1 professor of law loyola law school, los angeles chapter 1 introduction
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- CHAPTER 3 CONTRACT FORMATION
- A. Offer Acceptance Basic Formational Issues
- Battle of the Forms” a. UCC Treatment
- DORTON v. COLLINS AIKMAN CORP.
- Notes, Questions and Problems
- HILL v. GATEWAY 2000, INC.
- FILANTO, S.p.A. v. CHILEWICH INT’L CORP.
MADEUS v. NOVEMBER HILL FARM United States District Court, W.D. Virginia 630 F. Supp. 1246 (1986) This matter comes before the court on plaintiff's motion for summary judgment filed in the above-styled action in November, 1984. Although plaintiff's motion was withdrawn after briefs were submitted by both parties, the court takes this opportunity before trial to rule upon an issue presented in the parties' briefs--that of the law to be applied in the present action. I. Based upon the pleadings filed in this case, and upon the memoranda filed with respect to plaintiff's motion for summary judgment, the following facts are not in dispute. Plaintiff, Udo Madaus, is a citizen and resident of the Federal Republic of Germany ("West Germany"). Defendant, November Hill Farm, Inc., is a Virginia corporation, having its principal place of business in Albemarle County, Virginia. On or before June 2, 1981, defendant and plaintiff entered into an agreement under which plaintiff agreed to sell to defendant a horse named "William the Conqueror.” The terms of the agreement were as follows: the purchase price of $40,000 was to be made within one month of the date that defendant resold the horse, or by March 31, 1982, whichever was earlier; delivery of the horse by plaintiff was to be made on or by June 20, 1981, to a carrier in West Germany designated by the defendant, at which time title and risk of loss were to pass to the defendant; the sales contract would not become final until the horse's sound physical health was confirmed by an examination by the Hochmoor Clinic, performed at plaintiff's expense; the purchase price was personally guaranteed by Dr. Joseph Enning, defendant's authorized agent. On June 2, 1981, Dr. Enning confirmed the terms of this agreement in a Telex to Dr. Madaus. According to the defendant, on June 4, 1981, Dr. Madaus also confirmed the agreement in a Telex to Dr. Enning, but requested that the date of payment be changed to an earlier date. Enning objected, and Dr. Madaus finally agreed to the original terms in full in a Telex dated June 9, 1981. On June 8, 1981, William the Conqueror was examined by Dr. med. vet. de. Schmitz, and apparently no illnesses or problems were found at that time. On June 10, 1981, the horse was again examined by a Dr. Boneing at the Hochmoor Clinic. Again, no illnesses or problems were identified by Dr. Boneing, other than a previously existing ligament disease in the horse's forelegs, which apparently had not worsened since a prior examination in October, 1979. On June 30, 1981, plaintiff delivered William the Conqueror to a commercial shipper retained by the defendant and located in West Germany. The horse was taken by the shipper to Amsterdam, transported to the United States, and then delivered to the defendant. On or about August 2, 1981, defendant notified plaintiff by Telex that it was rescinding "the sales contract on the ground that William the Conqueror was lame." Plaintiff, however, refused to rescind the purchase agreement or to accept the return of the horse, and instead demanded full payment of the purchase price. II. [1] Under the United States Supreme Court's decision in Klaxon Company v. Stentor Electric Manufacturing Company, Inc., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), the applicable law in this case must be determined according to the choice-of-law rules of the Commonwealth of Virginia. However, the parties disagree as to what Virginia's choice-of-law rules require in the present case. Plaintiff maintains that, under Virginia law, questions concerning the performance of a contract are governed by the law of the place of performance, and that the present case is thus governed by the law of West Germany. In direct contrast, defendant argues that the Uniform Commercial Code ("UCC"), as adopted in Virginia, governs the present case, and that the U.C.C. requires that the law of Virginia apply to any sales contract which bears an "appropriate relation" to Virginia. UCC § 1-105. Defendant argues that the contract in this case bore such an "appropriate relation" to Virginia and that Virginia law must thus apply. For the reasons stated below, however, this court finds that the law of West Germany applies to the present action. Notwithstanding the ingenious arguments forwarded by defendant, it is beyond question that under Virginia law, the law of the place of performance governs questions concerning the performance of a contract. The place of performance of a sales contract is usually considered to be the place where goods are delivered. In the present case, there is little question that performance of the sales contract was to occur at the time defendant's agent accepted delivery of "William the Conqueror,” at which time risk of loss passed from the plaintiff to the defendant. Delivery, and thus performance of the contract, took place in West Germany. Under the choice-of-law rules of Virginia then, the law of West Germany must govern questions concerning the performance of the contract in the present case. Section 1-105 of the U.C.C. states that, absent any choice-of-law clause in a sales contract, "this act applies to any transaction bearing an appropriate relation to this state." The Official Comment to Section 1-105 states that "where a transaction has significant contacts with a state which has enacted the Act, and also with other jurisdictions, the question of what relation is 'appropriate' is left to judicial decision." In addition, since there is no indication in Section 1-105 whatsoever that the provision was intended to reject or to supercede previously established choice-of-law rules in Virginia, and since the "appropriate relation" of a transaction is to be determined by the courts, Section 1-105 must be read consistently with the prior case law discussed above. Thus, even under Section 1-105, this court finds that the law of West Germany must control questions concerning the performance