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II. FORMATION OF SALES & LEASE CONTRACTS
The Code will strive to recognize a contract if the intent of the parties is
consistent with such a conclusion.
*** Chapter Outcome ***
Compare and contrast the manifestation of mutual assent under both the
common law and under Article 2.
A. MANIFESTATION OF MUTUAL ASSENT
Definiteness of an Offer
The Code has rejected the strict approach of the common law which required
that the terms of a contract must be definite and complete. The Code
provides that even though one or more terms to a contract may have been
omitted, the contract need not fail for indefiniteness. The Code provides
Open Price — If no price is stated in the agreement, the price is a
reasonable price.
Open Delivery – Must be reasonable; is place of seller’s business unless
otherwise agreed.
Open Quantity: Output and Requirement Contracts — An output
contract is the agreement to purchase the entire output of a seller for a
stated period, and a requirements contract is an agreement to supply a
buyer with all her requirements of certain goods. Enforceable based on good
faith of both parties.
Other Open Terms – Provided by the Code if the parties do not agree.
Irrevocable Offers
An offeror may generally withdraw (or revoke) her offer at any time before it
is accepted. To be effective, the notice revoking the offer must reach the
offeree before he has accepted.
Variant Acceptances
The Code does not follow the common law mirror image rule regarding
acceptances. Under the common law rule where two businesses exchange
pre-printed forms with varying terms no contract exists, even if the parties
intend that there be a contract. The Code addresses this battle of the forms
CASE 21-4
COMMERCE & INDUSTRY INSURANCE COMPANY v.
BAYER CORPORATION
Supreme Judicial Court of Massachusetts, 2001
433 Mass. 388, 742 N.E.2d 567, 44 U.C.C. Rep.Serv.2d 50
http://scholar.google.com/scholar_case?
case=8104304470024394019&q=742+N.E.2d+567&hl=en&as_sdt=2,10
Greaney, J.
We granted the application for direct appellate review of the defendant, Bayer Corporation
(Bayer), to determine the enforceability of an arbitration provision appearing in the
plaintiff’s, Malden Mills Industries, Inc. (Malden Mills), orders purchasing materials from
Bayer. In a written decision, a judge in the Superior Court concluded that the provision was
not enforceable. * * * We affirm the order.
The background of the case is as follows. Malden Mills manufactures
internationally-known apparel fabrics and other textiles. On December 11, 1995, an
standard form purchase order. Each of Malden Mills’s purchase orders contained, on the
reverse side, as one of its “terms and conditions,” an arbitration provision stating:
Any controversy arising out of or relating to this contract shall be settled by arbitration
in the City of New York or Boston as [Malden Mills] shall determine in accordance with
the Rules then obtaining of the American Arbitration Association or the General
Arbitration Council of the Textile Industry, as [Malden Mills] shall determine.
Another “term and condition” appearing in paragraph one on the reverse side of each
purchase order provides:
This purchase order represents the entire agreement between both parties, not
instructions, in most instances, that the nylon tow was to be shipped directly to Malden
Mills. Thereafter, Bayer prepared and sent Malden Mills an invoice. Each of the Bayer
invoices contained the following language on its face, located at the bottom of the form in
capital letters:
TERMS AND CONDITIONS: NOTWITHSTANDING ANY CONTRARY OR
INCONSISTENT CONDITIONS THAT MAY BE EMBODIED IN YOUR PURCHASE
ORDER, YOUR ORDER IS ACCEPTED SUBJECT TO THE PRICES, TERMS AND
The following “condition” appears in paragraph fourteen on the reverse side of each
invoice:
This document is not an Expression of Acceptance or a Confirmation document as
contemplated in Section 2–207 of the Uniform Commercial Code. The acceptance of any
order entered by [Malden Mills] is expressly conditioned on [Malden Mills’s] assent to
any additional or conflicting terms contained herein.
