Revised Definition of Conspicuous in the 2022 Proposed Amendments to the UCC | Practical Law

Revised Definition of Conspicuous in the 2022 Proposed Amendments to the UCC | Practical Law

An Article discussing the key changes to the definition of conspicuous set out in the 2022 proposed amendments to the Uniform Commercial Code (UCC). The revised definition of conspicuous incorporates a new totality-of-the-circumstances standard of review that may affect the way parties display certain language in their commercial contracts, including disclaimers of implied warranties in UCC Article 2 sale of goods contracts and UCC Article 2A personal property leases.

Revised Definition of Conspicuous in the 2022 Proposed Amendments to the UCC

Practical Law Article w-039-6126 (Approx. 8 pages)

Revised Definition of Conspicuous in the 2022 Proposed Amendments to the UCC

by Practical Law Commercial Transactions
Law stated as of 23 Jun 2023 • USA (National/Federal)
An Article discussing the key changes to the definition of conspicuous set out in the 2022 proposed amendments to the Uniform Commercial Code (UCC). The revised definition of conspicuous incorporates a new totality-of-the-circumstances standard of review that may affect the way parties display certain language in their commercial contracts, including disclaimers of implied warranties in UCC Article 2 sale of goods contracts and UCC Article 2A personal property leases.
The Uniform Commercial Code (UCC) requires certain text in commercial contracts to be conspicuous. For example, the UCC requires sellers of goods to set out any disclaimers of implied warranties in a conspicuous manner (UCC § 2-316).
In July 2022, the American Law Institute (ALI) and Uniform Law Commission (ULC) proposed amendments to the text of the UCC that include a revised definition of conspicuous (UCC § 1-201(b)(10)). This Article discusses the key changes to the definition of conspicuous set out in the 2022 Proposed Amendments. The revised definition incorporates a new totality-of-the-circumstances standard of review that affects the way parties display language in their commercial contracts that must satisfy the requirements for conspicuousness.
Currently, state legislatures are considering whether to adopt the 2022 Proposed Amendments. For a 50-state chart tracking the steps each state has taken to enact them, see Quick Compare Chart, UCC - Adoption of 2022 Proposed Amendments - Article 1 through Article 7.
For more information about UCC warranty disclaimers in:

Current Definition of Conspicuous Versus Revised Definition of Conspicuous

The key difference between the current definition of conspicuous and the revised definition of conspicuous is the standard of review to determine whether contract language is conspicuous. The current definition of conspicuous:
  • States that a provision is conspicuous if it is written, displayed, or presented in such a way that a reasonable person should have noticed.
  • Provides a list of examples of conspicuous terms, such as terms that appear in larger type or in a contrasting color.
(UCC § 1-201(b)(10); see Current Definition of Conspicuous.)
The revised definition of conspicuous:
  • Eliminates the statutory examples.
  • Incorporates a totality-of-the-circumstances standard of review.
(See Revised Definition of Conspicuous.) For the official text of the 2022 Amendments, see ULC: UCC 2022 Proposed Amendments.

Current Definition of Conspicuous

The current definition of conspicuous states that conspicuous, with reference to a term, means written, displayed, or presented in a way that a reasonable person against whom it is to operate ought to have noticed it. Whether a term is conspicuous or not is a decision for the court. Conspicuous terms include the following:
  • A heading in capitals equal to or greater in size than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same or lesser size.
  • Language in the body of a record or display in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from surrounding text of the same size by symbols or other marks that call attention to the language.
(UCC § 1-201(b)(10).)
This definition:
  • Establishes a reasonable person standard of review for determining whether contract language is conspicuous.
  • Explicitly gives courts the power to determine whether a term is conspicuous.
  • Includes an explicit list of examples of language that is presented in a conspicuous manner. These statutory examples are primarily based on size, type, font, color, and positioning.
The official comments explain that, although the statute indicates some methods counsel can use to make text conspicuous, the conspicuousness test is not whether one of these methods is used. Instead, courts should inquire whether it is reasonable to expect that the text is "attention-calling." (UCC § 1-201 official cmts.)

