6 Va. J.L. &
Tech. 15 (2001), at http://www.vjolt.net
© 2001 Virginia Journal of Law and Technology Association
VIRGINIA JOURNAL of LAW and TECHNOLOGY
UNIVERSITY OF VIRGINIA
6 VA. J.L. & TECH. 15
The Risk of Loss in Electronic Transactions:
Vintage Law for 21st Century Consumers
1. This paper will examine how the current Uniform Commercial Code (U.C.C.) provisions allocate the risk of loss to parties involved in electronic transactions. It will briefly summarize the evolution of the U.C.C.’s treatment of the subject and explain the legal theories on which the current law is based. After a brief summary of U.C.C. provisions governing the risk of loss, this paper will explore how the law operates in common electronic transactions involving both businesses and consumers. It will conclude that Article 2 of the U.C.C. does not allocate the risk of loss fairly, clearly, or consistently with the goals of the U.C.C. in common electronic transactions. This paper will argue that Internet retailing enables consumers to engage in transactions that the drafters of the U.C.C. assumed would take place only between merchants. Consequently, the unrevised U.C.C. demands the use of commercial terms in consumer transactions that are meaningless and confusing to most non-merchants. This paper will also suggest that many on-line retailers, who may believe that they have shifted the risk of loss to the buyer, may actually retain the risk of loss until the buyer receives the goods. Finally, this paper will discuss some practical issues and common business practices that affect consumers ability to protect themselves against the risk of loss when buying or selling goods via the Internet. It will conclude by suggesting a few potential changes to U.C.C. Article 2 that, if adopted by the drafting committee, will address the issues created by the modern electronic marketplace.
2. Between the time a contract is made and the time it is fully performed, goods identified to the contract may be lost, stolen, damaged, or destroyed. Risk of loss law determines whether the buyer or seller is financially responsible for the loss. From the Middle Ages until the middle of the twentieth century, the risk of loss was born by the party who held title to the goods. This ancient doctrine was preserved by the Uniform Sales Act (U.S.A.), which regulated the sale of goods before the U.C.C. was enacted. One of the U.C.C.’s most radical differences from the U.S.A. is the separation of title from the risk of loss. Karl Llewellyn, the architect of the U.C.C., felt that it was senseless to shift risk of loss with title. He argued that sales are a “complex structure of certain part-way stages.” Llewellyn felt that using title to determine who should bear the risk of loss was arbitrary, confusing, and out of touch with evolving commercial practices. As a result, the U.C.C. adopted a system that allocates the risk of loss based on which party has control of the goods, which party is more likely to insure the goods, and whether a party has breached the contract.
3. The main risk of loss provisions can be found in U.C.C. sections 2-509 and 2-510. Section 2-509 covers the risk of loss when neither party has breached the contract. Without breach, section 2-509 allocates the risk of loss by determining which party is in the best position to protect the goods, usually by insuring them. Section 2-509 is divided into three subsections; each designed to address a distinct mode of delivery from seller to buyer. The first subsection allocates the risk of loss in contracts where carriers deliver goods (carriage contracts). It contemplates two types of carriage contracts, shipment contracts and delivery contracts.  A “shipment” contract only requires the seller to deliver the goods to a carrier. A “delivery” contract requires tender of the goods to the buyer. In a shipment contract, the risk of loss passes when the goods are delivered to a carrier. In a delivery contract the risk of loss passes to the buyer only when the buyer receives the goods. The theory behind this subsection is that the party most likely to insure should bear the risk of loss.
5. U.C.C. section 2-509(3) covers goods that are delivered from buyer to seller without use of a carrier or a bailee. Risk of loss under this section depends on the seller’s status as a merchant. If the seller is a merchant, the risk of loss passes only when the buyer receives the goods. Receipt is defined by article 2 as “actual physical possession.” Non-merchant sellers need only tender delivery of the goods to the buyer in order to pass the risk of loss. Tender of delivery merely requires the seller to make conforming goods available to the buyer, and give notice “reasonably necessary” for the buyer to take delivery. The policy behind this subsection is that, in transactions involving a merchant, a merchant seller is the most likely party to insure goods until the buyer has physical possession (or control) of them.
6. U.C.C. section 2-509(4) explicitly states that the first three subsections are merely default provisions for use when parties themselves have not negotiated a “contrary agreement” of who will bear the risk of loss. The comments note that a “contrary agreement” may include trade usage or practice, course of dealing or performance, or other “circumstances of the case.”
7. U.C.C. section 2-510 deals with risk of loss when either party has breached the contract. Since the focus of this paper is on the risk of loss in electronic transactions without breach, it will not discuss section 2-510 in any detail. Suffice it to say that if a party has breached the contract, it may bear some risk of loss that it otherwise would not.
8. The current version of the U.C.C. does not allocate the risk of loss clearly or equitably in electronic transactions where businesses sell goods to consumers. In these “business to consumer” (B2C) transactions, allocation of the risk of loss is inconsistent with the rationale behind section 2-509. Section 2-509 was apparently designed with the assumption that non-merchants rarely become involved in transactions involving carriers. While that may have been true at the time the U.C.C. was drafted and enacted, the Internet allows businesses to bypass portions of the traditional supply chain, and sell directly to consumers. In the past, carriers shipped most goods from manufacturers to a network of retail stores (merchants) where consumers purchased and received them in person. Internet retailers (e-tailers) will alter this pattern by rapidly increasing the amount of goods shipped from efficient distribution centers directly to individuals. Package carriers are expected to deliver most of these goods.
9. The U.C.C. does not adequately address the needs of consumers who purchase goods from merchants to be shipped via carrier. It allocates the risk of loss to buyers based on how they receive their goods rather than using the U.C.C.’s “underling theory” of putting the risk on the party in physical control, or who is most likely to insure the goods. This allocation is arbitrary, and frequently creates an inefficient result. A merchant retailer can both purchase insurance and pursue an action against the shipper more efficiently than an individual. A non-merchant buyer, however, is very unlikely to expect liability for goods lost or damaged before it receives them. Commentators have noted this gap in the logic of section 2-509 in the past. While this issue may have represented a “minor flaw” for most of the twentieth century, the rapid growth of Internet retailing may create more frequent and serious issues for Internet consumers who receive goods via carriers. Although the same issues have existed for mail order customers since the U.C.C. was enacted, the Internet is a much more flexible medium for selling than a printed catalog. E-tailers will sell not only more goods, but different types of goods than have been traditionally sold via traditional mail order catalogs. The quantity and nature of goods, shipped to consumers by carrier, could turn the last century’s “minor flaw” into an important consumer issue for the twenty-first century.
10. The U.C.C. also relies on technical commercial terms that are meaningless to most consumers and some merchants. Therefore, in the arena of electronic sales of goods, U.C.C. section 2-509 fails its principal goal of making sales law clear and certain to merchants, lawyers and courts. All these shortcomings can be traced to an apparent presumption that only businesses (merchants) purchase goods that are to be delivered by carrier.
11. The drafters of the U.C.C. may have assumed that consumers will handle most transactions in goods without the need for carriers or bailees. Only U.C.C. section 2-509(3) considers a party’s merchant status when allocating the risk of loss. That section refers exclusively to the merchant status of sellers. When goods are delivered neither by carrier nor held by a bailee, a merchant seller bears the risk of loss until the goods are received by the buyer, but a non-merchant seller bears the risk only until it tenders delivery. The comments explain the theory behind this section. A merchant “who is to make physical delivery at his own place continues to control the goods and can be expected to insure his interest in them. The buyer, on the other hand, has no control over the goods, is extremely unlikely to carry insurance on goods not yet in its possession.” This comment reveals two of the primary reasons the U.C.C. replaced title as the deciding factor in shifting the risk of loss: (a) control, and (b) likelihood to insure. When a non-merchant purchases goods to be delivered by carrier, however, section 2-509(1) does not allocate the risk of loss to the party who controls or is likely to insure the goods. As a result, when non-merchant buyers make carriage contracts, the risk of loss passes to consumers in exactly the same fashion as it would if the transaction were between businesses even though neither buyer or seller is in control and consumers are unlikely to insure. This is due to the fact that the code fails to distinguish between merchant and non-merchant buyers.
12. In contracts between merchants, both parties are likely to understand and insure against the risk of loss. Non-merchant buyers, however, are unlikely to understand or insure against the risk of loss. The merchant seller delivering directly to the buyer, without use of a carrier or bailee (as in a traditional retail store), is both in physical control and the most likely to insure. It is logical that such sellers bear the risk of loss until the buyer controls or becomes likely to insure the goods. The U.C.C. abandons this logic when consumers buy goods, to be shipped via carrier, from merchant sellers. When consumers make carriage contracts with merchants the seller has one of the two factors used to allocate the risk of loss, the likelihood of insurance, while the buyer has none. Due to this apparent oversight consumers who buy goods over the Internet (absent contrary agreement) bear the risk of loss from the time the seller “duly delivers” them to a carrier. In contrast, consumers whose goods are delivered by the seller, whether in a store or in the seller’s own truck, bear no risk of loss until they actually receive the goods.