of the sales contract in the present case. Even under a "center of gravity" test, accepted by many jurisdictions under the U.C.C., but not yet widely accepted under Virginia law, this court believes that the law of West Germany would still apply to the present case. Although some communication regarding the date of payment apparently took place via Telexes between West Germany and Virginia, the overwhelming bulk of the contract negotiations preceding the sale of "William the Conqueror" took place between Dr. Enning and Dr. Madaus within West Germany; nearly all of the material terms of the contract were negotiated and agreed upon through communications made completely within West Germany; the place of performance of the contract was in West Germany; the subject matter of the contract was, at all times during the contracting process, located in West Germany; the plaintiff is a domiciliary and resident of West Germany; and, as discussed more fully infra, the contract was made in West Germany. Although it is not necessary to the court's decision today, it appears that even under a "center of gravity" test, the law of West Germany would apply to the present case. III. Defendant also argues that its claims regarding the validity of the contract itself must be determined by Virginia Law. Under Virginia law, questions concerning the validity of the contract, as opposed to the performance of the contract, are governed by the law of the place where the contract is made. In addition, a contract is appropriately deemed to be executed in the state or jurisdiction where the final act necessary to make the contract binding is done. Similarly, the place of acceptance of a proposal is the place where a contract is made, since acceptance by the offeree completes the contracting process. Defendant argues that although much of the negotiation was done in West Germany, plaintiff rejected its final offer in his June 4, 1981, Telex, and made a "counter offer" which included a different payment date. Dr. Enning apparently rejected that "counter offer" in a Telex to Dr. Madaus also dated June 4, 1981, and affirmed the terms of the defendant's original offer. Subsequently, in a June 9, 1981, Telex sent from West Germany to Virginia, the plaintiff accepted the original terms of the defendant's offer, including the originally agreed upon payment date. Defendant argues that this Telex constituted the final act in the contracting process and, furthermore, that this acceptance took place in Virginia rather than in West Germany. The court agrees that, under the facts as outlined above, the contract likely was finalized with the June 9, 1981, Telex from plaintiff to the defendant. It does not follow, however, that the place of contracting was Virginia. The last act necessary for the contract to become binding came in plaintiff's acceptance of the offer in a Telex originating in West Germany. It is a well-established principle of contract law, often referred to as "the mailbox rule,” that an acceptance is final and binding once it "irretrievably leaves the hands of the acceptor." See Restatement of the Law, Contracts, § 64 (1981). In the present case, therefore, the contract was executed once plaintiff's Telex of June 9, 1981, was sent. See also Brown v. Valentine, 240 F.Supp. 539 (W.D.Va.1965) (when an offer is made by telephone call from one state to another, the contract is executed in the state in which the acceptor speaks.) Thus, in the present case, the contract was executed in West Germany, and both the validity of the contract itself as well as the performance of the contract must be determined according to West German law. For the reasons stated above, the court hereby determines that the law of West Germany shall govern the determination of the substantive issues presented in this case. Note Not all courts would agree that the “appropriate relation” test used by UCC § 1-105 is the same as general conflict of laws tests. In Barclays Discount Bank v. Levy, 743 F.2d 722 (9th Cir. 1984), the court held that the “appropriate relation” test would allow the court more of a basis to apply its jurisdiction’s version of the UCC than under general conflict rules. The court’s holding was based on a California comment to § 1-105 stating that “(t)he net effect is to make the (California) Commercial Code enforceable in many situations where under previous California law the local law would not have applied.” Cal. Comm Code § 1105, California Code Comment 1. Problems Assume in all of the following hypotheticals that there is no choice of law provision in the contract, unless otherwise stated. All contracts are commercial sales of goods (not consumer sales). The contracts are not exempt from application of the CISG under CISG Article 2. Problem 8 - Buyer is located in Country A, which has adopted the CISG. Seller is located in Country B, which also has adopted the CISG. Does the CISG apply to the transaction? See CISG Article 1(a). Problem 9 - Buyer is located in Country A, which has not adopted the CISG. Seller is located in Country B, which has adopted the CISG. Country B has not made a declaration under Article 95. The matter is litigated in Country A, which has adopted the 1955 Hague Convention (see discussion in footnote 5 and accompanying text, supra). The purchase order was received by Seller at Seller’s place of business in Country B. Does the CISG apply to the transaction? See CISG Article 1(b). Problem 10 - Buyer is located in Country A, which has not adopted the CISG. Seller is located in California. The goods were shipped from California and the purchase order was received by Seller in California. California has adopted UCC § 1-105. The United States has made a declaration under CISG Article 95. The case is litigated in California. Does the CISG apply? Does the California version of the UCC apply? Problem 11 - Buyer is located in Country A, which has not adopted the CISG. Seller is located in Country B, which has adopted the CISG and which has not made a declaration under CISG Article 95. The contract has a provision indicating that in the event of a dispute, the law of Country B would apply. Does the CISG apply? See CISG Article 6 and ICC Case No. 6653 of 1993, http://www.cisg.law.pace.edu/cisg/wais/db/cases2/936653i1.html. See also Asante Technologies v. PMC-Sierra, Inc., 164 F. Supp 2d 1142 (ND Cal. 2001). How would you draft a contractual provision to make certain that the CISG does not apply to the transaction? CHAPTER 3 CONTRACT FORMATION Assuming that we have been able to determine the applicable law, the next question is whether an enforceable contract has been formed? This issue is considered in Part 2 of UCC Article 2 and is also considered in Part II of the CISG. Some nations have opted out of Part II of the CISG pursuant to Article 92, meaning that their domestic law must be used to resolve contract formation issues if the choice of law rules point in their direction.12 The next set of questions and cases are designed to explore contract formation under both the UCC and the CISG. A. Offer & Acceptance