the arbitration provision was not enforceable because the parties had not agreed in their
writings to arbitrate. * * *
This case presents a dispute arising from what has been styled a typical “battle of the
forms” sale, in which a buyer and a seller each attempt to consummate a commercial
transaction through the exchange of self-serving preprinted forms that clash, and contradict
Section 2–207 was enacted with the expectation of creating an orderly mechanism to
resolve commercial disputes resulting from a “battle of the forms.” The section has been
characterized as “an amphibious tank that was originally designed to fight in the swamps,
but was sent to fight in the desert.” [Citation.] Section 2–207 sets forth rules and principles
concerning contract formation and the procedures for determining the terms of a contract. As
to contract formation, under §2–207, there are essentially three ways by which a contract
may be formed. [Citation.] “First, if the parties exchange forms with divergent terms, yet the
seller’s invoice does not state that its acceptance is made ‘expressly conditional’ on the
buyer’s assent to any additional or different terms in the invoice, a contract is formed [under
subsection (1) of §2–207].” “Second, if the seller does make its acceptance ‘expressly
conditional’ on the buyer’s assent to any additional or divergent terms in the seller’s invoice,
the invoice is merely a counteroffer, and a contract is formed [under subsection (1) of
§2–207] only when the buyer expresses its affirmative acceptance of the seller’s
counteroffer.” Third, “where for any reason the exchange of forms does not result in contract
formation (e.g., the buyer ‘expressly limits acceptance to the terms of [its offer]’ under
* * *
* * * Where a contract is formed by the parties’ conduct (as opposed to writings), as is
the case here, the terms of the contract are determined exclusively by subsection (3) of
§2–207. [Citation.] Under subsection (3) of §2–207, “the terms of the particular contract
consist of those terms on which the writings of the parties agree, together with any
* * *
Thus, the judge correctly concluded, under subsection (3) of §2–207, that the arbitration
provision in Malden Mills’s purchase orders did not become a term of the parties’ contract.
The arbitration provision was not common to both Malden Mills’s purchase orders and
Bayer’s invoices. Bayer properly does not argue that any of the gap-filling provisions of [the
UCC] apply. Because Bayer concedes that it never previously arbitrated a dispute with
Malden Mills, we reject Bayer’s claim that the parties’ course of dealing requires us to
enforce the arbitration provision.
* * *
Manner of Acceptance
Unless clearly specified by the offer an acceptance may be by any
reasonable means, as opposed to the common law's authorized means of
acceptance. For example, an offer to purchase goods may be accepted by
shipment.
Auctions
Unless an auction is explicitly advertised as without reserve, the items being
sold cannot be withdrawn unless no bid is made. In a with reserve auction,
goods may be withdrawn up until the sale is final.
CISG does not apply to sales by auctions.
B. CONSIDERATION
The Code does not follow the common law principle requiring that contract
modifications be accompanied by separate consideration.
CISG — Consideration is not needed to modify a contract.
*** Chapter Outcome ***
Describe the UCC’s approach to the requirement that certain contracts must be in
writing
and the alternative methods of compliance under the Code.
C. FORM OF THE CONTRACT
Statute of Frauds
The original statute of frauds, which applied to contracts for the sale of
goods, has been used as a prototype for the Article 2 statute of frauds
provision. Section 2–201 of the Code provides that a contract for the sale of
goods costing $500 or more is not enforceable unless there is some writing
or record su:cient to evidence the existence of a contract between the
parties ($1,000 or more for leases, Section 2A–201). As previously discussed
CISG — A contract must be in writing unless one of the parties has its
business located in a country that requires otherwise.
Modi4cation of Contracts — An agreement modifying a contract must be
in writing or electronic record if the resulting contract is within the statute of
frauds.
Writings or Record — The statute of frauds compliance provisions under
the Code are more liberal than the rules of general contract law. The Code
merely requires a writing or record (1) suffcient to indicate that a contract
has been made between the parties; (2) signed by the party against whom
enforcement is sought or by her authorized agent or broker; and (3)
including a term specifying the quantity. A writing or record may be
suffcient even if it omits or incorrectly states a term. Under the Code the
Parol Evidence
Contractual terms that are set forth in a writing intended by the parties as a
final expression of their agreement may not be contradicted by evidence of
any prior agreement or of a contemporaneous oral agreement, but they may
be explained or supplemented by course of performance, course of dealing,
usage of trade, or by consistent additional evidence. See UCC 2-202.
