scope of article 2 and uniform commercial code and information and computer software and growing crops and 2-107 and timber

This section is separate from 2-105 because it deals with a particular problem not considered by 2-105. The problem is what to do with things that aren't easily movable because (1) they are either extracted from or lie upon the earth or (2) they arethose things that grow from the earth. When transactions involving this kind of material are in view, are they sales in the meaning of Article 2?

There are a few other words in 2-105(1) which help us get started. The second sentence of 2-105(1) provides:

"'Goods' also includes the unborn young of animals and growing crops and other things attached to realty as described in the section on goods to be severed from realty (2-107)."

First, the language. The UCC doesn't know the word "fixtures," which term has been a fixture in property law for centuries. You probably learned the term there. The UCC also does not make a distinction between "industrial crops" and other crops grown for personal use, which was a "staple" of the USA. Instead of fixtures, Article 2 refers to "things attached to realty" (Cmt 1 to 2-105, p. 1189).

But 2-107 makes further distinctions. 2-107(1) refers to items extracted from or lying on the earth. Such a contract "for the sale of minerals or the like (including oil and gas) or a structure or its materials to be removed from realty" is a transaction under Article 2 if the seller "severs" them but not if the buyer does it. Is this just a quibble or is there a principle at stake here? Cmt 1 on p. 1190 describes further implications. 2-107(2), however, addresses the issue of a contract for the sale "apart from the land," which means contracts for sale of growing crops or timber. In this case it does not matter who severs the cops or timber. As long as it is severed "without material harm thereto," it is an Article 2 transaction. I suppose this caveat means that if it is severed in such a way as to impair the sale of the crop or stand, it is not an Article 2 transaction. Thus a person who vandalized your corn crop and left you a $10 bill as an apology would not have completed a transaction with you under Article 2. You would have, instead, a tort remedy against the person.

(3) Computer Software Sales

The new Article 2 will never be approved in its present form, in my judgment, because of how the issue of "information" is handled and whether "transaction in computer information" are sales under Article 2. I assigned four brief excerpts from cases for today to try to understand the problem. As the casebook says, "A major issue in recent years has been whether Article 2 of the Code applies to sales or licensing of computer software (p.18)." What specifically is at issue in many cases are the disks you buy with software to load onto your computer or the updates which are internally loaded when you agree to provisions of what are called licensing agreements. Are these purchases/updates "transactions in goods" under the UCC Article 2?

At first the ALI and NCCUSL decided to handle this problem by a separate section of the UCC, which it would have called Article 2B. However, the ALI withdrew from the project when there seemed to be no attempt to bring all such transactions under the scope of Article 2. Thus, the remaning pieces of what was formerly 2B became a statute UCITA ("Uniform Computer Information Transactions Act"). Article 2 would then be revised to eliminate all reference to information and UCITA would carry the burden on that front. Thus the new Article 2, which has not been approved in any state, provides in 2-103(k) "the term (i.e., "goods") does not include information." UCITA was supposed to pick up the slack. But, UCITA ran into a lot of difficulties and only two states have approved it. Thus, that leaves us potentially in legal limbo regarding whether these software packages and other similar transactions are really Article 2 transactions.

Because no statutory solution is forthcoming, the action will shift to the courts. They will then decide whether to "stretch" Article 2 to include these transactions. How might they do so? I assigned the four cases for today because you can see some ways that courts are trying to deal with the issue. For example, in Advent (p.18) at issue was whether the plaintiff, who contracted with defendant to supply certain computer software items, had a cause of action under Article 2 when the defendant breached the contract. The crucial line in the court's decision seems to be, "Computer programs are the product of an intellectual process, but once implanted in a medium are widely distributed to computer owners (p.19)." The implication of this sentence is that these programs become goods when they are available in a movable form.

The second case, Ankle (p.20) showed why it is important for many plaintiffs to try to bring these transactions under Article 2--the generous warranty provisions of Article 2. The facts are pretty straightforward but actually this is a very confusing case because it mixes the issue of the hybrid nature of the transaction with plaintiff (sales and training) and whether in fact the "sales" part is an Article 2 sales transaction at all. Plaintiff, a podiatric clinic, bought software that should have helped it in its billing process. It malfunctioned. Could plaintiff bring its case under Article 2? The court didn't decide the questions. Summary judgment for defendant was not granted. Thus, at trial the two questions of the hybrid nature of the transaction and whether the software was "goods" would have to be considered.

The last two cases are examples of courts concluding that Article 2 does not apply to the transactions described. We see it is a factually intensive inquiry, and franchise arrangements (p.26) are not included in Article 2, nor are the complex relationships between Architectronics and Control Systems included under Article 2. The editor tries to "simplify" the issue through the hypothetical on p. 24. For our purposes, if you know the hypothetical well, that will suffice.

Conclusion

With the failure of UCITA and new Article 2 to gain widespread (if any) acceptance, the courts will probably, using the broad powers seemingly granted to them by the statute itself in 1-103, wade in more and more into the issue. But whether these software "packages" are license agreements or sales transactions has not firmly been decided yet.