Both the CISG and the UCC contain rules on basic contract formation that differ from United States common law. The CISG and the UCC also differ from each other to some extent. Some of the similarities and differences are explored in the following set of problems. Problems The following questions are based on these facts: On May 15, Buyer Department Store sent a purchase order to Seller Clothing Manufacturer ordering 500 dresses at $100 per dress. No date for delivery was specified. The type of dress was designated by order number from Seller’s catalog (which Seller had widely distributed). The purchase order stated “we expect to hear from you by June 5.” Problem 12 - Is Buyer’s purchase order an “offer” under the UCC? Does the UCC define “offer”? See UCC §§ 1-103, 2-204 & 2-205. Is the purchase order an offer under the CISG? See CISG Art. 14. Of what significance is the lack of a delivery date? See UCC § 2-309 & CISG Art. 33. Would Seller’s catalog be considered an “offer” if it contained listed prices next to its description of the goods for sale? Problem 13 - Could Buyer revoke the purchase order after it was received by Seller and before June 5? See UCC § 2-205 & CISG Art. 16. Would it be relevant that Seller is from a country where offers are irrevocable until the date stated while Buyer is from a country where offers are generally revocable even before the time stated (such as the United States). See CISG Article 8 and Secretariat Commentary to Art. 14 of 1978 CISG draft, http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-16.html. See also Schlectriem, Uniform Sales Law – The UN-Convention on Contracts for the International Sale of Goods 51-53 (1986) (reproduced at http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem-16.html). Problem 14 – Assuming Buyer did not revoke its offer before June 5 and that the CISG applies. Could Seller accept by dispatching an acceptance on June 4, even though the acceptance is not received by Buyer until June 6? You may remember the “mailbox rule” from your Contracts class, which states that a mailed acceptance is effective upon dispatch. Does the “mailbox rule” apply under the CISG? See CISG Art. 18(2) & Art. 21. If Seller simply shipped the goods to Buyer such that they were received by Buyer before June 5, would a contract have been formed? Compare CISG Art. 18 with UCC § 2-206.
a. UCC Treatment One of the more perplexing issues faced by students in the basic Contracts course is how to deal with the “battle of the forms.” It is sufficiently perplexing that some time will be spent on it in the next few pages. We will also compare the CISG treatment of the issue to the UCC treatment. You may remember from your Contracts class that UCC § 2-207 was designed to replace the old common law “mirror image” rule and “last shot” doctrine. Under the “mirror image” rule, a purported “acceptance” of an offer had to be the “mirror image” of the offer in order to be effective. If there were variations between the offer and “acceptance,” the “acceptance” was not operative as such and was instead a rejection and counter-offer. Under the “last shot” doctrine, if the parties performed following the counter-offer without further communications, the original offeror was deemed to have accepted the counter-offer by performance. Thus the terms of the counter-offer, the “last shot,” were included in the contract. This traditional approach may have made sense when parties were negotiating face-to-face or were at the least carefully reading the forms sent by each party. The drafters of the UCC thought that the approach led to arbitrary and sometimes unfair results in situations in which neither party was paying much attention to the standard forms of the other party other than the so-called “dickered” terms of price and quantity. Accordingly, section 2-207 was drafted to make clear that a contract would nevertheless exist even if there were minor varying terms in the acceptance. In such a case, the terms would be determined under subsection 2. Between merchants, additional terms in the contract would be automatically included unless there was a timely objection by the offeror, the terms materially altered the contract or the offer was expressly limited to its terms. As you may remember from your first year Contracts course, section 2-207 raises a number of questions that are not easily answered. How much variation can there be between an offer and an acceptance before we say that there is no contract formed? Are terms in an acceptance that are different from the offer (as compared to additional) supposed to be considered under § 2-207(2)? When are variations between the offer and acceptance “material”? The next couple of cases demonstrate a couple of different ways of analyzing whether an arbitration clause in one of the party’s forms should be included in the contract. DORTON v. COLLINS & AIKMAN CORP. United States Court of Appeals, Sixth Circuit 453 F.2d 1161, 10 UCC Rep. Serv. 585 (1972) The primary question before us on appeal is whether the District Court, in denying Collins & Aikman's motion for a stay pending arbitration, erred in holding that The Carpet Mart was not bound by the arbitration agreement appearing on the back of Collins & Aikman's acknowledgment forms. In reviewing the District Court's determination, we must look closely at the procedures which were followed in the sales transactions which gave rise to the present dispute over the arbitration agreement. In each of the more than 55 transactions, one of the partners in The Carpet Mart, or, on