Uniform Law Source: Section 2-207. Substantially revised.

"Agreement": Section 1-201. "Authenticate": Section 2B-102. "Contract": Section 2B-102. "Court": Section 2B-102. "License": Section 2B-102. "Licensor": Section 2B-102. "Party": Section 1-201. "Record": Section 2B-102. "Scope": Section 2B-102. "Standard form": Section 2B-102. "Term": Section 1-201.

d. Rejected motion that knock out rule not apply to consequential damages clause. Vote 5 - 6 (March, 1998)

1. Scope and General Effect. This Section deals with cases where no contract is formed by records exchanged by the parties, but a contract is formed by conduct. Given that limitation. It assumes that a contract exists and provides guidance on determining what terms apply to the contract. Article 2 describes this situation in Section 2-207(c). In transactions governed by law other than Article 2, common law themes apply general interpretation concepts to the circumstance of conduct-based contracts.

The section distinguishes between the general circumstance of contracts created by conduct (subsection a) and cases where a battle of forms occurred and neither party accepted the form of the other, but conduct created a contract. Subsection (b) adopts current Article 2-207(c) for this variation of the battle of forms. Article 2-207 is not limited to standard forms, but the cases and literature concentrate on the problem of the exchange of forms that disagree on important matters.

If the exchanged forms create a contract or one party agrees to the terms proposed by the other in a record or otherwise, this section does not apply. Under 2B-203, a contract forms around the terms of the offer. Subsection (d) confirms that result. This is also true where a party accepts an offer in a setting where records are not used. The Section only applies in cases where the existence of a contract is premised solely on conduct of the parties. See 2B-202.

2. General Rule: Interpret based on Context. Subsection (a) states the general rule. It directs attention to the entire context including terms of exchanged records and the nature of the intellectual property rights held by the licensor or licensee. This conforms to common law concepts and the basic UCC theme of building enforceable terms based on practical construction of the relationship. The interpretation approach requires considering terms of all records and other circumstances. See Abram & Tracy, Inc. v. Smith, 88 Ohio App.3d 253, 623 N.E.2d 704, 708 (1993) ("a writing should be interpreted as a whole and all the writings that are part of the same transaction should be interpreted together."); Restatement (Second) of Contracts § 202(1) (2) (1981); 2 Farnsworth, Contracts § 7.10 (1990).

In the variety of transactional conditions in which conduct, rather than records or acceptance of a particular offer, a priori or formalistic rules cannot control; they cannot account for the diversity and contextual nuances that exist in a rich environment of transactional practice. Subsection (a) thus rejects any general application of a "knock-out" rule which requires that a court apply a set formula rejecting any terms in one record that are not matched in another without consideration of the overall context. Any such rigid rule needlessly places restraints that preclude a court's focus on more generally determining the intent of the parties.

Article 2B deals with transactions the vast majority of which are not now governed by the U.C.C., this rule allows courts to continue existing practice, rather than enforcing a new and inappropriate legal regime on the contract interpretation process.

3. Battle of Forms and Behavior. Subsection (b) creates an exception to the general interpretation rule. The exception focuses on the battle of forms. The battle of forms has, in sales of goods, created significant controversy and uncertain results. Subsection (b) adopts current Article 2-207(c) with a special provision in reference to scope terms that have significance in Article 2B transactions.

Under subsection (b), if the standard forms of the parties do not establish a contract (e.g., due to a material conflict or due to conflicting conditional offers), but conduct creates a contract, this section adopts a "knock-out" rule. Neither form controls.

The battle of standard forms deals with a case where the parties exchange forms, but ignore those forms in determining to perform or not. Where this is true, the subsection states simply that, except with respect to scope of the license, if the parties did not do so, law will not retroactively create a rule in which the standard forms of one party have greater significance than suggested by their behavior. Discussing UCC § 2-207, the Third Circuit Court of Appeals noted:

The rule in subsection (b) excludes conflicting terms regardless of which form was the first received or sent.

4. Battle of Forms: Integrated Result. To fall within this Section, the records of the parties must not establish a contract. Thus, understanding the overall impact of this Section on battle of forms and other conflicting term transactions requires consideration of this Section and of Section 2B-203. There are two different scenarios to be considered.

a. Varying Terms. The first situation involves a case in which forms are exchanged, but neither form is made expressly conditional on acceptance of its terms in full. Under these conditions, Section 2B-203 applies and Section 2B-209 provides a back-up. The contract analysis involves answering several questions.

b. Varying Terms: Conditional Offers. If the terms of the offer or acceptance vary and one or both are conditional on acceptance of their terms, a different analysis applies. The basic premise is that a party has a right to condition its offer or acceptance and that the conditions are enforced unless waived.

5. Conditional Offers or Acceptances. If a party conditions its agreement to a contract on the other party's assent to its terms, that condition should be enforced. Contract law does not impose a contract on unwilling parties nor does it prevent a party from conditioning the terms on which it will do business. This Section recognizes that, where an effective condition was asserted and agreed to by the other party, the terms of that conditional offer or counter offer, when accepted, override the provisions of this section. Simply stated, the contract was formed on one party's terms and courts or this statute should not disturb that result.

6. Signed or Authenticated Records. Subsection (e) clarifies that the rules of this section are inapplicable if a party signs and thus accepts a record of the other. This Section applies only where the contract is based merely on conduct; and provides guidance on what terms of the contract apply. Where by signature or otherwise, a party adopts a proposal from the other party, that set of proposed terms governs.

Authentication (signature) of a record supersedes other records, subject of course to parole evidence issues. An executed agreement better indicates intent and throws the case outside the knock out rule. Clearly, it would be a major change in law to regard a signed writing as being no different in substance that unsigned and conflicting forms. Consistent with this section courts should use general concepts of contract interpretation to discern the meaning of the contract incorporated in a signed record.

7. Scope of License. In information products, the contract terms relating to scope of use define the product. Being licensed. The same subject matter (e.g., a copy of a motion picture) has entirely different value and substance depending on what rights in that subject matter are granted. Thus, the "subject matter" is different if the copy is licensed solely for personal use as compared to being licensed for distribution in theaters throughout Latin America. In this environment, the license, especially its scope, is the product.

That being true, this section gives special deference to the provider's definition of scope in cases where not express agreement occurs with reference to that issue. In the absence of contrary agreement, the information provider can define what it is providing. More relevant, the other party cannot resort to a court to obtain that product which it failed to obtain from the licensor by negotiation.

"Scope" is a defined term that refers to contract terms restricting field of use, duration and similar terms that in effect define the nature of the information product being licensed. The scope of a license in effect defines the "product" or "focus" of the deal. The mere fact that one form disagrees with the licensor's form on issues of scope cannot be held to throw the case back on general default rules. A vendor who provides a consumer version of software cannot be forced to have given an unlimited, license in the software for development and other use simply because a competing form stated terms that conflict with the consumer restriction. Unlike warranty and similar terms, scope terms define the product being sold (e.g., multi-user or single user license). Additionally, it is only the licensor who is aware of what can be granted (e.g., it holds rights to a screen play only for use in television). In cases where forms disagree on basic points, the true issue is whether a contract exists (that is, was there agreement) notwithstanding the records exchanged or the conduct of the parties. In many cases, without an agreement about the fundamental scope of the license, no agreement to a contract exists.