13. Carriage contracts are classified by the U.C.C. as shipment or delivery contracts. When a buyer purchases goods to be delivered by a carrier, the risk of loss will be born by the buyer unless a “delivery” contract is created, or the parties explicitly shift the risk to the seller. The U.C.C. presumes a shipment contract unless the terms require the seller to deliver the goods at a “particular destination.” Reading only section 2-509 gives the false impression that when a seller pays the freight, a delivery contract is created. Under the Uniform Sales Act, that would have been a correct assumption. When a seller prepaid freight, title to the good and therefore risk, did not pass until delivery. However, the U.C.C. drafters deliberately changed this result. Section 2-503 comment 5 states that a delivery contract can be created only by a “commercial understanding of the terms used by the parties contemplate[ing] such delivery.” U.C.C. sections 2-319, 2-320 and 2-321 were drafted to make a bright line rule for defining the “commercial understanding” of the parties. They adopt and give legal meaning to the common trade terms F.O.B., F.A.S., C.I.F., and C. & F. The presence or absence of these terms in a contract determines whether it is a shipment or delivery contract.  In fact, courts have consistently held that only the term “F.O.B. buyers place of business” will create a delivery contract. Even a term as unambiguous as “seller shall pay freight” will not create a destination contract. Neither a “ship to” term, nor the statement “seller shall pay freight” will create a destination contract. Only a F.O.B. term or an express allocation of the risk of loss will give the buyer the benefit of a destination contract.
14. The Internet has facilitated a dramatic increase in consumer purchases of goods that are delivered via carrier. In these B2C transactions involving carriers, the current version of section 2-509 fails to follow its policy of placing the risk of loss on the party in control, or the party most likely to insure. Absent an agreement to the contrary, the receipt of goods from a carrier transfers the risk of loss to a consumer buyer regardless of the fact that it has no more control that the seller and is less likely to insure. This result is inconsistent with the policy behind section 2-509. Furthermore, consumers are unlikely to have any understanding of the risk of loss, or the term F.O.B. These terms reflect pre World War II commercial practices, which are preserved in the U.C.C. we use today. Consequently, an e-tailer could openly communicate that all orders are F.O.B. its warehouse or factory, and the buyer would only be confused. At least two commentators and one court have noted this discrepancy and argued that all contracts between merchant sellers and non-merchant buyers should be presumed delivery contracts. 
15. Unless revised, the U.C.C. leaves the non-merchant consumer with few options other than an action against the carrier. Although the carrier is likely to be insured, the buyer bears the burden and expense of collection, which may be greater than the cost of the item lost. Furthermore, some of the largest carriers of packages are known to be reluctant to pay claims against them for damage, even when insurance is purchased through them. A non-merchant consumer in this situation could be faced with having to pay for an item never received, buying a replacement item, and incurring the cost and delay of litigation or a protracted administrative process necessary to recover the cost of the item lost. Efficiency suggests that a merchant seller could better handle these costs.
16. Although the code appears to be unfair to non-merchant consumers, the business practices of some e-tailers may prevent the risk of loss from shifting to buyers. In the case of a shipment contract, the risk of loss passes from seller to buyer only when the goods are “duly delivered” to the carrier. To meet the “duly delivered” requirement of 2-509(1)(a), the U.C.C. directs us to section 2-504, which describes “Shipment by Seller.” Section 2-504 requires a seller to put the goods in the carrier’s possession, and to make a “reasonable” contract for delivery while considering relevant circumstances. The seller also must provide the buyer with any document necessary to take possession of the goods, and the seller must give the buyer prompt notice of the shipment. Failure to satisfy any of the conditions of 2-504 may prevent the loss from shifting to the buyer.
17. The courts have been left to define the murky concept of what is a “reasonable contract” under 2-504(a). In La Casse v. Blaustein, 403 N.Y.S.2d 440 (1978), the court found the seller did not make a reasonable contract in part because it failed to insure the cartons for their full value. Under the facts of that case, the buyer had authorized the seller to insure the goods for their full value at the buyer’s expense. The seller failed to insure and mislabeled the package. The court found that the seller had made an improper contract. As a result, the seller was held liable for the loss. In a similar case, a seller mailed gold coins to a buyer, fully insured, without need for further documents, and gave the buyer personal notice. The court ruled that the contract was reasonable. The risk of loss passed to the buyer upon the “tender of delivery” so that the seller was not liable.
18. Modern e-tailers may fail to make an adequate “tender” of goods since they often ship goods and send e-mail notice on the same day. A broad reading of section 2-504(c)’s “prompt notice” requirement could protect consumers who might otherwise bear the risk of loss. In Rheinberg-Kellerer GMBH v. Vineyard Wine Co., 281 S.E.2d 425 (N.C. Ct. App. 1981), a container of wine was shipped and lost at sea before the buyer (a commercial distributor of spirits) received notice of the anticipated departure date. The court held that the notice, received after the shipment was lost, was not “prompt notice” because it “deprived the buyer of an opportunity to insure that it otherwise would have taken advantage of.” This decision suggests that the opportunity to insure is a prerequisite for satisfying of section 2-504(c).
19. Cutting-edge fulfillment practices of leading e-tailers may deprive consumers of the opportunity to insure. When a buyer clicks on the “submit order” button, the seller can react virtually instantly. In a highly automated warehouse the goods can be “picked” from storage, packed, and shipped within hours of the buyer’s last “click.” Even if the seller sends an e-mail notice of shipment to the buyer as soon as the order is received, the buyer is unlikely to have an opportunity to arrange for insurance.
20. How broadly are courts willing to read section 2-504(c) in terms of web-based sales? The Rheinberg-Kellerer court did not provide a clear answer to the issue for two reasons. First, it dealt with a traditional transaction, conducted by mail, between businesses rather than an Internet sale from a business to a consumer. Although the case states that the buyer “must have reasonable opportunity to guard against these risks by independent arrangements with the carrier,” and “must have sufficient time to take action,” the court does not contemplate near simultaneous ordering, shipping, and notice relative to section 2-504(c)’s requirement of “prompt notice.” Second, the Rheinberg-Kellerer holding limits the buyer to insurance opportunities that it otherwise would have taken advantage of. Several courts have noted that non-merchant consumers are unlikely to insure goods not in their possession. A seller, therefore, has an argument that unless the buyer can prove that it would have insured, the Rheinberg-Kellerer holding does not prevent the risk of loss from shifting to the buyer.
21. The courts appear inclined to give merchant sellers the risk of loss in transactions with consumers. Two courts opined (in dicta) that a mail order merchant does not complete performance of a contract or shift the risk of loss until the buyer receives its goods. These statements may reveal a judicial attempt to rectify the failure of U.C.C. 2-509 to address the interests of consumers who purchase goods shipped by carrier. The near simultaneous notice and shipment of goods described above may give courts the opportunity to decide that such notice “deprived” the consumer of “reasonable opportunity” to insure, thus preventing the risk of loss from shifting to the buyer. Professors White and Summers, however, have stated that it is “not wholly clear” from the Code whether all the requirements of 2-504 can prevent the risk of loss from passing to the buyer, “and the case law has not yet yielded a definitive answer.” Until this issue is resolved by case law or a U.C.C. revision, e-tailers wanting to shift the risk of loss upon delivery to a carrier should consider providing an insurance option for their customers at the time of purchase or expressly shift the risk of loss to the buyer in the contract.
22. Businesses have been transacting electronically long before the World Wide Web was widely used for any commercial activity. The first commercial application for electronic transactions was a system called Electronic Data Interchange (EDI). Traditional EDI transactions are handled by businesses communicating directly from one computer to the other. Businesses are currently shifting to more “open” systems where buyers and sellers can use the Internet to transact without creating a custom network. The current U.C.C. risk of loss provision will work effectively in either of these situations.
23. EDI users use private networks over which two computers can send and receive data in a format agreed to by the parties. This data is generally sent over “value-added networks” (VANs). VAN networks are customized to accommodate an established relationship between two existing trading partners. Most EDI users expressly cover the risk of loss by negotiating “trading partner” agreements. These agreements are precisely the kind of “contrary agreement” discussed in U.C.C. section 2-509(4).
24. Many EDI trading partners, however, do not have a trading partner agreement covering their relationship. Even without a trading partner agreement, the risk of loss allocation in EDI transactions is likely to be very straightforward. Most sales of goods will fall under 2-509(1) since they must be shipped from the vendor to the buyer in some fashion. Since EDI uses a standard “language” to communicate standard terms, and the U.C.C. has defined standard shipment terms (including F.O.B., F.A.S., C.I.F. and C. & F.), the determination of whether the contract is a shipment or a destination contract should be relatively simple. If the contract terms state F.O.B, buyer’s place of business, the risk of loss will pass from the seller only when the carrier “duly tenders” the goods to the buyer. Otherwise the risk of loss passes when the goods are “duly delivered” to the carrier. The seller’s only concern is that it must comply with section 2-504’s requirements as discussed above.
25. Most B2B electronic transactions currently take place over many individual EDI networks, each of which were built for just two companies to use. Newer technology, like XML, will enable virtual “open” marketplaces where businesses can communicate electronically without custom designed networks. This new type of EDI is unlikely to pose significant problems for the determination of which party bears the risk of loss.