some occasions, Collins & Aikman's visiting salesman, telephoned Collins & Aikman's order department in Dalton, Georgia, and ordered certain quantities of carpets listed in Collins & Aikman's catalogue. There is some dispute as to what, if any, agreements were reached through the telephone calls and through the visits by Collins & Aikman's salesman. After each oral order was placed, the price, if any, quoted by the buyer was checked against Collins & Aikman's price list, and the credit department was consulted to determine if The Carpet Mart had paid for all previous shipments. After it was found that everything was in order, Collins & Aikman's order department typed the information concerning the particular order on one of its printed acknowledgment forms. Each acknowledgment form bore one of three legends: "Acknowledgment," "Customer Acknowledgment," or "Sales Contract." The following provision was printed on the face of the forms bearing the "Acknowledgment" legend: "The acceptance of your order is subject to all of the terms and conditions on the face and reverse side hereof, including arbitration, all of which are accepted by buyer; it supersedes buyer's order form, if any. It shall become a contract either (a) when signed and delivered by buyer to seller and accepted in writing by seller, or (b) at Seller's option, when buyer shall have given to seller specification of assortments, delivery dates, shipping instructions, or instructions to bill and hold as to all or any part of the merchandise herein described, or when buyer has received delivery of the whole or any part thereof, or when buyer has otherwise assented to the terms and conditions hereof." Similarly, on the face of the forms bearing the "Customer Acknowledgment" or "Sales Contract" legends the following provision appeared: "This order is given subject to all of the terms and conditions on the face and reverse side hereof, including the provisions for arbitration and the exclusion of warranties, all of which are accepted by Buyer, supersede Buyer's order form, if any, and constitute the entire contract between Buyer and Seller. This order shall become a contract as to the entire quantity specified either (a) when signed and delivered by Buyer to Seller and accepted in writing by Seller or (b) when Buyer has received and retained this order for ten days without objection, or (c) when Buyer has accepted delivery of any part of the merchandise specified herein or has furnished to Seller specifications or assortments, delivery dates, shipping instructions, or instructions to bill and hold, or when Buyer has otherwise indicated acceptance of the terms hereof." The small print on the reverse side of the forms provided, among other things, that all claims arising out of the contract would be submitted to arbitration in New York City. Each acknowledgment form was signed by an employee of Collins & Aikman's order department and mailed to The Carpet Mart on the day the telephone order was received or, at the latest, on the following day. The carpets were thereafter shipped to The Carpet Mart, with the interval between the mailing of the acknowledgment form and shipment of the carpets varying from a brief interval to a period of several weeks or months. Absent a delay in the mails, however, The Carpet Mart always received the acknowledgment forms prior to receiving the carpets. In all cases The Carpet Mart took delivery of and paid for the carpets without objecting to any terms contained in the acknowledgment form. The District Court found that Subsection 2-207(3) controlled the instant case, quoting the following passage from 1 W. Hawkland, A Transactional Guide to the Uniform Commercial Code § 1.090303, at 19-20 (1964): "If the seller . . . ships the goods and the buyer accepts them, a contract is formed under subsection (3). The terms of this contract are those on which the purchase order and acknowledgment agree, and the additional terms needed for a contract are to be found throughout the U.C.C. . . . [T]he U.C.C. does not impose an arbitration term on the parties where their contract is silent on the matter. Hence, a conflict between an arbitration and a no-arbitration clause would result in the no-arbitration clause becoming effective." Under this authority alone the District Court concluded that the arbitration clause on the back of Collins & Aikman's sales acknowledgment had not become a binding term in the 50-odd transactions with The Carpet Mart. In reviewing this determination by the District Court, we are aware of the problems which courts have had in interpreting Section 2-207. This section of the UCC has been described as a "murky bit of prose," Southwest Engineering Co. v. Martin Tractor Co., 205 Kan. 684, 694, 473 P.2d 18, 25 (1970), as "not too happily drafted," Roto-Lith Ltd. v. F. P. Bartlett & Co., 297 F.2d 497, 500 (1st Cir. 1962), and as "one of the most important, subtle, and difficult in the entire Code, and well it may be said that the product as it finally reads is not altogether satisfactory." Duesenberg & King, Sales and Bulk Transfers under the Uniform Commercial Code, (Vol. 3, Bender's Uniform Commercial Code Service) § 3.03, at 3-12 (1969). Despite the lack of clarity in its language, Section 2-207 manifests definite objectives which are significant in the present case. As Official Comment No. 1 indicates, UCC § 2-207 was intended to apply to two situations: "The one is 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 acknowledgments or memoranda embodying the terms so far as agreed upon and adding terms not discussed. The other situation is one in which a wire or letter expressed and intended as the closing or confirmation of an agreement adds further minor suggestions or proposals such as 'ship by Tuesday,' 'rush,' 'ship draft against bill of lading inspection allowed,' or the like." [UCC § 2-207], Official Comment 1. Although Comment No. 1 is itself somewhat ambiguous, it is clear that Section 2-207, and specifically Subsection 2-207(1), was intended to alter the "ribbon matching" or "mirror" rule of common law, under which the terms of an acceptance or confirmation were required to be identical to the terms of the offer or oral agreement, respectively. 