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The Definitive "Battle of the Forms": Chaos Revisited [*]
John E. Murray, Jr. [**]
After a decade of aborted efforts, a revision of Article 2 of the Uniform Commercial Code is dubious. Among Article 2 sections, the leading candidate for revision was the infamous "battle of the forms." Indeed, the notion that the need to revise current 2-207 was the efficient cause of the entire revision process may be only a slight exaggeration. As the revision committee addressed the "Byzantine complexities" surrounding this section, its confusing interpretation and construction was exacerbated in the case law of the nineties. Still another startling dimension appeared in 1996 in a handful of cases espousing a "rolling" or "layered" contract theory that rejected any application of section 2-207 through a misconstruction of the statute and precedent. Meanwhile, the National Conference of Commissioners on Uniform State Laws (NCCUSL) produced the Uniform Computer Information Transactions Act (UCITA) which began as part of an early UCC Article 2 revision, was transformed into UCC Article 2B that was rejected as [page 1] part of the UCC, but was instantly resurrected as UCITA, a curious and cumbersome recreation of Article 2 for computer information transactions. UCITA confirms the "rolling contract" theory and creates a revisionist "battle of the forms" analysis. A similar dimension of the "battle" in contracts for the sale of goods between parties in different nations is governed by the United Nations Convention on Contracts for the International Sale of Goods (CISG), ratified by the United States and fifty-seven other nations. Finally, a more recent and thoughtful international approach appears in the UNIDROIT Principles.
As we approach a half century of conflict with no armistice in sight, it is important to understand the causes of the bewildering interpretations of section 2-207 as well as the radically new judicial and legislative thrusts that fuel the "chaos of the battle of the forms."
A. The Essential Purpose of UCC Section 2-207 - The "Last Shot" Principle
The current section 2-207 disarray is particularly disconcerting in light of the simple purpose it was designed to serve. The common law "mirror image" rule requires the acceptance to match the terms of the offer. Where a response to an offer contains different or additional terms in boilerplate clauses, the mirror-image rule insists that the response must be a "conditional acceptance," i.e., a counteroffer, even though it reasonably appears to be a definite expression of acceptance. In the paradigm transaction, a buyer sends a purchase order (offer) and the seller's response is an acknowledgment form [page 2] that appears to be an acceptance but contains variant terms in the boilerplate clauses such as a disclaimer of warranty, an arbitration clause or an exclusion of consequential damages. Since the seller's response is a counteroffer, there is no contract via the exchange of forms. The seller, however, ships the goods which the buyer accepts, thereby unwittingly accepting the seller's terms in the counteroffer that had been fired as the "last shot" in the battle. Though the buyer is unfairly surprised to learn that the contract contains the seller's terms, this is the result ordained under the "last shot" principle. Section 2-207 was designed to remedy this injustice.
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 any different or additional 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 provision of this Act." [page 3]
B. The Simple Solution and Complex Interpretation -- Issues
The solution may be stated quite simply as follows: "Section 2-207 ... converts a common law counteroffer into an acceptance even though it states additional or different terms." Section 2-207(2) determines the operative effect of different or additional terms only if the response to the offer qualifies as a definite and seasonable expression of acceptance under 2-207(1). If the response is interpreted as a counteroffer, 2-207(2) has no application. Where the parties fail to form a contract through the exchange of their respective forms but proceed to perform as if they had formed a contract, the terms of such a contract by conduct are determined under 2-207(3).
This simple summary of section 2-207, however, belies what has become the most complex and controversial section of the entire Uniform Commercial Code. While the statutory language has been the subject of legitimate criticism, these defects pale by comparison to the judicially manufactured complexity and confusion that pervades 2-207. [page 4]
1. Issues Generated by Section 2-207 and Other Norms
Section 2-207 case law manifests a spectrum of issues: What is the precise effect of 2-207 on the common law "mirror-image" rule? If a response contains a term that materially alters the terms of the offer, may such a response constitute an acceptance? Does 2-207 apply to merchants and non- merchants? What is the test for determining whether an altering term is "material"? What is the effect of trade usage or prior course of dealing in determining materiality? Section 2-207(1) contemplates definite expressions of acceptance containing "different" or "additional" terms, but section 2-207(2) mysteriously refers only to "additional" terms. How are "different" terms in responses to offers treated under 2-207? How are confirmations containing variant terms analyzed under 2-207? Since 2-207 was designed to preclude definite expressions of acceptance from being converted to counteroffers, what is the effect of 2-207 on common law counteroffers rules?
2. The Modification of the "Mirror-Image" Rule
Section 2-207 (1) modifies the "mirror-image" rule. It does not reject the rule. The statutory directive that a response to an offer ("a definite and seasonable expression of acceptance") has the effect of an acceptance ("operates as an acceptance") though the response contains terms that are "different from or additional to" the terms of the offer, appears to strike at the very heart of the common law rule that requires an acceptance to be the mirror-image of the offer -- a "matching acceptance." Indeed, the conventional wisdom interpreting this language insists that the fundamental change of 2-207 is the rejection of the "mirror-image" rule of classical contract law. Yet, no court would fail to recognize the mirror-image rule [page 5] with respect to "dickered terms." Where a response to an offer changes the description of the goods, the price, the quantity or any other dickered term in the offer, courts insist on applying the traditional mirror-image rule. They hold that such a response to an offer is a common law counteroffer, clearly indicating that 2-207 has no application to such facts. Thus, 2-207 does not destroy the "mirror-image" rule; it modifies its technical application to prevent what is reasonably regarded as an acceptance from operating as a counteroffer simply because undickered variant terms appear in the boilerplate of the response. The statutory language does not state that such a response is an acceptance. Rather, it is said to operate as an acceptance because it would be so regarded by a reasonable offeror. The mirror-image rule properly precludes the imposition of additional or different dickered terms on the offeror. It departs from reality and becomes a technical construct, however, where it precludes the recognition of a contract that both parties reasonably assume they have made simply because there are some ignored terms in the fine print of a form that do not match the terms of the offer. Section 2-207, therefore, [page 6] is one of several UCC sections designed to eliminate technical common law constraints that would interfere with the recognition of the parties' factual agreement.
C. Section 2-207(2) - "Merchant" vs. "Non-Merchant"
If a response to an offer containing variant terms operates as an acceptance, it is necessary to determine the disposition of the varying terms. Section 2-207(2) was designed to meet this challenge.
If read alone, the first sentence of 2-207(2) suggests that additional terms in an otherwise definite expression of acceptance are mere proposals that may be accepted or rejected by the offeror. The next sentence, however limits that directive to contracts in which a non-merchant is a party. In contracts "between merchants" to which 2-207 is principally directed, variant terms become part of the contract unless anyone of three exceptions apply. It is important to recognize the application of 2-207 to both merchants and non-merchants. As described by one court, "Section 2-207(2) ... states the general rule that additional terms are construed as 'proposals for addition to the contract' except in the case of contracts between merchants where certain conditional terms may become part of the contract." While the statutory [page 7] language, itself, is abundantly clear in this regard, it is possible to discover the mistaken notion that 2-207 has no application where both parties are not merchants.
1. The Disposition of Variant Terms "Between Merchants"
Article 2 of the UCC strengthens the common law view that the offeror is the master of the offer. In keeping with this principle, under section 2-207(2)(a) where the offeror expressly limits acceptance to the terms of the offer, any additional term cannot become part of the contract. Similarly, where an offeror objects to any additional term in the response to the offer, either through an anticipatory objection in the offer itself, or by objecting within a reasonable time after the acceptance is received, 2-207(2)(c) precludes any additional term from becoming part of the contract. Where there is neither an express limitation to the terms of the offer or notification of objection to additional terms in the response, 2-207(2)(b) states that additional terms "become part of the contract unless … they materially alter it." Whether an additional term is a material or immaterial alteration of the offer has been the subject of considerable litigation.
D. Variant Terms in the Response - "Material" vs. "Immaterial"
1. Purpose and Test
It is clear that Karl Llewellyn was particularly concerned that the offeror not be burdened with any substantial or material additions to the risks [page 8] contemplated by the offer. The primary purpose of section 2-207 is the avoidance of oppression and unfair surprise, and the materiality of additional terms will be determined according to this test. Actual (subjective) hardship is insufficient. The test is objective, i.e., whether a reasonable party would be unfairly surprised. While "hardship" has often been viewed as substantial economic hardship and treated as independent from "surprise" there is a growing recognition that such an analysis may be flawed. Simply because a contract requires performance that may be characterized as a hardship, it may still be an operative term of the contract if it is an "expected" term, i.e., it is [page 9] not objectively surprising. "Hardship is a consequence [of material alteration], not a criterion."
2. Express Agreement, Trade Usage and Prior Course of Dealing
If an acceptance contains a material alteration but the offeror expressly agrees to that term, a modification of the contract has occurred and the term becomes part of the contract. It is, however, important to recognize that what may appear as a material alteration is not an alteration, material or immaterial, if the term merely confirms established trade usage or prior course of dealing. In that situation, the term became part of the agreement ab initio. As defined in the UCC, "agreement" expressly includes such terms. Unless they are "carefully negated," such terms are "taken for granted" as terms of the contract from its inception.
3. Repeated Sending of Printed Forms
It has been argued that the mere repeated sending of the same ignored boilerplate containing variant terms will constitute a course of dealing that will insert such terms in subsequent contracts. Courts have generally rejected this analysis. Even assuming an offeror would not be surprised to discover such a term in a seller's boilerplate response that had been sent many times in the past, the same offeror would be surprised to discover that it was bound by a term that was never acted upon in any past transaction between the parties, but simply included among other boilerplate terms in the seller's acknowledgment. "Course of dealing" requires a previous sequence of [page 10] conduct between the parties.The passive conduct of sending and receiving the same boilerplate should not be said to establish a course of dealing.
4. Burden of Proof
The burden of proving that an additional term materially alters the offer is on the offeror since the offeror is the party opposing the term. Having assigned this burden of proof, it is not uncommon for a court to suggest that the other party has the burden of proving a trade usage or prior course of dealing to establish the otherwise altering term as a term of the agreement, thereby refuting the claim that it is an additional term. A moment's reflection, however, should obviate this unnecessary complexity. If the term is part of the agreement through trade usage or prior course of dealing, it never was a variant term and questions of materiality disappear.
5. Illustrations -- Material vs. Immaterial
The leading UCC illustration of a term that would materially alter the terms of the contract is a term that negates such "standard warranties" as the implied warranty of merchantability or the implied warranty of fitness for a particular purpose. Courts currently treat warranty disclaimers as alterations that are material per se, i.e., they are conclusively presumed to manifest surprise or hardship. Such holdings, however, fail to recognize that the surprise and hardship elements can be overcome by the other party's proof that the term was part of the original agreement through trade usage or prior course of dealing. The same exception should apply to variant indemnification terms in the response to an offer which courts view in the same fashion as warranty disclaimers, i.e., material per se, because they shift [page 11] material risks. While arbitration clauses are not generally viewed as per se material alterations, even in a jurisdiction that held arbitration clauses to constitute per se material alterations, the court allowed evidence of trade usage and prior course of dealing to determine whether arbitration should be viewed as a term of the agreement.
Comment 5 to section 2-207 suggests examples of immaterial terms that would become part of the contract between merchants. Even here, a final example in comment 5 has provoked controversy. UCC section 2-719 allows the parties to agree to modify or limit Article 2 remedies. For example, the parties may agree to an exclusive buyer's remedy of repayment of the price while eliminating other traditional remedies such as "cover" in 2-712, recovery of the contract price/market price differential in 2-713, as well as the exclusion of consequential damages for economic loss as defined in 2-715. Boilerplate provisions in sellers' standardized forms commonly limit remedies in this fashion. The last example of an immaterial alteration in comment 5 refers to section 2-719 and suggests that a limitation of remedy "in a reasonable manner" is an example of an immaterial alteration.
A number of courts ignore this language and conclude that such a limitation of remedy clause is a per se material alteration because of its essential nature in shifting substantial risks to a buyer. Other courts, however, read comment 5 as referring exclusively to section 2-719 to determine the materiality of a clause excluding consequential damages, i.e., if such an exclusion is reasonable under 2-719, it is an immaterial term that [page 12] becomes part of the contract between merchants. This simplistic view converts the surprise and hardship test of 2-207 into a reasonableness test under 2-719. The overriding issues of surprise and hardship should dominate the 2-207 inquiry into materiality rather than a reasonableness standard under 2-719. Reasonableness is only one aspect of the material alteration analysis.
Again, an offeror may avoid disputes concerning the materiality of additional terms in an otherwise definite expression of acceptance by expressly limiting acceptance of the offer to the terms of the offer, or notifying the offeree of objection to such terms. Either of these methods will preclude any additional term, material or immaterial, from becoming part of the contract.
E. "Different" vs. "Additional" Terms
Section 2-207(2) was designed to determine the operative effect of variant terms in an otherwise definite and seasonable expression of acceptance. The language of that subsection, however, immediately presents a dilemma. While subsection (1) recognizes an acceptance with different or additional terms, subsection (2) refers only to additional terms. Moreover, there is no other statutory language dealing with different terms. In the absence of such statutory guidance or dispositive legislative history, courts have been forced to determine whether "different" should be included within subsection (2).
In favor of limiting subsection (2) to "additional" terms, it has been suggested that if the drafters intended to include "different," they could have easily done so. It is, however, equally plausible to assume that the drafters [page 13] did not deliberately intend to create confusion. If they deliberately intended to exclude "different" terms they could just as easily emphasized this intention in the statutory language or, at least, in the comments. Instead, comment 3 clearly contemplates both kinds of terms: "Whether or not additional or different terms will become part of the agreement depends upon the provisions of subsection (2)."
In the statutory language itself, subsection 2(b) of section 2-207 directs the excision of any additional term that would "materially alter" the terms of the contract. Beyond the normal understanding of the term "alter" to mean "different," there is strong evidence that the essential concern of Karl Llewellyn was to avoid oppressing unsuspecting parties through material alterations as contrasted with "minor terms" that would enlarge the risks they reasonably assumed they undertook when the contract was formed. There is also a plausible analysis concluding that the absence of "different" was an inadvertent drafting error. Most important, however, is the compelling argument that all additional terms may be viewed as "different" and all different terms as "additional," i.e., any attempt to distinguish "different" from "additional" is a "hair splitting" or "metaphysical" exercise.
Notwithstanding cogent arguments that section 2-207(2) should be read to include "different" as well as "additional," the dominant text on commercial law rejects this view, though its co-authors do not agree on the accompanying analysis. The analysis provided by Professor White proved more influential with courts than the view of his co-author, Professor Summers. With only a few recorded decisions construing 2-207(2) to include "different," the conventional judicial wisdom currently limits it to [page 14] "additional" terms. Resolving the issue in this manner, however, not only fails to eliminate uncertainty, it exacerbates confusion and complexity.
