1. General Approach. This Section reconciles diverse case law and also creates, in subsection (d), a new implied warranty that does not exist under any current law. It clarifies the standard under which a licensee receives an implied assurances of a particular result, expanding the circumstances in development and design contracts under which this assurance occurs.

Subsection (a) states as a general rule that the stated reliance creates an implied warranty of a result fit for the licensee's purpose. Subsection (b) applies the common law "efforts" standard in some cases. This bifurcation deals with the issue of whether the appropriate implied obligation is an obligation to produce a result (present in sales of goods) or an obligation to make an effort to achieve a result (common law). Under prior case law in software and other fields, the decision is based on whether a court views the transaction as a sale of goods (result) or a contract for services (effort). The reported decisions are split; the decisions often lack a principled basis. Compare USM Corp. v. Arthur Little Systems, Inc., 28 Mass. App. 108, 546 N.E.2d 888 (1989) (result); Neilson Business Equipment Center, Inc. v. Italo Monteleone, M.D., 524 A.2d 1172 (Del. 1987) (result) with Micro-Managers, Inc. v. Gregory, 147 Wis.2d 500, 434 N.W.2d 97 (Wisc. App. 1988) (effort); Wharton Management Group v. Sigma Consultants, Inc., 1990 WL 18360, aff'd 582 A.2d 936 (Del. 1990) (effort); Data Processing Services, Inc. v. LH Smith Oil Corp., 492 N.E.2d 314 (Ind. Ct. App. 1986) (no obligation).

Since all software development contracts are covered under Article 2B, a different approach is adopted in subsection (a) to determining which type of implied obligation is appropriate. The section presumes that (in an appropriate case) the Article 2 rules apply. This most completely protects the licensee. To accommodate the existence of services contract formats, the in effect directly identifies a consistent factor that indicates that to be true. The presumed Article 2 model is altered if the agreement hinges payment on the time and effort spent (services like) irrespective of completion of a product.

Of course, express contract terms control over either variation of the implied warranty.

2. Warranty of Fitness. Subsection (a)(1) adopts the rule of existing Article 2-305.

This obligates the provider to meet known licensee needs if the circumstances indicate that the licensee is relying on the provider's expertise to achieve this result. There are many development contract and other situations where no such reliance exists, including cases where the licensee provides the contract performance standards, rather than relying on the provider to fill an acknowledged need of the licensee. Then there is no reliance on the licensor about whether meeting the specifications will meet applicable needs.

3. Services and Warranty. This section does not override the general law of services contracts. Under that law, the services provider in a skilled context does not guaranty suitability unless it expressly agrees to do so. See Milau Associates v. North Avenue Development Corp., 42 N.Y.2d 482, 398 N.Y.S.2d 882, 368 N.E.2d 1247 (N.Y. 1977). Subsection (a)(2) proposes one standard to determine when a contract calls for services, rather than a result. Other standards evolved under general common law may also indicate that the parties intended a services obligation as delineated in subsection (a)(2).

4. Aesthetics and Market Appeal. Outside the case of computer software, the services contract (efforts) assumption universally applies.

More important, the implied fitness (result) obligation is never appropriate under current case law in reference to aesthetics, market appeal and the like. Subsection (c) adopts that principle. The relationship obligates the party to an effort, not an outcome unless an express contrary obligation is stated in the agreement.

5. System Integration. Subsection (d) creates a new implied warranty that requires integration and systems performance in cases of systems integration contracts. While closely related to the implied fitness warranty, it expands that concept creating new protection for licensees. The warranty is that the selected components will function as a system. This does not mean that the system, other than as stated in subsection (a) and (b), will fit the licensee's needs. Neither does it mean that use of the system does not or may not infringe third party rights. That infringement concept pertains to Section 2B-401 warranties. This warranty simply refers to an assurance that the parts will functionally operate as a system. It is an additional assurance beyond the fact that each component must be separately functional in a manner consistent with the contract.