OFFER AND ACCEPTANCE UNDER THE UCC: BASIC PRINCIPLES

A.     UCC 2-204 expresses three principles:

                                                              i.      A contract for the sale of goods should be recognized if either the words of conduct of the parties show an intent to make an agreement.

                                                            ii.      A contract may be found even though the court cannot determine the exact moment of its making.

                                                          iii.      It is not fatal to contract formation that some terms are left open, provided that it is clear that the parties intended to make a contract and the court can find a reasonably certain basis for giving an appropriate remedy.

B.     BATTLE OF THE FORMS

                                                              i.      Prevents a party from slipping out of a contract, as one would be able to under the “mirror image” rule for merchants with regards to the sale of goods.  Party with the parting “shot” is denied unwarranted advantage.

1.      Wherever possible, the UCC tries to find a contract, so as to keep the parties from weaseling out (as they often try to do when the market changes).

                                                            ii.      Example:

1.      Both offer and acceptance are on pre-printed forms, with blanks left for “negotiated” terms.

2.      One sends a purchase order form, filled with fine-print clauses favoring the buyer.  The buyer fills in blanks on details of product, order, quantity, etc.

3.      Seller’s order department responds with acknowledgement form favoring the seller.

4.      Sometimes, here a dispute might arise prior to shipment of any of the goods.  Usually, the seller goes ahead and ships the goods and either before or after the buyer has paid for them, disputes erupt concerning the adequacy of the seller’s performance.  THEN, the parties consult the purchase order and acknowledgment, and discover that these forms were not in complete agreement on some or many “non-negotiated” terms. 

                                                          iii.      UCC § 2-207 then steps in

1.      Determines whether a contract has been formed at all by the exchange of documents.

2.      If there is a contract, it determines what the terms of that contract are.

                                                          iv.      UCC § 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.      Additional term in acceptance: Where the offeree’s response contains an “additional” term (i.e. a clause taking a certain position on an issue with which the offer does not deal at all), the consequences depend on whether both parties are merchants.

a.       a. At least one party not merchant: If at least one party is not a merchant, the additional term does not prevent the offeree’s response from giving rise to a contract, but the additional term becomes part of the contract only if the offeror explicitly assents to it.

b.      Example: Consumer sends a purchase order to Seller, which does not mention how disputes are to be resolved.  Seller sends an acknowledgement form back to Consumer, which correctly recites the basic terms of the deal (price, quantity, etc.), and then says, “All disputes are to be arbitrated.”  Even though the acknowledgement (the “acceptance”) differed from the purchase order by introducing the arbitration term, the acknowledgement formed a contract.  However, since at least one party (Consumer) was not a merchant, this additional term will only become part of the contract if Consumer explicitly assents to that term (e.g. by initialing the arbitration clause on the acknowledgement form).

3.      Both merchants: But if both parties to the transaction are merchants, then the additional terms are to be construed as proposals for addition to the contract and automatically become part of the contract, as a general rule, unless:

a.       The offer expressly limits acceptance to the terms of the offer

They materially alter it

                                                                                                                                      i.      Example: a disclaimer of warranty will always be found to materially alter the contract, so if the seller includes such a disclaimer in his acknowledgement form after receiving the buyer’s purchase order, the disclaimer will not become part of the contract.

c.       Notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

4.      Conduct by both parties which recognized 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 Act.

a.       Acceptance silent: If an issue is handled in the first document (the offer), but not in the second (the acceptance), the acceptance will be treated as covering all terms of the offer, not just those on which the writings agree.

                                                                                                                                      i.      Example: Buyer’s purchase order says that disputes will be arbitrated; Seller’s acknowledgement is silent on the issue of arbitration.  The Seller’s form will be found to be an acceptance, and disputes will be arbitrated.

b.      Conflicting terms in documents: If an issue is covered one way in the offering document and another (conflicting) way in the acceptance, most courts apply the “knock out” rule.  That is, the conflicting clauses “knock each other out” of the contract, so that neither enters the contract.  Instead, a UCC “gap-filler” provision is used if one is relevant; otherwise, the common law controls. 