1. The Problematic Application
Where a definite expression of acceptance contains an express term that contradicts an express term in the offer, section 2-207(2)(b) is limited to "additional" terms and would not apply to "different" terms. For example, where an offer states that any dispute must be submitted to arbitration and the acceptance expressly rejects arbitration, how is this dispute resolved with no statutory guidance? If 2-207(2) applies only to additional terms, a plausible argument can be made that the expressly conflicting term converts the "acceptance" into a counteroffer, but this would contradict 2-207(1) that recognizes acceptances with "different" terms. The prevailing analysis, therefore, eliminates both express clauses under a "knockout" view that leaves the gap to be filled by UCC terms. Since the UCC contains no "gap-filler" favoring arbitration, the contract is based on traditional judicial dispute resolution since the UCC standard is the typical judicial remedy. This analysis requires the rejection of comment 3 that expressly includes "different" terms. It relies on comment 6 though that comment is anything but clear and deals essentially with "confirmations" of existing contracts. Moreover, by eliminating an arbitration clause from the offer, the analysis rejects the general proposition that the offeror is the master of the offer, a view confirmed emphatically in current UCC Article 2. The creator of the [page 15] "knockout" view admits that it lacks any authority under the Code. Again, confusion abounds.
Where a seller's offer limited warranty protection to ninety (90) days and the buyer's otherwise definite expression of acceptance contained a standardized clause requiring a warranty of unlimited duration, the court recognized the buyer's term as "different." It reluctantly accepted the prevailing view that "different" terms are not within section 2-207(2) and, therefore, cancel each other (the "knockout" view) leaving a gap. The gap is filled by supplying a "neutral" UCC term which, in this case, was deemed to be a warranty of "reasonable duration." Under such an analysis, an offeror is surprised to learn that the power of acceptance and attendant risk it created was enlarged in a material way with no assent from the offeror. The enlargement of that risk was determinative, as the seller lost the lawsuit it would have won had the terms of its offer been respected. The case is not unique. An identical analysis had the same effect in what is often viewed as the leading exposition of the "knockout" view. [page 16]
It is important to compare this analysis with the prevailing view that an acceptance expressly negates an implied Code term in an offer. When, for example, a purchase order is silent concerning warranties and the acknowledgment contains an express disclaimer of implied warranties, which term prevails in the "battle"? Comment 4 insists that the implied warranty of merchantability and the implied warranty of fitness for a particular purpose are "standard warranties" that "normally" attach to contracts for the sale of goods and any attempt to disclaim such warranties would "materially alter" the terms of the offer. Section 2-207 obviously contemplates acceptances containing materially altering terms since 2-207(2)(b) expressly recognizes such alterations. If, however, 2-207(2) is limited to "additional" terms, 2-207(2)(b) ("materially alters") would not apply. This necessary conclusion must be ignored if a disclaimer or other materially altering term is excised under 2-207(2)(b). The materially altering term should be excised, but not because it is an "additional" term. It is a "different" term that should be excised under 2-207(2) which should be interpreted as applying to "different" as well as "additional" terms. A summary of the current confusion [page 17] surrounding the operation of 2-207(2) reveals the following: (1) Express terms in an offer negating UCC implied terms and express terms reserving such terms in the acceptance will be construed as "different" terms to which 2-207(2) does not apply. These terms will cancel each other (the "knockout" view) leaving gaps filled by UCC implied terms. The term in the offer will not be operative. In this situation, the offeror is not the master of the offer, e.g., a disclaimer of warranty in the offer will be knocked out by an express reservation of that warranty in the acceptance; (2) An express term such as a disclaimer of warranty or an exclusion of consequential damages in the offer will not be "knocked out" by a contrary implied UCCterm in the acceptance. Here, the offeror is recognized as the master of the offer. The contrary implied term in the acceptance is not viewed as a "different" term, though it is a different term. Section 2-207(2)(b) excises such an implied term as a material alteration of the offer. (3) Where the offer contains the implied UCC terms such as the implied warranty of merchantability, an express disclaimer of that warranty in the acceptance will not become part of the contract. Here, the contrary express term in the acceptance is incredibly characterized as an "additional" rather than "different" term, thereby activating 2-207(2)(b) that excises such a term in a contract between merchants because it materially alters the terms of the offer. In this situation, the offeror is deemed to be the master of the offer via the implied term in the offer. [page 18]
This confusion and attendant complexity is attributable to the view of one text writer who opined that section 2-207(2) does not include "different" terms. The popularity of this position is predicated on the premise that a recognition of "different" terms in 2-207(2) would prefer the terms of the offer in every case though the parties may pay little attention to who sends the first form. This is a legitimate concern.
F. The Offeror Prevails - "First Shot" Instead of "Last Shot"
A seller sends a "quotation" to the buyer which is construed as a mere preliminary negotiation, not an offer. Buyer responds with a purchase order that is an offer. It is silent concerning warranties but, as an offer, it will contain the implied warranty of merchantability. The response is an acknowledgment that is a definite expression of acceptance containing the identical "dickered" terms found in the offer as well as a disclaimer of the implied warranty of merchantability. The acknowledgment does not contain any counteroffer language. The additional or different term in the acknowledgment (the warranty disclaimer) will not become part of the contract under 2-207.
Assume, however, that the seller's quotation is an offer with a clause disclaiming implied warranties. The buyer sends the identical purchase order in response to the offer. Since the quotation is now an offer, the purchase order is construed to be an acceptance. If the purchase order (acceptance) is said to contain the implied warranty of merchantability, such a term would be excised under 2-207(2)(b) because it materially alters the quotation/offer. An alternative construction suggests that, as an acceptance, the purchase order does not contain implied UCC terms. Thus, a court has held that the usual UCC terms are implied in a purchase order as an offer, but the same terms are not implied in the same purchase order when it is construed to be an acceptance. The characterization of a purchase order as an offer or [page 19] acceptance, however, is a judicial afterthought typically unrelated to the parties' conscious use of their forms. The net effect is to permit the offeror, whether buyer or seller, to prevail though the parties have paid no attention to which of them happened to be the offeror. Instead of the party firing the "last shot," the party firing the "first shot" wins the battle. The analysis flows from the structure of 2-207 which is predicated on a traditional offer and acceptance analysis.
The current "knockout" solution, however, is inadequate to this challenge. It deals only with conflicting express terms. A disclaimer in a seller's offer will prevail over a conflicting implied term in the buyer's purchase order/acceptance and a buyer's implied term in an offer will prevail over a conflicting express term in the seller's acceptance. Moreover, the "knockout" view taxes credulity by insisting that in either of these situations involving a conflicting implied term, the term is "additional" rather than "different," thereby eliminating the constructed "knockout" view and subjecting the conflicting term to 2-207(2)(b). Where, however, there is an express conflicting term in the acceptance, the offeror's express term is excised, thereby subjecting the offeror to a risk beyond the power of acceptance created by the offer. Under this analysis, the obvious strategy for a buyer is to load the purchase order with express terms, i.e., to expressly include the protection afforded by implied warranties and other UCC norms. Any conflicting term in a seller's form, whether an offer or acceptance, will be excised and gaps will be filled by UCC terms that generally favor the buyer.
The heart of section 2-207 is subsection (2)(b), which focuses its attention of whether the variant term is a material alteration. If an offeror restricts acceptance to the terms of the offer under (2)(a) or objects to variant terms under (2)(c), there should be no "different" vs. "additional" issue or any question concerning the materiality of variant terms. Absent such a [page 20] controlling expression by the offeror, the exclusive issue is whether an otherwise definite expression of acceptance materially alters the terms of the offer. There can be no counteroffer if the response to the offer is a definite expression of acceptance, regardless of whether a variant term in the response is characterized as "additional" or "different." Assuming an offer is silent on UCC implied terms, any variation from those terms in an otherwise definite expression of acceptance should be subject to 2-207(2) regardless of whether such a term can be metaphysically classified as "additional" or "different." Again, the exclusive inquiry should focus upon whether such a term materially alters the terms of the offer. At the moment, however, this is not the judicial focus and confusion abounds.
G. Confirmation Operating as an Acceptance - Statute of Frauds Distinguished
A primary focus of section 2-201 deals with confirmations. A confirmation is necessarily subsequent to the formation of the oral contract. Section 2-207 applies to confirmations in a situation that occurs with great frequency: A and B have a meeting in person or a telephone discussion during which A agrees to sell 1,000 units of X-35 plastic to B at a price of $100 per unit for a total price of $100,000. The parties mutually assent to this arrangement in their oral discussion of the subject matter, the quantity and the price. They may have also discussed certain delivery terms. Typically, however, they will not discuss warranty terms or terms concerning remedies for breach or arbitration of disputes. Having formed their oral contract, either one or both send a confirmation to the other confirming the oral contract. They typically use their printed purchase order and acknowledgment forms for this purpose. Absent a prior oral agreement, these forms would evidence the typical "battle of the forms" -- the purchase order (offer) and the acknowledgment (acceptance) -- a definite expression of acceptance containing different or additional boilerplate terms. In this use of the forms, as we have seen, the variant terms would be subject to 2-207(2). Where there [page 21] has been a prior oral agreement, the exchange of the same purchase order and acknowledgment forms constitute an exchange of confirmations of the prior oral contract since the offer and acceptance already occurred at the time of the oral agreement. The confirmations contain the terms that were discussed, the identical "dickered" terms, as well as the undiscussed boilerplate terms in the seller's acknowledgment. Section 2-207(1) deals not only with written offers and acceptances; it also deals with confirmations: "A definite and seasonable expression of acceptance or a written confirmation ... operates as an acceptance even though it states terms additional to or different from those offered or agreed upon…."
How can a written confirmation of a contract operate as an acceptance? The contract has already been formed and the written confirmation, therefore, must be confirming a contract. Professor Llewellyn was particularly eager to deal with this issue which he viewed as "hopelessly confused" under pre-Code law. The only factual bargain was the oral agreement. Any different or additional terms in one or more confirmations of that oral contract were not consciously considered. Section 2-207(1) treats a confirmation as if it were an acceptance so that any different or additional terms are subject to 2-207(2) like any other definite expression of acceptance. Any materially altering terms in a confirmation are excised under 2-207(2)(b). Conflicting terms in exchanged confirmations may be seen as mutual notices of objection to each other's terms, i.e., having the same effect as a notice of objection clause pursuant to 2-207(2)(c). The result is to effectuate the purpose of 2-207 in finding a contract according to the factual bargain of the parties rather than [page 22] one including variant terms to which the parties had not consciously adverted when they made their oral contract.
1. Distinguishing the Statute of Frauds
Some courts fail to distinguish the "battle of the forms" under section 2-207 from the distinct requirement under current UCC section 2-201 that an oral contract for the sale of goods priced at $500 or more must be evidenced by a writing sufficient to show that the parties intended to be bound by such an agreement. The Statute of Frauds requires a sufficient memorandum evidencing a contract for the sale of goods that identifies the parties, the subject matter, the quantity and is properly signed. If such a memorandum is present, the party attempting to persuade the court that a contract was made has met the threshold requirement of a sufficient writing. This, however, is not a 2-207 issue. For example, an acknowledgment form that confirms the contract may be sufficient to satisfy the Statute of Frauds though it also contains terms additional to or different from the terms the parties discussed while forming their oral contract. The challenge concerning the variant terms is a "battle of the forms" problem exclusively. There is no longer any Statute of Frauds issue though some courts became hopelessly confused in this area.
If only one record is sent in confirmation ofthe contract, section 2-207 will still apply to deal with alleged variant terms in a single confirmation. If the only confirmation is a purchase order, however, a statute of frauds problem can arise if a court determines that such a purchase order only [page 23] evidences an offer while the statute of frauds requires a record evidencing a contract.If the single confirmation is an acknowledgment from the seller, it will typically evidence a contract between the parties that satisfies the statute of frauds. Such a document will be an effective confirmation for statute of frauds purposes though it contains terms that vary from the prior oral agreement. If such varying terms are material alterations of the oral agreement, they will not become part of the contract.
H. The Counteroffer Riddle - Contract by Conduct under UCC Section 2-207(3)
To understand the operation of counteroffers under section 2-207, it is important to remember that the fundamental change effected by 2-207 was to reject the common law principle that a variant term in an otherwise definite expression of acceptance converts the response to a counteroffer. The mirror-image rule is modified only to this extent. Different dickered terms in response to an offer will constitute a counteroffer because such a response cannot constitute a definite expression of acceptance. In these situations, the "mirror-image" rule is unchanged. Where a seller responds to a buyer's purchase offer with an acknowledgment containing identical dickered terms such as subject matter, price and quantity, but its form contains different or additional boilerplate terms (warranty disclaimers, etc.), the response is a definite expression of acceptance and the variant terms are subject to 2-207(2). The buyer will reasonably assume a contract was formed on the terms to which both parties consciously adverted, i.e., the "dickered" terms. Though undickered boilerplate terms alone no longer create a counteroffer, 2-207 does permit a party to make a counteroffer with respect to such terms.
1. The 2-207 Formula Counteroffer-Manufactured Complexity
Section 2-207(1) contains a clause that may be called the "proviso," the "unless" clause, or, even less artfully, the "language after the comma" that [page 24] permits an offeree to make the acceptance "expressly conditional on assent to the additional or different terms." It is clear that Professor Llewellyn and his associates intended this language to permit an offeree to make a counteroffer: "We are attempting to say, whether we got it said or not, that a document which said, 'This is an acceptance only if the additional terms we state are taken by you' is not a definite and seasonable expression of acceptance but is an expression of a counter-offer."
This straightforward explanation, however, has been unwittingly converted into needless complexity through tortured judicial analyses. In an early application of the statute, an acknowledgment stated that the "acceptance is subject to the terms and conditions contained on the front or reverse side" of the acknowledgment form. The court found such language conditional "to some extent" but insufficiently similar to the statutory proviso language because it was not expressly conditional on the offeror's assent to such terms. This analysis heralded a string of cases that focused on whether the language in various responses to offers was sufficiently similar to the proviso language to be called a "conditional acceptance," i.e., a counteroffer. The holdings are more than difficult to reconcile. Faced with this uncertainty [page 25] and still desirous of making a counteroffer, it became clear to lawyers drafting such language that the safe route was to replicate the language of the Code. Thus, where an acknowledgment states, "Seller's acceptance is ... expressly conditioned on Buyer's assent to the additional or different terms and conditions set forth below and printed on the reverse side," it mimics the statutory proviso and courts felt compelled to treat such language as a counteroffer. The judicial obsession with precise language, however, unwittingly elevated form over substance, creating what may be described as a "technical" or "formula" counteroffer. The unintended effect was to convert a response that a reasonable offeror would understand as a definite expression of acceptance into a counteroffer, the very evil that 2-207 was designed to avoid.
The proviso language is anything but clear. An "acceptance" that is expressly conditional on the offeror's assent is not an acceptance. Courts began to recognize that language tracking the proviso is unclear. Thus, where an offeree was careful to use the proviso language in its response to the offer, a court stated "the seller injected ambiguity into the transaction by inserting the 'expressly conditional' clause in his form.…"
Nonetheless, the court had no difficulty in concluding that the use of the statutory language created a counteroffer. Whether an offer has been made depends upon the reasonable understanding of the party to whom it is addressed. Similarly, whether a response to an offer is a counteroffer depends upon the reasonable understanding of the offeror. If a reasonable offeror would not understand an ambiguous response to be a counteroffer, it should not be effective as a counteroffer. An offeror, for example, may be justified in treating a response containing such language as an equivocal [page 26] acceptance from which the offeror may infer assent. Nothing in Article 2 or the entire Code suggests any change in this common law analysis. Yet, in their interpretation of the proviso language of section 2-207(1), courts have ignored these distinctions. Many courts have focused exclusively upon the language in the response to the offer and applied a mechanical test, again, whether the language is sufficiently similar to the language of the statutory proviso. If there is sufficient similarity, the response is a counteroffer, regardless of the reasonable understanding of the offeror. This flawed analysis required courts to alter another common law principle without authority under the Code.
