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Reproduced with permission from 6 Temple International and Comparative Law Journal (1992) 193-215

excerpt from

Contract Formation under the United Nations Convention on Contracts for the International Sale of Goods and the Uniform Commercial Code: Pitfalls for the Unwary

Burt A. Leete [*]

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Acceptance With Different or Additional Terms

Few subjects have received as much attention on the subject of contracts for the sale of goods as the so called "battle of forms" problem. More specifically, the trouble stems from the situation where the purported "acceptance" by the offeree contains new or different terms than were in the offer.[127] The subject is complex and justifies much discussion because of the different approaches taken by common law, Section 2-207 of the U.C.C., and the legal systems of other countries. In order to understand the approach finally taken by the drafters of the CISG, which differs from the U.C.C. in some significant ways, a brief discussion of the various approaches is in order.

1. The "Classical System"

The approach historically taken by the common law is the well known mirror image rule, which requires the acceptance to be in the exact terms as the offer.[128] If it is not, a counter-offer results which is construed as an offer.[129] In order for a contract to result, the mirror image rule requires the parties to continue to make counter-offers until there is total agreement.[130] This has become known as the "classical system."[131] In recent years, the common law approach in the United States has relaxed somewhat but it still requires basic agreement between the offeror and offeree on the terms of the contract.[132] The strict common law approach is still generally the rule in England and France.[133] Germany, on the other hand, takes an approach similar to that of U.C.C. § 2-207, with respect to acceptance with different or additional terms.[134]

Criticism of this structured approach to contract formation, at least for contracts for the sale of goods, centers around the fact that today much of the contracting is done on a high volume basis with exchange of standardized forms between buyer and seller. The classical system is simply not geared to the modern way that business is conducted. The common law approach is better suited to an age where there were fewer contracts of this type and much of the negotiation was done face to face for each individual contract. Today, at least with large businesses, contracts are made in what may be characterized as a production line approach.[135] In this situation, the parties often clearly intend to enter into a contract even though all the terms have not yet been agreed upon. The parties act in a manner that indicates their intent that the "deal is on," even though differences in the fine points of the agreement have not yet been resolved.[136] It is this situation that the strict mirror image rule is not equipped to handle.

Under the more rigid classical approach, the contract that results most likely will have the terms contained in the "last shot" fired by the party in an exchange of forms.[137] If the offeror (buyer) orders with a form containing his terms and the offeree (seller) invoices on a form with differing terms, under the common law no contract results.[138] No contract will result under this classical approach as long as each party replies to the other with a different form. Accordingly, a seller may ship with a "shipment confirmed" form that differs from the seller's form and, unless the buyer accepts the shipment, no contract results. If the buyer does accept the goods, a contract is formed as a result of his or her acceptance of the goods and the terms would be those stipulated by the seller.[139] It is unlikely that an executory contract will result because the parties never come to an agreement on the terms of the contract. Generally, there is no problem and the goods are shipped and paid for. However, in a market where prices are volatile and the parties want to allocate the risk by contract prior to performance, the classical approach has severe limitations.

2. The "Deal Is On"

In Section 2-207, the drafters of the U.C.C. attempted to relax the rigidity of the common law by allowing for the formation of contracts where the acceptance deviates in some way from the offer and even where the parties may not be in total agreement as to all the terms.[140] Section 2-207 seems to take a "deal is on" approach to the contract formation process. Thus, a contract can result even where the acceptance does not replicate the exact terms of the offer and contains different or additional terms.[141] The additional terms become part of the contract for merchants unless one of three situations occur: the offer limits acceptance to the terms of the offer; the terms materially alter the offer; or the offeror timely notifies the offeree of objection to the additional terms.[142] Because materiality is not specifically defined by the U.C.C., the courts have some flexibility in interpreting the additional terms.[143] Unlike the mirror image approach, the likely result under the U.C.C. is that a contract will be formed even when the forms exchanged do not "match up."

The U.C.C. also provides for the situation in which a contract results from performance even though a contract did not result from the exchange of documents between the parties.[144] For example, the order form and invoice of the parties may contain terms that are not compatible because each materially alters the other party's terms in such a way that it precludes the formation of a contract under U.C.C. § 2-207(2). However, the buyer may accept some part of the performance tendered by the seller while the documents are being exchanged, suggesting that a contract exists. The difficulty is determining what the terms of the contract actually are. The U.C.C. attempts to provide a solution by taking the terms that the writings of the parties agree upon and adding to them any applicable U.C.C. provisions.[145] As a result, the U.C.C.'s various provisions as to delivery, risk of loss, payment, trade usage, and so on, would be used in arriving at the terms of the contract.

