Many business-to-business are formed by the combination of price quotations, purchase orders, and invoices, each of which can contain terms that conflict with the others. This article reviews typical “battle of the forms” issues under the Illinois UCC and helps parties increase the chance By William J. Ryan that their terms will control. and John B. Thornton

onsider the following scenario: You represent a parts manufacturer that sells a large quantity of parts to another manufacturer for inclusion in a final product. Your client, as is common in its industry, sends the buyer a price quotation listing a proposed price, quantity, and delivery dates. C The buyer responds to your client’s quotation by sending a standard purchase order that agrees with the quotation as to price, quantity, and delivery. Your client then ships the requested quantity of parts, and the buyer pays in full.

______William J. Ryan is a partner at Scandaglia & Ryan and represents major companies in a variety of complex commercial litigation, including patent, unfair competition, antitrust, breach of , class action and technology-related matters. John B. Thornton is an associate at Scandaglia & Ryan, where he represents clients in complex commercial litigation matters, including contract disputes, restrictive covenants, insurance coverage, and various types of intellectual property.

1 Unfortunately, the story does not end to sales transactions, the “mirror image” mance between the parties constitute an there. The buyer manufactures its final rule was replaced by section 2-207. That acceptance of said terms? products containing the part supplied by provision recognizes that a contract can Each question will be analyzed in your client and discovers an unaccept- exist even where the “offer” and “accep- turn. ably high failure rate. The buyer blames tance” were not identical.3 these failures on your client’s component Under section 2-207, any definite Which writing is the offer? and demands reimbursement pursuant to and timely expression of acceptance will In a sales transaction having a price the terms of the clause in the form a contract regardless of whether it quotation and a purchase order, the first boilerplate terms and conditions printed contains different terms – unless ac- potential source of confusion is which on the back of its purchase order. ceptance is expressly made conditional writing is considered the “offer.” In the Your client denies liability and tells on assent to the additional or differ- scenario described above, it seems obvi- the buyer it never agreed to the terms ent terms.4 Moreover, even if the par- ous that the price quotation constitutes and conditions on the back of the pur- ties’ forms are so completely at odds an offer to sell a certain quantity of a chase order. Instead, it asserts that the that no written contract is formed, sec- part at a certain price, and that the pur- boilerplate terms and conditions on the tion 2-207(3) recognizes that the par- chase order agreeing to those terms con- back of the quotation control the agree- ties’ conduct may nevertheless form a stitutes the acceptance. ment and the buyer agreed to those contract.5 terms by its communications and ac- Section 2-207 represents tions. (The boilerplate on the back of the an advance from the com- price quote disclaims most warranties mon because it sup- Including clauses limiting and has no indemnification provision.) ports the ability of com- acceptance to the terms in the The buyer denies that it ever agreed to mercial parties to make the seller’s terms and conditions and files contracts in ways that are form and rejecting alternative a lawsuit, with various counts for breach convenient to them, and it terms unless assented to in writing of contract, express and implied warran- provides courts with a flex- ties, and indemnification. ible tool that may be used increases the chance that your The seller consults you. Has a written to analyze a broad range form will control the agreement. contract been formed, and if so, what are of fact patterns. The down- its terms? If not, has the parties’ conduct side is that, unlike the com- otherwise formed an agreement? Sup- mon law “mirror image” pose your client orally rejected the sell- rule that it supplanted, the However, that is not necessarily the er’s proposed terms. Could such express application of section 2-207 can be dif- case. In fact, the general rule is the op- oral rejection of the other party’s terms ficult and confusing.6 Among the ques- posite: Price quotations are seen as mere and conditions extinguish them – or did tions that occur in analyzing a transac- invitations to submit offers.7 Despite the your client’s shipment constitute accep- tion under section 2-207: general rule, whether a price quotation tance despite any oral statements? 