If the language of a response is sufficient to constitute a formula counteroffer, courts insist that the buyer's acceptance of the goods cannot constitute an acceptance of the counteroffer. Unless the buyer expressly assents to the terms of the counteroffer by signing the seller's counteroffer or otherwise expressly manifests assent, the counteroffer is not accepted. This alteration of common law principles was necessitated by the original flawed decision to treat a formula response as a counteroffer. Having recognized that the formula response replicating the proviso language is ambiguous, courts necessarily found that a reasonable offeror would not understand the response as a counteroffer. The offeror assumed a contract had already been formed. To hold that the offeror accepted the formula counteroffer and its variant terms by accepting the goods would unfairly surprise and oppress the offeror. Since such a result would resurrect the very evil that section 2-207 was designed to avoid, courts were forced to cobble another analysis to achieve the essential purpose of 2-207. They accomplished this goal by denying effect to a conduct acceptance. While this tortured analysis accomplishes a just result with respect to formula counteroffers, courts failed to distinguish ambiguous counteroffers from counteroffers that were clear and unequivocal.
2. Clear (Unambiguous) Counteroffers
The use of the formula counteroffer became so pervasive that courts were confronted with arguments that language failing to mimic the proviso [page 27] language of section 2-207(1) precluded its effect as a counteroffer. Courts properly rejected these arguments on the footing that such a formalistic view is inconsistent with the underlying purpose of the Code directing its provisions to be liberally construed. Thus, where a clause states that: "[t]he terms set forth on the reverse side are the only ones upon which we will accept orders. These terms supersede all prior written understandings, assurances and offers," such language constitutes a 2-207(1) counteroffer notwithstanding its dissimilarity to the proviso language. The court insisted that language "can be no clearer in conditioning acceptance."
If language is abundantly clear in stating that the offeree will deal only on its terms, the creator of section 2-207 would emphatically agree that it constitutes a counteroffer. The only remaining issue is whether such a clear and unambiguous counteroffer may be accepted by conduct, e.g., a buyer/offeror's acceptance of the goods. Rejecting conduct acceptance of a formula counteroffer is necessary to avoid unfair surprise to the offeror. Where, however, the counteroffer is clear, there can be no unfair surprise and courts should recognize a conduct acceptance of such an unambiguous counteroffer. Yet, the case law insists that even an unambiguous counteroffer can be accepted only by the express assent of the offeror. As authority for this conclusion, however, courts rely on cases where the response to the offer is a formula counteroffer, oblivious to the sole rationale for precluding a conduct acceptance of a formula counteroffer, i.e., such counteroffers are [page 28] ambiguous. Where there is no ambiguity in a counteroffer the rationale disappears. Under current interpretations of 2-207, however, even an excruciatingly clear counteroffer would apparently require express assent by the offeror. No justification for such a holding is apparent under the UCC. It is diametrically opposed to the anti-technical nature of the Code about which Karl Llewellyn was so adamant.
3. Terms of the "Contract by Conduct" -- Section 2-207(3)
Where the parties' exchange of standardized forms does not create a contract because the response to the offer is a counteroffer, but the parties proceed to perform as if a contract had been formed, section 2-207(3) sets forth the terms of the resulting contract by conduct. Where, for example, a purchase order is an offer to buy goods and the response states that the "acceptance" is expressly conditioned on buyer's assent to any variant terms in the response, the formula counteroffer will prevent the formation of a contract. Where the seller ships the goods and the buyer accepts them, as seen earlier, the buyer/offeror is not accepting the terms of the counteroffer. It is, however, clear that the parties have formed a contract by their conduct. Section 2-207(3) provides: "[i]n 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 provisions of this Act."
Though the writings fail to form a contract, they are the best evidence of the parties' intention concerning dickered terms or other terms on which the writings match. Non-matching terms are discarded and the remaining "gaps" are filled with UCC terms. The effect favors buyers. Consider, for example, the typical purchase order that includes the implied warranty of merchantability. A response disclaiming the warranty also includes formula counteroffer language. There is no contract. Either party may "walk away" from the transaction. After shipment and acceptance of the goods, however, there is a contract by conduct. The non-matching terms concerning the warranty are excised. The gap is then filled by the UCC "supplementary" implied warranty of merchantability. The effect, therefore, is that the buyer wins the battle of the forms, not because its form is preferred over the seller's form, but because the gap-filling terms of the Code favor the buyer. [page 29]
A question has arisen concerning the proper interpretation of the language in section 2-207(3), which deals with "supplementary terms incorporated under any other provision of this Act." Should this language be limited to "supplementary terms" such as implied warranties, or should it be read more expansively to include any provision of the Code, e.g., trade usage or prior course of dealing? Though the case law is scant, the current interpretation favors an expansive reading of this language. The more expansive interpretation accords with the general Code directive that its provisions should be "liberally construed."
I. Post-Purchase Terms - "Layered" and "Rolling" Contracts - "Shrinkwrapped" Licenses
After a contract has been formed, numerous cases reject attempts by sellers to impose post-formation terms that would limit the rights the buyer enjoyed at the time of formation. [page 30] In Step-Saver Data Sys., Inc. v. Wyse Tech.,after a contract for the license of software had been formed, the software was delivered in a box containing license terms that disclaimed warranties, limited remedies and stated that "Opening this package indicates our acceptance of these terms and conditions." The court viewed these "box top license" terms as additional terms in a confirmation that materially altered the parties' agreement and, therefore, did not become part of the contract under section 2-207(2)(b). The only other possible basis for recognizing changed terms was a good faith modification under the UCC that needs no consideration but must manifest an agreement. In 1996, however, a radically different analysis appeared.
In ProCD, Inc. v. Zeidenberg,a buyer purchased software on compact disks (CD-ROMs) offered to the general public at a price of $150. The disks contained more than 95 million residential and commercial telephone numbers as well as zip codes and industrial codes, organized to facilitate searches. The database could not be copyrighted since the information was simply telephone numbers taken from some 3000 telephone directories. The database, however, had cost its creator millions to compile and keep current. The plaintiff sold two versions of this software, one to businesses at higher prices than the version sold to the general public through retail computer stores. The product was contained in a "shrinkwrapped" box with a statement in small print at the bottom of the package that users were subject to license terms inside the box. Inside the box, the printed license terms revealed a "single-user license," prohibiting any sub licenses of the information. The license was also encoded on the disks, alerting the user to its terms when the program was "run." The license included the right to the return of the purchase price to a user who rejected the license terms. The defendant copied the non-copyrightable material and created his own business in competition with the plaintiff. When the plaintiff sought to enjoin such use as a violation of the [page 31] license terms, the defendant claimed it was not bound by the terms inside the box that were undisclosed at the time of purchase. The lower court refused to bind the defendant to hidden terms. The Seventh Circuit agreed that a buyer should not be bound by hidden terms, but pointed to the notice on the box incorporating the license terms inside the box, and concluded: "[n]otice on the outside, terms on the inside, and a right to return the software for a refund if the terms are unacceptable may be a means of doing business valuable to buyers and sellers alike."
Heralding the efficiency of standardized terms, the court refers to transactions where the exchange of money precedes the communication of detailed terms as "common," using examples of insurance contracts, purchases of airline tickets, a forum selection clause on a cruise line ticket and a case involving a complicated interpretation of a statute involving bills of lading. It fails to note the severe limitations on the enforceability of typically unread clauses in insurance policies and the regulations of terms in the boilerplate of airline tickets. It avoids mentioning the fact that the majority of the United States Supreme Court upholding the forum selection clause insisted on assuming that the parties were aware of the clause at the time the contract was formed, or that the bill of lading case involved a technical interpretation of a Federal Statute -- hardly an apposite precedent.
The court insists that its opinion is based on the common law of contracts and contract formation sections of the Uniform Commercial Code, but it avoids any reference to the numerous cases that have refused to enforce post-formation limitations on buyers' rights. Rather, the court relies on the general formation section of the UCC, 2-204(1), that allows a contract to be made in any reasonable manner, including conduct by the parties. It states the truism that, "A vendor, as master of the offer, may invite acceptance by conduct and may propose limitations on the kind of conduct that constitutes [page 32] acceptance." Recognizing that a contract can be, and often is, formed by paying the price and walking out of the store, the court insists that the UCC recognition of contract formation in any reasonable manner would include a prolonged formation process where the buyer becomes aware of post-purchase terms only upon delivery of the goods and can either accept such terms by failing to object to them within the time frame prescribed by the terms "inside the box," or reject them and have the purchase price returned.
The court attempts to distinguish Step-Saver Data Systemsfirst, by the startling suggestion that the defendant was a consumer and 2-207 does not apply to transactions involving non-merchants. Such a construction, however, would eliminate the first sentence of section 2-207(2) and reject considerable case law to the contrary. The second basis for distinguishing Step-Saver is equally flawed, i.e., the notion that Step-Saver involved two forms while ProCD involved only one form and was, therefore, not a "battle of the forms" case. Beyond the fact that 2-207(1) refers to "a confirmation," the court ignores cases such as Dorton v. Collins & Aikman Corp.,an oft-cited case in judicial discussions of 2-207, involving a single confirmation containing different or additional terms to which the court applied 2-207. Most important, the court ignores the essential rationale for the inclusion of confirmations in 2-207 as one of its two principal targets: "The one is the written confirmation, where an agreement has been reached either orally or by informal correspondence between the parties and is followed by one or both of the parties sending formal memoranda embodying the terms so far as agreed upon and adding terms not discussed." Section 2-207(1) clearly applies to a single confirmation of an existing contract where the confirmation contains different or additional terms. [page 33]Still another departure from precedent is the court's notion that the buyer's silence constitutes acceptance. Where a post-purchase standardized form suggested various types of assent to the terms in the form, a court emphatically rejected any notion of a UCC change in the common law negation of silence or inaction as a mode of acceptance. Section 2-207, however, may be said to allow the inclusion of an additional term by silence in a certain context. Comment 6 suggests that the failure to object to an additional term may be fairly regarded as the equivalent of assent to such a term under 2-207(2)(c). This possibility, however, not only fails to support the ProCD analysis but further refutes it. First, it would apply only to a contract between merchants since a contract involving a non-merchant would consign such a term to the status of a mere proposal requiring express assent. Second, it would apply only to immaterial additional terms since any material alteration would be excised under 2-207(2)(b). The court's analysis, therefore, not only lacks UCC support, it is diametrically opposed to its manifest purposes.
Apart from these failed attempts to distinguish prior cases and the distorted constructions of UCC contract formation sections, it may have been possible to treat ProCD as a justified aberration since the defendant could not have been unfairly surprised or oppressed to discover a single-user limitation of mass marketed software. Beyond the slim reed of a small print notice of terms inside the box, the defendant could hardly justify using the work product of the plaintiff to establish a new business in competition with the plaintiff in exchange for a $150 retail purchase price. The single-user limitation could have been enforced as a decent term in any software license that any licensee should contemplate as part of the contract. Any hope for such a narrow precedent was quickly dashed, however, by another Seventh Circuit offering the following year.
In Hill v. Gateway 2000, Inc.,the Hills purchased a computer by telephone, providing their credit card number for payment. No statement, in small print or otherwise, appeared on the outside of the box containing the computer other than "fragile," and "[t]his side up." Terms inside the box, however, required any dispute between the parties to be submitted to arbitration and bound the buyers to such terms unless they objected within 30 [page 34] days, again ignoring the fundamental common law principle that silence may not constitute acceptance. If the buyers had objected to the post-purchase terms, their sole remedy would have been the return of the purchase price. The buyers did not object to the terms within 30 days. Subsequently, they discovered defects in the product and sought to enforce certain express warranty terms provided by the seller. The defendant insisted on arbitration. The lower court refused to enforce the arbitration clause on the footing that there was insufficient notice of the clause. Refusing to limit the ProCD analysis to software, the Seventh Circuit reversed, stating that the buyers accepted the post-purchase terms by their silence. The court emphasized the impracticability of a seller's agent such as a cashier in a store or a telephone agent reading boilerplate terms to a buyer during the formation process.
Curiously equating the post-purchase terms that subtract protection with post-formation express warranties that have been recognized since the inception of the UCC, the court sanctions what has been christened a rolling contract or layered contract theory of formation. When a buyer pays for an item at a store or agrees to purchase it by telephone or through the Internet and pays for the product via credit card, the formation process is not complete under this theory. The next stage in the formation process is said to be the delivery of the goods with hitherto unknown terms and conditions which the [page 35] buyer may either accept or reject. Rejection allows only the return of the purchase price since the post-purchase exclusion of other buyer's UCC remedies is enforceable. Another flaw in the analysis is quickly revealed.
If the contract is not formed upon the delivery of the goods with different or additional terms inside the box, there is no contract remedy available to the buyer upon delivery of the goods and no contract is recognized under the "rolling" theory though payment has been made and the goods have been delivered. Absent any contract rights or duties, the buyer would have its common law remedy in restitution, an action in quasi contract, measured by the benefit conferred on the seller. By insisting that the return of the purchase price is an enforceable term among the seller's hitherto secret terms, however, the court unwittingly finds a formed contract as soon as the buyer becomes aware of the hidden terms -- one that forces the buyer to choose between assenting to terms dictated by the seller or rejecting such terms and recovering the purchase price.
While it is clear that this analysis is contrary to any reasonable interpretation of UCC Article 2, the pervasive flaws have not deterred two other courts from adopting it, though there are contrary views. One of the courts adopting the ProCD analysis found support in a proposed new statute that expressly favors the analysis.
J. Uniform Computer Information Transactions Act (UCITA)
While courts have applied the provisions of Article 2 to software transactions, such transactions are not contracts for the sale of goods. They involve licenses rather than sales and intellectual (intangible) property rather than goods. [page 36] UCITA originated as an addition to a proposed revision of Article 2 under a "hub and spoke" concept that would have set forth basic principles for both sales of goods and computer information transactions followed by separate chapters devoted to the particular aspects of each type of transaction. This concept was rejected, first in favor of creating a new Article of the UCC, Article 2B, just as leases of goods found a separate home in Article 2A. When the American Law Institute (ALI) and the National Conference of Commissioners on Uniform State Laws (NCCUSL) could not agree on a draft of Article 2B as part of the Uniform Commercial Code, it was deleted from the Code and resurrected as an exclusive NCCUSL product under its current name.
At the time of this writing, UCITA has been enacted in two states, Virginia and Maryland. It is, however, subject to considerable criticism. In light of the difficulties encountered in attempts to revise Article 2, the question of the reconciliation of certain contracts principles between Article 2 and UCITA augurs considerable confusion. It should always be remembered that UCITA applies only to computer information transactions. [page 37]
The discovery of the rolling or layered contract analysis of post-purchase terms in UCITA requires a journey through several sections. If the transaction involves a "mass-market license" which is defined as a standard form designed for use in a "mass-market transaction," the buyer adopts the terms of the mass-market license by manifesting assent "before or during the party's initial performance or use of or access to information." The possibility that a party could manifest assent to post-purchase terms is confirmed in the definitions of "manifesting assent" and "opportunity to review." The general definition of "manifesting assent" requires knowledge or, at least, an opportunity to review the record of license terms, but there is an express recognition that such an opportunity to review may occur after a party is obligated to pay or begins performance, conditioned on the party's right to reject the terms and have the purchase price returned. These concepts are confirmed and elaborated in the section addressing mass-market licenses where, in addition to the return of the purchase price, the buyer who rejects the license terms may also be reimbursed for reasonable expenses incurred in complying with the licensor's instructions for return or destruction of the computer information or simply reasonable postage or other expenses in returning it.
