Posted on

UCC 2-207 Flowchart: Battle of the Forms

UCC 2-207 Flowchart

Download a .pdf version of the UCC 2-207 flowchart

When it is not exactly clear what parties agreed upon but it is clear that the parties intended to agree, a court must determine what terms apply. If various forms have been sent back and forth between the parties common law only gives us two options to apply to the forms: Offer and Acceptance or Counteroffer. The Uniform Commercial Code (UCC) gives us a third option: acceptance with additional terms.

UCC 2-207 Flowchart
UCC 2-207 Flowchart

This option can be found in the UCC 2-207. The goal of 2-207 is to determine which terms apply from the contract negotiation; however, the language of the section can be very confusing and hard to follow. This UCC 2-207 flowchart should be helpful in navigating this section of the UCC.

Download a .pdf version of the UCC 2-207 flowchart

 

For an example of the Battle of the Forms in action see Brown Machine, Inc. v. Hercules, Inc.

 

Posted on

Harlow & Jones, Inc. v. Advance Steel Co., 424 F. Supp. 770 (E.D. Mich. 1976)

Case Name: Harlow & Jones, Inc. v. Advance Steel Co.
Plaintiff: Harlow & Jones, Inc.
Defendant: Advance Steel Co.
Citation: 424 F. Supp. 770 (E.D. Mich. 1976)

Issue: Under the UCC, did the defendant breach a contract when he refused the last of three deliveries because he believed it was being delivered late?

Key Facts: Defendant had several telephone conversations with William VanAs, a broker for the plaintiff. During these conversations, VanAs informed the defendant about the availability of 5000 metric tons of steel that could be shipped during September-October, 1974 and defendant informed VanAs that he was interested in purchasing 1000 tons of this shipment. VanAs recorded the terms of this transaction on a worksheet and relayed the information to the plaintiff. In July, 1974, the plaintiff mailed the defendant a sales form confirming the sale of 1000 metric tons which shipment from Europe during Sept-Oct, 1974. The plaintiff then ordered the 1000 tons of steel from Europe. The defendant did not sign or return the plaintiff’s sales form but prepared and mailed his own purchase order form (which contained the same quantities, shipping dates, and minor specification changes. This was never signed and returned by plaintiff. The steel came from Europe in three separate shipments. The first two shipments were received and paid by Advance. The last shipment arrived in late November which the defendant rejected because of “late delivery.”

Procedural History: None because the case is in the District Court (trial court) and is not on appeal.

Holding: The defendant did breach the contract by rejecting the last shipment. The terms of the oral agreement were to ship the steel by October and under UCC 2-504 the defendant could only reject the shipment if there was a “material delay.” Because steel takes an average of one month to ship from Europe; although the steel was shipped late, it did arrive by late November so there was no material delay.

Reasoning: The plaintiff and defendant were arguing that they were abiding by what they thought was a written contract. Plaintiff argued for his sales form and defendant for his purchase order form. The court decided that the sales form and purchase order form were merely confirmations of an order because the actual agreement took place through the several telephone conversations. According to the UCC, this means that the “contract” was an integration of the two forms and is made up of the terms that the two parties agree on.

Notes:

  • Do not need specific oral or written offer and acceptance if you have clear conduct that shows the parties entered into an arrangement (i.e. Advance was accepting shipments, even one that came after October 31st)
  • Also true under the Restatement even if you can’t point to the exact offer and acceptance by the parties. The difference is how the court would fill in “gaps.”

 

Posted on

Disclaimer of Warranties

Disclaimers of Warranties (Section 316 of the Uniform Commercial Code).

Express Warranty

Express warranties are inoperative if the disclaimer cannot be construed as “consistent” with terms in the contract that would create the express warranty. You should the parol evidence to bar any express warranties that were created outside the document:

  • If it is an integrated agreement, then no warranties outside of the agreement are actually enforceable (parol evidence)
  • If it is not an integrated agreement, Apply Article 2, 316:
    • A disclaimer is only ineffective if it conflicts with the warranty
    • Therefore, you can have a disclaimer that limits the warranty but does not conflict it

Implied warranty of merchantability

Can also be disclaimed; however, the disclaimer  has to mention merchantability. Furthermore, if it is in writing, the disclaimer has to be conspicuous (the disclaimer can be oral). In order to disclaim the implied warranty of mechantability, the disclaimer:

  • Cannot just state “all warranties are disclaimed”
  • Does not have to be in writing but must mention warranty of merchantability

Implied warranty of fitness for a particular purpose

Can also be disclaimed; but, the disclaimer must be in writing and must be conspicuous. The written disclaimer does not have to mention fitness. This implied warranty does not require a conspicuousness requirement, but most courts agree that one should be implied to carry out the section’s purpose of avoiding surprise to buyers.

