a program, is defined as "a set of instructions arranged in
proper sequence for directing the computer in performing a desired operation, such as the solution
of a mathematical problem or the sorting of data." The Illustrated dictionary of
Microcomputers 236 (2nd ed. 1986) (see "program" definition). For a description of how
software is produced see Rodau, computer Software: Does Article 2 of the Uniform Commercial
Code Apply?, 35 Emory L.J. 853, 868 n.57 (1986).
Computer software should be distinguished from computer hardware which is the actual
physical machinery that comprises a computer system. See Rodau, supra note 3, at 871-72, n.66,
for a description of the various types of computer hardware elements that comprise a computer
6. See Zammit, supra note 2 (discusses potential contract and tort causes of action that are
available when a computer system fails to operate properly). See also Conley, Tort Theories of
Recovery Against Venders of Defective Software, 13 Rutgers Computer & Tech. L.J. 1 (1987);
Brenneman, Computer Malfunctions: What Damages May Be Recovered in a Tort Product
Liability Action, 2 Santa Clara Computer & High-Tech L.J. 271 (1986).
7. One commentator predicts that the bulk of future computer litigation will involve
software. Zammit, supra note 2, at 970.
8. Conley, supra note 4, at 2.
9. McGonigal, Application of Uniform Commercial Code to Software Contracts, 2
Computer L. Serv. Rep. (Callaghan) 117 (1978). See also Conley, supra note 4, at 2-3 (article
2 more liberal than common law with regard to admissibility of parol evidence, formalities
required to form a contract, and the power of a court to supply missing contract terms).
10. See Rodau, supra note 3, at 855-56 n.9. See also Conley, supra note 4, at 3 (argues
article 2 should not apply to software).
11. Conley, supra note 4, at 4 (courts will apply UCC to software transactions).
12. 772 F.2d 543 (9th Cir. 1985).
13. UCC section 2-105(1) states that "'[g]oods' 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
14. 772 F.2d at 546.
16. Unpublished decision, No. 83 Civ. 8729 (S.D.N.Y. Aug. 30, 1984) (available on Lexis,
Genfed Library, Dist. file).
17. UCC section 2-607(3)(a) states that where the tender of goods has been accepted the
buyer is barred from any remedy for breach if the buyer fails to notify the seller of the breach
within a reasonable time after buyer discovers or should have discovered the breach.
18. UCC section 2-719(2) states "[w]here circumstances cause an exclusive or limited
remedy to fail of its essential purpose, remedy may be had a provided in this Act."
19. 579 F. Supp. 135 (D. Md. 1984).
20. UCC section 2-313 (express warranty), section 2-314 (implied warranty of
merchantability), and section 2-315 (implied warranty of fitness for particular purpose).
21. Id. at 138.
23. Note, The Goods/Services Dichotomy and the U.C.C.: Unweaving the Tangled Web, 59
Notre Dame L. Rev. 717, 719 (1984).
24. G. Wallach, The Law of Sales Under the Uniform Commercial Code 11.05 at
11-28 (1981). See also Freeman v. Shannon Constr., Inc., 560 S.W.2d 732 (Tex. Civ. App.
25. See infra notes 98-101 and accompanying text.
26. Harford Mutual Insurance involved a federal court sitting in diversity and applying
South Carolina law. Under South Carolina law leases for automobiles and refrigeration
equipment have been held to be within article 2 when the lessee has an option to purchase the
goods at the end of the lease term. See White v. State, 263 S.C. 110, 208 S.E.2d 31 (1974);
Hones Leasing Inc. v. Gene Phillips & Assoc., 282 S.C. 327, 318 S.E.2d 31 (1984). However, it
is unclear if South Carolina courts will extend article 2 to other non-sale transactions such as
27. See infra notes 155-158 and accompanying text.
28. See infra note 149 and accompanying text.
29. Unpublished decision, No. A-1593, 85T5, Slip Op. (N.J. Super. Nov. 10, 1986).
30. UCC section 2-725(1) states that unless the parties have agreed otherwise, an action for
breach of contact must be commenced within four years of the tender of delivery.
31. 140 Ill. App. 3d 741, 489 N.E.2d 380 (1986).
32. UCC section 2-313(1) states that express warranties result from the seller's affirmations
of fact or promises, descriptions of the goods, or by providing a sample or model which becomes
a basis of the bargain.
33. UCC section 2-608(1) states:
(1) The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it
on the reasonable assumption that its nonconformity would be cured and it
has not been seasonably cured; or
without discovery of such non-conformity if his acceptance was reasonably
induced either by the difficulty of discovery before acceptance of by the seller's
34. 457 F. Supp. 765 (E.D.N.Y. 1978), modified, 604 F.2d 737 (2d Cir. 1979) (reversed in
part because district court improperly applied statute of limitations).
