SECTION 2B-304. CONTINUING CONTRACTUAL TERMS.

(a) Terms of a contract involving successive performances apply to all later performances unless the terms are modified in accordance with this article or the contract, even if the terms are not subsequently displayed or otherwise brought to the attention of the parties or electronic agents.

(b) If a contract provides that it may be modified as to future performances by compliance with a described procedure, a change proposed in good- faith pursuant to that procedure is effective as a modification if:

(1) the procedure reasonably notifies the other party of the change; and

(2) in a mass-market license, the procedure permits the other party to terminate the contract as to future performance if the modification deals with a material term and the party in good faith determines that the modification is unacceptable.

(c) The parties may by agreement may determine the standards for reasonable notification notice unless the agreed standards are manifestly unreasonable in light of the commercial circumstances.

"Agreement": Section 1-201. "Contract": Section 2B-102. "Electronic agent": Section 2B-102. "Good faith": Section 2B-102. "Mass-market license": Section 2B-102. "Notifies": Section 1-201. "Party": Section 1-201. "Term": Section 1-201. "Termination": Section 2B-102.

a. Vote to extend (b)(2) to mass market, rather than only consumers.

b. Deleted limitation that change be "materially adverse" to licensee and substituted "unacceptable in good faith." (7-5) (April, 1997)

1. Continuing Terms. Subsection (a) states the simple principle that contract terms, if enforceable, cover all contractual performance. In the language of the section, terms are continuing and need not be restated for each performance or use of a system. This principle is not limited to cases where the agreement requires future performances. It applies in any case where the subsequent performances are covered by the prior agreement. Terms of a purchase of information do not necessarily carry forward if the first agreement only pertains to the first performance. However, if the first agreement does apply to the first and to any subsequent purchases, the rule of this Section applies.

2. Modifications of Continuing Contracts: General Issue. Subsection (b) addresses a common practice in online or other continuing service contracts, such as outsourcing arrangements. In these contracts, frequent changes occur in the terms of service and separate discussion or negotiation of each change is often not feasible or desired by the parties. Common practice entails posting changes in service conditions in a particular location or file and providing that the posted changes are effective when posted or at a later point in time.

Subsection (b) specifies a fair method for changes in on-going relationships without disturbing other law or circumstances that might provide additional methods. See Section 2B-115(c). For example, a signed modification is effective. Similarly, Section 2B-303 states that modifications of contract do not require consideration. General common law, principles of waiver (see, e.g., Section 2B-606) and provisions on course of performance (Section 2B-302) among other sources of law also deal with enforceability of modifications of on-going contracts. Thus, some changes do not require the procedures described here.

In general, what constitutes an effective modification may hinge on agreement, but changes in contractual terms, including both course of performance and waivers are routinely found based on objective indicia of assent, such as awareness or notice, couples with a pattern of behavior not objecting to the changes in terms or performance. For example, even in a fixed term mortgage not subject to termination, federal rules allow unilateral changes in consumer contracts if the changes meet any of several criteria, including that either the change benefits the consumer or makes an "insignificant change" to the contract. FRB Regulation Z, 12 CFR § 226.5b. The contracts covered here which often involve contracts subject to termination at will present a clearer case to allow non-material modifications.

3. Contractual Authorization and Notice. Subsection (b) provides a safe harbor, indicating that methods that comply with this are enforceable without indicating that other methods are not available. The safe harbor in subsection (b) requires a contractual authorization of a modification procedure and that the procedure entail notification of the other party.

What constitutes notification varies depending on the circumstances. In many cases, reasonable notification requires notification before the change is effect, but in some emergency situations, notice that coincides with the change or follows the change would be sufficient (e.g., blocking access to a virus infected site, or a change in the access codes required for access). See 12 CFR 205.8(a)(2) as an example. The standard requires that the party be notified of the change. A procedure for the posting of changes in an accessible location of which the other party is aware will ordinarily satisfy this section.

4. Mass-Market Contracts. Subsection (b)(2) modifies the safe harbor provision in the case of a mass-market transaction. In this situation, the procedure must not only have been agreed to and provide reasonable notification, it must permit the licensee an opportunity to withdraw as to future performance. This additional restriction is not appropriate in general commercial practice where by prior agreement the parties may provide that they are bound by good faith changes proposed by the other party. See generally Section 2B-305(b) which adopts current Article 2 on this point). See also Section 2B-202(b)(2).

The requirement of a termination right reasonably should extend only to changes that are significant. Consistent with this, it applies only with reference to changes in material terms that are adverse to the consumer. Price would be a material term in all cases. Beyond that, a variety of other changes in a mass market may relate to material matters in the on-going relationship. Of course, a reduction in service charges would not produce a right to terminate. Withdrawal is without penalty, but the mass market licensee must, of course, perform the contract to the date of withdrawal (e.g., pay all sums due at that time).

In many mass-market contracts that entail continuing performance, the contract itself may be subject to termination at will under Section 2B-310. Subsection (b) does not alter that result.

5. Changes in Content. This subsection deals with changes in contract terms and does not cover changes in the content made available under an access contract, such as one involving a multifaceted database. Under Section 2B-614(a), an access contract grants rights of access to materials as changed and modified by the licensor over time. Thus, unless an express contract term provides otherwise, a decision to add, modify, or delete an element of the databases made available does not modify the contract, but merely constitutes performance by the licensor and is not within this subsection.