Where the transaction does not involve a "mass-market" license, the terms of a record may still be adopted after performance or use of the information has begun, but only if the parties had reason to know that their agreement would be represented by terms in a record that there would be no opportunity to review before performance or use began.
The wide use of post-purchase licenses in the computer information industry prior to the ProCD analysis or UCITA was more than questionable as a matter of contract law. Absent enactment of UCITA or judicial adoption [page 38] of a ProCD analysis, the enforcement of such post-purchase terms remains dubious.
K. UCITA and the "Battle of the Forms"
UCITA dramatically changes the current Article 2 concept of the "battle of the forms." The essential change is found in the opening UCITA language: "[A] definite and seasonable expression of acceptance operates as an acceptance, even if the acceptance contains terms that vary from the terms of the offer, unless the acceptance materially alters the offer."
Under UCITA, it is impossible for a response to constitute an acceptance if it contains any material alteration. It is difficult to reconcile a comment to the UCITA "battle of the forms" section suggesting that it conforms to section 2-207(1) of Article 2. By characterizing any "acceptance" containing a materially different term as a counteroffer, UCITA clearly directs a return to a version of the pre-UCC "last shot" principle and an analysis that is highly reminiscent of a severely criticized and rejected early interpretation of 2-207. If the acceptance contains immaterial additional terms, UCITA [page 39] recognizes a contract based on the terms of the offer. Immaterial terms that conflict with the terms of the offer are not part of the contract, but additional nonmaterial terms are viewed as proposals for addition to the contract unless the transaction is between merchants where such terms become part of the contract, absent notice of objection by the offeror. Where a material alteration in response to an offer precludes contract formation, the parties may proceed to form a contract by conduct. The terms of the conduct contract will be the terms to which the parties expressly agreed as well as trade usage, course of dealing and course of performance, the information or information rights involved and other relevant circumstances. If necessary, a court may also utilize the supplementary principles of UCITA. Where an offer or acceptance is conditioned on agreement by the other party to the terms of the offer or acceptance, no contract is formed unless the other party agrees to such terms. Where such an offer or acceptance is conditioned on acceptance of terms in standard forms but a party proceeds to perform notwithstanding a lack of assent to its standard terms, such a party adopts the terms of the offer except for any terms in the conditional offer that conflict with any expressly agreed terms on price or quantity.
Another conspicuous difference between the UCITA and Article 2 version of the "battle of the forms" is the total absence of any mention of confirmations in the UCITA version. It will be recalled that Karl Llewellyn was particularly concerned about confirmations that contained terms additional to or different from the terms of an oral contract. Additional or different terms in such confirmations were accorded the same treatment as such terms in an acceptance.
The absence of any mention of confirmations in the UCITA version is necessitated by the "rolling" or "layered" contract concept. UCITA deliberately avoids the concept of a formed contract (e.g., an oral contract) later confirmed in a record. The final formation will not occur until after a party has an opportunity to review different or additional terms inside the box. Notwithstanding any prior understanding of such terms, and even though the goods have been delivered and payment has been made, the buyer will be [page 40] said to assent to hitherto unknown terms by silence a reasonable time after having an opportunity to review the terms. This is the final "layer" of the formation process.
By postponing the time of formation until after the previously unrevealed terms have been divulged, the terms cannot be characterized as additional or different terms since there is no existing contract to which terms could be added or with which such belated terms could possibly differ. Moreover, there can be no confirmation of such a "contract" since there never was any contract to confirm. Thus, what used to be characterized as a "confirmation" is not a confirmation. Silent acquiescence in such terms constitutes the final phase of acceptance of the offer forming a completed contract
Where UCITA governs, courts must apply an analysis to any "battle of the forms" computer information transaction that is completely different from a 2-207 analysis. The justification for emasculating the last vestige of the underlying purposes of simplifying. Clarifying and assuring uniformity in the law governing commercial transactions is not discoverable in UCITA. Moreover, to effectuate the underlying purpose of modernizing the law to include computer information transactions, amendments and additions to UCC Article 2 may have been highly preferable to a cumbersome statute that makes radical changes of Article 2 concepts for the apparent purpose of preserving and protecting practices desired by a particular industry.
L. CISG and the "Battle of the Forms" - UNIDROIT Principles
In light of the confusion and complexity surrounding UCC section 2-207, the framers of the CISG chose not to follow it. By treating a reply to an offer containing additions, limitations or other modifications as a counteroffer that rejects the offer, a court states that CISG "reflects the common law's [page 41] 'mirror-image' rule" and the attendant "last shot" principle. The statement, however, is not entirely accurate. A response will operate as an acceptance if it merely contains different or additional terms that do not materially alter the offer unless the offeror objects to the immaterial term. This apparent relaxation of the "mirror-image" rule is significantly narrowed, however, by a broad list of different or additional "material" terms which includes, "among other things," the price, payment, quality, and quantity of the goods, place and time of delivery, extent of liability or the settlement of disputes. All are viewed as material terms. Since there are no comments in CISG, one can only wonder what might be included under "other things." The CISG solution also suggests another negative ramification.
CISG does not follow the "dispatch" ("mailbox") rule. The acceptance becomes effective when received within the time stated in the offer or, where no time is stated, within a reasonable time, though an offer does become irrevocable once an acceptance is dispatched. The acceptance is complete upon its receipt by the offeror, but if an offeror discovers an immaterial term in the acceptance, he can nullify the acceptance by objecting to the immaterial term. Thus, an offeror who has second thoughts about the bargain has an opportunity to withdraw unilaterally simply by discovering an immaterial variation in a definite expression of acceptance. Whatever justifiable criticism may be levied at section 2-207, its treatment of such immaterial terms upon objection by the offeror, in 2-207(2)(c), that excises the variant term but leaves the contract intact seems highly preferable. [page 42]
The UNIDROIT Principles ("Principles") include an Article" replicating the CISG treatment, but also contains a recognition of the unfairness of the "last shot" rule induced special treatment of the "battle of the forms." Principles defines "standard terms" as provisions prepared in advance for general and repeated use without negotiation. Unlike the UCC, Principles first deals with standard terms in a single form presented by one party and accepted by the other, i.e., where there is no "battle of the forms." Though recognizing the concept that a party should be bound by standard terms that she has accepted regardless of knowledge of their contents, Principles includes an "important exception" to this rule by relieving the party of the effect of standard terms which she should not "reasonably have expected" to be included in the standardized form. The purpose is to avoid unfair surprise to a reasonable party who may not, under the surrounding circumstances, expect such a term. [page 43]
The "battle of the forms" is then addressed. Principles recognize that such boilerplate terms are ignored on such standardized forms as purchase orders and acknowledgments, i.e., these terms may conflict with each other, notwithstanding agreement on negotiated terms that Karl Llewellyn would call "dickered" terms. Where, therefore, the negotiated terms match but the standard terms conflict, Principles finds a contract on the matching dickered terms as well as matching standard terms while excising any non-matching standard terms. If, however, a party clearly informs the other party either in advance or later, without undue delay, that it does not intend to be bound except on its standard terms, such a manifestation of intention will preclude the formation of a contract except on its terms. This provision rejects the "last shot" rule unless a party clearly expresses its unwillingness to contract except on its standard as well as negotiated terms. A statement expressing such unwillingness in the standard (boilerplate) terms will normally not be sufficient. It must appear in the "non-standard" terms where it would be more likely to be noticed. Thus, Principles suggests that the kind of formula counteroffer recognized by the UCC would not be effective. Assuming matching non-standard terms and no clear statement of unwillingness to contract except on one's standard terms, Principles expressly adopts the "knockout doctrine" to deal with conflicting standard terms.
M. Comparing UCC Section 2-207, CISG and "Principles"
A comparison of the "battle of the forms" in section 2-207, CISG and Principles suggests the following:
Section 2-207 has a noble purpose. In keeping with the Llewellyn concept of discovering the best approximation of the true bargain of the parties rather than a manufactured contract encrusted with technical rules, the critical change was much more fundamental than refusing to recognize responses as counteroffers simply because they contained different or additional boilerplate terms. The critical change denied legal effect to certain standardized terms. Notwithstanding the recognition that reasonable people do not read or understand boilerplate clauses, there is little change in the strong judicial reluctance to alter the sacred common law principle that one is bound by what he signs or to which he otherwise assents, absent the usual suspects of fraud, duress, mistake or undue influence. Karl Llewellyn insisted that a party should not be bound by terms which a reasonable party would not expect to become terms of the contract. The two basic weapons he employed in this battle were 2-207 and the unconscionability section, 2-302, which share the identical fundamental purpose -- to avoid unfair surprise, hardship and oppression. Section 2-207 was designed to serve this purpose by precluding certain terms that reasonable parties ignore from [page 46] entering the contract, an "incipient unconscionability" concept. Section 2-302 was designed to deny effect to terms within an existing contract that unfairly surprise a party through a defective bargaining process or to terms that are so one-sided as to oppress an innocent party. Though Llewellyn deemed this thrust to be the most important initiative in his Article 2 product, 2-207 is chaotic while 2-302 is largely ignored. Where there is no battle of the forms because the parties execute only one standardized document, with only isolated exceptions, efforts to avoid unfair surprise and oppression to the party against whom the boilerplate is designed to operate have failed. The tension, as it has always been, is between the fear of undermining the stability and certainty of written evidence of the contract and the reluctance to enforce terms that would be manifestly unfair to the party against whom they are designed to operate. In the more egregious cases, earlier courts resorted to "covert tools" that Llewellyn deemed unreliable. Recognizing that "an approach by statute [is] dubious, uncertain and likely to be both awkward in manner and deficient and spotty in scope," Llewellyn created a general unconscionability principle and spare guidelines in 2-207. He would rely upon courts to develop a common law analysis of these directives to confront this "most baffling, most troubling and almost unreckonable situation." As the judicial record of sections 2-207 and 2-302 so convincingly demonstrates, he overestimated the capacity of courts to provide a reasoned elaboration of his noble purpose. [page 47]
International contracts for the sale of goods suggests a clear common law answer under CISG, essentially a return to the "last shot" principle. UNIDROIT Principles, however, present a more hopeful analysis. In domestic law, the new trend suggests an acquiescence in terms that are not available for review prior to the completion of the transaction.
The need to address these issues has been clear for more than a quarter century. As the new millennium dawns, the chaos is exacerbated and the need becomes critical. [page 48]
* Copyright 2000. This article is based on material contained in the forthcoming fourth edition of Murray on Contracts to be published in 2001.
** President and Professor of Law, Duquesne University. Former Dean of the University of Pittsburgh and Villanova University Schools of Law.
1. The tortured history of the decade-long revision effort includes a May 1999 draft approved by the American Law Institute (ALI) that was rejected the following July by the National Conference of Commissioners on Uniform State Laws (NCCUSL). The Reporter, Professor Richard Speidel and his Associate Reporter, Professor Linda Rusch, resigned. A new Committee with Professor Henry Gabriel as Reporter assembled a simpler draft that NCCUSL did not approve in August of 2000. Both the ALI and NCCUSL indicate that they will review another draft in 2001, available at <http://www.law.upenn.edu/bll/ulc/ulc_frame.htm>. John E. Murray, Jr., The Revision of Article 2 of the UCC: Romancing the Prism, 35 WM. & MARY L. REV. 1447 (1994) (for an analysis of an earlier revision draft); John E. Murray, Jr. & Harry Flechtner, The Summer 1999 Draft of Revised Article 2 of the Uniform Commercial Code: What Hath NCCUSL Rejected?, 19 J.L. & COM. 1 (for an analysis of the 1999 (Speidel) version).
2. Richard Hyland, Draft, 97 COLUM. L. REV. 1343, 1350 (1997).
3. The court in Phillips Petroleum Co. v. Bucyrus-Erie Co., 388 N.W.2d 584, 590 (Wis. 1986) recognized the "Byzantine complexities" associated with an exchange of forms under section 2-207.
4. See infra text pp. 30-36.
5. ProCD v. Zeidenberg, 86 F.3d 1447, 1452 (7th Cir. 1996) and Hill v. Gateway 2000, Inc., 105 F.3d 1147, 1150 (7th Cir. 1997).
6. See infra text p. 37.
7. See infra text p. 37.
8. The configuration included general principles as a "hub" and "spokes" of the hub specializing in sales of goods and computer information transactions. See, e.g., Marion W. Benfield & Peter A. Alces, Reinventing the Wheel, 35 WM. & MARY L. REV. 1405, 1408 (1994); Raymond T. Nimmer, Intangible Contracts: Thoughts of Hubs. Spokes and Reinvigorating Article 2, 35 WM. & MARY L. REV. 1337, 1339, 1341 (1994).
9. The Uniform Computer Information Transactions Act (UCITA) in current form as well as prior drafts may be found at the NCCUSL web site address, supra note 1.
10. The United Nations Convention on Contracts for the International Sale of Goods became effective in the United States on January 1, 1988 and now includes 57 other nations.
11. The International Institute for the Unification of Private Law (UNIDROIT) produced the UNIDROIT principles of International Commercial Contracts (1994), typically referred to as "Principles." They are not designed as a uniform law like CISG for adoption throughout the world. Rather, they serve as a restatement of international commercial law upon which courts throughout the world may rely. While based on CISG, they are broader than CISG (e.g., CISG does not deal with "validity" issues such as mistake, fraud, duress or unconscionability). "Principles" available at <http://www.unidroit.org/english/principles/contents.htm>.
12. John E. Murray, Jr., The Chaos of the Battle of the Forms: Solutions, 39 VAND. L. REV. 1307, 1309, 1311 (1986).
13. UCC § 2-207(1)-(3). After numerous drafts, the latest (Aug. 2000) "Battle of the Forms" draft in the UCC Article 2 (Gabriel) revision that was not approved by NCCUSL reflects an earlier decision by the prior (Speidel) drafting committee to separate formation issues from the issue of which terms will be operative in the resulting contract. A new subsection (c) was added to UCC section 2-206 to deal with the formation question: "(a) definite and seasonable expression of acceptance in a record operates as an acceptance if it contains terms additional to or different from the offer." The revised section 2-207 is then simplified: "[I]f (i) conduct by both parties recognizes the existence of a contract although their records to not otherwise establish a contract. (ii) a contract is formed by an offer and acceptance. or (iii) a contract formed in any manner is confirmed by a record but contains terms additional to or different from those in the contract being confirmed, the terms of the contract, subject to section 2-202 [the parol-evidence rule], are: (1) terms that appear in the records of both parties; (2) terms whether in a record or not to which both parties agree; and (3) terms supplied or incorporated under any provision of [the Uniform Commercial Code]." The August 2000 draft and prior drafts of the UCC may be found at the NCCUSL web site, address supra note 1.