26. Unlike the customized and rigidly structured EDI environment, merchants using XML can define “tags” that identify and describe data in a manner readable to many different applications without predetermining the message format. Individualized networks or agreements are, therefore, unnecessary before entering into electronic transactions. If the parties fail to mention risk of loss, the U.C.C. sections 2-509 and 2-510 will function as default provisions exactly as they do in paper based transactions. The contract shipping terms, as defined terms in sections 2-319 and 2-320, will determine whether parties have created shipment or delivery contracts. If there is an “F.O.B. buyer’s address” term, there is a delivery contract. Otherwise it is a shipment contract. Whether the seller has satisfied the delivery requirements for either type of contract will determine whether the risk of loss actually passed. If the terms are not in standard formats, or disagree, the Code provides section 2-207 to handle a “battle of the forms.”
27. Auctions can take place between consumers, businesses, or any combination of the two. They can also fall into any of the three non-breach categories outlined in U.C.C. section 2-509. The same issues that arise in the other contexts may also present themselves in auctions.
28. Perhaps the defining difference between most electronic auctions (for goods) and face-to-face auctions is that the goods, the seller, and the buyer are generally in the same physical place for auctions of the classic variety. Section 2-509(3) would generally apply to the classic auctions where the buyer/bidder removes goods from the auction site. Under 2-509(3), the risk of loss passes from the seller upon receipt of the goods by the buyer. In an Internet auction, however, buyer, auctioneer, goods, and seller are likely to be in different locations. In many Internet auctions, the goods are shipped directly from the seller or auction site to the buyer. Thus, section 2-509(1) is likely to control. If goods are sent to or left with the auctioneer, 2-509(2) may apply until goods are shipped. With few cases to provide guidance, the Code as it stands will have to address the risk of loss for goods purchased via Internet auctions.
29. The Code makes no special rules regarding risk of loss in auction sales. As a result, sections 2-509 and 2-510 apply to goods sold by auctions. In face-to-face auctions, section 2-509(3) allocates the risk of loss without regard for the buyer’s status as a merchant. Only the seller’s status is determinative. An auctioneer will generally be classified as a merchant, as will a seller who employs an auctioneer. The risk of loss in face-to-face auctions will pass to the buyer in the same fashion as it would from a merchant seller in a non-auction situation.
30. In modern Internet auctions, where a carrier delivers the goods, the risk of loss (absent an agreement) will be allocated by section 2-509(1). Since the current version of 2-509(1) fails to consider the merchant status of either party, the risk of loss passes in exactly the same way as it would if buyer and seller were sophisticated commercial parties.  This will be true even if both parties are consumers using a consumer-oriented website like eBay. Under the current U.C.C. version, a non-merchant buyer will bear the risk of loss regardless of its ability to control or insure. Consider a hypothetical auction where two non-merchants are bidding on the same item. Bidder A is present at the auction house, while bidder B is bidding in real-time via an Internet connection. If bidder A wins, U.C.C. section 2-509(3) will apply, and since sellers using auctions and auctioneers are classified as merchants, the risk of loss will not transfer from the seller until A receives the goods. If bidder B wins, she will bear the risk of loss as soon as the goods are “duly delivered” to the carrier, provided that the seller fully complies with U.C.C. section 2-504 as discussed above. This allocation seems to ignore the “control, insurance and breach premises that underlie the Code’s risk of loss provisions.” One could argue that when goods are delivered without use of a carrier the seller has physical control of the goods, but when goods are shipped via carrier the seller loses control when the goods are delivered to the carrier. This argument is short-sighted since actual physical control seems to be the deciding factor only in the bailee scenario, and likelihood of insurance is the dominant theory underlying both U.C.C. sections 2-509(1) and 2-509(3). If section 2-509(3) recognizes that non-merchants deserve greater protection in face to face sales, the same logic should apply to the majority of Internet purchases by non-merchants. If control and insurance, rather than an arbitrary measure like title, are the determinative factors in allocating the risk of loss, the failure to address the merchant status of buyers using carriage contracts to purchase goods make the current U.C.C. poorly suited to consumer transactions. As long as a seller complies with section 2-504, the risk of loss passes to the buyer upon delivery of goods to a carrier.
31. This section will briefly discuss two issues presented by bailees in the context of the risk of loss. The first is whether a seller can be regarded as a bailee after a contract is made. The second regards whether the buyer can ever be a bailee within an EDI relationship.
32. Sellers have occasionally tried to avoid the risk of loss by claiming that it had become a bailee of the buyer under U.C.C. section 2-509(2). The courts have overwhelmingly held that a seller cannot be a bailee. Most of these decisions rest on facts making the seller ineligible for bailee status. While it may be theoretically possible for a seller to be a bailee, at least two commentators agree that seller should never be allowed to claim bailee status. In the unlikely scenario where this issue could arise, the seller should know that a court is unlikely to accept the seller as a bailee argument.
33. An issue more germane to electronic transactions is whether a buyer can ever be considered a bailee. In some EDI relationships buyers do not pay for their goods until they are used or sold. Could these buyers be considered bailees? At least one case has found a buyer to be a bailee of a vessel containing goods it had purchased. There may be an appealing argument that the U.C.C. could permit such an interpretation using the control theory. A merchant buyer in possession has actual control over the goods and can reasonably be expected to insure them. The buyer, therefore, has both of the non-breach factors, control and likelihood of insurance, used by the U.C.C. to allocate risk of loss. As a practical matter, in an relationship where a buyer is shipped goods from a seller who is not expecting payment until they are used or sold, it would be reasonable to expect the parties to negotiate who will bear the risk of loss under section 2-509(4).
34. In the case where the risk of loss passes with the transfer of negotiable documents of title, the risk of loss passes upon the buyer’s receipt of the documents. At the current time, there is no widespread commercial use of electronic negotiable documents of title. The parties who appear interested in using an electronic system appear to be large exporters, traders, and banks. It is unlikely that these parties would fail to negotiate the risk of loss by contrary agreement.
35. Due to the relatively small number of cases involving bailees, and the fact that both parties involved are likely to be merchants, this author does not see a significant problem with section 2-509(2) regarding electronic transactions. Most commercial parties using bailees are likely to have insurance and to negotiate risk of loss issues using section 2-509(4). Section 2-509 will therefore allocate the risk of loss in a manner consistent with its underlying theory of control and insurance.
36. Most electronic sales of goods involve goods shipped by carrier. However, there are some increasingly common electronic transactions where goods are delivered directly from merchant to consumer. It is instructive of the shortcomings of section 2-509(1), to examine how differently section 2-509(3) handles an almost identical transaction.
37. On-line delivery of grocery items is an example of a growing segment of web based retail. Unlike many other e-tailers, grocery stores operate locally, delivering goods in their own trucks rather than shipping nationally from a single distribution center. Since the U.C.C. does not include a seller’s own truck in its definition of a carrier, the risk of loss to online grocers will be governed by U.C.C. section 2-509(3). Transactions using carriers to deliver goods are covered by U.C.C. section 2-509(1). The following hypothetical shows how two similarly situated consumers have vastly different risk of loss liability, depending on who delivers their goods. Absent a contrary agreement, a consumer ordering a steak from www.omahasteaks.com bears the risk of loss as soon as it is put in the hands of the carrier even though it is unlikely to insure and does not have control of the goods. On the other hand, a consumer purchasing a steak from www.peapod.com would bear no risk of loss until the meat is received since peapod.com is a merchant. Section 2-509(3) offers the peapod.com customer extra protection against the risk of loss due the fact its seller is a merchant. Section 2-509(1) gives no such protection to the omahasteak.com customer. This result would be consistent if section 2-509 used only physical control to justify its allocation of the risk of loss. The factor of insurance, however, is at least as prominent as a theory for determining who should bear the risk. This result under the current version of section2-509 seems at least as arbitrary as shifting risk with title, a result the U.C.C. sought to avoid.
38. Section 2-509 is only the default rule in the absence of an “contrary agreement by the parties.” Many of the largest and most sophisticated web-retailers address the issue of risk of loss in the section of their sites labeled “terms and conditions,” “legal notices” or the equivalent. There is a threshold question of whether a buyer has assented to the terms and conditions by simply purchasing from a website. Our increasingly complex technical world has created novel ways of manifesting assent to contracts. In ProCD Inc. v. Zeidenberg, Judge Easterbrook held that “shrink-wrap” contracts are enforceable. He noted that “[a] contract for sale of goods may be made in any manner sufficient to show agreement, including conduct.” Furthermore a vendor, as “master of the offer, may invite acceptance by conduct, and may propose limitations on the kind of conduct that constitutes acceptance.” In what seems to be a less controversial decision, a New Jersey appellate court has ruled that a party can assent by clicking “I agree,” or some equivalent action. However, no court has yet decided whether a “web-wrap” agreement, where the user is bound to all terms and conditions by use of a website, is enforceable under current Article 2. In ProCD, Judge Easterbrook noted that ordinary terms do not require any “special prominence” to bind the consumer. Other commentators disagree. They feel that a more definite manifestation of assent is necessary to bind a consumer. At least one case dealing with the risk of loss to a consumer held that “[f]ine print in a security agreement” was not sufficient to shift the risk of loss to a consumer buyer.” Without further guidance from the courts, this article will assume these agreements to be binding and examine how a small sample of them may be interpreted under current Article 2.
