Assignment 3 Formation of Contracts for the Sale of Goods Hill v. Gateway 2000, Inc. (7th Cir.

1997) Is the buyer bound by the terms that arrived in the box with the computer if the buyer keeps the computer once it has notice of the terms? What was the offer? What was the acceptance? ProCD v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996): terms inside a box of software bind consumers who use the software after an opportunity to read the terms and to reject them by returning the product. ProCD relied on the UCC. Text authors note: What about 2-206(1)(b)? Why cant Gateways promise to ship or shipment of the computer constitute acceptance of the customers offer to purchase the computer at the stated price? There would be sufficient agreement to have a binding contract under 2-204(3). Other terms could be supplemented by UCC gap-fillers. Could this case be analyzed under 2-207 as a single-confirmation case?

Contract Formation
Common chronology: 1. Purchase order sent as offer or confirmation. 2. Acknowledgment form sent prior to shipping. Many sellers do not bother with the acknowledgment form. 3. Invoice sent with goods. Although parties rarely disagree about whether a contract was formed, when the contract was formed may be an issue if the terms of the contract are disputed. In order to know which paragraph(s) of 2-207 apply, you must determine when the contract was formed. Article 2 formation rules: 2-204: Formation in general 2-205: Firm offers 2-206: Offer and acceptance in formation of contract 2-207: Additional [and different] terms in acceptance or confirmation

Applying 2-207
Preliminary Note: 2-207 is intended to apply to cases in which written forms are exchanged or a written confirmation sent after a contract has been formed orally or through informal correspondence. See Comment 1. If the agreement (as opposed to confirmation of a prior oral agreement) is contained in only one document, then 2-207 is irrelevant. Similarly, if the agreement is entirely oral then 2-207 will not be of any assistance.

2-207(1)
a. There must be a definite and seasonable expression of acceptance. Cannot be late or vague. Cannot be wildly different, although terms of the acceptance may attempt to materially alter the contract (it is sometimes difficult to distinguish between these two cases). If the acceptance is not definite and seasonable expression of acceptance, then no contract is formed under 2-207(1). Thus, 2-207(2) does not apply to determine whether the additional or different terms become part of the contract. But, if parties nevertheless conduct themselves in a way that recognizes the existence of a contract, then a contract may be established under 2207(3). Acceptance made expressly conditional on assentIf the acceptance is expressly made conditional on assent to the additional or different terms, then no contract is created unless the additional or different terms are agreed to. This acceptance is actually a counteroffer. This language is not easily invoked. Language in the acceptance must closely track the language in the statute (i.e., this acceptance is expressly made conditional on assent to the additional and different terms herein). Language that varies even slightly may not be regarded as a counteroffer. Many courts require express assent to the additional or different terms; mere performance after receiving the acceptance with the expressly conditional language is not enough. If the offeror does not expressly assent (typically in writing) to the additional or different terms, then no contract is formed by the exchange of the writings under 2-207(1). Thus, 2-207(2) does not apply to determine whether the additional or different terms become part of the contract. But, if parties nevertheless conduct themselves in a way that recognizes the existence of a contract, then a contract may be established under 2-207(3).

b.

 2-207(2)By its terms, this paragraph only applies to additional terms.

a. Additional terms 1. If one or both parties is not a merchant, the additional terms in the acceptance are mere proposals for addition to the contract that must be specifically agreed to by the offeror. However, if both parties are merchants, the additional terms automatically become part of the contract unless: i. ii. the offer expressly limits acceptance to the terms of the offerin this case, the additional terms do not become part of the contract. the additional terms materially alter the contractsee Comments 4 and 5 to 2-207 for guidance regarding what terms constitute material alterations of the contract. Ultimately, this may depend on the facts of each case, the custom in the industry in question, etc. notification of objection to the additional terms has already been given or is given in a reasonable time after notice of them is received.

2.

iii.

b.

Different termsAlthough the text of 2-207 addresses only additional terms, Comment 3 indicates that 2-207(2) governs additional or different terms. Thus, courts have adopted two varying approaches to dealing with different terms in the acceptance. Some courts apply 2207(2) while others apply a judicially created rule, the knockout rule. 1. Applying 2-207(2) to different termsdifferent terms in the acceptance never become part of the contract. This is because different terms are contrary to terms in the offer. Courts have interpreted these terms to fall under 2-207(2)(c); the different term has already been objected to by the offeror (by the simple fact that the offer included a contrary term). See Comment 6. Consequently, the term in the offer stays. Knockout ruleno statutory basis, but used by some courts. Conflicting (different) terms in the offer and acceptance are knocked out and filled in with UCC gap-fillers.

2.

2-207(3)This section only applies if the conduct of the parties indicates

recognition of a contract, but no contract is formed by the writings under 2207(1). See Comment 7.

Rule: The contract will consist of terms on which the writings of the parties agree, different and additional terms are knocked out, and the UCC gap-fillers supplement the contract. Possible scenarios in which 2-207(3) applies: 1. Offer made expressly conditional on assent to terms in offer with no changes or additions and acceptance had additional and/or different terms and is expressly conditional on assent to the additional and different terms (the Ionics case). 2. Acceptance not definite or seasonable. 3. Acceptance made expressly conditional on assent to additional or different terms and no assent given (assent must usually be express, not implied from continued performance). 4. Offeree sends back outright rejection (I reject your offer), but nevertheless ships the goods and the offeror/buyer accepts and pays for them. Single Confirmations It is not entirely clear what should be done with different terms in a single confirmation. Applying the knock-out rule seems unfair because it allows one party to unilaterally change the terms of an already-concluded contract. Thus, the knock-out rule should only be applied in cases of conflicting offer and acceptance, or in the case of conflicting confirmations (which would be governed by Comment 6). Most authorities say that in the case of a single confirmation, different terms should be treated as mere proposals that must be accepted by the other party. You get the same result by applying 2-207(1) and 2-207(2), just as in cases of offer and acceptance (assuming that 2-207(2) governs different terms). When the confirmation states a term different from the oral agreement, the different term falls out because the term in the original agreement serves as a prior objection to the conflicting term in the confirmation. 2-207(2) applies to additional terms. The receiving party can prevent the additional terms from becoming part of the contract by objecting to the terms. Terms in the offer but not the acceptance: If the acceptance is silent with respect to a term that is included in the offer, that term becomes part of the contract. Belden, Inc. v. American Electronic Components, Inc. Much clearer statement of how 2-207 should be applied than Gateway v. Hill. Pay particular attention to the interplay between 2-207(1) and 2-207(3).