The Principles of 2-207
Prof. Bill Long 1/29/06
Putting it All Together
This is my final attempt to make sense of the "flow" of 2-207, from the common law of contracts ("CLC") to old (current in all jurisdictions except LA) 2-207 to new 2-207 (adopted by NCCUSL and the ALI in 2003). I will do so by articulating a number of principles that lie behind the wording of the Code.
1. One way to look at the flow of 2-207 over time is to realize that the CLC incorporated a "last-shot" rule, old 2-207 assumes a modified "first-shot" rule, while new 2-207 implements a "knockout" rule. Under the last-shot regime, the offeree gets to "call the shots," since his/her response to the buyer's purchase order that differs in any way from that order is a counteroffer. No contract has been formed, then, unless the buyer agrees to the seller's express conditions. Thus, the "mirror-image" rule is a "last-shot" rule. Article 2-207 in force in 49 jurisdictions, now changes that, by emphasizing the ability of the offeror not only to declare the terms of the contract (as in the CLC) but to have his/her terms control in most instances. Finally, the new 2-207 adopts the approach in old 2-207(3) [concerning contracts established by conduct] by saying that if terms contradict each other in the two forms, they both drop out and the supplemental terms of Article 2 (mostly the gap-fillers of the 300 series) control. Now let's walk through some principles in old 2-207.
2. Old 2-207 is divided into three subsections. 2-207(1) deals only with contract formation, and is meant to do away with the mirror-image rule of the CLC. 2-207(2) assumes that a contract has been formed under 2-207(1). It deals, then, with what the terms of the contract are. The assumption here is that the forms of B and S do not agree but that you have a contract. Whose terms control? That is the purpose of 2-207(2). Then, 2-207(3) deals with the situation where the contract is accepted by performance. Therefore, no single case deals with all 3 subsections. If you have a contract by documents or offer/acceptance, you are in subsections 1 and 2; if you have a contract by performance, subsection 3 controls.
3. Under 2-207(1), then, the offeror (buyer) can set his/her terms for the contract. The Code allows the the offeror to say that his/her terms alone will control (2-207(2)(a)). Thus, the offeror is truly the "master" of the offer.
4. A seller (offeree) assents to the contract in its Acknowledgment Form unless it states additional or different terms with which the Buyer expressly agrees. That is, an offeree isn't simply subject to the terms of the buyer, unless the buyer has declared that it won't accept any revision in the terms. If the seller declares additional terms to which the buyer must assent, no contract is formed unless that expression of assent is forthcoming. Silence by the buyer is not assent. Thus, the contract under current (old) 2-207 does favor the buyer (first-shot rule). The buyer can declare the terms of the contract and they become the terms of the contract unless specifically objected to. On the other hand, the seller's additional and different terms don't prevent contract formation unless the seller requires assent to them.
5. Once you have a contract under 2-207(1), you move to 2-207(2). You have a contract either because seller has agreed to all the terms of the buyer or because seller didn't make clear that buyer had to expressly consent to additional terms that seller proposed. Different contract terms, therefore, are not obstacles to a contract's being formed. 2-207(2), then, looks at the additional terms suggested which are not "deal-breakers" under 2-207(1).
6. We have guidance under 2-207(2) on how to handle the additional terms proposed by seller--terms that weren't made subject to the "assent" provision of 2-207(1). These terms will become additional terms of the contract except in two situations: (1) where the buyer objects to them in a timely fashion (2-207(2)(c)) or (2) where they "materially alter" the contract. If the buyer objects to them, they do not become part of the contract, but you do still have a contract, since 2-207(2) only deals with the terms of an existing contract. If they buyer doesn't object, the inquiry then is whether the additional terms "materially alter" the contractual relations. Comments 4 and 5 to old 2-207 attempt to go through some instances where that term is explored. I bring you up to date on the current debate here. The major point is that courts are increasingly seeing remedy limitation clauses by the seller as material alterations of the contract.
7. 2-207(3) actually is a section which saves a lot of cases from the interpretive morass of 2-207(2). That is, 2-207(3) tells you which terms control once a contract is established by performance (where the seller actually not only sends the Acknowledgment Form but also sends the goods). In such a case, the differing terms drop out from both contracts (the language says that the terms of the contract are those "on which the writings of the parties agree") and are supplemented by gap-fillers from Article 2. The Itoh case I assigned is a good illustration of how a court gets to 2-207(3). In that case, the court determined that since the good had been sent, it wasn't proper to analyze the arbitration provision in Jordan's contract under the "additional or different" or the "materially alter" framework. Rather, it would be analyzed under 2-207(3). Since the forms exchanged between the parties differed as to whether arbitration would be required in cases of dispute, this provision dropped out of the final contract.
8. New 2-207 tries to make things simple, though some people think they have muddied the waters yet further. The first thing that new 2-207 does is to separate out old 2-207(1) from the article and put it under 2-206(3), under contract formation. That is a good move, I think. Thus, new 2-207 only deals with the situation of when you have a contract that already exists with differing terms. It collapses the distinction between contracts by documents and contracts by performance of old 2-207 and says that in either case the discrepant terms drop out and that the Code itself will supply additional terms if necessary (2-207(c)).
In the final analysis, the only way to feel comfortable with this section is to work through several cases which try to apply it. The "pressure points" are on the words "materially alter" and the difference between a subsection (1) + (2) analysis OR a subsection (3) analysis. As the two case summaries I have provided here show, however, factual complexities are manifold. Let's leave 2-207 now, having done the closest thing to justice to it that I can do in a limited time.
Copyright © 2004-2007 William R. Long