14. Idaho Power Co. v. Westinghouse Elec. Corp., 596 F.2d 924, 926 (9th Cir. 1979). In situations, where the UCC does not apply, the common law rule is unchanged. Olin Corp. v. Grinnell Corp., No. 97-C8882, 1997 U.S. Dist. LEXIS 14351 at *62 (E.D. Mich. 1997). RESTATEMENT (SECOND) OF CONTRACTS § 59 cmt. a. (1981) suggests that "a definite and seasonable expression of acceptance is operative despite the statement of additional or different terms if the acceptance is not made to depend on assent to the additional or different terms." Such terms are "to be construed as proposals for modification of the contract." This attempt to recognize UCC section 2-207, however, should not be seen as affecting any significant change in the common law rule. Rather, it is nothing more than a recognition of the traditional rule that an acceptance may be valid if it is independent of any conditional terms contained therein. Ardente v. Horan, 366 A.2d 162, 165 (R.I. 1976).
15. The statute is a "murky bit of prose," Southwest Eng'g Co. v. Martin Tractor Co., 473 P.2d 18, 25 (Kan. 1970); "[t]he statute is not too happily drafted," Roto-Lith, Ltd. v. F.P. Bartlett & Co., 297 F.2d 497, 500 (1st Cir. 1962); section 2-207 is "[a]n enigmatic section of the Code," Ebasco Servs., Inc. v. Pennsylvania Power & Light Co., 460 F. Supp. 163, 205 (E.D. Pa. 1978); section 2-207 is "one of the most important, subtle and difficult in the entire Code, and while it may be said that the product as it finally reads is not altogether satisfactory." R.. Deusenberg & L. King, Sales and Bulk Transfers, 3 Bender's UCC Serv. § 3.02 (1986) ("The 1952 version of 2-207 was bad enough ... but the addition of subsection (3) without the slightest explanation of how it was supposed to mesh with (1) and (2) turned the section into a complete disaster." (Professor Grant Gilmore (who worked with Karl Llewellyn) in a letter to Professor Robert Summers of the Cornell Law School, quoted in R. SPEIDEL, R. SUMMERS & J. WHITE, COMMERCIAL AND CONSUMER LAW 54-55 (3d ed. 1981)).
16. The common law rule is also accurately called the "matching acceptance" rule, i.e., to be an acceptance, the response must exactly match the terms of the offer. The phrase "mirror-image" has been chosen not because it is inherently preferable, but because of its widespread use in judicial opinions. It is also important to recognize that courts will not adhere to the rule if additional or different terms can be construed to be mere requests or suggestions with no intention of demanding that such terms become part of the contract. See, e.g., Kodiak Island Borough v. Large, 622 P.2d 440 (Alaska 1981) (suggested method of payment); see also RESTATEMENT (SECOND) OF CONTRACTS § 61. If, however, a response imposes a condition on the "acceptance," it is a counteroffer. Ardente, 366 A.2d at 162.
17. UCC § 2-207(1).
18. See, e.g., Idaho Power Co., 596 F.2d at 926; Gardner-Zemke Co. v. Dunham Bush, Inc., 850 P.2d 319, 322 (N.M. 1993); Diamond Fruit Growers, Inc. v. Krack Corp., 794 F.2d 1440, 1443 (9th Cir. 1986); C. Itoh & Co. (American) Inc. v. Jordan Int'l Co., 552 F.2d 1228, 1234 (7th Cir. 1977); Hohenberg Bros. Co. v. Killebrew, 505 F.2d 643, 646 (5th Cir. 1974); Uniroyal, Inc. v. Chambers Gasket & Mfg. Co., 380 N.E.2d 571, 575 (Ind. App. 1978); Steiner v. Mobil Oil Corp., 569 P.2d 751, 757 (Cal. 3d 1977); Dorton v. Collins & Aikman Corp., 453 F.2d 1161, 1166 (10th Cir. 1972).
19. The phrase, "dickered term" is found in the famous passage of Karl Llewellyn: "Instead of thinking about 'assent' to boiler plate clauses, ... [w]hat has in fact been assented to, specifically, are the few dickered terms and ... a blanket assent (not a specific assent) to any not unreasonable or indecent terms the seller may have on his form. ..." KARL N. LLEWELLYN, THE COMMON LAW TRADITION: DECIDING APPEALS 370 (1960) (emphasis added). "Dickered" terms are terms to which the parties consciously advert as contrasted with the fine print boilerplate terms which they typically ignore. Moreover, courts will also recognize a counteroffer with respect to standardized (boilerplate) terms if the response to the offer clearly insists upon such terms. See infra "CounterOffer Riddle."
20. See, e.g., United Foods, Inc. v. Hadley-Peoples Mfg. Co., No. 02A01-9303-CH-00111, 1994 Tenn. App. LEXIS 211, at *14 (1994) (citing Howard Const. Co. v. Jeff-Cole Quarries, Inc., 669 S.W.2d 221, 229 (Mo. App. 1983); see also Koehring Co. v. Glowacki, 253 N.W.2d 64, 67-68 (Wis. 1977); Duval & Co. v. H.A. Malcom, 214 S.E.2d 356, 358 (Ga. 1975).
21. The "mirror-image" rule characterizes such a response to an offer as a "conditional acceptance" which is a counteroffer. The reaction of Karl Llewellyn was clear: "Those unhappy cases which find a condition where no businessman would find one are carefully disapproved." State of NY Law Revision Commission Hearings on the Uniform Commercial Code, 1954 Leg. Sess. 55 (N.Y. 1954) [hereinafter NY Hearings]; see also John E. Murray, Jr., Section 2-207 of the Uniform Commercial Code: Another Word About Incipient Unconscionability, 39 U. PITT. L. REV. 597, 601 et seq. (1978). Comments to section 2-207 clearly support this analysis. Comment 1 recognizes the commercial reality that, "[b]ecause the [printed] forms are oriented to the thinking of the respective drafting parties, the terms contained in them often do not correspond. Often the seller's form contains terms different from or additional to those set forth in the buyer's form. Nevertheless, the parties proceed with the transaction." UCC § 2-207 cmt. 1. The implication is clear: section 2-207 recognizes the commercial reality that parties, including merchants, do not read or understand such non-matching, printed, clauses and that this conduct is not unreasonable. Comment 2 supports the underlying philosophy of Article 2, "Under this Article a proposed deal which in commercial understanding has in fact been closed is recognized as a contract." UCC § 2-207 cmt. 2.
22. Illustrations of the anti-technical design include: "[t]his act shall be liberally construed and applied to promote its underlying purposes and policies." UCC § 1-102(1); "[r]emedies to be Liberally Administered," is designed, "to negate unduly narrow or technical interpretation of some remedial provisions of prior legislation." UCC § 1-106 cmt. 1. Examples of the anti-technical nature of Article 2 include; section 2-204 (providing that a contract may be made in any manner, it does not fail because the moment of its making cannot be determined nor because one or more terms is missing); section 2-206 cmt. 1 ("Former technical rules as to acceptance ... are rejected"); section 2-205 (recognizing "firm offers"), and; section 2-209(1) (providing that an agreement modifying a contract needs no consideration to be binding). John E. Murray, Jr., The Article 2 Prism: The Underlying Philosophy of Article 2 of the Uniform Commercial Code, 21 WASHBURN L.J. 1, 19 (1981).
23. UCC section 2-104(3) defines the phrase, "between merchants" as "any transaction in which both parties are chargeable with the knowledge and skill of merchants." "Merchant" is defined in section 2-104(1). As Comment 2 to this section suggests, for most of the sections of Article 2, "merchant" has a broad meaning referring to virtually anyone in business. Other sections, e.g., section 2-314, the implied warranty of merchantability, apply a more narrow definition to "merchant," i.e., a party who regularly deals in goods of that kind. Providence & Worcester Railroad Co. v. Sargent & Greenleaf, 802 F. Supp. 680, 685 n.2 (D.R.I. 1992) (case involving the definition of "merchant" with respect to 2-207).
24. Lucien Bourque, Inc. v. Conkrite, 551 A.2d 196 (Me. 1989) (emphasis added); see also Lemmer v. IDS Properties, Inc., 304 N.W.2d 864, 810 (Minn. 1980) ("Under 2-207(2), such additional terms are construed as proposals for additions to the contract. Where the transaction is not between merchants, the proposals do not become part of the contract unless they are agreed to by the affected party.").
25. In ProCD, Inc., 86 F.3d at 1452, the court seeks to distinguish cases involving 2-207 by suggesting that, "these are not consumer transactions."
26. One of the rarely noticed major changes effected by Article 2 of the UCC and later adopted by the RESTATEMENT (SECOND) OF CONTRACTS was the elimination of the exception to the general common law rule that the offeror is the master of the offer as found in RESTATEMENT (FIRST) OF CONTRACTS § 63 (1932). The exception allowed a performance acceptance notwithstanding an offer that required a promissory acceptance. The "doubtful" or "indifferent" offer was viewed as the the exception under pre-UCC concepts. Under sections 2-204 and 2-206, however, the doubtful offer has become the normal or typical offer and the offeror has become the master of the offer without exception. RESTATEMENT (SECOND) OF CONTRACTS § 62 (reporter's notes). For a comprehensive analysis, see JOHN E. MURRAY, JR., MURRAY ON CONTRACTS § 45 C. (3d ed. 1990).
27. UCC § 2-207(2)(a).
28. Id. § 2-207(2)(c).
29. Id. § 2-207(2)(b) (emphasis added).
30. "In a word, the existing law is confused and uncertain. Some improvement is to be hoped from the provision of section 2-207(2) which allows minor additional terms to enter the contract without the express consent which (more frequently than not) never occurs. What terms will be construed as 'materially' altering the contract is indeed a question for the courts' determination; but at least the Code focuses the question." NY Hearings, supra note 21, at 56 (statement of Karl Llewellyn). The comments to section 2-207 contain illustrations of material versus immaterial alterations. A prime example of a material alteration is a disclaimer of warranty clause and another is a cancellation clause (Cmt. 4). If an additional term merely specified a reasonable time for part of the performance within customary time limits, it would be an immaterial addition and would not be subject to excision under section 2-207(2)(b) cmt. 5.
31. Comment 4 to section 2-207 indicates that the test for a material alteration is "whether the variant term in the acceptance would result in surprise or hardship if incorporated without express awareness by the other party. ..." UCC § 2-207 cmt. 4. Comment 5, dealing with immaterial alterations, suggests the converse, i.e., "clauses which involve no element of unreasonable surprise and which therefore are to be incorporated in the contract unless notice of objection is seasonably given. UCC § 2-207 cmt. 5.
32. Bayway Refining Co. v. Oxygenated Marketing & Trading Co., 215 F.3d 219, 223 (2d Cir. 2000) (cases cited therein); see also Jom, Inc. v. Adell Plastics, Inc., 193 F.3d 47, 57 (1st Cir. 1999); In re Chateaugay Corp., 162 B.R. 949, 955 (S.D.N.Y. 1994); Maxon Corp. v. Tyler Pipe Indus., Inc., 497 N.E.2d 570, 576 (Ind. App. 1986); Trans-Aire Int'l, Inc. v. Northern Adhesive Co., Inc., 882 F.2d 1254, 1260-61 (7th Cir. 1989); Dale R. Homing Co. v. Falconer Glass Indus., Inc., 730 F. Supp. 962, 965-66 (S.D. Ind. 1990). The principle of avoiding oppression and unfair surprise also underlies the UCC concept of unconscionability in section 2-302. There is considerable overlap between sections 2-207 and 2-302. The essential difference may be seen as avoiding unfair surprise and hardship as a threshold matter by precluding certain terms from becoming operative terms of the contract ab initio under section 2-207, and then, under section 2-302, permitting courts to excise terms from an existing contract if their operation would cause unfair surprise or hardship to the party against whom they are designed to operate. UCC § 2-302 cmt. 1 (suggesting that the principle of unconscionability "is one of the prevention of oppression and unfair surprise..."); see also Murray, supra note 21, at 606-08 (providing an analysis of the sections in terms of the identity of underlying principle).
33. See generally Bayway Ref Co., 215 F.3d at 223; In re Chateaugay Corp., 162 B.R. at 949.
34. See generally Trans-Aire Int'l, Inc., 882 F.2d at 1262; Dale R. Homing Co., 730 F. Supp. at 967.
35. UCC § 2-207 cmt. 4 (referring to surprise or hardship).
36. In Union Carbide Corp. v. Oscar Meyer Foods Corp., 947 F.2d 1333, 1336 (7th Cir. 1991) the court suggests the following "gloss": "[a]n alteration is material if consent to it cannot be presumed." The court explains that this is equivalent to "unreasonable surprise" since what is expected is unsurprising, but what is unexpected is surprising.
37. Bayway Ref Co., 215 F.3d at 226 (quoting Union Carbide Corp., 947 F.2d at 1336); and (citing Suzy Phillips Originals, Inc. v. Coville, Inc., 939 F. Supp. 1012, 1017-18 (E.D.N.Y. 1996) and In re Chateaugay Corp., 162 B.R. at 957).
38. UCC § 2-209(i) (providing that good faith modifications require no consideration in order to be binding).
39. UCC § 1-201(3) defines "agreement" as including course or dealing or usage of trade along with course of performance as these terms are defined in UCC sections 1-205 and 2-208.
40. UCC § 2-202 cmt. 2.
41. See, e.g., Step-Saver-Data Sys., Inc. v. Wyse Tech., 939 F.2d 91, 104 (3d Cir. 1991); Trans-Aire Int'l, Inc., 882 F.2d at 1262-63 n.9. Accord In re CLFC, Inc., 166 F.3d 1012, 1017 (9th Cir. 1999); PCS Nitrogen Fertilizer, L. P. v. Christy Refractories, L.L.C., No. 99-1260, 2000 U.S. App. LEXIS 23314, at *21 (8th Cir. 2000).
42. Step-Saver Data Sys.. Inc., 939 F.2d at 104.
43. UCC § 1-205(1).
44. Bayway Ref Co., 215 F.3d at 223 (cases cited therein).
45. Id. at 225 n.4 (suggesting the fairness of not imposing the burden of proving a negative on the party claiming surprise).
46. UCC § 2-207 cmt. 4. Other examples of "material" alterations in this comment include a clause requiring a guaranty of performance exceeding the trade usage, a clause reserving to the seller a power to cancel the contract upon the buyer's failure to meet any invoice when due, and a clause requiring that complaints be made in a time materially shorter than customary or reasonable.
47. Glyptal, Inc. v. Engelhard Corp., 801 F. Supp. 887, 894-95 (D. Mass. 1991); Tuck Indus., Inc. v. Reinhold Chems., Inc., 542 N.Y.S.2d 676, 678 (1989); see also In re Chateaugay, 162 B.R. at 958 n.8 (approvingly citing both cases for the proposition that "[w]arranty disclaimers are universally viewed as material alterations under UCC Section 2-207(2)(b) and do not become part of the parties' contract.").
48. Trans-Aire Int'l, Inc., 882 F.2d at 1254; Maxon Corp., 497 N.E.2d at 576.
49. Avedon Eng'g, Inc. v. Seatex, 126 F.3d 1279, 1284 (10th Cir. 1997). The party favoring the clause has the burden of proving that it became a term of the agreement through trade usage or prior course of dealing, while the party opposing the clause must show surprise that was unreasonable.
50. Marlene Indus. Corp. v. Carnac Textiles, Inc., 380 N.E.2d 239, 242 (N.Y. 1978) (insisting on the per se characterization followed a year later by Schubtex, Inc. v. Allen Snyder, Inc., 399 N.E.2d 1154, 1156 (N.Y. 1979) (allowing evidence of trade usage and prior course of dealing)).
