Uniform Commercial Code: Article 2 Sales Transactions over the Internet
Introduction
The Uniform Commercial Code (UCC) generally refers to the main set of regulations and laws that were primarily established to harmonize and standardize sales and commercial transactions in the United States. The primary reason for standardizing the state laws regarding the conduct of sale and transactions is that, often in today’s society, those transactions and sales tend to extend beyond the jurisdiction of a given state. For instance, a particular product may be manufactured in California, warehoused in Arizona, sold in Texas and delivered in Michigan. Consequently, the use of the UCC has not only ensured uniformity of the state laws regulating commercial transactions but has also allowed the states to achieve the necessary flexibility required to meet their local transaction demands (Benjamin and Jane,1998).
The history of the UCC dates back to the 1940s when top American legal scholars began to draft a uniform law regulating commercial transactions that was intended to be adopted into the code of statutes of all of the states in America. Although the content of the UCC is generally the same in all the states that have adopted it, some states have however undertaken minimal structural adjustments to conform to the local state customs. The implementation of the UCC has enabled people from various states to freely make their commercial contracts without the different terms and conditions that another state may implement. Instead, the contracts may be written…uniformly.
In some cases, the UCC may also be used to limit the number of legal formalities required during the making of certain commercial contracts. This consequently enables businesses to carry out their transactions without the involvement of lawyers or other expensive legal teams. Article 2 of the Uniform Commercial Code is generally concerned with regulation of sales of various goods and services within the states covered by the UCC regulations. This paper focuses on Article 2 of the UCC as well as the issues involved in its provisions, particularly those related to the transactions over the internet.
Sales and transactions over the internet With the recent advancements in information and technology, particularly with regard to the current digital market place, the laws regulating the sales of goods and services are increasingly being forced to evolve with the technological trends. As a result, there has been a wide debate regarding the application of the Article 2 of the UCC in the regulation of online sales of services and goods such as e-books, music, and movies, among other digital products. According to the recent estimates by the U.S Department of Commerce, online sales have increasingly risen over the past few years and are currently nearly 4.6% of the current total consumer sales in the United States (Enright, 2012). This estimate did not however include the sales of the other products commonly sold over the internet such as cars, food service, groceries and fuel among others. Since the beginning of the Internet Age in the mid 1990s, buyers and sellers have increasingly converged on the online markets such as eBay and Amazon.com to buy and auction various commercial items. Passman (2008) argues that many people are now able to shop items such as e-books, music and movies using their computers while in the comfort of their offices and homes. Similarly the Internet Age has also enabled sellers to conveniently auction their goods by simply posting advertisements on the particular websites of the online markets. Consequently this has significantly revolutionized and transformed the transaction of distant sales to a point where the buyers and sellers may not necessarily know each other during the selling or buying of goods.
Challenges of using Article to Govern Internet transactions
Although the development of distance and faceless transaction is believed to be a positive attribute of the current Internet Age, the majority of the provisions of Article 2 of the UCC, which were primarily designed to regulate face to face sales, are increasingly proving to be inappropriate for online transactions. For example, during the transactions involving face to face interaction between the buyer and the seller, the buyer is more likely to have a greater knowledge of the goods being sold as well as the expertise of the seller. As a result of the increased knowledge, the buyer may have a justifiable expectation and could be protected by the Warranty of the goods incase the item fails to meet the expectations of the buyer. On the other hand, internet based sales and transactions do not often give the buyers an opportunity to know the sellers in addition to not seeing, touching, and understanding the goods being sold. According to Article 2 of the UCC, internet sales are generally categorized into digitally formatted products, databases, agreements as well as purchases of other products over the internet. Many analysts concur that the laws regulating online sales are still having a number of weakness and consequently a number of acts have been proposed to enable the laws conform to the contemporary online commercial practices. Article 2 is primarily entitled as “sales” and it generally covers all sales of goods whether the transactions are conducted online or are physically sold. There are, however, some transactions which are not usually covered by Article 2, such as online agreements concerning services, real estate, etc. Though, it should be noted that such items are not typically covered under the Article 2 provisions anyway.