35. Id. at 769.
36. See supra note 28.
37. 457 F. Supp. at 769.
38. 78 A.D.2d 983, 433 N.Y.S.2d 888 (1980).
39. See supra note 28.
40. 433 N.Y.S.2d at 889.
42. 33 U.C.C. Rep. 964 (D. Mass. 1981).
43. Id. at 962.
44. Id. at 964.
45. 587 F. Supp. 49 (D. Colo. 1984).
46. See UCC section 2-315.
47. 587 F. Supp. at 51.
48. 564 F. Supp. 160 (E.D. Pa. 1983).
49. See supra note 30.
50. See UCC section 2-315 (implied warranty of fitness for particular purpose).
51. UCC section 2-202 governs the admission of parol evidence with regard to transactions
covered by article 2.
52. 564 F. Supp. at 164.
53. UCC section 2-316 allows the parties, by agreement, to exclude or modify warranties
created by sections 2-313, 2-314 and 2-315.
54. 564 F. Supp. at 164.
55. 501 F. Supp. 129 (S.D.N.Y. 1980), aff'd. 672 F.2d 1076 (2d Cir. 1982).
56. See supra note 30.
57. UCC section 2-314 (implied warranty of merchantability) and section 2-315 (implied
warranty of fitness for a particular purpose).
58. 501 F. Supp. at 133.
59. 127 Ariz. 278, 619 P.2d 1055 (1980).
60. See supra note 18.
61. 619 P.2d at 1058.
62. See supra note 51.
63. See supra note 49.
64. UCC section 2-719 states:
(1) Subject to the provisions of subsections (2) and (3) of this section and of the
preceding section on limitation of damages,
(a) the agreement may provide for remedies in addition to or in
substitution for those provided in this Article and may limit or alter
the measure of damages recoverable under this Article, as by
limiting the buyer's remedies to return of the goods and repayment
of the price or to repair and replacement of non-conforming goods
or parts; and
(b) resort to a remedy as provided is optional unless the remedy is
expressly agreed to be exclusive, in which case it is the sole remedy.
(2) Where circumstances cause an exclusive or limited remedy to fail of its
essential purpose, remedy may be had a provided in this act.
(3) Consequential damages may be limited or excluded unless the limitation or
exclusion is unconscionable. Limitation of consequential damages for
injury to the person in the case consumer goods is prima facie
unconscionable but limitation of damages where the loss is commercial is
65. 479 F. Supp. 738 (D. N.J. 1979), aff'd. 635 F.2d 1081 (3d Cir. 1980) (remanded for
recomputation of damages), 670 F.2d 1304 (3d Cir. 1982) (liability upheld after remand).
66. See UCC section 2-313.
67. See UCC section 2-315.
68. UCC section 2-714(2) states:
The measure of damages for breach of warranty is the difference at the time and
place of acceptance between the value of the goods accepted and the value they
would have had if they had been as warranted, unless special circumstances show
proximate damages of a different amount.
69. 479 F. Supp. at 742.
70. 361 F. Supp. 325 (E.D. Pa. 1973), aff'd without opinion, 493 F.2d 1400 (3d Cir. 1974).
71. See Rodau, supra note 3, at 873 (explanation of bundled transaction).
72. 361 F. Supp. at 330.
73. UCC section 2-602(1) states:
Rejection of goods must be within a reasonable time after their delivery or tender.
It is ineffective unless the buyer seasonable notifies the seller.
74. UCC section 2-606 states:
Acceptance of goods occurs when the buyer
(a) after a reasonable opportunity to inspect the goods signifies to the
seller that the goods are conforming or that he will take or retain
them in spite of their non-conformity; or
(b) fails to make an effective rejection (subsection (1) of Section 2-602), but such acceptance does not occur until the buyer has had a
reasonable opportunity to inspect them; or
(c) does any act inconsistent with the seller's ownership; but if such act
is wrongful as against the seller it is an acceptance only if ratified by
(2) Acceptance of a part of any commercial unit is acceptance of that entire
75. UCC section 2-711(1) states:
(1) Where the seller fails to make delivery or repudiates or the buyer rightfully rejects
or justifiably revokes acceptance then with respect to any goods involved, and with
respect to the whole if the breach goes to the whole contract (Section 2-612), the
buyer may cancel and whether or not he had done so may in addition to recovering
so much of the price as has been paid
(a) "cover" and have damages under the next section as to all the
goods affected whether or not they have been identified to the
(b) recover damages for non-delivery as provided in this Article
76. UCC section 2-712 provides that if the buyer covers, the buyer can recover damages
equal to the difference between the cost of cover and the contract price plus any incidental or
77. UCC section 2-715 allows the buyer to recover incidental damages and to recovery
consequential damages in certain situations.