Finally, it is important to note that an “As is” magically disclaims all warranties.

Posted on

Express Warranties

Contract law has express warranties and implied warranties. Express Warranty is found in Section 313 of the Uniform Commercial Code. An express warranty is created as follows:

  1. Any affirmation of fact or promise by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise
  2. Any description of the goods which is made a part of the basis of the bargain creates an express warranty that the goods shall conform to the description

To make it easier, you can just remember three elements that are needed to create an express warranty:

  1. Statement regarding quality or description
  1. Fact, promise, or description
  1. Basis of the bargain

 

See also: Disclaimer of Warranties

Posted on

Princess Cruises, Inc. v. General Electric Co. – 143 F.3d 828 (4th Cir. 1998)

Case Name: Princess Cruises, Inc. v. General Electric Co.
Citation: 143 F.3d 828 (4th Cir. 1998)
Plaintiff/Appellee: Princess Cruises, Inc.
Defendant/Appellant: General Electric Co.

Issue: Whether the district court erred in applying the UCC to the contract and whether the jury erred in their award by not observing GE’s final price quotation.

Key Facts: The plaintiff submitted a purchase order (intended to be an offer) to the defendant to perform routine inspection services and repairs on one of its cruise ships. The defendant faxed back its own Fixed Price Quotation which had other terms and disclaimed any liability for consequential damages, lost profits, or lost revenue.
During the inspection, the defendant recommended that the ship be taken ashore for cleaning and balancing. During the cleaning the rotor became unbalanced, which the defendant attempted to correct. The imbalance caused further damage to the ship forcing additional repairs and the cancellation of two tend-day cruises. The plaintiff paid the defendant the full amount of the contract ($231,925).

Procedural History: A jury found GE liable for breach of contract and awarded the plaintiff $4.5 million in damages. Appealing, GE contends that the district court erred in denying its motion for judgment which required the court to vacate the jury’s award of incidental and consequential damages. GE argues that the district court erred because it applied UCC principles, rather than common-law, to a contract primarily for services.

Holding: The contract should not have been evaluated under the UCC because it was a contract for services and the jury should have only considered GE’s Final Price Quotation which restricted damages to the contract price and eliminated liability for incidental or consequential damages, lost profits, or revenue.

Reasoning: First, whether a particular transaction is governed by the UCC, rather than common or statutory law, hinges on whether the contract primarily concerns the furnishing of goods or the rendering of services. Princess’s actual purchase description requests a GE “service engineer” to perform service functions (the contract included incidental parts that were expensive).
Second, the jury should have only considered GE’s Final Price Quotation as the contract. The first purchase order submitted by Princess was rejected by a counteroffer (GE’s first price quotation) which in turn, was revoked and replaced by another offer (GE’s Final Price Quotation. Also, because Princess failed to discuss the conflicting terms of the two contracts, their inaction gave GE every reason to believe that Princess assented to the terms set forth in their final price quotation.

Restatement 19 – “The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act.” Under the Restatement, a counter-offer destroys the offer.  The fact that the parties performed evidence that there was an acceptance. The phone call giving GE permission to proceed and that Princess brought their ship in to be repaired. Therefore, Princess intended to accept the last counter-offer by GE. This is called the last-shot rule. Whatever is left on the table is the contract. The only one that really matters is the last contract on the table. If the parties perform, then there is an acceptance.

Judgment: The circuit court reversed the district court’s decision and granted GE’s motion for judgment as a matter of law and remanded to modify the judgment according to common-law and the opinion of the court.

Why it was important to determine whether common law or the UCC applied: Common law only gives us two options in contract formation: Offer and Acceptance or Counteroffer. The UCC gives us a third option: acceptance with additional terms.

Posted on

Brown Machine, Inc. v. Hercules, Inc. – 770 S.W.2d 416 (1989)

Case name: Brown Machine, Inc. v. Hercules, Inc.
Citation: 770 S.W.2d 416 (1989)
Plaintiff: Brown Machine, Inc.
Defendant: Hercules, Inc.

Issue: Whether the parties had agreed to an indemnification provision in their contract.

Key Facts: The plaintiff, Brown Machine, sold the defendant, Hercules, a T-100 trim press. Prior to the sale, a proposal was submitted to the defendant which stated an indemnification clause. The defendant reviewed the proposal and spoke on the phone with the plaintiff but objected to the payment term in the proposal. The plaintiff contested that the proposal was an offer and this conversation was an acceptance.
The defendant then submitted a purchase order (actual offer) for the trim press which stated that it “limits acceptance to the terms stated…any additional or different terms proposed by the seller are rejected unless expressly agreed to in writing.”
The plaintiff then sent the defendant an order acknowledgement which again stated the indemnification clause. The defendant responded with a latter that stated a specification in the product needed to be changed but “all other specifications are correct.” The plaintiff contended that this constituted assent by the defendant to the indemnification clause but the judge said it was obvious that “specifications” only referred to the product and not the terms and conditions.