39. This section will examine the effect of risk of loss provisions found on websites of Internet merchants and auction sites. It provides a few examples of how electronic merchants attempt to handle risk of loss with an analysis of how these attempts affect consumers.
40. At the bottom of the Amazon.com website, “legal notices” is the very last of a number of small-type links. Clicking on that link brings a potential consumer to a list of legal terms, definitions, and disclaimers. The first paragraph states that “Amazon.com and its affiliates provide their services to you subject to the following notices, terms, and conditions.” The seventh paragraph is headed by bold-faced type reading “RISK OF LOSS.” That paragraph states all purchases made from Amazon.com are to be construed as “shipment contracts.” The next sentence explains the significance of a shipment contract by stating that the risk of loss passes “to you upon our delivery to the carrier.”
41. Amazon’s statement that purchases are shipment contracts may serve as a polite notice to its customers but it is legally redundant. Without stating that all shipments are F.O.B. purchases shipping address, the U.C.C. presumes shipment contracts. However, Amazon.com still must comply with section 2-504 in order to shift the risk of loss to the buyer upon delivery. If Amazon.com ships goods whose value is in excess of an amount guaranteed by the carrier without providing the buyer meaningful opportunity to insure the goods themselves, U.C.C. section 2-504 may prevent the risk of loss from shifting to the buyer.
42. Dell is one of the largest retailers of computer hardware in the world. The company’s entire business model is built on using technology to build hardware to order rather than carrying a large inventory of finished products. Consequently, Dell sells a significant amount of its products through its website. Dell’s website addresses risk of loss with the following language:
43. Title; Risk of Loss. Title to products passes from Dell to Customer on shipment from Dell's facility. Loss or damage that occurs during shipping by a carrier selected by Dell is Dell's responsibility. Loss or damage that occurs during shipping by a carrier selected by Customer is Customer's responsibility. Title to software will remain with the applicable licensor(s). 
44. Dell explicitly accepts the risk of loss when it selects the carrier, while explicitly assigning it to the customer who chooses a carrier herself. Where a consumer chooses the carrier herself, she bears the risk of loss. In the unlikely event a customer chooses a carrier herself, Dell could be liable by failure to comply with section 2-504, if it does not provide the buyer a meaningful opportunity to insure the goods herself.
45. Gateway is a computer hardware seller focused on the consumer market for personal computers (PCs). The company does most of its business via telephone and Internet sales. Gateway expressly accepts the risk of loss for goods ordered on the Internet and shipped via carrier. Gateway’s “Shipment and Title” section reads: “Title to the Product and Accessories passes to you upon delivery to the carrier and risk of loss passes to you upon delivery.”  According to a strict reading of the U.C.C. comments and pertinent cases, the fact that the terms are not “F.O.B. buyer address” means that Gateway has created a shipment contract. It has accepted the risk of loss by “contrary agreement” as allowed in section 2-509(4).
46. “eBay” bills itself as the “world’s first, biggest, and best online trading community.” eBay protects its “members,” one must register as a member to participate in an eBay auction as a buyer or seller, and itself in several ways. First of all, eBay tells its users that it is not a seller. In its website, the section marked “user agreement” states: “Our site acts as the venue for sellers to list items (or, as appropriate, solicit offers to buy) and buyers to bid on items. We are not involved in the actual transaction between buyers and sellers.” eBay also separates itself from the transaction itself by using a third party to handle the payment for goods purchased via eBay. Furthermore, shipping is offered directly by the seller who generally includes a shipping cost in her description of the item. Finally, eBay offers to insure the cost of all goods purchased using their site up to $200. Thus eBay (assuming its User Agreement is binding) has no control over the goods, and is liable for risk of loss only up to the $200 limit stated in its contract. Instead, the seller will remain liable until she has complied with the terms of 2-509(1)(a) by making a reasonable contract under section 2-504, and “duly delivering” the goods to a carrier in a manner that will give the buyer the ability to insure the goods.
47. uBid.com is a site that offers goods to both businesses and consumers. uBid, unlike eBay, takes a much more active role in merchandising and handling consumer goods sold through its site. For example, uBid.com ships many items from its own warehouse and often controls shipping terms. If uBid fails to comply with section 2-509 and 2-504 it could be held liable, as the seller, for losses before receipt by the customer. Alternatively, section 2-509(2) may apply if uBid acts as a bailee of the seller. This author could find no mention of risk of loss anywhere on the uBid site. With no terms negotiated or used in a contract, the U.C.C. will presume a shipment contract and the risk of loss will pass to the buyer if uBid duly delivers the goods to a carrier and complies with section 2-504 as discussed above.
48. Although this paper suggests that the U.C.C. may not be adequate in handling consumer transactions, it is worth noting that there has been very little litigation concerning risk of loss in mail order or Internet transactions. There are several potential reasons for this dearth of reported complaints. One is simply that the average and total value of goods purchased by consumers and shipped by carriers has been too small to warrant litigation. That situation is likely to change as more people buy more expensive items that will be shipped by carrier. There are, however, several other tools that may appear to provide some limited protection to non-merchant Internet consumers. This section will discuss them briefly and conclude that none of them are ultimately sufficient to provide reasonable relief to the growing number of Internet consumers.
49. The use of Credit cards is the dominant payment process on the Internet. Any purchase made with a credit card gives the cardholder powerful protections. The cardholder has the right to “assert against the credit issuer all claims (other than tort claims) and defenses arising out of the transaction and relating to the failure to resolve the dispute.” The cardholder may withhold payment up to the amount of the disputed transaction. The card issuer will pass the deficit in payment back to the merchant who shipped the goods. This is a powerful tool for consumers, but it may not solve the problem. First of all, if the buyer carried the risk of loss by operation of U.C.C. section 2-509(1), she may not have a valid defense against the merchant. Second, to be protected by this law, the purchase must be made within 100 miles of the buyers currently designated address, or within the same state as her designated address. This raises the unsettled question of where an online transaction takes place. Third, these protections do not exist at all for purchasers using debit cards or other forms of electronic payment. Finally, while credit cards are currently the dominant form of payment on the Internet, other forms may arise.
50. The use of the most common carriers  may alleviate some of the risk to sellers. United Postal Service (UPS) carries over 55% of all goods sold over the World Wide Web. UPS includes $100 of insurance in its shipping rates. For transactions over $100, either buyer or seller must purchase insurance in order to be covered. A shipment with a value over $999 cannot be insured through UPS. Federal Express, which carries about 10% of the Internet packages, offers no insurance, but agrees to be liable up to $100 per package. Federal Express will agree to be liable for a declared value greater than $100 for an additional fee. However, Federal Express clearly states that it does not provide any insurance, and will not be held liable for amounts in excess of the declared value of a package. Furthermore, it places an absolute limit on its liability at $50,000. The United States Postal Service (U.S. Mail) offers insurance for an additional fee of about 2% of the value of the package.
51. Relying on the package delivery carriers to bear the risk of loss is problematic since the coverage will vary among them. Internet buyers in over half of all e-commerce transactions have the benefit of $100 of insurance by virtue of UPS’s automatic insurance and its 55% market share. If the shipment is worth more than $100, however, the buyer could be left underinsured. Private insurance is the only option for all goods shipped via Federal Express. A buyer can always sue Federal Express, but the company has attempted to limit its liability to the declared value of the shipment.
52. Buyers are often covered for off-site property by homeowners’ insurance. While this may protect some non-merchant buyers, the protection will vary from person to person and policy to policy. Relying on a consumer policy seems contrary to the U.C.C.’s stated theory that merchants are the party most likely to insure. Furthermore, since most policies are unlikely to cover goods until the insured obtains title, this solution places buyers in the same position they were in before the U.C.C. divorced title from risk of loss.
53. Over fifty years ago, the U.C.C. rejected title and adopted instead the factors of control and likelihood of insurance to determine who should bear the risk of loss absent a breach or contrary agreement. Through oversight or adherence to the dominant commercial practice when drafted, the U.C.C. does not follow this policy when non-merchant consumers purchase goods to be delivered by carrier. Non-merchant buyers, absent contrary agreement, bear the risk of loss even though they are unlikely to insure and have no control over the goods while in transit. Although this oversight may have caused few problems in the past, the rapid growth of e-commerce is likely to change that situation.
54. The U.C.C.’s requirement of the commercial term “F.O.B.” is meaningless to most non-merchants and creates more confusion than clarity to consumers involved in carriage contracts. It is the result of “[t]he freezing of the meaning of the shipment terms in a statute vintage 1940’s.” While it may have been designed to create a “bright line” rule for exchanges between commercial parties, consumers are disadvantaged by terms they are unlikely to encounter in daily life. The U.C.C. should adopt a more flexible standard that will permit courts to adapt to rapidly changing commercial practices. This author applauds the planned deletion of merchant terms from the U.C.C. This step alone, however, does not alter the Code’s presumption of a shipment contract. Without a presumption of a destination contract for consumer buyers and absent language to the contrary in the contract, consumers will bear the risk of loss when e-tailers ship goods by carrier.