The effect of this approach is to hold parties to a contract when it is clear from their conduct that a contract was intended. The contract is not escapable merely because there is no agreement or identical terms. As a result of Section 2-207(2) of the U.C.C., the final contract may contain terms which do not reflect the intent of both or either of the parties. The justification for such an outcome is that both parties indicated by their conduct that a contract was desirable.[146]

The approach taken in the United States by the U.C.C. is a clear departure from the mirror image rule applied in other countries like the United Kingdom and France.[147] Germany, like the United States, has adopted a more flexible philosophy to the bargaining process through its court decisions.[148] The result is an approach similar to U.C.C. Section 2-207 where the parties can be bound even though they may not agree on material terms and terms may be supplied by background law.[149] The drafters of the CISG were faced with these differing philosophies in attempting to write a uniform law.

3. The CISG Compromise

As one might expect, the CISG attempts to compromise the two differing philosophies as to the treatment that should be accorded a purported acceptance that contains different or additional terms from the offer.[150] The drafters were well aware of the problems posed by the so called battle of forms. In fact, the Secretariat proposed a solution that provides for an effective acceptance when the additional or material terms are not materially different than the offer.[151] First the proposal stated the traditional rule that a purported acceptance modifying, adding to, or limiting the offer is a rejection.[152] But it also proposed that when terms are contained in a printed form that materially alters the offer, the terms become part of the contract unless they are objected to without delay.[153] The commentary to this suggestion assumed that "employees of both parties will rarely, if ever, read and compare the printed terms. All that is of importance to them are the terms which have been filled in on the forms."[154] Since the parties will normally act as though there is a contract, the proposal provides a solution as to what the actual terms of the contract are when there is performance. While this approach differs from the U.C.C., this proposal was at least more in the spirit of the "deal is on" philosophy, making for a contract when the parties, although not in agreement on all terms, actually manifest an intent to be bound.[155] Unfortunately, the drafters rejected the proposal in favor of the traditional mirror image rule.[156] While recognizing that the proposal addressed a practical problem, the drafters felt that material alterations to the offer should constitute a rejection regardless of whether they were contained in printed form.[157]

Despite the rejection of the Secretariat's suggestion, the proposed draft that came before the 1980 Vienna Convention was somewhat more flexible than that which was ultimately adopted. The draft included in the definition of material terms those that "the offeree by virtue of the offer or the particular circumstances of the case has reason to believe . . . are acceptable to the offeror."[158] An amendment by Bulgaria resulted in this clause's elimination, rendering the CISG approach even less flexible.[159]

As noted, the legislative history of the CISG clearly indicates that a flexible philosophy to contract formation, such as that contained in Section 2-207 of the U.C.C., was rejected by the drafters.[160] While the final draft of Article 19 of the CISG seems to be a compromise between the two philosophies, in reality it is not. Although Article 19(2) allows for material terms which do not "alter the terms of the offer," Article 19(3) defines materiality so broadly that it is hard to imagine a case where an additional or different term would not materially alter the offer.[161] The non-exclusive list of material terms includes matters relating to the settlement of disputes and liability of the parties as well as the price, quantity, and terms of delivery.[162] Thus, the CISG seems clearly to take an approach closer to the traditional mirror image rule than the "deal is on" philosophy of the U.C.C. With regard to the battle of forms issue, it seems clear that the party sending the last form will be the one whose terms prevail.[163]

These proposals illustrate the problems inherent in attempting to draft a uniform law for the international arena. The result is often a compromise that is less than satisfactory. In this case, while the compromise on its face attempts to preserve some degree of flexibility, in practice it has failed to do so. The result is an approach that seems to be particularly inappropriate in situations where the parties are dealing in high volume commercial dealings -- as opposed to those where there are relatively large cost items, making the individual bargaining that must take place in order to arrive at an executory contract more likely and worth while. In the typical battle of forms situation, however, the terms of the agreement will usually be the terms of the party sending the last form that is accepted by performance.[164] On the other hand, the CISG is not nearly as detailed as the U.C.C. with regard to standard terms. An approach similar to the U.C.C., which plugs standard terms into a contract that has been reached through performance, with each party having submitted forms with differing terms, might be too difficult to obtain. It would require the CISG to contain many more terms, which would be difficult to agree upon because of the widely varying legal backgrounds of the participants.

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FOOTNOTES

* Professor, College of Business and Management, University of Maryland at College Park; B.S., Juniata College; M.B.A., University of Maryland; J.D., American University.

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127. See, e.g., Arthur T. Von Mehren, The "Battle of Forms": A Comparative View, 38 Am. J. Comp. L. 265 (1990); Christine Moccia, Note, The United Nations Convention on Contracts for the International Sale of Goods and the "Battle of the Forms," 13 Fordham Int'l L.J. 649 (1989-90); Douglas G. Baird & Robert Weisberg, Rules, Standards, and the Battle of Forms: A Reassessment of 2-207, 68 Va. L. Rev. 1217 (1982).