1. In any given transaction, which is an offer to sell “is a question of fact Finally, do any prior course of dealing writing constitutes the offer and which that depends on the parties’ acts, their and/or course of performance between the acceptance? expressed intent, and the circumstances the parties affect this analysis? Each of 2. If there is no express acceptance surrounding the transaction.”8 these issues is discussed below, including or rejection, but merely the exchange of To be an offer, a price quotation must the implications for companies involved forms followed by performance, are the be “sufficiently detailed,” and it must cre- in such a “battle of the forms.” offeree’s terms additional to or different ate a binding in the from those of the offer? If additional, do ______The battle of the forms they constitute a material change? 1. Northrop Corp v Litronic Industries, 29 F3d At , no contract would 3. Does the writing that constitutes 1173, 1174 (7th Cir 1994) (applying Illinois law). the acceptance expressly require assent 2. Id; see also Big Farmer, Inc v Agridata Resources, be formed under this scenario because Inc, 221 Ill App 3d 244, 246-47, 581 NE2d 783, 785 any difference between the responsive to any additional or different terms such (3d D 1991). purchase order and the initial quotation that the acceptance does not constitute 3. 810 ILCS 5/2-207. The Uniform Commercial an acceptance, but is instead a counter- Code was enacted in Illinois as 810 ILCS 5/1-101 et would constitute an outright rejection of seq. that initial “offer.”1 Under the common offer? 4. 810 ILCS 5/2-207(1). law rule, the writings must form a “mir- 4. If the writing is a counteroffer, was 5. 810 ILCS 5/2-207(3). 6. The “mirror image” rule still applies in non-UCC ror image” of each other for a contract it accepted, and if it was not accepted or cases, for example, where at least one party is not to exist. If there were differing terms and explicitly rejected, was a contract formed commercial. See, for example, Finnin v Bob Lindsay, nonetheless by the actions of the parties Inc, 366 Ill App 3d 546, 548, 852 NE2d 446, 448 (3d conditions, regardless of their material- D 2006) (holding that in suit between car dealer and ity, there would be no contract.2 under section 2-207(3)? two individuals, the acceptance must conform exactly Although the “mirror image” rule 5. Did the parties reject each oth- to the offer in order to constitute contract by .) had the advantage of being clear and er’s terms orally or in writing? Did ei- 7. Tibor Machine Products, Inc v Freudenberg- easy to apply, it did not reflect the re- ther party’s actions in conformance with NOK General Partnership, 967 F Supp 1006, 1016 the agreement act as an acceptance of (ND Ill 1997) (applying Illinois law). ality of modern day commercial trans- 8. Id at 1016, quoting Rush-Presbyterian St. Luke’s actions. Thus, in Article 2 of the Uni- the terms at issue? Likewise, did a prior Medical Center v Gould, Inc, 1993 WL 376163 at *2 form Commercial Code, which pertains course of dealing or course of perfor- (ND Ill).

2 offeree.9 Importantly, if the price quote is tional or different terms.14 It is, without doubt, prudent business subject to final acceptance or approval by Under that section, if the acceptance practice to carefully review the terms of the seller it will usually not be considered contains additional or different terms, every proposed transaction. The fact, the “offer.” Thus, companies intending they become part of the contract if the however, is that sales transactions be- their form to be the “offer” must avoid alterations are not material or they are tween companies, even large transac- use of so-called “home office approval” accepted, but those terms do not be- tions, occur so frequently that there provisions, which condition acceptance come part of the contract if the altera- is a good chance that the quotations, on the seller’s final approval.10 tions are material, the offer expressly purchase orders, and acknowledgment The bottom line, however, is that limits acceptance to its own terms and forms at issue will be filled out and/or there is no bright-line rule as to which conditions, or the offeree rejects the of- received by fairly low-level employees fer’s terms.15 Moreover, if and that careful review of the terms will the terms of the offeree’s not occur. Therefore, language expressly response are very different making acceptance conditional on as- or are vague and indefinite, sent to the additional or different terms Having to establish at trial that there is no acceptance, and is highly advisable. the response itself becomes your client’s employee orally a rejection.16 When the “acceptance” is rejected the other party’s terms In agreements between actually a counteroffer could lead to an unfortunate merchants, section 2-207(2) As is shown above, the offeree’s re- shifts some of the control sponse constitutes an acceptance under and costly outcome. over the terms of the agree- the UCC if “definite and seasonable,” ment from the offeror to even where it contains additional