55. One could argue that the current U.C.C. section 2-504’s requirement of a reasonable contract and prompt notice provides adequate protection to consumers whose goods are damaged or destroyed. There are several problems with that argument. First, it is not clear that failure to comply with a section 2-504 element will always prevent the risk of loss from shifting. Second, the case holding that section 2-504(c) requires a reasonable opportunity to insure was referring to the time necessary for a commercial buyer to obtain coverage. The court’s holding in Rheinberg-Kellerer stated that the notice requirement of 2-504(c) need only give a “buyer the opportunity to insure that it otherwise would have taken advantage of.” The plaintiff in Rheinberg-Kellerer was a commercial party who would have insured had he known the goods were to be shipped. This holding is scant protection for the non-merchant buyer who is, by the U.C.C.’s own admission, “extremely unlikely to insure.” Third, even if a consumer did have notice and knowledge to insure, it would defeat one of the primary benefits of Internet retailing, namely convenience, to delay shipping long enough for a consumer to figure out how to insure its goods. A more efficient solution would be to have the merchant absorb the cost of insurance, and spread it among its customers. Fourth, while we have at least two cases (in dicta) and two commentators supporting the presumption of a shipment contract when consumers buy from businesses, there is no definitive holding on point or support of such a result. Without cases directly on point, or a revision of the U.C.C., section 2-504(c) is no more than a warning to e-merchants rather than a protection for consumers.
56. Karl Llewellyn’s objective for U.C.C. sections 2-509 and 2-510 was to provide a clear framework for shifting the risk of loss based on who was in control of the goods, who was likely to insure the goods, and whether a party is in breach. He rejected title as a determinative factor because he felt it was out of step with new commercial practices. Today the Internet is changing many commercial practices. If U.C.C. section 2-509 is to serve the needs of consumers purchasing goods over the Internet, it will have to change again. Specifically, it should presume a destination contract when a consumer purchases goods from a merchant. This would be a radical change to the current law only from the prospective that section 2-509 currently does not consider the buyer’s status as a merchant at all. If a merchant seller wants to change this allocation, we should allow them to do so using terms understandable to the non-merchant buyer with whom it is dealing rather than a F.O.B. term. While determining plain language in an electronic contract may create interpretive difficulty for a trial court, the current allocation operates as a “penalty default” rule favoring sellers. Transactions between non-merchants need not be affected since neither party is more likely to insure. Finally, section 2-504(c) should provide guidance to Internet sellers as to what type of notice a non-merchant buyer must give in order to shift the risk of loss to a buyer upon delivery to a carrier. With these minor changes section 2-509 will continue to serve the needs of merchants and non-merchants buying and selling goods electronically.
* Seth Gardenswartz received his J.D., cum laude, from the Southern Methodist University Law School in May of 2000. He has worked as an associate in the corporate finance and e-commerce practice groups in the Denver office of Faegre & Benson. In January of 2002, Mr. Gardenswartz will become the Director of Business Development at Employee Based Systems, a provider of web based human resources solutions. Prior to attending law school, Mr. Gardenswartz spent over ten years in the business sector as an owner and operator of two retail business entities. Seth would like to thank Professor Jane K. Winn for her assistance and encouragement in preparing this article, and Professor Roy R. Anderson for his insight into Article 2. Seth can reached at email@example.com or firstname.lastname@example.org.
 See U.C.C. § 2-501 (1998).
 The problem of allocation of these risks has plagued merchants and courts since the first century B.C.E. See Mitchell Stocks, Comment, Risk of Loss Under the Uniform Commercial Code and the United Nations Convention on Contracts for the International Sale of Goods: A Comparative Analysis and Proposed Revision of U.C.C. Sections 2-509 and 2-510, 87 Nw. U. L. Rev. 1415, 1455 n.1 (1993).
 Robert L. Flores, Risk of Loss in Sales: A Missing Chapter in the History of the U.C.C.: Through Llewellyn to Williston and a Bit Beyond, 27 Pac. L.J. 161, 205 (1996).
 Margaret Howard, Allocation of Risk of Loss Under the U.C.C.: A Transactional Evaluation of Sections 2-509 and 2-510, 15 UCC L.J. 334 (1983).
 GRANT GILMORE & CHARLES L. BLACK, JR., THE LAW OF ADMIRALTY 101 (2d ed. 1975).
 Karl Llewellyn, Through Title to Contract and a Bit Beyond, 15 N.Y.U.L.Q. Rev. 159,184 (1938) (referring to the function of title as determinative process for shifting risk of loss as “chasing halos”).
 See Karl Llewellyn, Across Sales on Horseback, 52 Harv. L. Rev. 725, 730 (1939).
 Llewellyn, supra note 7, at 185, 188.
 Howard, supra note 5, at 335.
 See U.C.C. § 2-509 (1998).
 Howard, supra note 5, at 335.
 U.C.C. § 2-509.
 The word carrier is not defined by the U.C.C. but is generally accepted to mean commercial railroads, airlines, trucking companies, and ships. It does not include a seller’s own truck or delivery device. See J. WHITE & R. SUMMERS, UNIFORM COMMERCIAL CODE § 5-2, at 187 (5th ed. 2000).
 U.C.C. § 2-509(1).
 Id. §§ 2-504, 2-509(1)(a).
 Id. §§ 2-503(1)-(3) , 2-509(1)(b), 2-503 cmt. 5.
 Id. § 2-509(1)(a).
 Id. § 2-509(1)(b).
 See Howard, supra note 5, at 345.
 A bailee is “a person who by warehouse receipt, bill of lading, or other document of title acknowledges possession of goods and contracts to transfer them.” BLACK’S LAW DICTIONARY 141 (6th ed. 1990). See also Caudle v. Sherrard Motor Co., 525 S.W.2d 238, 240 (Tex. Civ. App. Dallas 1975).
 U.C.C. § 2-509(2) (1998).
 Howard, supra note 5, at 351.
 U.C.C. § 2-509(3).
 Howard, supra note 5, at 351.
 U.C.C. § 2-509(3).
 Id. § 2-103(1)(c).
 Id. See also Howard, supra note 5, at 353 n. 68.
 U.C.C. § 2-503(1).
 Id. § 2-509 cmt. 3.
 Id. § 2-509(4).
 Id. § 2-509 cmt. 4.
 For a full discussion of the risk of loss in breach situations, see Howard, supra note 5, at 355.
 See GILMORE & BLACK, supra note 6, at 101 (noting that the U.C.C. was drafted in the 1940s to conform to commercial practices common in the 1930s).
 Clayton M. Christianson & Richard S. Tedlow, Patterns of Distribution in Retailing, Harvard Business Review, January-February 2000; see also U.S. Dep’t of Commerce, The Emerging Digital Economy A5-9 (1998), available at http://www.doc.gov/ecommerce/EmergingDig.pdf (last visited Nov. 18, 2001). Both manufacturers and retailers would meet the Article 2 definition of a merchant. See U.C.C. § 2-104 (1998).
 Malcolm Gladwell, Clicks and Mortar, The New Yorker, Dec. 6, 1999. Betty Liu, Internet Is a Mixed Blessing for UPS, FINANCIAL TIMES (London), Nov. 10, 1999, § 1, at 38 (noting that 55% of all e-commerce shipments are currently handled by UPS). See also Keith Fulton, The Use of Disclaimers & the Internet’s World Wide Web, 6 Media L. Pol’y Bull. 1 (1997); U.S. Dep’t of Commerce, supra note 36, at A5-9 (noting the relatively low overhead of most e-tailers).
 Liu, supra note 37, at 38.
 See Note, Risk of Loss in Commercial Transactions: Efficiency Thrown into the Breach, 65 Va. L. Rev. 557, 566 (1979) [hereinafter “Va. Note”].
 See U.C.C. § 2-509 cmt. 3 (1998). See also Howard, supra note 5, at 338 (noting that the U.C.C. stresses likelihood of insurance rather than economic efficiency, and distinguishes it from control).
 See James L. Floorman, Risk of Loss Under Section 2-509 of the California Uniform Commercial Code, 20 UCLA L. Rev. 1352, 1374 (1973).
 Id. at 1374.
 See id.; See Howard, supra note 5, at 335 (stating that section 2-509 is “ill-suited to noncommercial sales contracts, although clearly applicable to them”); Va. Note, supra note 39, at 566 (calling the presumption of a destination contract in the context of consumer buyers a “minor flaw”).
 See Va. Note, supra n. 39, at 566.
 See Liu, supra note 37, at 38.
 Walter A. Effross, The Legal Architecture of Virtual Stores: World Wide Websites and the Uniform Commercial Code, 34 San Diego L. Rev. 1263, 1287 (1997).
 See WHITE & SUMMERS, supra note 14, at 181 (citing and summarizing Karl Llewellyn’s address to the New York Law Commission). Professors White and Summers believe U.C.C. section 2-509 is an overwhelming success in making risk of loss law clear. See id. at 181-182 (noting that the U.C.C. risk of loss provisions have dramatically reduced the amount of litigation on the subject compared to prior law).
 See U.C.C. § 2-509 (1998).
 Id. § 2-509(3).
 Id. § 2-509 cmt. 3.
 Id. (emphasis added).
 Id. See also Howard, supra note 5, at 336.
