Download UCC 2-207: Contract Formation and Risk of Loss with Diapers.com and Huggies and more Study Guides, Projects, Research Law in PDF only on Docsity! UCC 2‐207 Contract Formation Charts 1 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 Diapers.com Offer/Order Form •Item: Size 5 Overnight Diapers •Quantity: 100 Cases •Price: $100 per case •Delivery: Buyer's Warehouse, 7/1/14 Huggies Acceptance/ Acknowledgment •Item: Size 5 Overnight Diapers •Quantity: 100 Cases •Price: $100 per case •Delivery: Buyer's Warehouse, 7/1/14 •Buyer shall pay 2% interest on all overdue invoices Resulting Contract? •Yes, the seller's acknowledgement form is a definite and seasonable expression of acceptance, so the parties have a contract despite the addition of a term charging interest for overdue invoices in the 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. UCC 2‐207 Contract Formation Charts 2 Article 2 Acceptance Containing: Additional Terms that Materially Alter the Offer Diapers.com Offer/Order Form •Item: Size 5 Overnight Diapers •Quantity: 100 Cases •Price: $100 per case •Delivery: Buyer's Warehouse, 7/1/14 Huggies Acceptance/ Acknowledgment •Item: Size 5 Overnight Diapers •Quantity: 100 Cases •Price: $100 per case •Delivery: Buyer's Warehouse, 7/1/14 •All Disputes Between the Parties Shall be Resolved Through Binding Arbitration Resulting Contract? •Yes, the seller's acknowledgement form is a definite and seasonable expression of acceptance, so the parties have a contract despite the addition of an arbitration clause in the acknowledgment form. 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. UCC 2‐207 Contract Formation Charts 5 Article 2 Acceptance Containing: Different PDQ Terms, But Conduct of the Parties Recognizes the Existence of a Contract Diapers.com Offer/Order Form •Item: Size 5 Overnight Diapers •Quantity: 100 Cases •Price: $100 per case •Delivery: Buyer's Warehouse, 7/1/14 Huggies Acceptance/ Acknowledgment •Item: Size 5 Overnight Diapers •Quantity: 100 Cases •Price: $110 per case •Delivery: Buyer's Warehouse, 7/1/14 Resulting Contract? •No, because the seller's acknowledgement form contained a different price (PDQ) term and, therefore, cannot be considered a definite expression of acceptance. Therefore, neither party may be held liable for breaching this attempted contract if a dispute arises before either party partially or fully performed. •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. Conduct By Both Parties Recognizes the Existence of a Contract •However, if the buyer physically accepted the 100 cases of diapers and began selling them despite the fact that the offer and acceptance contained a different PDQ term, the Code would recognize the existence of a contract through the conduct of the parties (even though the writings did not otherwise establish a contract). The terms of that contract would consist of those terms on which the offer and acceptance agree, the different price terms would drop out, and UCC 2‐305 would serve as a gap‐filler imposing "a reasonable price at the time for delivery." UCC 2‐207 Contract Formation Charts 6 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. (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 Act. UCC 2‐207 Contract Formation Charts 7 Was there a "definite" and "seasonable" expression of acceptance? Yes. Were there any additional or different terms in the acceptance? Yes. Was the acceptance expressly conditioned on assent to the additional or different terms in the acceptance? Yes. A contract was not formed (unless the offeror expressly assented to the additional terms). No. A contract may have been formed. How should you treat additional or different terms in the acceptance? Different terms. Was the offer expressly conditioned upon assent to its terms? No. Did the different terms relate to PDQ? Yes. The parties do not have a contract because there there can be no "definite" acceptance with different PDQ terms. No. The parties have a contract consiting of those terms on which the offer and acceptance agree. The different terms "drop out" and are replaced by any relevant "gap fillers" which the Code may or may not provide. Yes. A contract was formed based on the offeror's terms and the different terms are mere proposals. If the dispute is under NY law, return to the additional terms analysis. Additional Terms. Was the offer expressly conditioned on assent to its terms? No. Are both parties merchants? No. The parties have a contract. However, between non‐ merchants, additional terms contained in an acceptance are treated as mere proposals that must be expressly accepted by the offeror before becoming part of the parties' agreement. Yes. Did the offeror object to the additional term within a reasonable time Yes. The parties have a contract without the additional term. No. Did the additional term "materially alter" the offer? No. The parties have a contract and the additional term in the acceptance is included in the contract. Yes. The parties have a contract without the additional term. Yes. A contract was formed based on the offeror's terms and the additional terms are mere proposals. No. A contract was formed based on the offeror's terms. No. No contract was formed.