Revised Definition of Conspicuous

The revised definition states that:
  • Conspicuous, with reference to a term, means so written, displayed, or presented that, based on the totality of the circumstances, a reasonable person against which it is to operate ought to have noticed it.
  • Whether a term is conspicuous or not is a decision for the court.
(UCC 2022 Proposed Amendments, § 1-201(b)(10).)
The revised definition of conspicuous retains the reasonable person standard of review and the language explicitly giving courts the power to determine whether a term is conspicuous. However, by eliminating statutory examples of conspicuous text relating to the appearance of type and requiring courts to consider the "totality of circumstances," it invites courts to consider a broad range of factors that are applicable to both paper and electronic contracts when determining whether a term is conspicuous. (UCC 2022 Proposed Amendments, § 1-201 & official cmts.)
The official comments to the 2022 Proposed Amendments provide extensive guidance about determining whether contract language is conspicuous. Key points include:
  • Case-by-case analyses. Application of the reasonable person standard (regarding the appearance and presentation of a contract term):
    • requires a case-by-case analysis; and
    • is determined by reference to the totality of the circumstances.
  • A recognition of the increasing use of electronic communications. Enhancements in technology have led to changes in the ways that contract terms are displayed or presented, which can affect the determination of whether terms are deemed conspicuous (see Revised Definition Recognizes Increasing Use of Electronic Communications).
  • The replacement of statutory examples with guidance set out in the revised official comments. The 2022 amendments establish a new approach by essentially replacing the statutory examples with guidance on the "broader universe of factors that are applicable to both written and electronic presentations." According to the 2022 official comments, the new approach aims to be both more protective of consumers and more useful to drafters by providing more clarity and flexibility in the methods that may be used to call attention to a term.
  • Flexibility in determining the attributes of reasonable person. The attributes of a reasonable person under the reasonable-person standard of review are meant to be flexible depending on the context (see Attributes of Reasonable Person).
  • Potentially different treatment of standard forms versus negotiated contracts. The outcome of the determination whether a term is conspicuous may depend on whether the term is used in a standard form of contract or a negotiated contract. These comments imply that a stricter standard for conspicuousness may apply to contracts where the buyer or lessee has little bargaining power, such as consumer contracts of adhesion.
  • An acknowledgment of differences in printed versus online contracts. Terms presented online raise issues that differ from the issues associated with presenting the same terms in a writing. For example, how a term appears may depend on the equipment and settings used by the person presented with the term.
  • Examples of factors relevant to determining whether a term is conspicuous. These factors are applicable to both paper and electronic contracts (see Additional Factors to Consider).
(UCC 2022 Proposed Amendments, § 1-201 official cmts.)

Revised Definition Recognizes Increasing Use of Electronic Communications

Contract terms were historically presented in writing on paper, which made the use of standards that relate to the size and appearance of type relevant to the determination of conspicuousness. However, contract terms today are frequently communicated electronically using new technologies that have "created opportunities for terms to be displayed or presented in novel ways, such as by the use of pop-up windows, text balloons, dynamically expanding or dynamically magnifying text, and non-visual elements such as vibrations, to name a few." (UCC 2022 Proposed Amendments, § 1-201 official cmts.)
A term displayed or presented in a novel way using emerging technologies is subject to the same standards as terms set out on paper. Specifically, a term is conspicuous if the effect of the display or presentation is that a reasonable person against whom the term is to operate ought to have noticed it. (See Attributes of Reasonable Person.)

Attributes of Reasonable Person

The determination of whether any term is conspicuous should be made with reference to a reasonable person in the position of the person against whom it is to operate. The attributes of a reasonable person are meant to be flexible and can vary depending on:
  • The nature of the transaction.
  • The market in which the transaction occurs.
Factors include the education, sophistication, disabilities, and other attributes of these parties. For example, where a merchant of goods includes a disclaimer of implied warranty of merchantability or fitness for particular purpose in its sale of goods contract or personal property lease, the outcome of the determination whether the disclaimer is conspicuous may depend on whether the buyer or lessee is a large business, small business, or consumer (UCC 2022 Proposed Amendments, § 1-201 official cmts). These factors can also influence whether a reasonable person should notice terms that are set out in novel ways using emerging technologies (see Revised Definition Recognizes Increasing Use of Electronic Communications).

