Contracts Class Notes 1/12/04

More on the battle of the forms

We previously talked about what used to happen at common law and what happens today under the current version of § 2-207. Let’s review some hypotheticals.

Under § 2-207, the buyer comes up with a purchase order offer for an expensive voltage regulator. The buyer is a big and sophisticated business buyer. The buyer fills out one of their own purchase order forms with dickered terms on the front and boilerplate on the back. If the seller simply signed and returned the form, then both parties would have signed off on the same agreement and it would be no sweat. But here, what usually happens actually happens. The seller responds with his own acknowledgement form which has the seller’s own boilerplate on the back.

Say on the back side of the seller’s acknowledgement form is an arbitration clause, but otherwise the two forms agree. How does § 2-207 handle it?

Under § 2-207 (1), we view the seller’s acknowledge as a definite and seasonable expression of acceptance (looks, acts, quacks like an acceptance). Even though the seller’s acknowledgement states an additional term, it acts as an acceptance. So what happens to the additional term?

Under § 2-207 (2), the additional term shall be treated as a proposal for an addition to the contract. The seller is, in effect, proposing that the agreement should be covered by arbitration instead of litigation. It’s a deviant acceptance of the offer, but it still operates as an acceptance. We deal with the proposal for an addition under § 2-207 (2)(b). You get the contract early on when the acknowledgement is dispatched, and in this case it will be on the buyer’s terms, with no arbitration.

Take a different case: let’s say the seller’s acknowledgement has a big difference in the dickered terms, namely price. The key is that the seller’s acknowledgement is treated as a counteroffer and not a “definite and seasonable expression of acceptance”. The answer ought to be: no contract at this point. If they both walk away now, they haven’t reached an agreement and that’s the end of it. On the other hand, if the buyer ships the goods and the seller accepts them, you may be able to treat that as an acceptance of the seller’s counteroffer. In this hypothetical, however, we would suppose that the two sides would realize they hadn’t come together and that they have more haggling to do.

Consider a third variation on this. Suppose that the buyer, a sizeable merchant, wants to buy this expensive voltage regulator and again the buyer sends the seller its purchase order, which has fill-in-the-blanks dickered terms on the front and lots of boilerplate on the back. The buyer fills it in with the price and delivery date. But now the buyer has carefully “lawyered” its form such that the purchase order makes use of the defensive opportunities provided by § 2-207 (2)(a) and (2)(c). It will do so with boldface, all-caps language tracking the language of the statute.

It will say that “THIS PURCHASE ORDER OFFER EXPRESSLY LIMITS ITS ACCEPTANCE TO THE TERMS OF THIS OFFER.”

It will say that “THIS BUYER OBJECTS TO ANY TERMS VARYING FROM ANY TERMS IN THIS OFFER.”

Additionally, the terms in the buyer’s purchase order are strongly pro-buyer. Among other things, the seller is to provide a panoply of warranties and no limitation of liability.

The seller replies with a mirror image of the dickered terms. But the boilerplate expressly and conspicuously disclaims warranties and limits liability. This form also uses the defensive “unless” clause from § 2-207 (1). They’ll do this in all-caps and boldface. “ACCEPTANCE IS EXPRESSLY MADE CONDITIONAL ON ASENT TO ADDITIONAL OR DIFFERENT TERMS THIS DOCUMENT CONTAINS.”

The buyer and seller want to do a deal! They disregard these terms that the lawyers have drafted for them. Usually, there’s no big deal. But let’s say the voltage regulator blows up! The buyer wants to recover from the seller, but the seller claims that they’ve disclaimed liabilities and limited warranties. What do we do?

It’s hard to find an offer and acceptance given all the boldface, all-caps disclaimers. The buyer has said that you have to accept all our terms, and the seller has said that they expressly refuse to accept the buyer’s terms. What have we got? Do we have offer and counteroffer? Are we back where the common law has left us? Is there another way out under § 2-207? Yes!

A suggestion: how about finding a contract when the seller’s acknowledgement is dispatched? We could include terms upon which the two sides coincide, and if the boilerplate differs, we’ll disregard both and fill in gaps with off-the-shelf provisions. Under what authority can we do this? We can do it under § 2-207 (3).

The writings of the parties in this case don’t seem to establish a contract, but a lot of courts will follow the suggest that the parties’ conduct treating this as a made deal as soon as the acknowledgement is dispatched and the product is shipped means that a contract is formed. The only problem is figuring out what the terms are.

Here’s some jargon: we’re going to have what’s referred to in the case law as the knock-out rule. Each party knocks out the other party’s terms, and we’re going to fill-in with off-the-rack generic terms. That means the buyer wins! When there is no express agreement otherwise, this Act is going to provide for full warranties and full remedies. In this case, we knock out the seller’s efforts to disclaim warranties and limit liability.

