Formation of Contracts II
Prof. Bill Long 1/27/05
Understanding 2-206
We saw in the previous essay that Article 2 envisions a less complex mode of legal analysis than the common law of contracts in determining whether a contract has been formed. Certainly the basic question is whether there is an agreement, but a contract may be formed if parties act "in any manner sufficient to show agreement (2-204(1))." Factual inquiry, therefore, will be the order of the day. The Southwest case (p.46), though considering issues of the Statute of Frauds in detail, is also a case regarding contract formation. Did the meeting between Martin and Hurt at Springfield on April 28 (p. 47) result in an agreement? The court didn't sufficiently differentiate the formation vs. enforceability issues here, but the formation issue is the first one we face.
On to 2-206
Article 2 preserves some language from the common law of contracts ("CLC"), especially the notion of acceptance. 2-206 describes three modes in which acceptance of an offer is possible. There are a few twists and turns in this section, but I will point them out as we go. A preliminary principle is laid out in 2-206(1):
"(1) Unless otherwise unambiguously indicated by the language or circumstances (a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable under the circumstances."
You should notice two things about this principle. First, the substantive provision: acceptance may be in "any" reasonable manner. This is meant, as Cmt. 2 says, to "reject the artificial theory that only a single mode of acceptance is normally envisaged by an offer." Reasonability means commercial reasonability. Second, the "unless" clause. This clause is meant to preserve, from CLC, the notion that the offeror is "master of the offer." That is, the offeror can specify the proper manner of acceptance but if not specified, any commerically reasonable manner of acceptance makes a contract. Note Cmt. 1--"Any reasonable mannner of acceptance is intended to be regarded as available unless the offeror has made quite clear that it will not be acceptable."
The Three Modes of Acceptance
2-206(1)(b) and (2) describe those modes of acceptance. They are: (1) prompt promise to ship; (2) prompt or current shipment; or (3) beginning of requested performance, if it is "reasonable" under the circumstances. The first two are pretty clear. The emphasis is on the immediacy of response. The third is a little tricky. Situations envisioned by 2-206(2) (the third mode) include either where the seller is out of stock of the item and has to replace inventory or where s/he needs to manufacture items for the buyer. In this kind of situation the beginning of performance operates as acceptance. However, unless you notify the buyer within a "reasonable" time that you are firing up the machine, so to speak, the buyer may treat your lack of communication, after a reasonable time, as a lapse. Prompt notification is the order of the day, and that is what you should encourage your clients to do.
An interesting twist is also found in the "prompt shipment" prong. The code says that a mode of acceptance is "prompt or current shipment of conforming or nonconforming goods." Under CLC a shipment of nonconforming goods would be a counteroffer, which the original offeree would be free to accept or reject. However, under Article 2, a shipment of nonconforming goods may be an acceptance.
It is an acceptance if the seller has not notified the buyer that "the shipment is offered only as an accommmodation to the buyer (2-206(1)(b))." In the example given in class, if you order X7 widgets and the seller sends you the requested quantity but sends you X9 widgets (new and improved) instead, but does not tell you that s/he has "changed" your order, the seller has accepted and breached at the same time. You will have available to you the panoply of remedies we will cover later in class, but the important point to note is that under the Code a nonconforming tender is an acceptance unless the seller notifies the buyer that the tender is an "accommodation" to the buyer.
The language about "accommodation to the buyer" means that if the seller sends X9 widgets and says to the buyer, "I know you ordered X7 but we now have the new and improved X9. I am sending them to you because I know you like the newest and best stuff," then a contract has not yet been formed. This is truly a counteroffer and the buyer can decide whether to accept or not.
Conclusion
In sum, then, 2-206 discusses three modes of acceptance of goods. Article 2 retains from CLC the notion that the offeror is master of the offer. It departs from CLC in stressing that a nonconforming tender may be an acceptance by the seller. And, it provides that if a nonconforming tender is sent to buyer as an "accommodation" to the buyer, it functions as a counteroffer.
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