                                                                                                                                      i.      Example: Buyer’s purchase order states that disputes will be litigated in New York state court.  Seller’s acknowledgement form states that disputes will be arbitrated.  Most courts would apply the “knock out” rule, whereby neither the “New York courts” nor “arbitration” clauses would take effect.  Instead, the common law – allowing an ordinary civil suit to be brought in any state that has jurisdiction – would apply.

c.       Response diverges too much to be acceptance: If a purported acceptance diverges greatly from the terms of the offer, it will not serve as an acceptance at all, so no contract is formed.

d.      Contract by parties’ conduct: If the divergence referred to in the prior paragraph occurs (so that the exchange of documents does not create a contract), the parties’ conduct later on can still cause a contract to occur. Section 2-207(3) provides that “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.”

                                                                                                                                      i.      Example: Buyer’s purchase order is for 100 widgets at $5 each. Seller’s acknowledgement form is for 200 widgets at $7 each. Buyer does not say anything in response to the acknowledgement form. Seller ships the 200 widgets, and Buyer keeps them.  Even though the exchange of documents did not create a contract, the parties’ conduct gave rise to a contract by performance.

                                                                                                                                    ii.      Buyer’s failure to return goods: One way in which the parties’ conduct can give rise to an agreement without a formal offer and acceptance involves purchases of retail goods whose warranty terms are contained inside a sealed box and are thus unknown to the buyer until after the purchase.  If the seller gives the buyer the right to cancel the transaction by returning the goods if the buyer is unhappy with the terms she discovers when opening the box, and the buyer in fact retains the goods, the court is likely to decide that the buyer’s retention constitutes agreement to the seller’s proposed terms.

1.      Example: D sells shrink-wrapped software, with the terms of the software license printed on a card inside the sealed box. P buys the package at a retail store without knowing the terms of the license inside.  He then opens the software, uses it, and is presented with a screen that says, “By using this software, you agree to be bound by the terms of the license found in your box.  If you don’t want to be bound, send the package back, and you’ll get your money back.”  P uses the software, then violates the license by copying and reselling the software.  P will probably be found to be bound by the license, because his actions (retaining and using the goods rather than returning them) will be found to constitute “conduct ... which recognizes the existence of a contract” under UCC § 2-207(3). [ProCD v. Zeidenberg]

                                                                                                                                  iii.      Terms: Where a contract by conduct is formed, the terms “consist of those terms in which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.” §2-207(3).  For instance, the price term would be a “reasonable price at the time for delivery,” as imposed by §2-305’s price “gap filler.”

e.      Confirmation of oral contract: If the parties initially reach an oral agreement, a document later sent by one of them memorializing the agreement is called a “confirmation.”

                                                                                                                                      i.      Additional terms in confirmation: If the confirmation contains a term that is additional to the oral agreement, that additional term becomes part of the contract unless either: (1) the additional term materially alters the oral agreement; or (2) the party receiving the confirmation objects to the additional terms. 

                                                                                                                                    ii.      “Different” term in confirmation: If a clause contained in the confirmation is “different” from a term on the same issue reached in the oral agreement, the new clause probably does not become part of the agreement.

                                                            v.      UCC §2-207 makes 2 major changes to the common-law rule (common Law Rule: offer & acceptance should mirror each other):

1.      A document can constitute an acceptance “even though it states terms additional to or different from those offered or agreed upon,” thus abolishing the “mirror image” rule.

2.      Between merchants, the additional terms proposed in the acceptance can become part of the contract in certain circumstances if the other party (offeror) merely remains silent.  Here 2-207 modifies the common-law rule that a proposal for a contract can’t be accepted by silence.

            [offer] + [acceptance] = (k) even though there may be different or additional terms