Battle of the Forms Contracts Prof Merges Feb

Battle of the Forms Contracts – Prof Merges Feb. 17, 2011

Mirror Image Rule • What do you call a purported acceptance that varies the terms of the offer?

Mirror Image Rule • What do you call a purported acceptance that varies the terms of the offer? • A counter-offer

Mirror Image Rule • What do you call a purported acceptance that varies the terms of the offer? • A counter-offer • What then is the acceptance?

K Formation • PO • Sales Acknowledgement • Shipment of goods; payment • Shipment/pmt = Acceptance; “last shot” rule

Typical Purchase Order Form

Finding the Terms of the Contracts Purchase Order (Buyer)

Finding the Terms of the Contract Purchase Order (Buyer) 1. Goods 2. Price 3. Quantity 4. Shipment Date

Finding the Terms of the Contracts Purchase Order (Buyer) 1. Goods “Major Terms” 2. Price 3. Quantity 4. Shipment Date

Sales Confirmation (Seller) 1. Goods 2. Price 3. Quantity 4. Shipment Date

Sales Confirmation (Seller) Purchase Order (Buyer) 1. Goods 2. Price 3. Quantity 4. Date Shipment Date 4. Shipment

Sales Confirmation (Seller) Purchase Order (Buyer) Overlap on Major Terms = Contract 1. Goods 2. Price 3. Quantity 4. Date Shipment Date 4. Shipment

“Dickered Terms” • “Deal points”; negotiated terms • The essence of the business transaction – Separate from “legalese” – P. 188

Backs of the Forms Confirmation 1. Limit on Warranty 2. Arbitration 3. Timely Delivery 4. Shipment: Risk of Loss 5. Etc. 6. Etc. 7. Etc.

Backs of the Forms Confirmation Purchase Order 1. Limit on Warranty 1. Extensive Warranty 2. Arbitration 2. Choice of Law 3. Timely Delivery 3. “Time is of the essence” – delivery clause 4. Shipment: Risk of Loss 5. Etc. 6. Etc. 7. Etc. 4. Indemnification 5. Etc. 6. Etc. 7. Etc.

“Degree of Overlap” – Fine Print

Sales Confirmation (Seller) Purchase Order (Buyer) Overlap on Major Terms = Contract 1. Goods 2. Price 3. Quantity 4. Date Shipment Date 4. Shipment

Stewart Macauley, Noncontractual Relations in Business • The fine print is rarely consulted • Disputes often worked out informally • Norms of fairness, reciprocity, etc. , often control

How to Handle this? • UCC 2 -207 to the rescue!

2 -207: Major Innovations • No “mirror image rule” • Separate “K” from “terms” - Overall K formation - K Terms • K even though writings do not match up

2 -207(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time [*A*] operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, [*B*] unless acceptance is expressly made conditional on assent to the additional or different terms.

[*A*] “operates as an acceptance” • Here is where the “mirror image rule” dies

[*B*] • “The proviso” • Operates as an acceptance. . . unless acceptance is expressly made conditional on assent to the additional or different terms. Proviso case: No acceptance; no K is formed

2 -207(3): K by conduct; no K “on the writings” (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this code.

2 -207(3): K by conduct; no K “on the writings” (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract.

2 -207(3): Takes effect in 2 cases 1. Failure of agreement on “major terms” 2. Offer includes “proviso” under 2 -207(1) which is not “assented to” –“Failed proviso” case

207(1) 207(2) 207(3) 1. No agreement on major terms 2. Failed proviso case

207(1) 207(2) 207(3) 1. Agreement on major terms; not a “failed proviso” case 2. Then: Go to 2 -207(2)

C. Itoh Co. P. 199 Jordan Int’l [Steel] Co.

2 -207(3): K by conduct; no K “on the writings” (3). . . In such case the terms of the particular contract consist of [*a*] those terms on which the writings of the parties agree, [*b*] together with any supplementary terms incorporated under any other provisions of this code.

Sources of law: 2 -207(3) Contracts • Terms on which parties agree • UCC Itself

1. Price 2. Quantity Terms on which parties agree

1. Price 2. Quantity “Gaps” in the K

1. Price 2. Quantity 2 -309: Reasonable Delivery time 2 -310: Payment: Cash at Delivery Terms supplied by the UCC

UCC UCC: “Gapfillers” 1. Price 2. Quantity

Consider only acceptances varying offers • Avoid the disputes over “confirmations” • Dorton v. Collins & Aikman may involve either confirmation or acceptance varying offer

The confirmation quagmire (1)A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance. . . (2) [Speaks only of offers. . . ]

Applying 2 -207: Dorton v. Collins & Aikman • Facts • History

Does 2 -207 apply? • Is this a “Proviso” case?

[*B*] • “The proviso” • Operates as an acceptance. . . unless acceptance is expressly made conditional on assent to the additional or different terms. Proviso case: No acceptance; no K is formed

Holding: not a proviso case • “expressly made conditional on assent” p. 195 -96: “Acceptance subject to all the terms and conditions on the face and reverse side hereof. . . ” NOT ENOUGH

Then what? • On to 2 -207(2)

207(1) 207(2) 207(3) 1. Agreement on major terms; not a “failed proviso” case 2. Go to 2 -207(2)

What if there is a K on the writings? • By definition, acceptance “states terms additional to or different from those offered or agreed upon. ”

Different vs. additional terms • Dorton involves “additional” term – Offer is silent re: arbitration

Different Term in Acceptance Confirmation 1. Limit on Warranty Purchase Order 1. Extensive Warranty

Additional Term in Acceptance Confirmation 1. Limit on Warranty Purchase Order

Additional Term in Acceptance Confirmation 1. Arbitration Purchase Order

(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: (a) The offer expressly limits acceptance to the terms of the offer; (b) They materially alter it; or (c) Notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

207(2): The Merchant’s Rule • “Between merchants” – Takes 2 merchants! • “[S]uch terms become part of the contract unless. . . ” – Additional terms IN UNLESS --

207(2): Exceptions to “Merchant’s Rule” (a) The offer expressly limits acceptance to the terms of the offer; (b) They materially alter it; or (c) Notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

207(2)(a): Offer says “my terms only” • Exception to 2 -207 merchant’s rule; additional term not in the K

2 -207(2)(b): Material alteration rule • Non-material (“big’) alteration: additional term is in K • Material K: it is not in the K

2 -207(2)(b): Material alteration rule • Non-material (“small’) alteration: additional term is in K • Material (big) term: it is NOT in the K – Remand in Dorton to figure this out. . .

Don’t get lost – • Additional terms • Merchants rule • Material/non-material alteration

Different Term in Acceptance Confirmation 1. Limit on Warranty Purchase Order 1. Extensive Warranty

Northrop Corp. v. Litronic • 3 Positions on “different terms” – Knockout rule – Fall out rule – “Treat like additional terms” rule California

Minoriry rule • Fallout rule: different term in acceptance FALLS OUT of K • So offeror’s term stays in, and prevails

Different Term in Acceptance Confirmation 1. Limit on Warranty Purchase Order 1. Extensive Warranty

Knockout Rule • Different terms “knock each other out, ” both are removed from the K • What is left? UCC gap-fillers

Different Term in Acceptance Confirmation Purchase Order

UCC UCC: “Gap -fillers” on warranties 1. Price 2. Quantity