1 W. Hawkland, supra, at 16; R. Nordstrom, Handbook of the Law of Sales, Sec. 37, at 99-100 (1970). Under the common law, an acceptance or a confirmation which contained terms additional to or different from those of the offer or oral agreement constituted a rejection of the offer or agreement and thus became a counter- offer. The terms of the counter-offer were said to have been accepted by the original offeror when he proceeded to perform under the contract without objecting to the counter-offer. Thus, a buyer was deemed to have accepted the seller's counter-offer if he took receipt of the goods and paid for them without objection. Under Section 2-207 the result is different. This section of the Code recognizes that in current commercial transactions, the terms of the offer and those of the acceptance will seldom be identical. Rather, under the current "battle of the forms," each party typically has a printed form drafted by his attorney and containing as many terms as could be envisioned to favor that party in his sales transactions. Whereas under common law the disparity between the fineprint terms in the parties' forms would have prevented the consummation of a contract when these forms are exchanged, Section 2-207 recognizes that in many, but not all, cases the parties do not impart such significance to the terms on the printed forms. See 1 W. Hawkland, supra; § 1.0903, at 14, § 1.090301, at 16. Subsection 2-207(1) therefore provides that "[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, unless acceptance is expressly made conditional on assent to the additional or different terms." Thus, under Subsection (1), a contract is recognized notwithstanding the fact that an acceptance or confirmation contains terms additional to or different from those of the offer or prior agreement, provided that the offeree's intent to accept the offer is definitely expressed, see Sections 2-204 and 2-206, and provided that the offeree's acceptance is not expressly conditioned on the offeror's assent to the additional or different terms. When a contract is recognized under Subsection (1), the additional terms are treated as "proposals for addition to the contract" under Subsection (2), which contains special provisions under which such additional terms are deemed to have been accepted when the transaction is between merchants. Conversely, when no contract is recognized under Subsection 2-207(1)-either because no definite expression of acceptance exists or, more specifically, because the offeree's acceptance is expressly conditioned on the offeror's assent to the additional or different terms-the entire transaction aborts at this point. If, however, the subsequent conduct of the parties-particularly, performance by both parties under what they apparently believe to be a contract-recognizes the existence of a contract, under Subsection 2-207(3) such conduct by both parties is sufficient to establish a contract, notwithstanding the fact that no contract would have been recognized on the basis of their writings alone. Subsection 2-207(3) further provides how the terms of contracts recognized thereunder shall be determined. With the above analysis and purposes of Section 2-207 in mind, we turn to their application in the present case. We initially observe that the affidavits and the acknowledgment forms themselves raise the question of whether Collins & Aikman's forms constituted acceptances or confirmations under Section 2-207. The language of some of the acknowledgment forms ("The acceptance of your order is subject to . . .") and the affidavit of Mr. William T. Hester, Collins & Aikman's marketing operations manager, suggest that the forms were the only acceptances issued in response to The Carpet Mart's oral offers. However, in his affidavit Mr. J. A. Castle, a partner in The Carpet Mart, asserted that when he personally called Collins & Aikman to order carpets, someone from the latter's order department would agree to sell the requested carpets, or, alternatively, when Collins & Aikman's visiting salesman took the order, he would agree to the sale, on some occasions after he had used The Carpet Mart's telephone to call Collins & Aikman's order department. Absent the District Court's determination of whether Collins & Aikman's acknowledgment forms were acceptances or, alternatively, confirmations of prior oral agreements, we will consider the application of section 2-207 to both situations for the guidance of the District Court on remand. Viewing Collins & Aikman's acknowledgment forms as acceptances under Subsection 2-207(1), we are initially faced with the question of whether the arbitration provision in Collins & Aikman's acknowledgment forms were in fact "additional to or different from" the terms of The Carpet Mart's oral offers. In the typical case under Section 2-207, there exist both a written purchase order and a written acknowledgment, and this determination can be readily made by comparing the two forms. In the present case, where the only written forms were Collins & Aikman's sales acknowledgments, we believe that such a comparison must be made between the oral offers and the written acceptances.13 Although the District Court apparently assumed that The Carpet Mart's oral orders did not include in their terms the arbitration provision which appeared in Collins & Aikman's acknowledgment forms, we believe that a specific finding on this point will be required on remand. Assuming, for purposes of analysis, that the arbitration provision was an addition to the terms of The Carpet Mart's oral offers, we must next determine whether or not Collins & Aikman's acceptances were "expressly made conditional on assent to the additional . . . terms" therein, within the proviso of Subsection 2-207(1). As set forth in full above, the provision appearing on the face of Collins & Aikman's acknowledgment forms stated that the acceptances (or orders) were "subject to all of the terms and conditions on the face and reverse side hereof, including arbitration, all of which are accepted by buyer." The provision on the "Acknowledgment" forms further stated that Collins & Aikman's terms would become the basis of the contract between the parties "either (a) when signed and delivered by buyer to seller and accepted in writing by seller, or (b) at Seller's option, when buyer shall have given to seller specification of assortments, delivery