51. UCC § 2-207 com. 5. Examples include a clause slightly enlarging the otherwise statutorily accepted excuses for non-performance beyond the seller's control or a clause setting forth a reasonable proration formula where the seller is justifiably excused from full performance. Clauses fixing a reasonable time for issuing complaints within customary limits or providing for inspection by a sub-purchaser are immaterial alterations as are clauses providing for interest on overdue invoices, fixing the seller' s standard credit terms when they are within the range of trade practice or clauses limiting the right of rejection for defects that fall within customary trade tolerances.
52. See, e.g., Altronics of Bethlehem, Inc. v. Repco, Inc., 957 F.2d 1102, 1107-08 (3d Cir. 1992); National Controls, Inc. v. Commodore Bus. Mach., Inc., 163 Cal. 3d 688 (Cal. Ct. App. 1985) (relying on Air Prods. & Chem., Inc. v. Fairbanks Morse, Inc., 206 N.W.2d 414 (Wis. 1973); see also Glyptal, Inc. v. Engelhard Corp., 801 F. Supp. 887 (D. Mass. 1992)).
53. Hydraform Prods. Corp. v. American Steel & Alum. Corp., 498 A.2d 339, 343 (N.H. 1985). In Kathenes v. Quick Food Stores, 596 F. Supp. 713, 716 n.3 (D.N.J. 1984) the court states, "[i]f it is reasonable under [section] 2-719, then it is not a material alteration under 2-207 and hence becomes part of the contract." Interstate Piping & Controls, Inc. v. Robert-James Sales, Inc" 733 N.E.2d 718, 724-25 (Ill. App. Ct. 2000) (where the court disagrees with an earlier Illinois holding that an exclusion of consequential damages is a per se material alteration); Album Graphics, Inc. v. Beatrice Foods Co., 408 N.E.2d 1041, 1048 (Dl. App. Ct. 1980) (on the footing that the Album Graphics opinion relied upon Comment 4 to section 2-207 while ignoring Comment 5).
54. Dale R. Homing, Inc., 730 F. Supp. at 965. But see In re Chateaugay Corp., 162 B.R. at 949.
55. UCC § 2-207(2)(a), (c).
56. The Code does not explain, however, what happens if the offeree's response contains different term (rather than additional ones) within the meaning of Section 2-207(1). There is no consensus on that question. See generally JAMES J. WHITE & ROBERT S. SUMMERS, UNIFORM COMMERCIAL CODE 33-36 (3d ed. 1988); Murray, supra note 12, at 1354-65; Northrop Corp. v. Litronic Indus., 29 F.3d 1173, 1174 (7th Cir. 1994).
57. See JAMES WHITE & ROBERT SUMMERS, UNIFORM COMMERCIAL CODE 32 (5th ed. 2000) [hereinafter WHITE & SUMMERS].
58. UCC § 2-207 cmt. 3 (emphasis added).
59. "Between merchants, such terms become part of the contract unless: ...(2) they materially alter it." UCC § 2-207(2)(b).
60. "Some improvement is to be hoped for from the provision of 2-207(2) which allows minor additional terms to enter into the contract without that express consent which (more frequently than not) never occurs. What terms will be construed as 'materially' altering the contract is ... a question for the courts' determination." NY Hearings, supra note 21, at 56 (statement of Karl Llewellyn).
61. John L. Utz, More on the Battle of the Forms: The Treatment of "Different" Terms Under the Uniform Commercial Code, 16 UCC L.J. 103, 110-12 (1983).
62. Northrop Corp., 29 F.3d at 1175 (7th Cir. 1994) (citing Douglas G. Baird & Robert Weisberg, Rules, Standards and the Battle of the Forms: A Reassessment of Section 2-207, 68 VA. L. REV. 1217, 1246 (1982)).
63. WHITE& SUMMERS, supra note 57, § 1-3.
65. Westinghouse Elec. Corp. v. Nielsons, Inc., 647 F. Supp. 896, 900 n.3 (D. Colo. 1986); Lockheed Elec. Co. v. Ketronix, Inc., 114 Cal. App. 3d 304, 170 Cal. Rptr. 591, 595 (1981); Steiner v. Mobil Oil Corp., 569 P.2d 751, 759 (Cal. 1977); Air Products & Chems., Inc. v. Fairbanks Morse, Inc., 206 N.W.2d 414, 423 (Wis. 1977).
66. Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569 (10th Cir. 1984) (is the leading case which cites supporting cases); see also Superior Boiler Works v. R.J. Sanders, Inc., 711 A.2d 628, 635-36 (R.I. 1998); Gardner-Zemke Co. v. Dunham Bush, Inc., 850 P.2d 319, 325-27 (N.M. 1993). Indeed the majority view is so strong that a Federal Court of Appeals assumed that Illinois state courts would follow that view and therefore applied it notwithstanding its "own preferred view that assimilates 'different' to 'additional."' Northorp Corp., 29 F.3d at 1179.
69. Comment 3 is said to "go beyond the text" except as it applies to confirmations.
70. UCC § 2-207 cmt. 6 (This section reads, in part, "[w]here clauses on confirming forms sent by both parties conflict each party must be assumed to object to a clause of the other conflicting with one on the confirmation sent by himself").
71. Professor Summers (White & Summers) suggests that the arbitration term in the offer must control. Under this view, the "no arbitration" provision in the acceptance simply "falls out" (the "fallout" view has not be adopted by the courts). A much more direct criticism of the "knockout" view is suggested by Professor Farnsworth: "[t]here is, however, little reason to suppose that the drafters of the Code intended such a startling departure from the notion that the offeror is the master of the offer." E. ALLAN FARNSWORTH, CONTRACTS at 170 (3d ed. 1999). The new contract law of Article 2 of the UCC not only reaffirms the common law position that the offeror is master of the offer, but eliminates common law exceptions to that principle that were generated because of the faulty common law analyses of the agreement process. MURRAY, supra note 26. A clear illustration of the UCC insistence that the offeror is master of the offer is section 2-206(1)(a) that allows an offeror to control absolutely, with no exceptions, the manner and medium of acceptance of an offer.
72. WHITE & SUMMERS, supra note 57, § 34 (Professor White adds that while the Code does not expressly authorize this result, "it does not bar it either.").
73. Northrop Corp., 29 F.3d at 1175.
74. Id. The court expressed its preference for the "minority" view that would read "different" into UCC section 2-207(2), because it "substitutes a manageable inquiry into materiality" (citing Murray, supra note 12, at 1355). As a Federal court, however, it felt compelled to adopt the "majority" view that it assumed would be adopted in the relevant state, Illinois. Northrop Corp. , 29 F .3d at 1178.
75. This result was achieved by the Magistrate Judge who based her construction of a warranty of reasonable duration on UCC Section 2-309(1): "[t]he time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time." The buyer (offeree), in this case, rejected the goods within six months which the magistrate judge held to be a reasonable time within the period of the gap-filling warranty of reasonable duration since the product (printed wire boards) required complex testing. Section 2-601 also allows a reasonable time to reject the goods. UCC § 2-601.
76. The classic illustration is found in the case that is cited by the author of the "knockout view" as the leading authority supporting that view. WHITE & SUMMERS, supra note 57, § 35. Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569, 1579 (10th Cir. 1984) expressly adopts Professor White's position. The court construed the seller's proposal as an offer which limited the statute of limitations to one-year as expressly permitted by section 2-725(1) instead of the normal four years provided in this section. The buyer's purchase order was construed to be an acceptance containing a general statement reserving all rights and remedies available at law. The court held that this express clause was "different" from the seller's offer since it inferentially included the normal UCC statute of limitations of four years under section 2-725. The court stated that section 2-207(2) does not apply to "different" terms. Thus, the conflicting express clauses were "knocked out" leaving a gap filled by the normal period of four years. Faithful to Professor White's view, the court relied upon section 2-207 comment 6. While there was some dispute over when the cause of action in this case accrued, the court admitted that its refusal to recognize the offeror's express one-year limitation as an operative term would allow the buyer to prevail. The court also rejected an inference from the lower court's opinion that the proper interpretation would treat the buyer's term as a material alteration of the offer under section 2-207(2)(b) which would have excised it from the resulting contract, leaving the one-year limitation in the offer intact and changing the result in this case.
77. UCC § 2-207 cmt 4.
78. In Air Products. Inc., 206 N.W.2d at 424, the court held that a material alteration in an acceptance was a material alteration of the implied warranty in the offer. This court read "different" into section 2-207(2). In Altronics of Bethlehem, Inc. v. Repco. Inc., 957 F.2d 1102, 1108 (3d Cir. 1992), the court found that a limitation of remedy clause was a material alteration under section 2-207(2). It did not consider the "different" vs. "additional" dichotomy though it did cite Air Products as authority. Taft-Peirce Mfg. Co. v. Seagate Technology, Inc., 789 F. Supp. 1220 (R.I. 1992) also did not expressly consider the dichotomy in holding that a cancellation clause was a material alteration.
79. WHITE & SUMMERS, supra note 57, at § 14, claiming that Comment 4 of section 2-207 supports the characterization of warranty disclaimers as "additional" rather than "different" terms. If anything, the opposite is clearly suggested by the language. Comment 4 should be read in context with Comment 3 which begins, "[w]hether or not additional or different terms will become part of the agreement depends upon the provisions of subsection (2). If they are such as materially to alter the original bargain they will not be included unless expressly agreed to by the other party. ..." UCC § 2-207 cmt. 3 (emphasis added). Comment 4 begins, "[e]xamples of a typical clause which would normally "materially alter" the contract and so result in surprise or hardship if incorporated without express awareness by the other party are ..." Id. § 2-207 cmt. 4. Thus, Comment 4 is designed merely to illustrate material alterations as an elaboration of Comment 3 which refers to both additional and different terms. Comment 5 follows to provide illustrations of immaterial terms. Id. § 2-207 (cmt. 5). Not only does Comment 4 lack language in support of the elimination of "different," it proceeds to refer to "a clause negating such standard warranties as that of merchantability or fitness for a particular purpose. ..." Id. § 2-207 cmt. 4 (emphasis supplied). "Negating" means to deny or nullify. The statutory language, itself, deals with terms that materially alter the terms of the contract. If such terms as "alter" and "negating" are insufficient to suggest "different" terms, particularly in light of the previous Comment 3 that expressly includes additional or different terms, it is difficult to imagine what might convince Professors White and Summers who disagree, but are clearly uncomfortable with their individual analyses emanating from their insistence that section 2-207(2) does not include "different."
80. Idaho Power Co., 596 F.2d at 924 (approved in WHITE & SUMMERS, supra note 53, § 36-37); see also Polyclad Laminates, Inc. v. VITS Maschinenbau GmbH., 749 F. Supp. 342, 344 (D.N.H. 1990).
81. See supra note 69.
82. WHITE & SUMMERS, supra note 57, § 37 (insisting that the implied term in the acceptance is an "additional (not 'different') term," on the footing that Comment 4 to 2-207 supports this view.). Comment 4, however, does not support that view. UCC § 2-207 cmt. 4.
83. Jom. Inc. v. Adell Plastics. Inc., 193 F.3d 47 (1st Cir. 1999) involved a purchase order/offer that was "silent" concerning UCC implied terms while the acceptance contained a clause excluding consequential damages. The buyer argued that because its offer impliedly contained the UCC standard allowing consequential damages, it operated as notice to the seller of the buyer's objections to any additional terms in the acceptance pursuant to section 2-207(2)(c) that allows an offeror to nullify additional terms in an acceptance by notifying the offeree to that effect. The court, however, held that such notifications of objection must be expressly stated and the implied UCC default terms or gap-fillers are not sufficient to constitute such notice. This holding necessarily raised the issue of whether the buyer could prove that the remedy limitation clause constituted a material alteration that would be excised under section 2-207(2)(b). If immaterial, the remedy limitation becomes a term of the contract between merchants in accordance with the second sentence in 2-207(2).
84. Daitom, Inc., 741 F.2d at 1580.
85. Though a purchase order may appear to be an offer on its face, it will be construed as an acceptance if the parties "intended" that effect. See, e.g., Daitom, Inc., 741 F.2d 1569; Mead Corp., 654 F.2d 1196; Idaho Power Go., 596 F.2d 924; Earl M. Jorgensen Co. v. Mark Constr., Inc., 540 P.2d 978 (1975). See generally Phillips Petr. Co., Norway v. Bucyrus-Erie Co., 373 N.W.2d 65 (Wis. App. 1985), rev'd on other grounds, 388 N.W.2d 584 (Wis. 1986) (with emphasis).
86. Phillips Petr. Go. Norway, 373 N.W.2d 65, 69 (1985).
87. Southern Idaho Pipe & Steel Co. v. Cal-Cut Pipe & Supply, Inc., 567 P.2d 1246, 1253-1254 (Idaho 1917) (where the court comments: "Cal-Cut makes the argument that since its document was the offer, Southern Idaho's expression of acceptance was an acceptance of all the terms on this form. ...Under this argument, the first party to a sales transaction will always get his own terms. In most commercial transactions, which party processes its form first is purely fortuitous. To allow the contents of a contract to be determined on this basis runs contrary to the underlying purposes of the Uniform Commercial Code of modernizing the law governing commercial transactions. ...We cannot accept such an arbitrary solution."); see also McCarty v. Verson Allsteel Press Co., 411 N.E.2d 936 (Ill. App. Ct. 1980); Murray, supra note 12, at 1366-72 (for an analysis supporting the view that the printed form of one party should not control simply because that party is the offeror.).
88. UCC § 2-207(1)-(3).
90. UCC section 2-207 cmt. 1 lists confirmations as the primary rationale for the section ("where an agreement has been reached either orally or by informal correspondence between the parties and is followed by one or both parties sending formal memoranda embodying the terms so far as agreed upon and adding terms not discussed.").
91. The practice of contract confirmation through electronic messages or the use of facsimiles transmitted through telephone lines is growing rapidly. Messages will not be denied legal effect simply because they are in electronic form. Murray, supra note 12.
92. UCC § 2-207(1) (emphasis added).
93. NY Hearings, supra note 21, at 55-56 (statement of Karl Llewellyn).
94. Comment 6 to section 2-207 begins with the enigmatic statement, "[i]f no answer is received within a reasonable time after additional terms are proposed, it is both fair and commercially sound to assume that their inclusion has been assented to." UCC § 2-207 cmt. 6. This initial statement is not designed to deal with written confirmations of an existing oral contract. Rather, it seems to suggest that silence by the offeror will manifest assent to additional terms in the offeree's expression of acceptance. As one commentator observed, this is not true except as to immaterial additional terms and even those terms may be made inoperative by the offeror's limitation of acceptance to the terms of the offer or notice of objection to such additional terms. After this initial statement, Comment 6 then attempts to deal with written confirmations of oral contracts where the confirmations contain additional or different terms: "Where clauses on confirming forms sent by both parties conflict each party must be assumed to object to a clause of the other conflicting with one on the confirmation sent by himself. As a result the requirement that there be notice of objection which is found in subsection (2) is satisfied and the conflicting terms do not become part of the contract. The contract then consists of the terms originally expressly agreed to, terms on which the confirmations agree, and terms supplied by this Act, …" Richard W. Duesenberg, Contract Creation: The Continuing Struggle with Additional and Different Terms Under Uniform Commercial Code Section 2-207,34 BUS. LAW. 1477, 1485 (1979).
