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UCC 2-207 Contract Formation Charts

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UCC 2-207 Contract Formation Charts UCC 2‐207 Contract Formation Charts For each of the following scenarios, assume that the buyer is a merchant (e.g. Diapers.com), sending an order form to the seller (e.g. Huggies) who is also a merchant, that the offer did not expressly condition acceptance upon the terms of the offer, and that the buyer did not object to the terms of the seller’s acknowledgment form within a reasonable time. Article 2 Acceptance Containing: Additional Terms That Do Not Materially Alter the Offer Huggies Diapers.com Acceptance/ Resulting Contract? Offer/Order Form Acknowledgment •Item: Size 5 Overnight •Item: Size 5 Overnight •Yes, the seller's Diapers Diapers acknowledgement form is a •Quantity: 100 Cases •Quantity: 100 Cases definite and seasonable •Price: $100 per case •Price: $100 per case expression of acceptance, so the parties have a contract •Delivery: Buyer's Warehouse, •Delivery: Buyer's Warehouse, despite the addition of a term 7/1/14 7/1/14 charging interest for overdue •Buyer shall pay 2% interest invoices in the on all overdue invoices acknowledgment form. The contract consists of all of the terms in the acceptance, including the term providing for reasonable interest on overdue invoices, as such terms are common and do would not cause surprise or hardship on the offeror. •Note that, at common law, the acceptance containing an additional term would have been deemed a counteroffer, and thus there would be no binding contract upon the seller's acceptance unless the buyer accepted the counteroffer, either expressly or through physical acceptance of the goods. 1 UCC 2‐207 Contract Formation Charts Article 2 Acceptance Containing: Additional Terms that Materially Alter the Offer Huggies Diapers.com Acceptance/ Resulting Contract? Offer/Order Form Acknowledgment •Item: Size 5 Overnight Diapers •Item: Size 5 Overnight Diapers •Yes, the seller's •Quantity: 100 Cases •Quantity: 100 Cases acknowledgement form is a •Price: $100 per case •Price: $100 per case definite and seasonable expression of acceptance, so •Delivery: Buyer's Warehouse, •Delivery: Buyer's Warehouse, the parties have a contract 7/1/14 7/1/14 despite the addition of an •All Disputes Between the arbitration clause in the Parties Shall be Resolved acknowledgment form. Through Binding Arbitration However, since the arbitration clause would take the offeror by surprise and cause the offeror hardship, it would "materially alter" the offer and not become part of the parties' agreement. The contract would consist of all the terms except the arbitration clause. •Note that if it were the custom in the diaper industry to resolve disputes through arbitration (as is the custom, for example, in the steel and textile industries), then the addition of an arbitration clause could not be said to take the offeror by surprise and the term would not be deemed a material alteration of the offer (thus becoming part of the parties contract). •Also note that, at common law, the acceptance containing an additional term would have been deemed a counteroffer, and thus there would be no binding contract upon the seller's acceptance unless the buyer accepted the counteroffer, either expressly or through physical acceptance of the goods. 2 UCC 2‐207 Contract Formation Charts Article 2 Acceptance Containing: Different Terms Huggies Diapers.com Acceptance/ Resulting Contract? Offer/Order Form Acknowledgment •Item: Size 5 Overnight Diapers •Item: Size 5 Overnight Diapers •Yes, the seller's acknowledgement •Quantity: 100 Cases •Quantity: 100 Cases form is a definite and seasonable •Price: $100 per case •Price: $100 per case expression of acceptance, so the parties have a contract despite the •Delivery: Buyer's Warehouse, •Delivery: Buyer's Warehouse, different forum selection clause in 7/1/14 7/1/14 the acknowledgment form. Under •The parties agree that all actions or •The parties agree that all actions or the majority position, the contract proceedings arising in connection proceedings arising in connection would consist of those the terms on with this Agreement shall be tried with this Agreement shall be tried which the offer and acceptance and litigated exclusively in the State and litigated exclusively in the State agreed, but the forum selection and Federal courts located in the and Federal courts located in the clauses would "Drop Out" of the County of New York, State of New County of San Francisco, State of parties' contract. Since there is no York. California. UCC provision regarding forum selection, normal civil procedure rules would apply in determining where the action or proceeding would take place. In New