dates, shipping instructions, or instructions to bill and hold as to all or any part of the merchandise herein described, or when buyer has received delivery of the whole or any part thereof, or when buyer has otherwise assented to the terms and conditions hereof." Similarly, the provision on the "Customer Acknowledgment" and "Sales Contract" forms stated that the terms therein would become the basis of the contract "either (a) when signed and delivered by Buyer to Seller and accepted in writing by Seller or (b) when Buyer has received and retained this order for ten days without objection, or (c) when Buyer has accepted delivery of any part of the merchandise specified herein or has furnished to Seller specifications or assortments, delivery dates, shipping instructions to bill and hold, or when Buyer has otherwise indicated acceptance of the terms hereof." Although Collins & Aikman's use of the words "subject to" suggests that the acceptances were conditional to some extent, we do not believe the acceptances were "expressly made conditional on [the buyer's] assent to the additional or different terms," as specifically required under the Subsection 2-207(1) proviso. In order to fall within this proviso, it is not enough that an acceptance is expressly conditional on additional or different terms; rather, an acceptance must be expressly conditional on the offeror's assent to those terms. Viewing the Subsection (1) proviso within the context of the rest of that Subsection and within the policies of Section 2-207 itself, we believe that it was intended to apply only to an acceptance which clearly reveals that the offeree is unwilling to proceed with the transaction unless he is assured of the offeror's assent to the additional or different terms therein. See 1 W. Hawkland, supra, § 1.090303, at 21. That the acceptance is predicated on the offeror's assent must be "directly and distinctly stated or expressed rather than implied or left to inference." Webster's Third International Dictionary (defining "express"). Although the UCC does not provide a definition of "assent," it is significant that Collins & Aikman's printed acknowledgment forms specified at least seven types of action or inaction on the part of the buyer which-sometimes at Collins & Aikman's option-would be deemed to bind the buyer to the terms therein. These ranged from the buyer's signing and delivering the acknowledgment to the seller-which indeed could have been recognized as the buyer's assent to Collins & Aikman's terms-to the buyer's retention of the acknowledgment for ten days without objection-which could never have been recognized as the buyer's assent to the additional or different terms where acceptance is expressly conditional on that assent. To recognize Collins & Aikman's acceptances as "expressly conditional on [the buyer's] assent to the additional . . . terms" therein, within the proviso of Subsection 2-207(1), would thus require us to ignore the specific language of that provision. Such an interpretation is not justified in view of the fact that Subsection 2-207(1) is clearly designed to give legal recognition to many contracts where the variance between the offer and acceptance would have precluded such recognition at common law. Because Collins & Aikman's acceptances were not expressly conditional on the buyer's assent to the additional terms within the proviso of Subsection 2-207(1), a contract is recognized under Subsection (1), and the additional terms are treated as "proposals" for addition to the contract under Subsection 2-207(2).14 Since both Collins & Aikman and The Carpet Mart are clearly "merchants" as that term is defined in Subsection 2- 104(1), the arbitration provision will be deemed to have been accepted by The Carpet Mart under Subsection 2-207(2) unless it materially altered the terms of The Carpet Mart's oral offers. [UCC § 2- 207(2) (b)]. We believe that the question of whether the arbitration provision materially altered the oral offer under Subsection 2-207(2) (b) is one which can be resolved only by the District Court on further findings of fact in the present case.15 If the arbitration provision did in fact materially alter The Carpet Mart's offer, it could not become a part of the contract "unless expressly agreed to" by The Carpet Mart. [UCC § 2-207], Official Comment No. 3. We therefore conclude that if on remand the District Court finds that Collins & Aikman's acknowledgments were in fact acceptances and that the arbitration provision was additional to the terms of The Carpet Mart's oral orders, contracts will be recognized under Subsection 2-207(1). The arbitration clause will then be viewed as a "proposal" under Subsection 2-207(2) which will be deemed to have been accepted by The Carpet Mart unless it materially altered the oral offers. If the District Court finds that Collins & Aikman's acknowledgment forms were not acceptances but rather were confirmations of prior oral agreements between the parties, an application of Section 2-207 similar to that above will be required. Subsection 2-207(1) will require an initial determination of whether the arbitration provision in the confirmations was "additional to or different from" the terms orally agreed upon. Assuming that the District Court finds that the arbitration provision was not a term of the oral agreements between the parties, the arbitration clause will be treated as a "proposal" for addition to the contract under Subsection 2-207(2), as was the case when Collins & Aikman's acknowledgments were viewed as acceptances above. The provision for arbitration will be deemed to have been accepted by The Carpet Mart unless the District Court finds that it materially altered the prior oral agreements, in which case The Carpet Mart could not become bound thereby absent an express agreement to that effect. As a result of the above application of Section 2-207 to the limited facts before us in the present case, we find it necessary to remand the case to the District Court for the following findings: (1) whether oral agreements were reached between the parties prior to the sending of Collins & Aikman's acknowledgment forms; if there were no such oral agreements, (2) whether the arbitration provision appearing in Collins & Aikman's "acceptances" was additional to the terms of The Carpet