95. UCC § 2-201. It should be noted, however, that electronic records and signatures (authentications) will not be denied legal effect simply because they are in electronic form. The 1999 Uniform Electronic Transactions Act (UETA) has been enacted in 22 states at the time of this writing. Moreover, Congress effected the same result in the Electronic Signatures in Global and National Commerce Act ("E-Sign") 15 USCS § 7001 (effective Oct. 1, 2000). UETA is more comprehensive than E-Sign. If a state has enacted UETA with no modifications, it is recognized by E-Sign.
96. UCC § 2-201 cmt. 1. A single confirmation between merchants to which the other party does not object within ten days from receipt will also satisfy the statute against the non-signing party. UCC § 2-201(2).
97. UCC section 2-201(2) allows a confirmation sent by one merchant to another merchant to satisfy the statute if the receiving merchant does not object to it within ten days after it is received.
98. See, e.g., Marlene Indus. v. Carnac Textiles, 399 N.Y.S.2d 229 (1977), reversed, 45 N.Y.2d 327, 380 N.E.2d 239, 242 (1978). Another illustration of confusion is found in Campanelli v. Conservas Altamira, S.A., 477 P.2d 870 (Nev. 1970).
99. See, e.g., Dorton v. Collins & Aikman Corp., 453 F.2d 1161. The phrase "battle of the forms" may mislead a court to understand that section 2-207 only applies to situations involving two forms. ProCD, 86 F.3d 1447.
100. See a discussion of this distinction in Harry Rubin & Sons v. Consolidated Pipe Co., 153 A.2d 472 (1959) (discusses this distinction).
101. A single confirmation evidencing a contract between merchants may be sufficient to satisfy the Statute of Frauds. UCC § 2-201(2).
102. American Parts Co. v. American Arb. Ass'n, 154 N.W.2d 5, 12 (1967).
103. Koehring Co. v. Glowacki, 253 N.W.2d 64, 68 (Wis. 1977) (purported acceptance in a telegram adds a condition to the terms of the offer); Duval & Co., 214 S.E.2d at 358-59 (Ga. 1975) (purported acceptance contained a material alteration in the quantity term).
104. UCC section 2-207(1) states that a definite expression of acceptance operates as an acceptance though it contains different or additional terms "unless acceptance is expressly made conditional on assent to the additional or different terms."
105. NY Hearings, supra note 21, at 117 (statement of Karl Llewellyn). Murray, supra note 12, at 1322-30 (for an exploration of the history of this proviso).
106. See, e.g., Dorton, 453 F.2d 1161.
107. In Boese-Hilburn Co. v. Dean Mach. Co., 616 S.W.2d 520, 525 (Mo. App. 1981), the court recognized that "[j]udicial interpretation of the language 'expressly made conditional' in 2-207(1) ranges across a broad spectrum." In Challenge Machinery Co. v. Mattison Machine Works, 359 N.W.2d 232, 235 (Mich. App. 1984), the court held that the following statement did not create a conditional acceptance (counteroffer): "[b]uyer expressly limits acceptance to the terms hereof and no different or additional terms proposed by seller shall become part of the contract." In Idaho Power Co., 596 F.2d 924, 927, the following language was insufficient to meet the "expressly conditional" standard: "[a]cceptance of this order shall be deemed to constitute an agreement ... to the conditions named hereon and supercedes all previous agreements." On the other hand, the following clause in capital letters was sufficient to create a counteroffer:
[t]he terms set forth on the reverse side are the only ones upon which we will accept orders; these terms supersede an prior written understandings, assurances and offers. Your attention is especially directed to the provisions concerning warranty and liability of supplier and claims procedure. In any event, these terms shall become binding on both parties upon your acceptance of our first delivery of any goods specified herein, or upon commencement of manufacturing operations. Advise us immediately if anything in the acknowledgment is incorrect or is otherwise unacceptable.
Ralph Shrader, Inc. v. Diamond Int'l Corp., 833 F.2d 1210, 1213 (6th Cir. 1987). "Our acceptance of the order is conditional on buyer's acceptance of the conditions of sale printed on the reverse side hereof" was also sufficient. Uniroyal, Inc., 380 N.E.2d at 578. In PCS Nitrogen Fertilizer, L.P., 255 F.3d 974 (8th Cir. 2000), "[s]eller's acceptance of any offer by Purchaser to purchase the products is expressly conditional upon the Purchaser's assent to all the terms and conditions herein, including any terms additional to or different from those contained in the offer to purchase" was sufficient to meet the expressly conditional language. The clause "[a]cceptance of this order is expressly limited to the conditions of purchase printed on the reverse side" was held sufficiently similar to section 2-207(1) proviso in Reaction Molding Techs, Inc. v. General Elec. Co., 585 F. Supp. 1097, 1106 (E.D. Pa. 1984). But, upon reconsideration, the clause was determined to be insufficiently similar. Reaction Molding Tech, Inc. v. General Elec. Co., 588 F. Supp. 1280, 1288 (E.D. Pa. 1984).
108. C. Itoh & Co., 552 F.2d 1228. In effect, tracking the statutory language provided offerees with a "safe harbor" provision since it assured offerees that courts would automatically characterize such language as creating a counteroffer.
109. C. Itoh & Co., 552 F.2d at 1238 (emphasis added).
111. RESTATEMENT (SECOND) OF CONTRACTS § 24 provides that "[a]n offer is a manifestation of willingness to enter into a bargain, so made as to justify another in understanding that his assent to that bargain is invited and will conclude it."
112. Id. § 57 cmt. b.
113. Dorton, 453 F.2d 1161; C. Itoh & Co., 552 F.2d 1228; Uniroyal, Inc., 380 N.E.2d 571 (Ind. App. 1978). For a comprehensive analysis see Murray, supra note 12, at 1330-43.
114. Dorton, 453 F.2d 1161; C. Itoh & Co., 552 F.2d 1228; Uniroyal, Inc., 380 N.E.2d 571 (Ind. App. 1978). For a comprehensive analysis see Murray, supra note 12, at 1330-43.
115. Bayway Ref Co., 215 F.3d at 223.
116. Ralph Shrader, Inc. v. Diamond Int'l Corp., 833 F.2d 1210, 1215 n.4 (6th Cir. 1987).
117. White Consol. Indus., Inc. v. McGill Mfg. Co., 165 F.3d 1185, 1191 (8th Cir. 1999) (citing Ralph Shrader, 833 F.2d at 1215 n.4) (relying on UCC § 1-102(1)).
118. Ralph Shrader, 833 F.2d at 1213.
119. Id. at 1215.
120. NY Hearings, supra text accompanying note 105.
121. PCS Nitrogen Fertilizer, L.P. v. Christy Refractories, L.L.C., 225 F.3d at 979 (8th Cir. 2000) (citing White Consol., 165F.3d 1185; Ralph Shrader, 833 F.2d 1210).
122. Thus, PCS Nitrogen, cites, among others, C. Itoh & Co. v. Jordan International Co., 552 F.2d 1228, 1235 (7th Cir. 1977), which is the classic formula counteroffer case. Another formula counteroffer case upon which the court relies is particularly disarming. In Diamond Fruit Growers, Inc. v. Krack Corp., 794 F.2d 1440, 1441 (9th Cir. 1986) an acknowledgment form contained the "expressly conditional" language of § 2-207(1) as well as an exclusion of consequential damages. The parties were in a continuous relationship and the buyer negotiated with the seller to have the seller remove the exclusion of consequentialdamages clause from the seller's form. Id. The seller refused. Id. The parties then continued to deal with each other using the same forms. Id. When consequential damages occurred, the seller insisted that his clause should be enforced as a term of the contract since the parties had consciously negotiated with respect to this clause and the buyer clearly understood that the clause was a term of the contract and continued to deal with the seller with such actual knowledge. Id. The court, however, held that a conduct acceptance was ineffective. Id. Since the buyer had never expressly assented to the terms of the seller's counteroffer, the counteroffer was never accepted. Id.
123. Murray, supra text accompanying note 105.
124. UCC § 2-207(3). See also Comment 7, added in 1966, stating that, in such a case, it is not necessary to determine which party was the offeror or offeree. UCC § 2-207 cmt. 7.
125. C. Itoh, 552 F.2d at 1238.
126. Where an offer expressly limited acceptance to the terms of the offer included a fifteen month warranty and the reply not only limited the warranty to twelve months but also staled a formula counteroffer in the language of the section 2-207(1) proviso, the parties proceeded to create a contract by conduct. Under 2-207(3) the warranties terms were excised. The offeror sought to have its warranty included in the terms of the contract by conduct under 2-207(3) on the footing that course of dealing, trade usage or prior course of dealing as defined in UCC §§ 2-208 and 1-205 are terms or "provisions" which 2-207(3) should be said to include since the language refers to any other provisions of the Code. The seller sought a narrow reading of the language that would limit it to "supplementary" terms such as implied warranties. The court chose the more expansive interpretation in Dresser Industries, Inc. v. Gradall Co., 965 F.2d 1442, 1449 (7th Cir. 1992), notwithstanding its earlier opinion in C. Itoh, 552 F.2d 1228. The Dresser court attempted to distinguish Itoh on the footing that the court was not directly confronted with the same question. The Itoh opinion, however, states that "supplementary terms" under 2-207(3) "are limited to those supplied by the standardized 'gap-filler' provisions of Article Two." 552 F.2d at 1237. Moreover, Itoh expressly adopts the narrow interpretation, favored by Professors White and Summers, while the Dresser court rejects the White and Summers interpretation choosing instead the expansive interpretation of Professor William Hawkland. Hawkland, Uniform Commercial Code Series, 2-207:04 at 109-110 (1990); WHITE & SUMMERS, supra note 57, § 29, The court also expressly adopts the same interpretation as found in Daitom. Inc. v. Pennwalt Corp., 741 F.2d 1569, 1579 (10th Cir. 1984).
127. UCC § 1-105(1).
128. E.g., Bowdoin v. Showell Growers, Inc., 817 F.2d 1543, 1548 (11th Cir. 1987) (two weeks after purchase of equipment, instruction manual accompanying delivery of equipment included a disclaimer of warranty); Gold Kist, Inc. v. Citizens & Southern Nat'l Bank, 333 S.E.2d 67; 70 (S.C. Ct. App. 1985) ("[a] disclaimer printed on a label or other document and given to the buyer at the time of delivery of the goods is ineffective if a bargain has already arisen."); see also Pennington Grain & Seed, Inc. v. Tuten, 422 So. 2d 948 (Fla. Dist. Ct. App. 1982); Midland Supply Co. v. Eheret Plumbing & Heating Co., 440 N.E.2d 153 (Ill. App. Ct. 1982); Hartwig Farms, Inc. v. Pacific-Gamble Robinson Co., 625 P.2d 171 (Wash. Ct. App. 1981).
129. 939 F.2d 91, 97 (3d Cir. 1991).
131. In a contract for the sale of goods, a good faith modification of the contract needs no consideration to be binding. UCC § 2-209(1).
132. 86 F.3d 1447, 1449 (7th Cir. 1996).
133. The term, "shrinkwrap license" refers to the tight plastic wrapping on boxes that may have license terms printed on the box.
134. The Seventh Circuit opinion does not offer this description of the notice on the box. The opinion states, "[e]very box containing its [ProCD's] consumer product declares that the software comes with restrictions stated in the enclosed license." ProCD, 86 F.3d at 1449 (emphasis added). The reality of the "small print at the bottom of the package" description is discoverable only in the lower court's opinion. ProCD, Inc. v. Zeidenberg, 908 F. Supp. 640, 654 (W.D. Wis. 1996). The ordinary definition of "declare" is "to make known clearly." Id. The notice on the box does not approach that definition.
135. ProCD, 86 F.3d 1447.
137. The boilerplate language on insurance contracts has been subject to intense scrutiny under a "reasonable expectations" test, i.e., would the insured "reasonably expect" such a clause as part of the policy. Max True Plastering Co. v. United States Fidelity and Guaranty Co., 912 P.2d 861, 865 (Okla. 1996) (recently analyzed this text).
138. In Carnival Cruise Lines v. Shute, 499 U.S. 585, 590 (1991) the majority opinion upheld the forum selection clause on the back of a cruise line ticket only after insisting that its decision rested upon the assumption that the "respondents had sufficient notice of the forum clause before entering the contract."
139. Vimar Seguros Y Reaseguros, S. A. v. M/V Sky Reefer, 515 U.S. 528, 530(1995) (interpreting Section 3(8) of the Carriage of Goods by Sea Act (COGSA), 46 U.S.C. 1303(8)).
140. Step-Saver, 939 F.2d at 98.
141. ProCD, 84 F.3d at 1452.
142. Id. Here the court adds the rather curious analysis of a situation in which the terms inside the box state "[y]ou owe us an extra $10,0000," suggesting that, "[a]ny buyer finding such a demand can prevent formation of the contract by returning the package, as can any consumer who concludes that the terms of the license make the software worth less than the purchase price." Id. Suppose the buyer does not return the package. Does he then owe the extra $10,000, or is this a case in which the seller's attempt to add a material term to the contract is excised under section 2-207(2)(b)?
143. Supra text accompanying note 105.
144. Supra note 133 (discussing § 2-207(2)).
145. The court fails to note that the parties in Step-Saver had exchanged matching forms prior to the submission of the container with the box-top license which became the single non-matching form. Step- Saver, 939 F.2d at 95-97.
146. 453 F.2d at 1164.
147. UCC § 2-207 cmt. 1 (emphasis supplied).
148. In Klocek v. Gateway, Inc., 104 F. Supp. 2d 1332, 1339 (Kan. 2000) the court recognizes the application of Section 2-207 to confirmations and concludes that Kansas and Missouri courts would not follow ProCD or other cases adopting that analysis.
149. Dorton, 453 F.2d at 1168 n.4.
150. UCC § 2-207(2) cmt. 6.
151. 105 F.3d at 1148.
152. RESTATEMENT (SECOND) CONTRACTS § 69.
153. Hill, 105 F.3d at 1148.
156. The court creates the scenario of a person droning through a page of boilerplate language that would be incomprehensible to the buyer. Hill, 105 F.3d at 1149. There is, however, limited difficulty in a telephone operator stating, "[p]lease read the important contract terms enclosed with the product. If you do not agree with these terms, return the product and you will not be charged." Such a statement, however, may not be conducive to the most successful marketing practices.
157. UCC § 2-313 cmt. 7. There is no corresponding suggestion anywhere in the entire UCC dealing with an enforceable post-formation disclaimer of warranties or other material, risk-shifting term absent the express assent of the party opposing such a term. Moreover, Comment 7 assumes a modification in good faith, enforceable under UCC § 2-209(1). Such a modification must manifest the assent of the parties. Arizona Retail Systems, Inc. v. Software Link, Inc., 831 F. Supp. 759, 764 (D. Ariz. 1993).
158. It should be noted that in ProCD, the court begins its analysis of the formation process by stating that the "vendor" is the master of the offer. ProCD, 86 F.3d at 1452. While the vendor in ProCD may have been the offeror in what was presumably a self-service transaction where courts have held the offer to be made by the store by allowing prospective buyers to remove the goods and, thereby, accept the offer (notwithstanding the power of the buyer to terminate the contract by replacing the goods), this does not resolve the question of which party is the offeror in a telephone or Internet transaction. Presumably, it is the buyer who is responding to the vendor's advertising invitations to make an offer in accordance with basic common law principles.