128. See Restatement (Second), supra note 66, 58 (providing that an "[a]cceptance must be unequivocal in order to create a contract").

129. Id. 60.

130. Von Mehren, supra note 127, at 270.

131. Id. at 268-72.

132. Restatement (Second), supra note 66, 57, 59. Section 57 states that "[w]here notification is essential to acceptance by promise, the offeror is not bound by an acceptance in equivocal terms unless he reasonably understands it as an acceptance." Id. 57. Section 59 states that "[a] reply to an offer which purports to accept it but is conditional on the offeror's assent to terms additional to or different from those offered is not an acceptance but is a counter-offer." Id. 59.

133. Von Mehren, supra note 127, at 268 (quoting Gunther Treitel, The Law of Contract 15-16 (7th ed. 1987). Today under English law, an offer cannot, generally speaking, be "accepted by a reply which varies one of its . . . terms (e.g., specifying the time of performance) or by a reply which introduces an entirely new term." Id. Such replies are not acceptances but counter-offers which the original offeror can accept or reject. Id.

134. Id. at 290-94.

135. Id. at 269-72 (discussing problems with classical system).

136. Id. at 281-82.

137. Id. at 282.

138. Restatement (Second) supra note 66, 59.

139. Id. 69, cmt. e.

140. U.C.C. 2-207. Section 2-207 provides:

"(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 asset to the additional or different terms.

"(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

(a) the offer expressly limits acceptance to the terms of the offer;

(b) they materially alter it; or

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

"(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act." Id.

141. U.C.C. 2-207(1); see also Von Mehren, supra note 127, at 279-82 (discussing how 2-207 differs from rigid approach of common law and other similar legal systems, as well as its failure to totally address issue of one party's control over the differing or conflicting terms).

142. U.C.C. 2-207(2).

143. But see U.C.C. 2-207 official cmts. 5 & 6 (discussing examples of terms that may or may not be considered material).

144. U.C.C. 2-208.

145. U.C.C. 2-207(3).

146. See Von Mehren, supra note 127, at 290 (arguing that innovative interpretation of U.C.C. 2-207(3) results in "deal is on" philosophy with contractual terms that are neutral, i.e., parties are not forced to accept one or the other's proposed terms).

147. Id. at 272-74 (discussing the continued acceptance of the traditional approach in English and French law).

148. Id. at 290-94 (discussing Germany's approach to the bargaining process).

149. Id. at 296.

150. CISG, supra note 11, art. 19. Article 19 states:

"(1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modification is a rejection of the offer and constitutes a counter-offer.

"(2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.

"(3) Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes are considered to alter the terms of the offer materially." Id.

151. Report of the Secretary-General: Formation and Validity of Contracts for the International Sale of Goods, [1977] 8 Y.B. UNCITRAL 90, 100, annex II, U.N. Doc. A/CN.9/128/1977. The relevant suggestion, contained in the proposed alternative text of Article 7, states:

"(2)(a) However, a reply to an offer which purports to be an acceptance but which contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance unless the offeror objects to the discrepancy without delay. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.

(b) If the offer and a reply which purports to be an acceptance are on printed forms and the non-printed terms of the reply do not materially alter the terms of the offer, the reply constitutes an acceptance of the offer even though the printed terms of the reply materially alter the printed terms of the offer unless the offeror objects to any discrepancy without delay. If he does not so object the terms of the contract are the non-printed terms of the offer with the modifications in the non-printed terms contained in the acceptance plus the printed terms on which both forms agree." Id. art. 7.

152. Id. The proposed alternate text stated that "[a] reply to an offer containing additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer." Id.

153. Id.

154. Id. art. 7, cmt. 10.

155. Id.

156. Report of the Working Group on the International Sale of Goods on the Work of its Eighth Session, [1977] 8 Y.B. UNCITRAL 73, 82, U.N. Doc. A/CN.9/128/1977.

157. Id.

158. CISG Draft, supra note 50, art. 17, at 24. CISG Article 17 in the original draft was modified and adopted as Article 19 of the CISG. The provision originally stated:

"(3) Additional or different terms relating, inter alia, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes are considered to alter the terms of the offer materially, unless the offeree by virtue of the offer or the particular circumstances of the case has reason to believe they are acceptable to the offeror." Id.

159. First Committee Report, supra note 51, at 96. A United States amendment to delete the words "inter alia" and substitute "among other matters" was referred to the drafting committee, and a proposal to change the word "matters" to "things" resulted in the text of Article 19(3) as it was eventually adopted. Id.

160. CISG Draft, supra note 50.

161. CISG, supra note 11, art. 19(2), (3).

162. Id. art. 19(3).

163. Moccia, supra note 127, at 657.

164. Id.

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Pace Law School Institute of International Commercial Law - Last updated August 16, 1999
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