Most courts apply Article 2 in the cases where a transaction primarily involves the sales of goods while the traditional state rules and common laws may be used in cases where services are the main feature of the transactions. The UCC generally define goods as any movable commercial item including manufactured products but excluding the investment securities as well as the money paid as a price of the particular items. One of the most contentious issues in the application of UCC has been whether the sales of computer software licenses is governed and regulated by Article 2. This is particularly with regard to the fact that computer software licenses can neither be categorically classified as services nor can they be grouped as goods. Many courts have however regarded the sales of such licenses as being under the control of Article 2, while many more yet contend that the licenses are not goods nor subject to Article 2. Another important challenge that has increasingly faced courts handling the cases related to online sales is how to deal with movies, computer software and music that is transacted and sold online. For instance, when these products are downloaded from the particular websites such as Amazon.com, the laws governing internet sales are not usually clear whether they may be regulated by Article 2 (Gardenswartz, 2001). The U.S. Department of Patent and Trademark argues that products and goods that are purely delivered and sold over the internet to be outside the provisions of Article 2. However, under the current UCC laws, many courts maintain that such transactions should be regulated and governed by Article 2 since they are movable “goods” regardless of whether they are shipped or transmitted online.
Generally most of the changes in commercial transactions brought about by the Internet Age have resulted in the need to transform and modify Article 2. Such modifications and changes should take into consideration the new merchant class of the Internet Age as well as provisions for new warranties that will ensure the protection of the transactions and sales between the unprofessional and unscrupulous online merchants and the potential buyers of their products. This is particularly with regard to the fact that most of the elements of the current Article 2 of the UCC are primarily concerned with the expertise and knowledge of the sellers as opposed to the provisions of warranties. Additionally, the warranties that are provided by the provisions of Article 2 are not usually relevant in all the online transactions and therefore do not always provide sufficient protection to online buyers.
Recommended changes to Article 2 There are a number of proposals that can be incorporated in the current Article 2 of the UCC that would enable it to address the current issues and challenges facing internet transactions. This comes after a careful analysis of the loopholes, as well as the weaknesses, of the existing commercial laws with regard to the current internet age. Consequently the proposed changes will primarily serve to address the numerous legal challenges that electronic commerce has presented such as the interpretive difficulties as well as the changes in business practices. One of the areas that may require some changes is the definition of a “merchant” in Article 2. This is because the current definition does not clearly relate merchants with any particular commercial item. For example, the article simply classifies all individuals who sell particular goods as merchants regardless of whether they are professionally engaged in such acts of selling or are simply trying to dispose off their products. The current definition is however ambiguous when it comes to sellers such as a sailor who wants to sell his boat or a car mechanic who intends to sell one of his cars. Although such people may be regarded as qualified and experts, they are only selling their products in isolation and therefore do not qualify to be considered as professional merchants.
The 1984 case of Cohen v. Hathaway is a good example of how Article 2 can prove to be ineffective with regard to the definition of a merchant (NCC, 1994). The case involved professional fishermen who sold their fishing boat which later proved to be defective. The court found that the fishermen were in the business of selling boats and were therefore not considered to be merchants with regard to the type of good they sold.
Generally, according to Article 2, an individual is only regarded as a goods merchant if he or she has been in the business of selling the particular product for a given period of time. Consequently some of the proposed changes in the Article 2 definition of a merchant include the differentiation of merchants, such as the inclusion of an unprofessional internet merchant, in its provisions. This is particularly important because, during the internet transactions, it may be difficult to for the buyers to determine whether the sellers are qualified to be called goods merchants. In this context, the term “unprofessional internet merchant” will be incorporated and used to refer to all the individuals selling goods online but do not usually deal with the selling of such goods and have not proved to possess special knowledge with regard to such goods. The defining of a merchant further provides certain provisions to buyers with regards to warranties and such, further defining the need for definition updates.
To ensure that the new provisions of article 2 of the UCC meets the new demands created by the current growing online transactions such as the need for electronic contracts, E-sign will be incorporated and recognized by the UCC with regard to the determination of the authenticity of electronic contracts. The additional changes, including the use of E-signed documents, will help bridge the gap created by the limitations of the current Article 2 provisions. At the same time, these changes allow the article to retain some of the provisions that deal with matters that are inconsistent with E-sign or are beyond the scope of its use. For example, the use of the term “sign” will be extended to incorporate the use of electronic signatures as well as electronic agents. Additionally, electronic record systems, receipts and information systems will now be recognized by the new provisions. One of the advantages of including the use of electronic signatures as part of the provisions of Article 2 of the UCC is that it allows states to provide protection to the online and digital consumers by ensuring the authenticity of the transactions during the internet commercial transactions.