Mart's oral offers; and, if so, (3) whether the arbitration provision materially altered the terms of The Carpet Mart's oral offers. Alternatively, if the District Court does find that oral agreements were reached between the parties before Collins & Aikman's acknowledgment forms were sent in each instance, it will be necessary for the District Court to make the following findings: (1) whether the prior oral agreements embodied the arbitration provision appearing in Collins & Aikman's "confirmations"; and, if not, (2) whether the arbitration provision materially altered the prior oral agreements. Regardless of whether the District Court finds Collins & Aikman's acknowledgment forms to have been acceptances or confirmations, if the arbitration provision was additional to, and a material alteration of, the offers or prior oral agreements, The Carpet Mart will not be bound to that provision absent a finding that it expressly agreed to be bound thereby. Notes, Questions and Problems 1) The court quotes several commentators' dissatisfaction with UCC § 2-207. Professors White & Summers also refer to § 2-207 as being "like an amphibious tank that was originally designed to fight in the swamps, but was sent to fight in the desert." White & Summers, Uniform Commercial Code § 1.3 (5th ed. 2000). In their view, § 2-207 was designed to deal with the situation where minor discrepancies between offer and acceptance previously prevented contract formation. Unscrupulous parties would take advantage of the technical variance to get out of a deal because it had become less favorable. Where § 2-207 has problems is in determining the terms of the contract where there are significant variations between the forms. Perhaps no contract should be found at all in those cases. How do we determine if a term in an acceptance “materially alters” the contract? Official comment 4 to section 2-207 talks about terms that would “result in surprise or hardship if incorporated without express awareness of the other party.” Comment 4 gives examples of terms that would be a surprise or hardship. Comment 5 gives examples of terms that would not be considered material. Arbitration clauses are not mentioned in either set of examples. On remand, what kind of evidence would be useful in determining whether the arbitration provision materially altered the contract? Should arbitration clauses be considered "per se" material? For a discussion of some of the problems posed by arbitration, see Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83, 6 P.3d 669, 99 Cal. Rptr. 2d 745 (2000). Problem 15 – Buyer sends an offer to seller, seeking to purchase 2,000 bushels of wheat. Seller sends an “order confirmation” stating “We agree to ship you 1,500 bushels of wheat.” The forms are in agreement on price. Is there a contract? If there is a contract, how much wheat is the seller required to ship and the buyer required to accept? See UCC § 2-207(1). How are different terms in an acceptance to be treated? Compare UCC § 2-207(2) to its official comment 3. Problem 16 - Proposed amendments to UCC Article 2 were finalized in May, 2003 after over ten years of study. They now await enactment by the states. One of the amendments would change the way varying terms in an offer and acceptance are considered under section 2-207. A contract could still be formed when there are varying terms, but the only terms that would exist in the contract would be those on which the parties' forms agreed, those on which the parties otherwise agreed and terms supplied by the UCC (including usage of trade, course of dealing and course of performance). See Amended UCC § 2-207 (2003). If the amendment to UCC § 2-207 were law, would Dorton v. Collins & Aikman be decided differently? Is the proposed amendment an improvement over existing law? What are some of the problems that it poses to someone who makes an offer? HILL v. GATEWAY 2000, INC. United States Court of Appeals, Seventh Circuit 105 F.2d 1147, 33 UCC Rep Serv. 2d 303 (1997) EASTERBROOK, Circuit Judge. A customer picks up the phone, orders a computer, and gives a credit card number. Presently a box arrives, containing the computer and a list of terms, said to govern unless the customer returns the computer within 30 days. Are these terms effective as the parties' contract, or is the contract term-free because the order-taker did not read any terms over the phone and elicit the customer's assent? One of the terms in the box containing a Gateway 2000 system was an arbitration clause. Rich and Enza Hill, the customers, kept the computer more than 30 days before complaining about its components and performance. They filed suit in federal court arguing, among other things, that the product's shortcomings make Gateway a racketeer (mail and wire fraud are said to be the predicate offenses), leading to treble damages under RICO for the Hills and a class of all other purchasers. Gateway asked the district court to enforce the arbitration clause; the judge refused, writing that "the present record is insufficient to support a finding of a valid arbitration agreement between the parties or that the plaintiffs were given adequate notice of the arbitration clause." Gateway took an immediate appeal, as is its right. 9 U.S.C. § 16(a)(1)(A). The Hills say that the arbitration clause did not stand out: they concede noticing the statement of terms but deny reading it closely enough to discover the agreement to arbitrate, and they ask us to conclude that they therefore may go to court. Yet an agreement to arbitrate must be enforced "save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Doctor's Associates, Inc. v. Casarotto, 134 L. Ed. 2d 902, 116 S. Ct. 1652 (1996), holds that this provision of the Federal Arbitration Act is inconsistent with any requirement that an arbitration clause be prominent. A contract need not be read to be effective; people who accept take the risk that the unread terms may in retrospect prove unwelcome. Carr v. CIGNA Securities, Inc., 95 F.3d 544, 547 (7th Cir. 1996); Chicago Pacific Corp. v. Canada Life Assurance Co., 850 F.2d 334 (7th Cir. 1988). Terms inside Gateway's box stand or fall together. If they constitute the parties' contract because the Hills had an opportunity to return the computer after reading them, then all must be enforced.