Procedural History: The trial court awarded the plaintiff for the defendant violating the indemnification provision.

Analysis: If this was common law, we would use the last shot rule. However, under the UCC we use acceptance with additional terms (Section 2-207).

Holding: The parties had not agreed to an indemnification provision.

Judgment: The court reversed the trial court’s decision.

See our helpful UCC 2-207 Flowchart

Posted on

Exceptions to the Statute of Frauds

As stated in the post on whether a contract is subject to the statute of frauds, when the statute of frauds is asserted as a defense against the enforcement of an alleged contract, one should ask the following questions:

1. Is the contract subject to the statute of frauds?

2. If it is subject, is the statute of frauds satisfied?

3. If it is not satisfied, do the factors invoke one of the exceptions to the statute of frauds?

If the answer to the first question is “yes” and the second question is “no,” then you need to look to see if one of the exceptions to the statute of frauds applies. Below is a list of the exceptions to the statute of frauds under common law and the UCC:

COMMON LAW EXCEPTIONS

  1. Part Performance (Restatement section 129). If it is established that the party seeking enforcement, in reasonable reliance on the contract and on the continuing assent of the party against whom enforcement is sought, has so changed his position that injustice can be avoided only by specific enforcement. This exception is very similar to promissory estoppel and only applies in situations where a transfer of interest in land exists and with specific performance. This exception also has no application in an action at law for money damages.
  2. Full Performance (Restatement section 130. As soon as any one party fully performs under the contract, then the SOF does not apply. This exception only applies to contracts that cannot be completed within one year
  3. Promissory Estoppel – Although this is not really an exception, promissory estoppel can be used anytime. A minority of jurisdictions bar promissory estoppel actions through the statute of frauds because they see it as an impermissible way to circumvent the statute of frauds.

 

UCC EXCEPTIONS

  1. Part Performance – Note: In an installment contract you need to show acceptance at every installment to show part performance.  Also if there is a partial payment figure out what the parties intended.
  2. Admissions Exception – If the party against whom enforcement is sought makes an under oath admission of facts that in the court’s view establish that such a contract was indeed made
  3. Special Manufacture Exception – If goods are specially manufactured for the buyer and “not suitable for sale to others in the ordinary course of  the seller’s business (e.g. making mugs for ACME, Inc. that has their logo and slogan.)
  4. Merchant Confirmation Exception – Here you will need something in writing that is signed but does not need to be signed by the person against whom enforcement is sought. It only needs to be signed by any party to the contract. However, the following must be present:
  1. Both parties must be merchants under the UCC
  2. The writing (confirmatory letter) has to be sent to and received by the party to whom enforcement is sought
  3. The party has ten days to objection. The objection has to be in writing .
    1. NOTE: You want to be careful that you are not creating a writing that satisfies the statute of frauds
    2. In order to do so, the objection should explicitly state or object to the terms
Posted on

When is a contract subject to the Statute of Frauds?

When the statute of frauds is asserted as a defense against the enforcement of an alleged contract, one should ask the following questions:

1. Is the contract subject to the statute of frauds?

2. If it is subject, is the statute of frauds satisfied?

3. If it is not satisfied, do the factors invoke one of the exceptions to the statute of frauds?

Below is the analysis that should be conducted under the UCC and Common Law to answer this first question, “Is the contract subject to the statute of frauds?”

The UCC presents the easier test as to whether a contract is subject to the statute of frauds. Under the UCC, the only thing we care about is whether the contract is for $500 or more.

Under common law we don’t care about the dollar amount of the contract. Restatement (Second) 110 states that “[t]he following classes of contracts are subject to the Statute of Frauds, forbidding enforcement unless there is a written memorandum or applicable exception:

  1. A contract of an executor or administrator to answer for a duty of his decedent (the executor-administrator provision)
  2. A contract to answer for the duty of another (the suretyship provision)
  3. A contract made upon consideration of marriage (the marriage provision);
  4. A contract for the sale of an interest in land (includes leases) (the land contract provision);
  5. A contract that is not to be performed within one year from the making thereof (the one-year provision)”

The majority of these classes are self-explanatory but a few notes on the fifth class, the one-year provision. This class requires a contract not to be performed within one year from the date the contract is made to be in writing. The standard view is that a contract is not subject to the statutory provision if it is possible to be performed within a year, even if the prospect of such performance is remote or unlikely. Therefore, the question you should ask is, “At the time of the formation, could it have been completed within a year?” If the answer is “yes,” no matter how remote or unlikely it is, then most courts will deem that the contract fits this class and is not subject to the statute of frauds. Something to remember is that many courts are looking for reasons to exclude things from the statute of frauds.