But…is this giving the buyer something they’d like to have but they’re unwilling to pay for? What can the seller do? You can say “damn!” But what else can the seller do? On warranties, the buyer wins. What can the seller do? They can put “COUNTEROFFER” in big letters when they respond to the purchase order.

Not only do we have a battle going on between the buyer and the seller, we also have internal battles in each organization. The seller’s salespeople want to make a deal and they don’t want to tick off the customer. They don’t like the lawyers and accountants who want to put “COUNTEROFFER” on there.

The businesspeople might be forgiven for disregarding the pathological case, and the lawyers might be forgiven for wanting to avoid major liability.

You could also instruct the seller not to ship until they get the buyer to agree to their terms.

What will sometimes happen and sometimes work? You can respond: “You’re asking for warranties at our non-warranty price. If you want warranties, you’ll have to pay more.” That’s more likely to succeed legally and is somewhat more palatable to the seller’s businesspeople.

What actually happens in most of these cases? The situation is not as strong in the buyer’s favor as you might think. Think about the case of repeat customers. The buyer has a lot of reason to know before he orders that the seller wants to limit remedies and exclude warranties. Under those circumstances, whose expectations should be protected?

Prior course of dealing between parties will have a lot to do with what the parties have agreed upon. This may have a big influence on just what terms are taken to be part of the contract.

§ 2-207 is considered to be a very good friend of lawyers. That’s also a serious criticism of how the thing works. There’s a lot of litigation that can spring up around it. Many people believe that § 2-207 hasn’t done the job right.

The new Article 2

The new § 2-206 (3) codifies much of the current § 2-207, but there’s no grand defensive clause at the end. There’s also a stylistic difference: the current version has a lot of mechanical things that haven’t worked well. The new version is much more general principles rather than mechanical specifics.

In the new § 2-207, course of dealing and custom becomes more important. An awful lot of effort has gone into fixing this problem and this is where they finally ended up. Clovis thinks this is going to result in an improvement, but it’s going to depend on how the case law goes.

So this introduced to the idea of using printed forms to make agreements when you have two merchants, each with their own printed writing. But what happens in the case where only one party has a form? Typically, there’s a business that is the strong party economically and a consumer or small business with no form. These are sometimes called contracts of adhesion, meaning the more powerful party says: “Here’s the deal. If you want to take the deal, sign it, and you’re bound by what you sign.” It’s called a contract of adhesion because the only choice of the little guy is to adhere or walk away from the deal. This has caused a lot of problems for a lot of people.

Allied Van Lines, Inc. v. Bratton

Mrs. Bratton is going to move to Florida, and she picks Allied for her moving company. They pick up her stuff and put it on the truck. They give her a bill of lading to sign and she signs it without looking at it. One of the terms in the bill of lading was that if the goods were stolen (which they later were) Bratton would get $1.50 per pound. When the goods were stolen, Allied paid out $3,000, while Bratton wanted the full value of her goods, which was more like $10,000.

Clovis says “Never sign anything without reading it” is not good advice unless you’re being paid for it and paid well. The real idea is that Bratton knew it was a contractual document, and Bratton knew or ought to have known that when she signed a bill of lading on a moving van company’s terms she would be bound by those terms.

Look at § 211: in this situation, when you’re offered a deal by a business party and they say “here’s where you sign”, courts will say that you’re bound by what you sign. That’s at least where we start, though maybe not where we stop. This section says that when the adherent is being asked to enter into a deal on the seller, carrier, or creditor’s terms, the adherent knows, or at least ought to know, that the deal is on the merchant’s terms. The adherent will be bound to this unless one or more of the terms is surprising, oppressive or otherwise wouldn’t be fair to the adherent. But if the terms are not outrageous or unreasonable, the adherent assents to deal on the seller’s terms.

Note that Allied lost another case where they actually lied about the terms of an agreement.

Agricultural Ins. Co. v. Constantine

So how do you distinguish the adventures of Bova from Allied?

Bova parked her car, leaving the keys in the ignition. It got stolen. Mrs. Bova’s insurance company paid her for the damage, and then turns around and sues the parking lot. The parking lot says there can’t be liability because the parking “ticket” disclaims liability for theft of the car. What’s the difference? The “ticket” was taken to be no more than a “claim check”. It’s not considered a contractual document. It’s the same thing in…

Sharon v. City of Newton

A parent signs a release, and had time to take it home and think about it. When you just take a claim check for your car or hat or anything, you rarely even read it. People don’t consider claim checks important documents that need to be read. There is a lot of law that says this is so.

In Bova’s case, the ticket was found not to be a contract, but furthermore, the court says that the agreement would be against public policy. Clovis says this is wrong. The deal isn’t whether the person who parks the car gets paid, but rather whether the insurance company can get into the parking lot’s pocket. If there is an agreement, Clovis argues that it makes sense to enforce it.

If you want there to be an agreement, you would need to have a big sign with not a lot of words that the parking customer will definitely see.

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