Business Law Chapter 21 Homework As to Contract Formation Under 2207 There Are

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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.