 See supra note 14.
 Howard, supra note 5, at 345.
 Id. at 337.
 Id. at 345-346.
 See id. at 345, 352.
 Va. Note, supra note 39, at 566.
 Id. See also Colony Press v. Fleeman, 308 N.E.2d 78, 81 (Ill. App. Ct. 1974); Hayward v. Postma, 188 N.W.2d 31, 33 (Mich. Ct. App. 1931); Caudle v. Sherrard Motor Co. 525 S.W.2d 238, 242 (Tex. Civ. App. 1975). All of these cases note that consumers are unlikely to insure.
 See Howard, supra note 5, at 353 (noting that the buyer’s status as a merchant is not mentioned in section 2-509(3)).
 See Floorman, supra note 41, at 1374.
 An e-tailer might argue that it no longer has any control of the goods once they are delivered to the carrier. See Howard, supra note 5, at 334.
 When goods are shipped by carrier, neither party has physical nor indirect control during transit. Id. at 344. The U.C.C. is merely the default provision allowing parties to determine risk of loss by agreement. Without such express agreement the seller is directed by section 2-504 to make a reasonable contract for shipment. Any control the seller had over the carrier is a “present fiction . . . based on a bygone fact.” Id.
 See U.C.C. § 2-504; infra Part IV.A.1 (explaining why the buyer has no agency argument against the seller for choosing the carrier).
 A seller’s own truck is not considered a carrier. See WHITE & SUMMERS, supra note 14, at 186.
 U.C.C. § 2-509(3).
 Id. § 2-509(1).
 Eberhard Mfg. Co., v. Brown, 232 N.W.2d 378, 380 (Mich. Ct. App., 1975).
 This means paying the carrier to deliver.
 U.C.C. § 2-509(1)(a).
 Id. § 2-503 cmt. 5; See, e.g., Pulkrabek v. Bankers’ Mortg. Corp., 238 P. 347, 349 (Or. 1925).
 See Pulkrabek, 238 P. at 349.
 U.C.C. § 2-503 cmt. 5.
 GILMORE & BLACK, supra note 6, at 108.
 F.O.B. stands for “free on board.” If a contract covering the sale of tennis shoes from a seller located at 1 Bowerman Drive, Beaverton, OR, to a buyer’s place of business at 2720 San Mateo, Albuquerque, NM, contains a term “F.O.B. buyers warehouse in Beaverton,” the contract means that the buyer is responsible for the cost of shipment from Beaverton to Albuquerque. If instead the contract read F.O.B. 2720 San Mateo, Albuquerque, NM, it would be a delivery contract. See U.C.C §§ 2-319(a)-(b); WHITE & SUMMERS, supra note 14, at 118-119. F.A.S. stands for “free along side.” It differs from F.O.B. mainly by not requiring the seller to unload the goods. U.C.C. § 2-319(2). F.A.S. is frequently used in maritime contexts. See id. C.I.F is a term meaning freight and insurance costs are included in the price of the contract. Id. § 2-320(1). C. & F. means that the contract price includes freight but not insurance. Id.
 Id.; see also Eberhard, 232 N.W.2d at 380.
 Morauer v. Deak & Co., Inc., 26 U.C.C. Rep. Serv. 1142, 1979 WL 30079 (D.C. Super. Ct. 1979); Eberhard, 232 N.W.2d. at 380. Note that the term “Ex-Ship” will create a delivery contract, but applies only to delivery by vessel and is, therefore, less applicable to electronic transactions involving consumers. U.C.C. § 2-322. U.C.C. section 2-319(2) uses the term F.A.S. which applies only to goods shipped by boat. U.C.C. section 2-320 defines the terms C.I.F. and C. & F. These terms do not create delivery contracts but they do shift the risk of loss to the seller. See id. § 2-320 cmt. 1. Professors White and Summers argue that in order to create a destination contract, parties must expressly “agree to a destination contract by using F.O.B. buyer’s place of business or equivalent language.” WHITE & SUMMERS, supra note 14, at 186.
 Eberhard, 232 N.W.2d at 380; Knitwear Corp. v. All-America Export Import Corp., 359 N.E. 2d 342, 347 (N.Y. 1976).
 Eberhard, 232 N.W.2d at 380; Electric Regulator Corp. v. Sterling Extruder Corp., 280 F. Supp. 550, 557-558 (D. Con. 1968).
 WHITE & SUMMERS, supra note 14, at 186; but see Baumgold Brothers, Inc. v. Allen Fox Co., 375 F. Supp. 807, 815 (N.D. Ohio 1973) (holding that the term “the merchandise … is delivered to you” coupled with sellers intent to deliver evidenced by insurance and use of registered mail created a destination contract).
 U.S. Dep’t of Commerce, supra note 36, at A5-9.
 Howard, supra note 5, at 343, 345.
 Absent contrary agreement the seller is free to choose the shipper. See U.C.C. § 2-311(2) (1989).
 Id. § 2-509 cmt. 5.
 See Howard, supra note 5, at 345 (citing Caudle v. Sherrard Motor Co., 525 S.W.2d 238 (Tex. Civ. App. 1975) (noting that use of “mercantile terms” in contracts with non-merchant parties create a “trap for the unwary”).
 GILMORE & BLACK, supra note 6, at 108.
 See Howard, supra note 5, at 345; Floorman, supra note 41, at 1378.; Va. Note, supra note 39, at 566 (calling the oversight a “minor flaw” in section 2-509); Colony Press v. Fleeman, 308 N.E.2d 78, 81 (1974) (States that the risk of loss in a mail order contract does not pass to the buyer until the goods are received. Curiously the court supported its this statement with U.C.C. section 2-509(3), a section that does not apply unless neither a carrier nor a bailee is used in the transaction. This could be either an error or a suggestion that mail order is not conceptually different from a face to face transaction in a retail store); see also Hayward v. Postma, 188 N.W.2d 31, 33 (Mich. Ct. App. 1971) (stating one court’s opinion that shifting the risk of loss to consumer is so unusual and unexpected that “boiler-plate” language is not sufficient to create an contrary agreement under U.C.C. section 2-509(4)).
 See REVISION OF UNIFORM COMMERCIAL CODE ARTICLE 2 – SALES § 2-509(a) (Draft March 2000), available at http://www.law.upenn.edu/bll/ulc/ucc2/2300.htm (last visited Nov. 20, 2001) [hereinafter “Draft Revision of U.C.C.”] (showing section 2-509(a) without a modification to address non-merchant buyers receiving goods via carrier).
 Buyer or seller can sue the carrier, regardless of whether the carrier bore the risk of loss, however, the recovery will go to the party who bore the risk. U.C.C. § 2-722 (1998). See also Howard, supra note 5, at 346.
 The fact that a shipper is likely to be insured, and in physical control of the goods, provides partial validation for the insurance premise of allocating the risk of loss to the party in control or likely to insure. However, section 2-509 is supposed to allocate the risk of loss between the buyer and seller rather than to third parties. Howard, supra note 5, at 346.
 Interview with Brad Ward, Manager, Eagle Postal Center in Dallas, Tex. 75205. (March 2, 2000).
 Floorman, supra note 41, at 1374.
 U.C.C. § 2-509(1).
 See id. §§ 2-503(2), 2-504.
 Id. § 2-504(a). Note that this section cuts out the “shipper as the seller’s agent” theory of recovery for the buyer.
 Id. § 2-504(b).
 Id. § 2-504(c).
 Id. § 2-503(2). See also Rheinberg-Kellerie GMBH v. Vineyard Wine Co., 281 S.E.2d. 425 (N.C. Ct. App. 1981). But see WHITE & SUMMERS, supra note 14, § 5-2 (noting that it is not settled what provisions of section 2-504 may prevent passage of risk to a buyer).
 La Casse v. Blaustein, 403 N.Y.S.2d 440 (N.Y. Civ. Ct. 1978)
 The court relied on U.C.C. section 2-504, comment 3 (1989), which states: “It is an improper contract under paragraph (a) for the seller to agree with the carrier to a limited valuation below the true value and thus cut off the buyer’s opportunity to recover from the carrier in event of loss, when the risk of shipment is on the buyer.” Id.
 See Morauer v. Deak & Co., Inc., 26 UCC Rep. Serv. 1142,1979 WL 30079 (D.C. Super. Ct. 1979). The fact that all necessary documents have been delivered, and the fact that the seller gave personal notice to the buyer also satisfied the requirements of section 2-504(c). Id.
 See, e.g., shipping confirmation from Amazon.com (on file with author) (sent via email on same day (March 30, 2000) order was placed).
 WHITE & SUMMERS, supra note 14, at 254 (citing Rheinberg-Kellerer GMBH v. Vineyard Wine Co., 281 S.E.2d 425, 428 (N.C. Ct. App. 1981)).
 Id. Another court noted that a contract that shifts the risk of loss from a merchant seller to a non-merchant buyer before the buyers receives his goods is “so unusual that a seller who wants to achieve this result must make his intent very clear to the buyer.” Hayward v. Postma, 188 N.W.2d 31 (Mich. Ct. App.1971).