or dif- the offeree. In the common ferent terms, as long as acceptance is not situation where the parties “expressly made conditional on assent to exchange form quotations, the additional or different terms.”20 Such purchase orders, and ac- a proviso is construed narrowly and writing constitutes the offer and which knowledgments without careful review will apply only where the “acceptance” the acceptance. Whether a price quo- (and the offeror thus makes no objec- clearly shows that the offeree is unwill- tation is an offer to sell is a fact ques- tions to additional terms), the offeree’s ing to proceed without agreement to the tion that focuses on the parties’ acts, ex- additional terms become part of the con- additional or different terms.21 pressed intent, and the circumstances of tract so long as the changes are not mate- ______the transaction. Thus, the resolution of rial and the offer did not expressly limit 9. McCarty v Verson Allsteel Press Co, 89 Ill App this fact question may trump the lan- acceptance to the terms of the offer. Of 3d 498, 506, 411 NE2d 936, 942 (1st D 1980). guage of the writings, even where the course, whether or not a particular addi- 10. Id at 508, 411 NE2d at 943 (holding that a 11 price quotation cannot be an offer where it has an quotation has an “acceptance clause.” tional term constitutes a material altera- “acceptance” clause because such a clause “is not In Alan Wood Steel Co v Capital tion so that it does not become part of intended to give the so-called offeree the power to make a contract” by unilateral acceptance). Equipment Enterprises, Inc, the court the contract is a matter for the courts to 11. See Alan Wood Steel Co v Capital Equipment held that the seller’s quotation was an determine, and the result is not always Enterprises, Inc, 39 Ill App 3d 48, 55-56, 349 NE2d offer even where the quotation stated predictable.17 627, 634 (1st D 1976). 12. Id. that purchase orders received by the Section 2-207(2) provides a rule for 13. Id at 56, 349 NE2d at 634. seller were not binding unless accepted determining whether additional terms 14. 810 ILCS 5/2-207(1). by the seller in a written acknowledg- become part of the contract, but it is si- 15. 810 ILCS 5/2-207(1), (2). 12 16. McCarty at 510, 411 NE2d at 944-45. ment. The parties’ actions in that case lent about different terms, and there is 17. See, for example, Intrastate Piping & Controls, indicated that both treated the quotation no overall consensus on this “hole” in Inc v Robert-James Sales, Inc, 315 Ill App 3d 248, 254- 13 18 55, 733 NE2d 718, 723 (1st D 2000) (citing Comment as an offer. The safest course for a party the UCC. Illinois has adopted the ma- 5 of section 2-207, which states that remedy limitation intending its form to be the “offer,” it jority view, which holds that “where dif- which provokes no objection becomes part of contract seems, is for that party to be consistent ferent terms are present in the acceptance because it does not involve unreasonable surprise or materially alter contract); but see Album Graphics, – in its form and conduct – that it has and there has been no express provision Inc v Beatrice Foods Co, 87 Ill App 3d 338, 347, 408 made an offer granting the buyer the un- by the parties to make acceptance con- NE2d 1041, 1048 (1st D 1980) (disclaimer of warranty conditional right of acceptance. is material change); Southern Illinois Riverboat Casino ditional on assent to the different terms, Cruises, Inc v Triangle Insulation & Sheet Metal Co, the discrepant terms fall out and are re- 302 F3d 667, 674-75 (7th Cir 2002) (applying Illinois Whether additional or different placed by suitable UCC gap-fillers.”19 law, resolving split between different divisions of first terms in the acceptance apply district in the absence of controlling supreme court The ways for the offeror to retain authority, and agreeing with the holding in Intrastate After the “offer” is identified, the control over the offer are (1) to include Piping). language that expressly limits acceptance 18. Rush-Presbyterian-St. Luke’s Medical Center v next step is to consider the effect of sub- Gould Inc, 1995 WL 340967 at *7 (ND Ill 1995) sequent forms on the formation of the to the original terms and states that any (applying Illinois law). contract. As is stated above, a commer- additional terms are rejected unless ex- 19. Id at *8 (citing Northrop Corp v Litronic Industries, 29 F3d at 1178). cial sales contract may be formed under pressly agreed to or (2) to review the re- 20. 810 ILCS 5/2-207(1). section 2-207 of the Illinois UCC by any sponse carefully and expressly reject any 21. McCarty at 510, 411 NE2d at 945; Album new terms to which the offeror does not Graphics at 347, 408 NE2d at 1048 (language requiring “definite and seasonable expression of written confirmation insufficient to constitute clause acceptance,” even if it contains addi- agree, preferably in writing. expressly limiting acceptance to offer’s terms).