Plaintiffs ask us to limit ProCD to software, but where's the sense in that? ProCD is about the law of contract, not the law of software. Payment preceding the revelation of full terms is common for air transportation, insurance, and many other endeavors. Practical considerations support allowing vendors to enclose the full legal terms with their products. Cashiers cannot be expected to read legal documents to customers before ringing up sales. If the staff at the other end of the phone for direct-sales operations such as Gateway's had to read the four-page statement of terms before taking the buyer's credit card number, the droning voice would anesthetize rather than enlighten many potential buyers. Others would hang up in a rage over the waste of their time. And oral recitation would not avoid customers' assertions (whether true or feigned) that the clerk did not read term X to them, or that they did not remember or understand it. Writing provides benefits for both sides of commercial transactions. Customers as a group are better off when vendors skip costly and ineffectual steps such as telephonic recitation, and use instead a simple approve-or-return device. Competent adults are bound by such documents, read or unread. For what little it is worth, we add that the box from Gateway was crammed with software. The computer came with an operating system, without which it was useful only as a boat anchor. See Digital Equipment Corp. v. Uniq Digital Technologies, Inc., 73 F.3d 756, 761 (7th Cir. 1996). Gateway also included many application programs. So the Hills' effort to limit ProCD to software would not avail them factually, even if it were sound legally--which it is not. Next the Hills insist that ProCD is irrelevant because Zeidenberg was a "merchant" and they are not. Section 2-207(2) of the UCC, the infamous battle-of-the-forms section, states that "additional terms [following acceptance of an offer] are to be construed as proposals for addition to a contract. Between merchants such terms become part of the contract unless. . ..” Plaintiffs tell us that ProCD came out as it did only because Zeidenberg was a "merchant" and the terms inside ProCD's box were not excluded by the "unless" clause. This argument pays scant attention to the opinion in ProCD, which concluded that, when there is only one form, " § 2-207 is irrelevant." 86 F.3d at 1452. The question in ProCD was not whether terms were added to a contract after its formation, but how and when the contract was formed--in particular, whether a vendor may propose that a contract of sale be formed, not in the store (or over the phone) with the payment of money or a general "send me the product," but after the customer has had a chance to inspect both the item and the terms. ProCD answers "yes," for merchants and consumers alike. Yet again, for what little it is worth we observe that the Hills misunderstand the setting of ProCD. A "merchant" under the UCC "means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction,” § 2-104(1). Zeidenberg bought the product at a retail store, an uncommon place for merchants to acquire inventory. His corporation put ProCD's database on the Internet for anyone to browse, which led to the litigation but did not make Zeidenberg a software merchant. At oral argument the Hills propounded still another distinction: the box containing ProCD's software displayed a notice that additional terms were within, while the box containing Gateway's computer did not. The difference is functional, not legal. Consumers browsing the aisles of a store can look at the box, and if they are unwilling to deal with the prospect of additional terms can leave the box alone, avoiding the transactions costs of returning the package after reviewing its contents. Gateway's box, by contrast, is just a shipping carton; it is not on display anywhere. Its function is to protect the product during transit, and the information on its sides is for the use of handlers ("Fragile!" "This Side Up!" ) rather than would-be purchasers. Perhaps the Hills would have had a better argument if they were first alerted to the bundling of hardware and legal-ware after opening the box and wanted to return the computer in order to avoid disagreeable terms, but were dissuaded by the expense of shipping. What the remedy would be in such a case--could it exceed the shipping charges?--is an interesting question, but one that need not detain us because the Hills knew before they ordered the computer that the carton would include some important terms, and they did not seek to discover these in advance. Gateway's ads state that their products come with limited warranties and lifetime support. How limited was the warranty--30 days, with service contingent on shipping the computer back, or five years, with free onsite service? What sort of support was offered? Shoppers have three principal ways to discover these things. First, they can ask the vendor to send a copy before deciding whether to buy. The Magnuson-Moss Warranty Act requires firms to distribute their warranty terms on request, 15 U.S.C. § 2302(b)(1)(A); the Hills do not contend that Gateway would have refused to enclose the remaining terms too. Concealment would be bad for business, scaring some customers away and leading to excess returns from others. Second, shoppers can consult public sources (computer magazines, the Web sites of vendors) that may contain this information. Third, they may inspect the documents after the product's delivery. Like Zeidenberg, the Hills took the third option. By keeping the computer beyond 30 days, the Hills accepted Gateway's offer, including the arbitration clause.
1) Note the court's assertion that UCC § 2-207 only applies when there is more than one form involved. Is that consistent with the holding in Dorton v. Collins & Aikman? Is it consistent with official comment 1 of § 2-207? 2) Note that in Dorton the court holds that a merchant may not be bound by an arbitration clause if it is determined that the clause materially altered the contract while in Hill the court holds that a consumer is bound to the arbitration clause. Are the results of the two cases backward? Should the salesperson either be required to read all of the terms of the contract to the consumer over the phone or tell the consumer that important terms will be included in the box containing the product? If the salesperson were to do that, would the consumer pay more attention to the terms in the box? Problem 17 - If § 2-207 were applied to this case, would the arbitration clause be effective? How would this case be decided under the proposed amendment to 2-207? See 2003 Approved Amendments to UCC §2-207, preliminary comment 5. Problem 18 - Assume that a contract was formed when the goods were ordered over the phone and the buyer made payment. Could it be argued that by retaining the goods the buyer had agreed to modify the contract to include the arbitration provision? See UCC § 2-209. See also CISG Article 29.
The CISG article that most directly deals with discrepancies between the offer and acceptance is Article 19. It starts in the first paragraph by stating a “mirror image” rule that a purported acceptance containing varying terms is not an operative acceptance but is instead a rejection and a counteroffer. Paragraph 2 modifies the “mirror image” rule somewhat by stating that an acceptance may contain immaterial additional or different terms, provided that the offeror does not timely object. Article 19(3) provides some terms that will be considered material, including terms relating to settlement of disputes. The following case shows how a “battle of the forms” case might be analyzed under the CISG. FILANTO, S.p.A. v. CHILEWICH INT’L CORP. Download 1.49 Mb. Share with your friends:
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