159. E.g., Brower v. Gateway 2000, Inc., 676 N.Y.S.2d 569 (N.Y. App. Div. 1998) (adopting the ProCD/Hill analysis while recognizing the substantive unconscionability of a very expensive arbitration process); Mortensen v. Timberline Software Group, 970 P.2d 803 (Wash. Ct. App. 1999). Contra Novell v. Network Trade Cir., 25 F. Supp. 2d 1218 (D. Utah 1997). Although rejecting the "ProCD analysis," Klocek v. Gateway. Inc., 104 F. Supp. 2d 1332 (2000) offers particularly insightful criticism. See also Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3d Cir. 1991) (which ProCD seeks to distinguish with dubious success ). ProCD also distinguishes Arizona Retail Systems, Inc. v. Software Link. Inc., 831 F. Supp. 759 (D. Ariz. 1993), failing to mention that Arizona clearly adopts the Step-Saver analysis. The United States Court of Appeals for the Seventh Circuit has provided particularly valuable insights in the interpretation of various provisions of UCC Article 2, many of which are cited elsewhere in this article. The most charitable statement that can be made concerning the ProCD/Hill analyses, however, is that, even Homer nods.
160. Mortensen, 998 P.2d at 813 n.10.
161. E.g., Advent Systems Limited v. Unisys Corporation, 925 F.2d 670 (3d Cir. 1991).
162. See supra text accompanying note 9.
163. Article 2A does not have a provision comparable to section 2-207. "Presumably, such a provision is unnecessary because most lessors highly structure leases of goods, thereby reducing the risk of a 'battle of the forms.' Another implicit judgment is that either the parties should be responsible for reading and evaluating the forms or that the general provision on unconscionable contracts can neutralize the risk of unfair surprise." Richard Speidel, Contract Formation and Modification Under Revised Article 2, 35 WM. & MARY L. REV. 1305, 1314 (1994). "Article 2A omits section 2-207 concerning the battle of the forms, largely because of doubts about the soundness of the section 2-207 rules." Benfield & Alces, supra note 8, at 1421. S & F Concrete Contractors, Inc v. Strickland Systems, Inc., 1995 Mass. Super LEXIS at *764 (1995) (refusing to apply section 2-207 to a lease transaction).
164. VA. CODE ANN. § 59.1-501.1 (effective July 1, 2001); MD. COMMERCIAL LAW CODE ANN. § 22-101 (effective Oct. 1, 2000).
165. The decade-long arduous efforts to create an acceptable revision for both the ALI and NCCUSL failed again in August of 2000 when NCCUSL rejected the latest draft from a new Article 2 committee formed after the original Reporter and Associate Reporter resigned upon the rejection of their final draft in August of 1999, notwithstanding earlier (May 1999) approval by ALI. The ALI and NCCUSL announced an intention to reconsider another revised draft in 2001.
166. UCITA § 103. This section, dealing with the scope of UCITA, proved particularly difficult to draft. To distinguish its scope from other statutes, especially Article 2 of the UCC, the general rule begins with the directive that UCITA applies to the entire transaction if computer information is the "primary" subject matter. If it is not the primary subject matter, it applies only to the part of the transaction involving computer information. UCITA § 103(b). In general, if the transaction involves both computer information and goods, UCITA applies to the computer information part of the transaction, but only if the other goods are a computer or computer peripheral, or if the material purpose of the transaction is to provide a buyer or lessee with access or use of the computer program. UCITA § 103(c)(2)(A)(B). Thus, UCITA would not apply to the sale of autos and other appliances with embedded computer programs since the computer programs in such goods merely facilitate the operation and use of the goods and are not designed to provide access to computer information for other purposes.
167. UCITA § 102(44).
168. Id. at § 102(45).
169. Id. at § 209(a).
170. Id. at § 112.
171. Id. at § 112(a).
172. Id. at § 112(e)(3); § 209(c).
173. Id. at § 209(b). The buyer is also compensated for any reasonable and foreseeable costs of restoring its information processing system caused by the installation.
174. UCITA § 208. "Reason to know" is described in § 208 Comment 3:
"Reason to know" means that, realistically considered, later presentation of terms should not be a surprise. It does not require specific notice or specific language, although such factors may be important because notice suffices. 'Reason to know' can also be inferred from the circumstances, including ordinary business practices or marketing approaches of which a party is or should be aware and from which a reasonable person would infer that terms will follow.
175. Id. at § 204(b) (emphasis added). Section 204(a) states that "an acceptance materially alters an offer if it contains terms that materially conflict with or vary the terms of the offer or that add material terms not contained in the offer." Comment 3 states, "[a] material change is one that would result in surprise, hardship or fundamental change if incorporated without express agreement by the other party, or one that would significantly alter the bargain proposed by the offeror."
176. Section 204 cmt. 2 states: "[a] response is not an acceptance if it materially alters the offer. One does not accept by proposing materially different terms."
178. In one of the earliest interpretations of § 2-207, Roto-Lith, Ltd. v. F.P. Bartlett & Co., 297 F.2d 497 (1st Cir. 1962), the response to the offer (an acknowledgment form) appeared to manifest acceptance but contained a clause disclaiming the implied warranty of merchantability. The offeror argued that the response was a definite expression of acceptance under section 2-207 notwithstanding the different warranty term that should not become a part of the contract since it constituted a material alteration of the terms of the offer. Id. The court was so imbued with the mirror-image rule that it could not assimilate the radical change effected by 2-207. It insisted that 2-207 should not be interpreted to allow a response containing a materially altering term to operate as an acceptance. Id. (emphasis added). Such a response had to be a counteroffer in the eyes of this court. The holding frustrates the essential purpose of 2-207. Section 2-207(2)(b) expressly recognizes that an acceptance may contain a materially altering term such as a disclaimer of warranty. Roto-Lith was the subject of considerable criticism in other jurisdictions. E.g., C. Itoh & Co. v. Jordan Int'l Co., 552 F.2d 1228; Dorton v. Collins & Aikman Corp., 453 F.2d at 1168 n.5; Ebasco Services Inc. v. Pa. Power & Light Co., 402 F. Supp. at 437-38; Steiner v. Mobil Oil Corp., 569 P .2d at 762; Uniroyal, Inc. v. Chambers Gasket & Mfg. Co., 380 N.E.2d at 578. It was eventually overruled in Ionics, Inc. v. Elmwood Sensors, Inc., 110 F.3d 184 (1st Cir. 1997). See also Jom, Inc. v. Adell Plastics, Inc., 193 F.3d 47. The UCITA analysis is also very similar to the CISG analysis explored in the next section that clearly favors the pre-UCC "mirror-image" rule.
179. UCITA § 204(d).
180. Id. at § 204(d)(1).
181. Id. at § 204(d)(2).
182. Id. at § 210(a).
183. Id. at § 205(b).
184. Id. at § 205(c).
186. UCC § 1-102(2).
187. Long before ProCD, the software industry had engaged in the practice of inserting license terms "inside the box" and/or revealed only when the program was used by revealing the terms on the screen and requiring the user to assent to the terms to continue using the program. As suggested earlier, the attempt to combine a new uniform law on computer information transactions under a "hub and spoke" approach with Article 2 failed. Whatever the reasons for that failure, the confusion that will necessarily result from UCITA does not augur a desirable solution.
188. The United Nations Convention on Contracts for the International Sale of Goods, April 11, 1980. J. HONNOLD, UNIFORM LAW FOR INTERNATIONAL SALES UNDER THE 1980 SALES CONVENTION 193 (1982) (suggesting that the framers were well advised not to follow § 2-207).
189. CISG, art. 19(1).
190. Magellan Int'l Corp. v. Salzgitter Handel GmbH, 76 F. Supp. 2d 919, 924 (N.D. 1999). The court admits, in note 14, that its use of the term "reflects" is an intended pun. Id. at 924 n.14.
191. CISG, art. 19(2). This qualification echoes the approach in UCITA, that does not recognize an acceptance containing a materially different or additional term.
192. CISG, art. 19(3).
193. Professor Farnsworth finds its difficult "to imagine variations that would not be material." ALAN FARNSWORTH, FORMATION OF CONTRACT IN INTERNATIONAL SALES: THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS § 3.04 at 3-17.
194. CISG, art. 18(2).
195. Id. at art. 16(1).
196. CISG Article 19(2) states that a reply to an offer containing immaterial additional or different terms "constitutes an acceptance unless the offeror, without undue delay, object orally to the discrepancy or dispatches a notice to that effect." This language suggests that what had been an acceptance upon receipt by the offeror is not an acceptance if the offeror objects to the immaterial discrepant term. The last sentence of Article 19(2) states, "[i]f [the offeror] does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance. " If the drafters of CISG intended to reach a result comparable to 2-207(2)(c), the language could have simply stated that a reply with different or additional immaterial terms is an acceptance, but if the offeror objects to the variant terms, such terms do not become part of the contract.
197. UNIDROIT Principles of International Commercial Contracts (1994) [hereinafter Principles], available at <http://www.unidroit.org/english/principles/intro-1.htm>, are a product of the International Institute for the Unification of Private Law (UNIDROIT) which inspired the United Nations Commission on International Trade Law (UNCITRAL) to create CISG. Principles are not designed to be enacted into the law of countries throughout the world. They are likened to an American Restatement of the law, to establish a balanced set of rules designed for use by courts throughout the world. They are broader than CISG Articles, applying to questions of "validity" to which CISG does not apply. They are not designed to apply to consumer transactions, but the "lex mercatoria" concept that underlies Principles making them applicable to the broadest variety of merchants. Joseph M. Perillo, UNIDROIT Principles of International Commercial Contracts: The Black Letter Text and a Review, 63 FORDHAM L. REV. 283 (1994) (for a helpful analysis as well as the text of Principles).
198. Principles, art. 2.11.
199. Id. at art. 2.19.
200. Id. at art. 2.20.
201. Id. at art. 2.20. Comment 2 suggests that a term excluding or limiting contractual liability may or may not be surprising in a particular case. If terms are common in the trade or consistent with the way in which the parties negotiated the deal, they would not be surprising. In other contexts, terms would be surprising. For example, where a travel agency offers package tours for business trips and the advertisement suggests that the agency takes full responsibility for various services comprising the package, a term in the standard form that states the agency is acting only as an agent for the hotel or innkeeper, thereby denying liability, would be excised as an unexpected term. Principles, art. 2.20 cmt. 2, illus. 1. Comment 3 suggests that terms may be surprising because of their language or presentation, i.e., the terms are found in obscure or minute print. Id. at art. 2.20 cmt. 3. A foreign language may not provide the full implications of the terms to a party who otherwise appears to accept the terms. Thus, a Hamburg commodity dealer may use the term "Hamburg-Freundschaftliche Arbitrage" which, in local circles, means that disputes are to be submitted to a special arbitration under local rules. In contracts with foreign customers who otherwise accept all of the dealer's standard terms, such a standard term may be ineffective because foreign customers would not understand its implications. Cf. RESTATEMENT (SECOND) CONTRACTS § 211 (particularly Comment f); and John E. Murray, Jr., The Standardized Agreement Phenomena in the Restatement (Second) of Contracts, 67 CORNELL L. REV. 735 (1982).
202. Principles, art. 2.22 cmt. 3.
203. Id. at art. 2.22.
204. Id. at art. 2.22 cmt. 2.
205. Id. at art. 2.22 cmt. 3, illus. 2.
206. Id. at art. 2.22 cmt. 3.
207. If the term is one of the rare immaterial terms under CISG, it would become part of the acceptance unless the offeror objected to it. Unlike the UCC, such an objection would destroy the acceptance. CISG, art. 19(2); UCC § 2-207(2)(c).
208. Principles, art. 2.22 cmt. 3 illus. 3.
209. Section 2-207(3) includes the matching terms of the exchanged forms and excises non-matching terms. Gaps are filled with supplementary UCC terms such as the normal warranties and remedies of the Code.
210. Principles, art. 2.22 cmt. 3 illus. I.
211. The language of Principles art. 2.22 states that, "[w]here both parties use standard terms and reach an agreement on those terms, a contract is concluded on the basis of the agreed [non-standard] terms and of any standard terms which are common in substance ..." (emphasis added). Since the standard terms of the offer contain a term not contained in the standard terms of the acceptance, the contract does not include the "uncommon" term in the offer. See generally Maria del Pilar Perales Viscasillas, "Battle of the Forms" Under the 1980 United Nations Convention on Contracts for the International Sale of Goods: A Comparison with Section 2-207 and the UNIDROIT Principles, 10 PACE INT'L L. REV. 97 (1998) (For a helpful analysis concerning the differences among section 2-207, CISG and Principles.).
212. "Judges are skeptical that even businesspeople read boilerplate. ..." Northrop Corp. v. Litronic Indus., 29 F.3d 1173, 1178 (7th Cir. 1994).
213. The classic statement is from Upton, Assignee v. Tribilcock. 91 U.S. 45, 50 (1875):
It will not do for a man to enter into a contract and, when called upon to respond to its obligations, to say that he did not read it when he signed it, or did not know what it contained. If this were permitted, contracts would not be worth the paper on which they are written. But such is not the law. A contractor must stand by the words of his contract; and, if he will not read what he signs, he alone is responsible for his omission.
214. Llewellyn insisted that, "[t]hose unhappy cases which find a condition where no businessman would find one are carefully disapproved." NY Hearings, supra note 21. at 55.
215. UCC § 2-207 cmt. 4 (surprise and hardship); § 2-302 cmt. 1 (oppression and unfair surprise).
216. See supra note 21 accompanying text.
217. The division is popularly characterized as "procedural" vs. "substantive" unconscionability. Maxwell v. Fidelity Financial Services, Inc.. 907 P.2d 51 (Ariz. 1995) (for a modern judicial analysis). Typically, elements of both procedural and substantive unconscionability are deemed necessary to make section 2-302 operative.
218. Llewellyn regarded section 2-302 "as perhaps the most valuable section in the entire Code." NY Hearings, supra note 21. at 55.
219. As the court in Northorp Corp. suggests, unconscionability "has rarely succeeded outside the area of consumer contracts." Northorp Corp., 29 F.3d 1173, 1180 (7th Cir. 1994). The court could have accurately added that the incidence of successful uses of the doctrine in consumer transactions is small.
220. RESTATEMENT (SECOND) CONTRACTS § 211. See also Murray, supra note 201. With respect to insurance contracts, the "reasonable expectations" doctrine has enjoyed success. Max True Plastering Co. v. U.S. Fid. & Guar. Co., 912 P.2d 861 (Okla. 1996). The elaboration of this doctrine is particularly evident in Arizona. State Farm Mut. Ins. Co. v. Dimmer, 773 A.2d 1012 (Ariz. Ct. App. 1988).
221. "Covert tools are never reliable tools." K. Llewellyn, Book Review, 52 HARV. L. REV. 700, 703 (1939) (reviewing O. PRAUSNITZ, THE STANDARDIZATION OF COMMERCIAL CONTRACT IN ENGLISH AND CONTINENTAL LAW (1937)).
222. LLEWELLYN, supra note 19.
224. The August 2000 draft of the Article 2 revision committee that NCCUSL and the ALI have announced they intend to review in 2001 contains a section 2-207 analysis described supra note 13. Essentially, it is designed to effect the essential purpose of the original 2-207 without the complexities and confusion that currently surround it. That analysis bears little resemblance to the "battle of the forms" design in UCITA, described earlier and already approved by NCCUSL. If, therefore, NCCUSL approves a revision of Article 2 in accordance with the extant version, dehors its infirmities, it will conflict with its strikingly different analysis as applied to computer information transactions.