3 For example, a purchase order was of the parties agree” and the “gap fill- derives from the conduct of the par- found not to be an acceptance where it ing” provisions of the UCC.28 Terms con- ties with respect to a particular issue.35 stated in bold capital letters at the top tained in only one of the parties’ forms Course of dealing does not arise from that “THIS ORDER EXPRESSLY LIM- do not become part of the parties’ con- the mere sending of forms or alleged ITS ACCEPTANCE TO THE TERMS tract.29 In the scenario given above, the prior agreements, even if repeated, as it STATED HEREIN AND ANY DIF- indemnity provision would not become is widely known that parties frequently FERENT OR ADDITIONAL TERMS part of the contract if section 2-207(3) do not pay attention to boilerplate form PROPOSED BY THE SELLER ARE applies because it is not in both parties’ language until a problem arises. Thus, REJECTED UNLESS EXPRESSLY AS- writings, nor is it a default or “gap fill- the repeated sending of forms containing SENTED TO IN WRITING.”22 Given ing” UCC term.30 standard terms without any action on the case law, and the fact-based nature of the issues addressed by those terms does the law under the Code, anything short Whether the contract is formed not constitute a course of dealing.36 of this conspicuous statement may be in- by offer and acceptance or by sufficient. performance ______The effect of this type of clause is dra- If the parties perform, it is clear that 22. Hays v General Electric Co, 151 F Supp 2d 1001, matic: the “acceptance” is instead con- 1008-09 (ND Ill 2001) (applying Illinois law). sidered to be a counteroffer. Under both there is some sort of contract, whether 23. McCarty at 511, 411 NE2d at 945; Gord by offer and acceptance or by the op- Industrial Plastics, Inc v Aubrey Mfg, Inc, 103 Ill App the common law and the UCC, a coun- 3d 380, 385, 431 NE2d 445, 449 (2d D 1982). teroffer operates as a rejection and a new eration of law under section 2-207(3), 24. See Gord at 385, 431 NE2d at 449; Album offer, not an acceptance.23 If the other but it may be less clear which type of Graphics at 347, 408 NE2d at 1048. contract exists and what its terms are. 25. Ebert v Dr. Scholl’s Foot Comfort Shops, Inc, party agrees to the terms of the coun- 137 Ill App 3d 550, 559, 484 NE2d 1178, 1185 (1st teroffer, there is a contract; if it rejects If there is no express written acceptance D 1985); Johnson v Whitney Metal Tool Co, 342 Ill them or fails to respond, no contract is or rejection of the offeror’s terms by the App 258, 267, 96 NE2d 372, 377 (2d D 1950) (later offeree, a court may look at numerous attempted acceptance of previously rejected offer was formed.24 ineffective because rejection of initial offer left situation modes of acceptance or rejection to aid as if no offer had been made). When there is no acceptance it in determining whether there was ac- 26. See Gord at 386, 431 NE2d at 449; Big Farmer ceptance of the offer by the offeree, such at 246-47, 581 NE2d at 785. but a contract is formed based 27. Tecumseh Intl Corp v City of Springfield, 70 Ill as oral or written communications be- on conduct App 3d 101, 106, 388 NE2d 460, 463 (4th D 1979) tween the parties, or even a party’s ad- (holding that unilateral conduct by defendant city that We have looked at different scenarios missions in a complaint or response to recognized existence of conduct was insufficient to establish sales contract under section 2-207(3). where competing “forms” create a con- an Illinois Supreme Court Rule 216 Re- 28. 810 ILCS 5/2-207(3); Big Farmer at 247, 581 tract. What about where the facts show quest to Admit.31 NE2d at 785. that the forms do not make a contract? 29. McCarty at 511, 411 NE2d at 945, citing C. One method of acceptance involves Itoh & Co (America), Inc v Jordan Intl Co, 552 F2d That is where section 2-207(3) comes conduct by the parties. When the par- 1228 (7th Cir 1977) (other citations omitted); see also in. As is shown above, this is the “emer- ties ship, receive, and pay for goods ab- Album Graphics at 348, 408 NE2d at 1048 (“Since gency repair” provision that is used in the invoices do not contain a term which also appears sent an agreement, a contract is formed as part of the alleged contract in a writing sent by certain situations to form a contract even under section 2-207(3).32 Where, how- plaintiff, the invoice terms cannot become part of the where the parties have rejected each oth- ever, a party responds to a purchase contract”). er’s terms or otherwise failed to reach an 30. Gap-filling terms involve basic contractual issues, order constituting an offer with perfor- not limitations or material changes to the agreement. agreement. mance and there are no other indicia of Some examples are: UCC §§2-305 (price); 2-306 When an offer is expressly rejected, rejection or limitation that would invali- (quantity); 2-308 (place of delivery); 2-309 (time of it is extinguished and cannot be subse- delivery); 2-310 (time and place for payment); 2-503 date an agreement, courts have found ac- (tender by seller); 2-509 (); 2-511 (tender by quently “accepted” because it is legally ceptance.33 buyer); 2-513 (buyer’s inspection). inoperable.25 If the parties subsequently Also, where there is only partial rejec- 31. In re of Rennick, 181 Ill 2d 395, 406, 692 perform under the non-existent “agree- NE2d 1150, 1156 (1998) (defining judicial admissions tion of terms, courts have been willing to as “deliberate, clear, unequivocal statements by a party ment,” however, the UCC creates a con- find acceptance. For example, it has been about a concrete fact within that party’s knowledge.”); tract by operation of law under section held that where the buyer’s counteroffer Roti v Roti, 364 Ill App 3d 191, 200, 845 NE2d 892, 900 (1st D 2006) (“[A]llegations contained in a 2-207(3), which was expressly designed objected only to certain additional terms complaint are judicial admissions and are conclusive to address situations in which the parties but not others, and the seller agreed to against the pleader.”). each reject the other’s written offers, but the requested changes, the acceptance 32. See Itoh, 552 F2d at 1237. 33. Blommer Chocolate Co v Bongards Creameries, nevertheless proceed to do business to- formed a contract without resort to sec- Inc, 635 F Supp 919, 928 (ND Ill 1986) (applying gether based on some common under- tion 2-207(3).34 Illinois law). standing.26 34. Id at FN1; Construction Aggregates Corp v Acceptance may also be determined Hewitt-Robins, Inc, 404 F2d 505, 510 (7th Cir 1969) For section 2-207(3) to apply, both in certain situations by looking at the (applying Illinois law). parties must demonstrate by their con- prior course of dealing between the par- 35. For example, UCC §1-205 (“A course of dealing duct that they recognize the existence of ties, if one exists. Although Illinois case is a sequence of previous conduct between the parties 27 to a particular transaction which is fairly to be regarded a contract. Thus, if neither the quota- law is sparse on the subject, the Illinois as establishing a common basis of understanding for tion nor the purchase order forms the UCC and UCC cases from other juris- interpreting their expressions and other conduct”); contract, it is section 2-207(3) itself that Step-Saver Data Systems, Inc v WYSE Technology, 939 dictions hold that of “course of F2d 91, 103 (3d Cir 1991). defines the contract terms. dealing” is applicable only where there 36. Step-Saver, 939 F2d at 103-04; accord Maxon Under section 2-207(3), the only is an applicable course of prior perfor- Corp v Tyler Pipe Industries, 497 NE2d 570, 575-76 terms that become part of the contract (Ind App Ct 1986) (“An exchange of identical forms on mance between the parties. prior occasions does not, of itself, establish a common are “those terms on which the writings This is because “course of dealing” basis of understanding.”).

4 Conclusion unless expressly assented to in writing 2-207(3). Because a contract under sec- When a sales transaction goes awry can greatly affect the determination of tion 2-207(3) is based upon the terms in and the only evidence of the parties’ a putative contract under section 2-207. the parties’ documents that agree, com- agreement consists of form documents Their inclusion in a form document helps bined with UCC gap-filling terms should such as price quotations, purchase or- a party increase the chance that its terms they prove necessary, it is less likely to ders, and invoices or acknowledgments, will control the agreement. have “unpleasant surprises” that could the determination of what constitutes the Provided your party is careful not to lead to an undesired result in litigation. agreement, and what its terms are, can express an acceptance that it does not in- Another lesson is that all rejections be confusing. In such cases, the offer and tend, the use of such limiting clauses in- should be written and express. Having acceptance will be determined by look- creases the likelihood of a favorable re- to establish at trial that a party employee ing at the parties’ acts, expressed inten- sult because the other party is likely to made an oral rejection of the other par- tions, and the circumstances of the trans- either (1) accept your terms, which then ty’s terms can be difficult, and the results action. control the contract, (2) expressly reject are uncertain, possibly leading to an un- Nevertheless, the presence in form your terms so no contract is formed (but fortunate and costly outcome. There- documents of clauses that expressly limit at least there is no contract with unfavor- fore, it is a best practice for a company acceptance to the terms stated therein able terms supplied by the other party), to ensure that its rejections of contract and that state that any alternative terms or (3) reject your terms but then per- terms and conditions are written and ex- proposed by the other party are rejected form, creating a contract under section press. ■

Reprinted from the Illinois Bar Journal, Vol. 96 #7, July 2008. Copyright by the Illinois State Bar Association. www.isba.org

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