78. 578 S.W.2d 877 (Tex. Civ. App. 1979).
79. UCC section 2-302 allows a court to refuse to enforce all or part of a contract if the
court finds the contract to be unconscionable as a matter of law.
80. 578 S.W.2d at 878.
82. 623 F.2d 864 (3d Cir. 1980).
83. Id. at 868 n.4.
86. 46 Wash. App. 595, 731 P.2d 1124 (1987).
87. Wash. Rev. Code Ann. § 19.86 et. seq. (1978).
88. See supra note 31.
89. 731 P.2d at 1127.
91. 524 A.2d 1172 (Del. 1987).
92. UCC section 2-314.
93. UCC section 2-315.
94. 524 A.2d at 1174.
95. UCC section 2-102 states that "[u]nless the context otherwise requires, this Article
applies to transactions in goods. . . ."
96. 524 A.2d at 1174.
97. See supra notes 21, 22 and accompanying text.
98. 457 F. Supp. at 769.
99. Dreier, No. A-1593, 85T5, Slip Op. at 8-9. Accord Neilson Business Equipment Center
v. Monteleone, 524 A.2d 1172, 1174 (Del. 1987) (court relied on predominant feature test to
apply Article 2 to transaction involving computer hardware, software and services).
100. Compare Hertz Commercial Leasing Corp. v. Joseph, 641 S.W.2d 752 (Ky. Ct. App.
1982) (article 2 applied to lease of a muffler pipe-bending machine) with Bona v. Graefe, 264 Md.
69, 285 A.2d 607 (1972) (article 2 limited to sales so lease of golf cart not covered).
101. See, e.g., Owens v. Patent Scaffolding Co., 77 Misc. 2d 992, 354 N.Y.S.2d 778 (N.Y.
Sup. Ct. 1974), rev'd on other grounds, 50 A.D.2d 866, 376 N.Y.S. 2d 948 (1975); Capitol
Assoc., Inc. v. Hudgens, 455 So. 2d 651 (Fla. Dist. Ct. App. 1984) (article 2 applies to lease that
gave lessee no right to purchase or acquire title to the equipment).
102. See, e.g., Westmont Tractor Co. v. Viking Inc., 534 F. Supp. 1314, 1317 n.3 (D. Mont.
1982) (lease of equipment that gave lessee option to purchase equipment at end of lease was
covered by article 2); Sawyer v. Pioneer Leasing Corp., 244 Ark. 943, 428 S.W.2d 46 (1968)
(article 2 applicable to lease where lease analogous to sale); Hertz Commercial Leasing Corp. v.
Transportation Credit Clearinghouse, Inc., 59 Misc. 2d 226, 298 (N.Y. Civ. Ct. 1969), rev'd on
other grounds, 64 Misc. 2d 910, 316 N.Y.S.2d 585 (N.Y. App. Div. 1970) (article 2 applied to
lease that was analogous to sale).
103. Dekalb A.G. Research, Inc. v. Abbott, 391 F. Supp. 152, 153-54 (D. Ala. 1974), aff'd
per curiam, 511 F.2d 1162 (5th Cir. 1975) (lease of hens not covered by article 2 since article 2
applies to sales not leases).
104. See, e.g., U.S. Armament Corp. v. Charlie Thomas Leasing Co., 661 S.W.2d 197 (Tex.
Ct. App. 1983).
105. Pacific American Leasing v. S.P.E. Bldg. Sys., Inc., 152 Ariz. 96, 730 P.2d 273 (1986)
(article applied to lease of computer); Preston Motor Co., Inc. v. Palomares, 133 Ariz. 245, 650
P.2d 1227 (1982) (article 2 applied to automobile lease); Broadmont Corp. v. Fashion Floors, Inc.
124 Ariz. 282, 603 P.2d 553 (1979) (UCC applied to automobile lease).
106. Mieske v. Bartell Drugs Co., 92 Wash. 2d 40, 593 P.2d 1308 (1979) (en banc); Banker
v. City of Seattle, 79 Wash. 2d 198, 484 P.2d 405 (1971) (en banc).
107. Cintrone v. Hertz Truck Leasing, 212 A.2d 769, 775-76 (N.J. 1965).
108. See supra note 100 and accompanying text.
109. See Neilson Business Equipment Center v. Monteleone, 524 A.2d 1172, 1175 (Del.
1987) (despite lack of state precedents Delaware Supreme Court applied article 2 to a
sale/leaseback transaction based on persuasive authority from another jurisdiction).