Additional Factors to Consider

The official comments to the 2022 Proposed Amendments discuss examples of factors that are relevant to the determination whether a term is conspicuous. These factors are applicable to both paper and electronic contracts, and include, for example:
(UCC 2022 Proposed Amendments, § 1-201 official cmts.)

Contrasting Headings and Text

Some of the examples of likely conspicuous terms that are set out in the official comments to the 2022 Proposed Amendments are the same as the statutory examples in the current definition. These include a term that is:
  • Introduced by a heading in uppercase letters equal to or greater in size than the surrounding text.
  • Set out in language in the body of a record or display that is:
    • in larger type than the surrounding text;
    • in contrasting type, font, or color to the surrounding text of the same size; or
    • set off from surrounding text of the same size by symbols or other marks that call attention to the language.
However, the official comments to the 2022 Proposed Amendments make it clear that even a term that has these characteristics must still meet the overall statutory test for conspicuousness. For example, a term displayed in bold, uppercase letters may not be conspicuous if it appears among other terms that are also displayed in bold, uppercase letters, because there would be no contrast with the surrounding text. (UCC 2022 Proposed Amendments, § 1-201 official cmts.)

Placement of the Term

The placement of a contract term also plays a role in determining whether the term is conspicuous.
A term is more likely to be deemed conspicuous if the term appears:
  • At, or hyperlinked from, text at the beginning of a record.
  • Near the place where the person against whom the term is to operate must signify assent.
A term is less likely to be deemed conspicuous if the term appears in the middle of a lengthy record without the use of a method reasonably designed to draw the person's attention to the term in the middle of the record.
Examples of ways to make a term more conspicuous include:
  • Providing separate reasonable notice of the term before presenting the record containing the term to the person for assent.
  • Forcing the person to stop on a screen highlighting the term during the presentation of the record for assent.
(UCC 2022 Proposed Amendments, § 1-201 official cmts.)

Hyperlinks

Hyperlinks in an electronic document play a role in determining whether the hyperlinked term is deemed to be conspicuous. If certain terms are available only using a hyperlink, courts should consider:
  • Whether there is language:
    • drawing attention to the hyperlink; and
    • describing the hyperlink's function.
  • The size and color of the text used for the hyperlink and any related language.
  • The placement of the hyperlink (see Placement of the Term).
(UCC 2022 Proposed Amendments, § 1-201 official cmts.)

Language of Headings

The language of any heading to a contract term plays a role in determining whether the underlying term is deemed to be conspicuous. Specifically, a misleading heading might cause the underlying term to not be conspicuous. For example, the heading "Warranty" may be misleading if it causes a reasonable person to:
  • Fail to notice the term's underlying warranty disclaimer language.
  • Mistakenly believe that the underlying provision includes a warranty instead of a warranty disclaimer.
(UCC 2022 Proposed Amendments, § 1-201 official cmts.)

Effort Needed to Access the Term

The effort required to access and read a contract term plays a role in determining whether the term is deemed to be conspicuous. For example, in an electronic document, a term accessible only by triggering multiple hyperlinks is less likely to be conspicuous than a term accessible from a single hyperlink. (UCC 2022 Proposed Amendments, § 1-201 official cmts.)

Whether Separate Assent Required

Whether the terms require separate assent or acknowledgement by the person against whom the contract term is to operate plays a role in determining whether the term is deemed to be conspicuous. Specifically, obtaining separate assent or acknowledgment of a term is generally sufficient to make the term conspicuous. This applies both to electronic terms and language in a paper document that require special assent or acknowledgment. (UCC 2022 Proposed Amendments, § 1-201, official cmts.) In a paper document, requiring the parties to affix their initials next to the specified language could contribute to making the term conspicuous.