Additional changes should also be included in Article 2 in order to update the warranty provisions. In this context some of the proposed changes include adding additional clarifications of the relationship between the warranties and the statutory obligations contained in the current draft. For example, the new provisions will require that disclaimers that may attempt to deny implied warranty to the buyers should always be visible on the particular online market selling the commercial item. Additionally, the languages used in disclaimers of implied warranty should always be simple. On the other hand, the new amendments will create remedies for the online buyers. As such, under those provisions, the buyer will be allowed to return the goods and recover the payments if any of the terms of transactions is breached before the completion of the contract.
According to Wiig (2007), another important change that is needed in Article 2 to enable it to solve the challenges facing the contemporary commercial transactions in the current internet age is reducing the current gaps regarding the breaches of implied warranty during internet transactions. Additional provisions should be included in Article 2 to enable tighter regulations regarding the disclosures of information of the seller during online commercial transactions. For example the sellers should be required, by law, to disclose their names; whether they normally deal in the goods they are selling as well as any specialized experience and knowledge they may have in the commercial item that they are intending to sell. Finally, Article 2 should require internet-based sellers to provide a full description of the goods being sold as well as the definition of words used to describe the particular commercial items (Robert, 1997). These changes are necessary because the current provisions of Article 2 do not offer the necessary protections and implied warranty to online buyers.
The proposed additional provisions will, therefore, help disclose the identity of the seller as well as their business practices and this provides the buyer with the necessary knowledge regarding the party they are dealing with in the faceless world of internet transactions. Additionally, disclosing information on the condition of the goods being sold, as well as the meaning of the terms used in describing them, enables the buyers to have a better knowledge of the goods they are buying. This will not only minimize the chances of a buyer being fraudulently deceived into buying something but will also ensure that buyers only agree to undertake any transactions when they are satisfied with the condition of the goods.
Conclusion
In conclusion, the current Internet Age has significantly revolutionized how commercial transactions are conducted. So much so that buyers and sellers are now able to engage in “faceless distance transactions”. Consequently the laws regulating the sales of goods and services are increasingly being forced to incorporate new changes to ensure they remain relevant in the current time. The implementation of the proposed changes to the UCC has enabled people from various states to freely enter into commercial contracts with regard to the processing of notes, checks, as well as some of the routine commercial paperwork needed in most transactions These changes in the Article 2 will guarantee safer internet transactions in all the states covered by the UCC and should set precedent for the laws governing sales both now and in the future. References
Benjamin W., Jane K. (1998). The Law of Electronic Commerce, Aspen Law & Business, 3rd Ed. Gaithersburg: Aspen Law & Business.
Enright, A. (2012). E-commerce sales jump 16% in 2011 - Internet Retailer. Industry Strategies for Online Merchants - Internet Retailer. Retrieved April 1, 2012, from http://www.internetretailer.com/2012/02/16/e-commerce-sales-jump-16-2011
Gardenswartz, S. (2001). The Risk of Loss in Electronic Transactions: Vintage Law for 21st Century Consumers. Virginia Journal of Law and Technology, 6. Retrieved March 30, 2012, from http://www.vjolt.net/vol6/issue3/v6i3-a15-Gardenswartz.html
National Conference of Commissioners(1994).Uniform State Laws: SMH Bar Review.Retrived May 7, 2012, from www.nccusl.org
Passman, M. (2008).Transactions of Virtual Items in Virtual Worlds.Albany Law Journal, 18. Retrieved April 1, 2012, from http://www.albanylawjournal.org/articles/passman_0609.pdf
Robert W. (1997). The Implied Warranty of Merchantability in Software Contracts: A Warranty No One Dares to Give and How to Change That. New York: John Marshall Publishers.
Wiig, D. (2007). U.C.C. Article 2 Warranties and Internet-Based Transactions: Do the Article 2 Warranties Sufficiently Protect Internet-Based Transactions with Unprofessional Internet Merchants. Fordham Journal of Corporate & Financial Law ,12. Retrieved March 22, 2012, from http://search.proquest.com.library3.webster.edu/abicomplete/docview/89067922/fulltextPDF/135A0FCB7183E08A8C/1?accountid=14944