 See, e.g., David Maloney, E-conveyers (Distribution Centers Tailored for Electronic Commerce Companies), 55 MOD. MATERIALS HANDLING 49, Iss. 1, 2000 WL 14170620, (Jan. 31, 2000).
 E-mail notice would arguably satisfy requirement of notice to the buyer. See YOCHAI BENKLER, Rules of the Road for the Information Superhighway: Electronic Communications and the Law pt. II ch. 4 (West 1995).
 Rheinberg-Kellerer GMBH, 281 S.E.2d at 428.
 Colony Press v. Fleeman, 308 N.E.2d 78 (Ill. App. Ct. 1974) (applying section 2-509(3) to support its statement); Electric Regulator Corp. v. Sterling Extruder Corp., 280 F. Supp. 550, 558 (D. Conn. 1968). Both these cases were jurisdiction cases and the courts made no decision regarding the risk of loss. See also Baumgold Brothers, Inc. v. Allen Fox Co., 375 F.Supp. 807, 815 (N.D. Ohio 1973).
 See Colony Press, 308 N.E.2d at 78; Hayward v. Postma, 188 N.W.2d 31, 33 (Mich. Ct. App. 1931); Caudle v. Sherrard Motor Co., 525 S.W.2d 238, 242 (Tex. Civ. App. 1975).
 WHITE & SUMMERS, supra note 14.
 See U.C.C § 2-509(4) (1989). See also infra IV D.
 Julian S. Millstien, Jeffery D. Neuburger, & Jeffery P. Weingart, Doing Business on the Internet: Forms and Analysis §8 n.8 (1999).
 Id. § 8.02.
 See Jeffery Ritter & J. Keith Harmon, Electronic Data Interchange: The Foundation Technology for Electronic Commerce, 452 PLI/Pat 467, 469 (Order No. G4-3988, Sept. 1996). See also INTERNETWEEK, April 5, 1999 Tap XML's Potential Now XML (referring to XML as “open EDI”).
 Ritter, supra note 126, at 469.
 U.S. Dep’t of Commerce, supra note 36.
 Ritter, supra note 126, at 469.
 Henry H. Perritt, Jr., President Clinton’s National Information Infrastructure Initiative: Community Regained, 69 Chi.-Kent L. Rev. 991, 1007 (1994).
 Electronic Messaging Services Task Force under the auspices of the Subcommittee on Electronic Commercial Practices Uniform Commercial Code Committee, Section of Business Law, of the American Bar Association, Model Electronic Data Interchange Trading Partner Agreement and Commentary, 45 Bus. Law. 1717 (1990) [hereinafter “ABA Opinion”].
 Ritter, supra note 126, at 469.
 See WHITE & SUMMERS, supra note 14, at 186. See also U.C.C. § 2-504 cmt. 5 (1989).
 Id. § 2-509(1)(a).
 U.S. Dep’t of Commerce, supra note 36.
 Contrast this to business to consumer transactions where the consumer does the work of XML software by “reading” about the product and terms on a web-site and interpreting the products and terms offered. XML allows this process to occur with minimal human interaction. Id.
 Morauer v. Deak & Co., Inc., 26 UCC Rep. Serv. 1142, 1979 WL 30079 (D.C. Super. Ct. 1979); Eberhard Mfg. Co., v. Brown, 232 N.W.2d.378, (Mich. Ct. App. 1975).
 See ABA Opinion, supra note 131, § 3 cmt. 7.
 See, e.g., eBay Inc., Company Overview at http://pages.ebay.com/community/aboutebay/overview/index.html (last modified Nov. 11, 2001) (“Individuals—not big businesses—use eBay to buy and sell items in more than 4,320 categories . . .”). But see Local Trading at http://pages.ebay.com/regional/hub.html (last modified Nov. 11, 2001) (for an example of electronic auctions for goods that would not be shipped; these transactions would probably be covered by U.C.C.section 2-509(3)).
 See, e.g., Taylor & Martin, Inc., v. Hiland Dairy, Inc., 676 S.W.2d 859, 871 (Mo. Ct. App. 1984). See also 7 Am. Jur. 2d, Auctions and Auctioneers § 51 (1997).
 3A RONALD A. ANDERSON, ANDERSON ON THE UNIFORM COMMERCIAL CODE § 2-328:22 (3d ed. 1981).
 7 AM. JUR. 2D Auctions and Auctioneers § 51 (1997). See also U.C.C. § 2-328 (1998) (regarding general rules of auction).
 Howard, supra note 5, at 352.
 2A ANDERSON, supra note 144.
 2A Id.; see also 2A id. at § 2-328:21.
 Id. at § 2-328:22.
 See, e.g., Dargate Auction Galleries, Instructions at http://www.dargate.com/os/info_page.shtml (last visited Nov. 19, 2001)(regarding details of how an in-person/Internet hybrid auction functions).
 Section 2-504 requires the seller to make a reasonable contract, promptly deliver necessary documents, and give the buyer prompt notice. The notice should provide the buyer a reasonable opportunity to insure the goods if it so chooses. Rheinberg-Kellerer GMBH v. Vineyard Wine Co., 281 S.E.2d 425, 428 (N.C. Ct. App. 1981). The case did not demand the seller inform the buyer of its need to insure. It only required that the buyer have sufficient time to insure if it so desired. Id.
 Howard, supra note 5, at 336.
 See id.
 See Floorman, supra note 41, at 1373 (calling for a presumption of a destination contract when consumers purchase from merchants). Most Internet purchases are shipped by carrier. Liu, supra note 37, at 38.
 Howard, supra note 5, at 335.
 See U.C.C. § 2-504 (1998).
 See, e.g., Caudel v. Sherrard Motor Co., 525 S.W.2d 238 (Tex. Civ. App. 1975); Conway v. Larson Jewlers, Inc., 429 N.Y.S.2d 378 (Civ. Ct. 1980); Martin v. Melland’s Inc., 283 N.W.2d. 47 (N.D. 1974).
 See, e.g., Silver v. Wycombe, Meyer & Co., 477 N.Y.S.2d 288 (Civ. Ct. 1984), aff’d, 498 N.Y.S.2d 334 (N.Y. App. Term 1985). See also Howard, supra note 5, at 348.
 Howard, supra note 5 at 348.
 See WHITE & SUMMERS, supra note 14, § 5-4, at 188.
 See Howard, supra note 5, at 348 n. 52 (arguing that the U.C.C. section 2-509 is designed to deal with the rights of buyers and sellers when third parties are involved and the seller as bailee scenario “the issues are collapsed”); WHITE & SUMMERS, supra note 14, § 5-4, at 188 (arguing that that the seller-as-bailee concept shifts the risk of loss in the same manner rejected by the previous code).
 See Bob Ortega, In Sam We Trust: The Untold Story of Sam Walton and Wal-Mart, the World's Most Powerful Retailer (Times Business 1999); U.S. Dep’t of Commerce, supra note 36.
 See Luria Brothers & Co., Inc. v. Assoc. Metals & Minerals Corp., 343 N.Y.S.2d 152 (N.Y. Civ. Ct. 1972)(holding that a buyer of a barge loaded will goods was a bailee until the barge owner could recover possession).
 See Howard, supra note 5, at 349.
 See GILMORE & BLACK, supra note 6, at 109 (noting that once goods have been identified to the contract, the buyer has an insurable interest).
 See Millstein, supra note 124.
 U.C.C. § 2-509(2)(a) (1998).
 See Liu, supra note 37, at 38.
 Rebecca Mobray, Grocery will open online in Houston, The Houston Chronicle, March 17, 2000, at BUSINESS 1. (“HomeGrocer.com expects to expand from its six West Coast locations into eight to 10 additional major markets this year. So far it has announced plans to expand into Dallas, Atlanta, San Diego, the southern Connecticut-New York City region, Chicago, Washington, D.C., and San Francisco.”).
 “[F]ood is just the beginning. Peapod, which prefers to call itself an "online home fulfillment business," plans to add flowers, books, magazines, dry cleaning and the other services that cause people to run errands.” Id.
 See WHITE & SUMMERS, supra note 14, at 186.
 See id.
 In reality both retailers used in this example explicitly accept the risk for spoilage or any dissatisfaction. See Omaha Steaks at (last visited Dec. 7, 2001); Peapod at (last visited Dec. 7, 2001).
 U.C.C. § 2-509 cmt. 3 (1998).
 See id. at § 2-509(3). Note that both of these retailers explicitly accept the risk for spoilage or any dissatisfaction). See also Omaha Steaks, supra note 178, at .
 Howard, supra note 5, at 348.
 See Floorman, supra note 41, at 1379 (citing Comment, Risk of Loss and The Uniform Commercial Code: The Unlamented Passing of Title, 13 U. Kan. L. Rev. 565, 565-566 (1965).
 U.C.C. § 2-509(4) (1998).
 See id. at § 2-204(1).
 ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996)
 Id. at 1452 (quoting U.C.C. § 2-204(1)).
 Id.; See also Hill v. Gateway, 105 F.3d 1147 (7th Cir. 1997).
 Caspi v. Microsoft Network, 732 A.2d 528 (N.J. Super. Ct. App. Div. 1999).
 See Effross, supra note 47, at 1263. See also Micro Star v. Formgen Inc., 154 F.3d 1107,1113 (9th Cir. 1998) (refusing to rule on the enforceability of a web-wrap User License).