110. The judicial disagreement over whether article 2 of the UCC applies to leases has
resulted in the drafting of a new article for the UCC. Article 2A entitled "Leases" applies to all
transactions that create a lease. 1A U.L.A. (West) 405-39 (1987 Supp.).
111. 580 S.W.2d 76 (Tex. Ct. App. 1979).
112. See UCC section 2-313.
113. See UCC section 2-314 and 2-315.
114. 580 S.W.2d at 80.
115. See supra note 28.
116. See supra note 51.
117. 580 S.W.2d at 80-81.
119. 492 F. Supp. 823 (D. Fla. 1980).
120. UCC section 2-719 allows contracting parties, by agreement, to limit damages and
remedies for breach of contract.
121. See supra note 51.
122. 492 F. Supp. at 826.
124. 538 F. Supp. 776 (D. Wis. 1982).
125. Id. at 793.
126. Wisconsin modified UCC section 2-725 so it provides a six year statute of limitations
instead of a four year statue of limitations. Wis. Stat. Ann. § 402.725 (West Supp. 1986).
127. 538 F. Supp. at 781.
128. UCC section 2-316 provides that a written exclusion or modification of implied
warranties under UCC sections 2-314 and 2-315 must be conspicuous.
129. 538 F. Supp. at 784, 789. See supra note 62.
130. Id. at 778 n.1.
131. 68 Ill. App. 3d 163, 385 N.E.2d 1108 (1979).
132. Id. at 1110.
134. Id. See supra note 74.
135. 21 U.C.C. Rep. 1293 (Mass. Super. Ct. 1977).
136. UCC section 2-313.
137. UCC section 2-315 (implied warranty of fitness for particular purpose).
138. "The principle [of unconscionability] is one of the prevention of oppression and unfair
surprise . . . and not of disturbance of allocation of risks because of superior bargaining power."
21 U.C.C. Rep. at 1296, quoting UCC section 2-302 official comment one.
139. See supra note 51.
140. 21 U.C.C. Rep. at 1295-96.
141. Id. at 1299.
142. 665 P.2d 635 (Colo. Ct. App. 1983).
143. Article 9 of the UCC is applicable "to any transaction (regardless of its form) which is
intended to create a security interest in personal property or fixtures including goods. . . ."
144. 665 P.2d at 635.
145. Id. at 639.
146. See infra note 149.
147. See infra notes 153-155 and accompanying text.
148. See supra notes 98-108 and accompanying text.
149. But see United States Welding v. Burroughs Corp., 587 F. Supp. 49 (D. Colo. 1984)
(federal court sitting in diversity found article 2 applicable to lease transaction under Colorado
150. 492 N.E.2d 314 (Ind. Ct. App. 1986), reg. denied, 493 N.E.2d 1272 (Ind. Ct. App.
151. Computer software can be classified as "canned" or "off the shelf" software or as
"custom" software. Canned software is software that is suitable for many users without
modification. Custom software is specially designed for the specific needs of the user and is not
readily usable by other users. Measurex Systems, Inc. v. State Tax Assessor, 490 A.2d 1192,
1195 (Me. 1985). See also Rodau, supra note 3, at 861 n.31.
152. 492 N.E.2d at 318.
154. Id. at 319.
158. 670 S.W.2d 152 (Mo. Ct. App. 1984).
159. See id. at 155. But see Lake Wales Publishing Co., Inc. v. Florida Visitor, Inc., 335 So.
2d 335 (Fla. Dist. Ct. App. 1976) (contract to print specially manufactured pamphlets covered by
160. 370 So. 2d 935 (Miss. 1979).
161. 670 S.W.2d 40 (Mo. Ct. App. 1984).
162. See supra note 62.
163. 670 S.W.2d at 48.
165. 328 F. Supp. 653 (D.S.C. 1970), aff'd. 443 F.2d 906 (4th Cir. 1971).
166. UCC section 2-201 requires contracts for the sale of goods for $500 or more to be in
writing to be enforceable.
167. 328 F. Supp. at 655.
168. Lovett v. Emory University, Inc., 116 Ga. App. 277, 156 S.E.2d 923 (1967).
169. Coakley and Williams, Inc. v. Shatterproof Glass Corp., 778 F.2d 196 (4th Cir. 1985),
cert. denied, 106 S. Ct. 1640 (1986).
170. Ranger Construction Co. v. Dixie Floor Co., Inc., 433 F. Supp. 442 (D.S.C. 1977).
171. Dionne v. Columbus Mills, Inc., 311 So. 2d 681 (Fla. Dist. Ct. App. 1975).
172. Semier v. Knowing, 325 N.W.2d 395 (Iowa 1982).
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