York, courts would reach a different conclusion, however, treating the "different" forum selection clause as if it was an "additional" term under 2‐207(2). Since the different forum selection clause would take the offeror by surprise and cause the offeror hardship, it would "materially alter" the offer and not become part of the parties' agreement. The contract would consist of the terms in the buyer's offer, including the buyer's forum selection clause. •Note that, at common law, the acceptance containing a different term would have been deemed a counteroffer, thus there would be no binding contract upon the seller's acceptance unless the buyer accepted the counteroffer, either expressly or through physical acceptance of the goods. 3 UCC 2‐207 Contract Formation Charts Article 2 Acceptance Containing: Different PDQ Terms Huggies Diapers.com Acceptance/ Resulting Contract? Offer/Order Form Acknowledgment •Item: Size 5 Overnight •Item: Size 5 Overnight •No, because the seller's Diapers Diapers acknowledgement form •Quantity: 100 Cases •Quantity: 100 Cases contained a different price •Price: $100 per case •Price: $110 per case (PDQ) term, and therefore cannot be considered a •Delivery: Buyer's •Delivery: Buyer's definite expression of Warehouse, Warehouse, acceptance. Therefore, 7/1/14 7/1/14 neither party may be found liable for breaching this attempted contract if a dispute arises before either party partially or fully performs. •Note that, at common law, the acceptance containing a different term would have been deemed a counteroffer, and thus there would be no binding contract upon the seller's acceptance unless the buyer accepted the counteroffer, either expressly or through physical acceptance of the goods. 4 UCC 2‐207 Contract Formation Charts Article 2 Acceptance Containing: Different PDQ Terms, But Conduct of the Parties Recognizes the Existence of a Contract Huggies Conduct By Both Diapers.com Acceptance/ Resulting Contract? Parties Recognizes the Offer/Order Form Acknowledgment Existence of a Contract •Item: Size 5 •Item: Size 5 •No, because the •However, if the buyer Overnight Diapers Overnight Diapers seller's physically accepted •Quantity: 100 Cases •Quantity: 100 Cases acknowledgement the 100 cases of •Price: $100 per case •Price: $110 per case form contained a diapers and began different price (PDQ) selling them despite •Delivery: Buyer's •Delivery: Buyer's term and, therefore, the fact that the offer Warehouse, Warehouse, cannot be considered and acceptance 7/1/14 7/1/14 a definite expression contained a different of acceptance. PDQ term, the Code Therefore, neither would recognize the party may be held existence of a liable for breaching contract through the this attempted conduct of the parties contract if a dispute (even though the arises before either writings did not party partially or fully otherwise establish a performed. contract). The terms of that contract •Note that, at would consist of common law, the those terms on which acceptance the offer and containing a different acceptance agree, the term would have different price terms been deemed a would drop out, and counteroffer, thus UCC 2‐305 would there would be no serve as a gap‐filler binding contract upon imposing "a the seller's reasonable price at acceptance unless the the time for delivery." buyer accepted the counteroffer, either expressly or through physical acceptance of the goods. 5 UCC 2‐207 Contract Formation Charts Below is the text of section 2‐207, which may help you understand why there is disagreement among legal scholars and courts as to how “different” terms contained in a definite and seasonable expression of acceptance should be treated. Look, in particular, at how section 2‐ 207(1) states how a definite and seasonable expression of acceptance containing either “additional” or “different” terms can create a contract. Then notice how section 2‐207(2) addresses how to treat “additional” terms. However, section 2‐207(2) says nothing about how “different” terms should be treated, and there are no other sections of the Code on point. New York essentially takes the position that the drafters made a mistake and meant to have 2‐207(2) apply to “additional or different” terms. The majority of courts, however, apply the knock out rule to different terms. That is, the different terms cancel each other out, and the resulting contract consists of those terms on which the offer and acceptance agree, as well as any relevant “gap fillers” under the Code (similar to an analysis under 2‐207(3) under the Code). Section 2‐‐207. Additional Terms in Acceptance or Confirmation. (1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. (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.
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