 See ProCD, 86 F.3d at 1453 (noting that while implied warranty disclaimers must be conspicuous, the same is not true of all contract provisions).
 See, e.g., Christopher L. Pitet, Notes and Comments: The Problem with “Money Now, Terms Later”: ProCD, Inc., v. Zeidenberg and the Enforceability of “Shrinkwrap” Software Licenses, 31 Loy. L.A. L. Rev. 325 (1997); Mark A. Lemley, Shrinkwraps In Cyberspace, 35 Jurimetrics J. 311, 317-320 (1995); Brian Covotta & Pamela Sergeeff, ProCd, Inc. v. Zeidenberg, 13 Berkeley Tech. L.J. 35, 43 (1998).
 A full discussion of the enforceability of terms and conditions included in web-sites is beyond the scope of this paper. See generally Randy Sabett, International Harmonization in Electronic Commerce and Electronic Interchange: A Proposed First Step Toward Signing on the Digital Dotted Line, 46 Am. U. L. Rev. 511 (1996); Kurt A. Wimmer, E-Litigation: Clicks and Contracts, 4 Corp. Couns. 1, (1999); B. Keith Fulton, The Use of Disclaimers & the Internet’s World Wide Web, 6 Media L. & Pol’y 1 (1997).
 Hayward v. Postma, 188 N.W.2d 31, 33 (Mich. Ct. App. 1971).
 See Amazon.com, Help / Privacy & Security / Privacy Notice / Conditions at http://www.amazon.com/exec/obidos/tg/browse/-/508088/107-3309310-7278118 (last visited December 15, 2001).
 See WHITE & SUMMERS, supra note 14, at 255.
 See infra IV E 2.
 See Rheinberg-Kellerer GMBH v. Vineyard Wine Co., 281 S.E.2d 425 (N.C. Ct. App. 1981).
 Dell Computer Corp., Terms and Conditions of Sale - Home, Home Office and Small Business Customers, at http://www.dell.com/us/en/gen/misc/policy_008_policy.htm (last visited Nov. 18, 2001).
 It is worth noting that consumers (non-business buyers) are not given an option for selecting a carrier. Thus, consumers never bear any risk of loss when purchasing from Dell.
 See Rheinberg-Kellerer GMBH, 281 S.E.2d 425 (N.C. Ct. App. 1981).
 Gateway, Inc., Gateway Consumer Products Limited Warranty and Terms & Conditions Agreement §1.B., at http://www.gateway.com/about/legal/warranties/20677r1-0.pdf (Oct. 1, 2001).
 See eBay Inc., Company Overview, at http://pages.ebay.com/community/aboutebay/overview/index.html (last visited Mar. 23, 2000).
 eBay Inc., User Agreement, at http://pages.ebay.com/help/community/png-user.html (last visited Mar. 23, 2000).
 Compare Emerald Enterprises, Auction Winner’s Circle, at http://www.emeraldenterprises.com/winner.html (last modified Oct. 4, 2001) with George Anders, eBay, Wells Team Up Web Payments, WALL ST. J., March 1, 2000, at B8 (outlining a plan to let non-merchant sellers accept payment by credit card).
 “Every eBay user is covered by insurance free of charge under the terms of our program. If you paid for an item and never received it (or if you received the item, but it's less than what you expected), eBay will reimburse buyers up to $200, less the standard $25 deductible. Visit our Fraud Protection Program page for more details.” eBay Inc., Why eBay is Safe, at http://pages.ebay.com/help/basics/n-is-ebay-safe.html (last visited Oct. 29, 2001).
 Id. See Howard, supra note 5, at 342, 343 (discussing the control theory on which section 2-509 is based).
 See discussion of seller’s responsibilities infra ¶¶ 20-21.
 See Caudle v. Sherrard Motor Co., 525 S.W. 2d 238 (Tex. Civ. App. 1975).
 Many of the cases deal with how shipping terms affect personal jurisdiction, and only mention risk of loss in dicta. See, e.g., Electric Regulator Corp. v. Sterling Extruder Corp., 280 F. Supp 550, 558 (D. Conn. 1968); Colony Press, Inc. v. Fleeman, 308 N.E.2d 78 (Ill. App. 1974).
 See Effross, supra note 47, at 1287.
 U.S. Dep’t of Commerce, supra note 36, at A5-9.
 12 C.F.R. § 226.12(c) (2001).
 LARRY LAWRENCE, AN INTRODUCTION TO PAYMENT SYSTEMS 523 (Aspen 1997).
 Id. at 525.
 12 C.F.R. § 226.12(c)(3)(ii) (2001). Furthermore, other limitations apply: The cardholder must make a good faith attempt to resolve the issue and the charge must be for an amount greater than $50.00. Id.
 See Effross, supra note 47, at 1381.
 See 12 C.F.R. § 226.12(c)(3).
 UPS, FedEx, and USPS are probably considered carriers under U.C.C. section 2-509. See WHITE & SUMMERS, supra note 14, at 256.
 See Liu, supra note 37.
 See United Parcel Service, Excess Value Insurance, at https://www.ups.com/using/services/accs/dv-guide.html (last visited Nov. 18, 2001). UPS insures any package for $100 (U.S. destinations) or any shipment for $100 (international destinations) at no additional charge. Additional insurance costs $.35 per $100 of additional coverage. The maximum declared value of a package is $999. Id.
 Liu, supra note 37.
 See Federal Express, Declared Value and Limits of Liability, at http://www.federalexpress.com/us/services/conditions/domestic/declared_value.html (last visited Nov. 18, 2001).
 Id. One should note that a seller’s failure to declare a “true value” will violate section 2-504’s “reasonable contract” requirement. See U.C.C. § 2-504 cmt. 5 (1998).
 “Exposure to and risk of any loss in excess of the declared value is either assumed by the shipper or transferred by the shipper to an insurance carrier through the purchase of an insurance policy. You should contact an insurance agent or broker if insurance coverage is desired. WE DO NOT PROVIDE INSURANCE COVERAGE OF ANY KIND…[T]he maximum declared value per package in any FedEx shipment is $50,000.” Federal Express, supra note 230.
 Buyer or seller can sue the carrier whether she bore the risk of loss or not. However, the recovery will go to the party who bore the risk. U.C.C. § 2-722 (1998).
 Va. Note, supra note 39, at 566 (referring to the issue as a “minor flaw”).
 GILMORE & BLACK, supra note 6, at 108 (noting that this “freezing” will “pose obvious problems if changing business practices make it necessary or desirable to reformulate the mercantile understanding" of shipping terms).
 Caudle v. Sherrard Motor Co., 525 S.W.2d 238, 241 (Tex. Civ. App. 1975) (noting that use of “mercantile terms” in contracts with non-merchant parties create a “trap for the unwary”).
 Stocks, supra note 2, at 1423 n.56 (citing Professor Honnold’s assertion that the CISG deliberately leaves shipping terms undefined to allow for flexibility).
 See Draft Revision of U.C.C., supra note 93, §§ 2-319 to -324 .
 WHITE & SUMMERS, supra note 14, § 2-5.
 Rheinberg-Kellerer GMBH v. Vineyard Wine Co., 281 S.E.2d 425 (N.C. Ct. App. 1981).
 Id. at 428.
 U.C.C. § 2-509, cmt.3 (1989).
 See Va. Note, supra note 39, at 566 (citing R. POSNER, ECONOMIC ANALYSIS OF THE LAW 75 (2d ed. 1977)).
 See Howard, supra note 5, at 345 n.34. See also Colony Press, Inc. v. Fleeman, 308 N.E.2d 78 (Ill. Ct. App. 1974); Electric Regulator Corp. v. Sterling Extruder Corp., 280 F. Supp 550, 558 (D. Conn. 1968). Both of these cases were jurisdiction cases and the courts made no decision regarding the risk of loss. See also Va. Note, supra note 39; Floorman, supra note 41.
 See Howard supra note 5, at 345 n.6.
 Edith Resnick Warkentine, Article 2 Revisions: An Opportunity To Protect Consumers And “Merchant/Consumers” Through Default Provisions, 30 J. Marshall L. Rev. 39, 40 (1996) (noting the blurring of merchant and consumer).
 Va. Note, supra note 39, at 572.
 See Warkentine, supra note 250, at 77 (noting the importance placed on the buyer’s status in court decisions under article 2). See also Howard supra note 4, at 352.
 Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 Yale L.J. 87 (1989) (arguing that penalty default rules are efficient only where the cost of negotiation before contracting is less than the cost of the court to determine the terms).
 See Stocks, supra note 2, at 1452 n.283 (discussing the Ayres & Gertner article and analyzing why penalty default rules are not effective between merchants and non-merchants). While the cost to the parties to negotiate risk of loss is clearly less than the cost of the courts to adjudicate a conflict, non-merchant buyers are not likely to know the default rules. Therefore, they will be unlikely to motivate a non-merchant to negotiate. Furthermore, few electronic contracts are negotiated at all.
 In transactions between consumers, the seller will be considered a merchant if she used an auction to sell her goods. See 7 AM. JUR. 2D Auctions § 51, at 1452 (1997).