UCC 2-207 converts a common law counteroffer into an acceptance even though it states additional or different terms. Under the common law 'mirror image' rule, 'an invoice from the seller containing terms materially different from those in the buyer's offer would be considered a mere counteroffer,' and not an acceptance of the offer or the formation of a contract. JOM, Inc. v. Adell Plastics, Inc., 193 F.3d 47, 53 (1st Cir. 1999) (per curiam). The Uniform Commercial Code, specifically U.C.C. § 2-207, restricted application of this 'mirror image' rule to certain limited circumstances in which the offer or acceptance was expressly conditioned upon acceptance of additional or different terms. Id.
Section 2-207 recognizes that a buyer and seller can enter into a contract by one of three methods. First, the parties may agree orally and thereafter send confirmatory memoranda. § 2-207(1). Second, the parties, without oral agreement, may exchange writings which do not contain identical terms, but nevertheless constitute a seasonable acceptance. § 2-207(1). Third, the conduct of the parties may recognize the existence of a contract, despite the previous failure to agree orally or in writing. § 2-207(3).
UCC § 2-207 establishes a legal rule that proceeding with a contract after receiving a writing that purports to define the terms of the parties' contract is not sufficient to establish the party's consent to the terms of the writing to the extent that the terms of the writing either add to, or differ from, the terms detailed in the parties' earlier writings or discussions. Absent the [UCC], questions of contract formation and intent remain factual issues to be resolved by the trier of fact after careful review of the evidence.
However, the [UCC] provides rules of law, and section 2-207 establishes important legal principles to be employed to resolve complex contract disputes arising from the exchange of business forms. Section 2-207 was intended to provide some degree of certainty in this otherwise ambiguous area of contract law. In our view, it is unreasonable and contrary to the policy behind the [UCC] merely to turn the issue over to the uninformed speculation of the jury left to apply its own particular sense of equity. Mead Corp., 654 F.2d at 1206. In the absence of a party's express assent to the additional or different terms of the writing, section 2-207 provides a default rule that the parties intended, as the terms of their agreement, those terms to which both parties have agreed, along with any terms implied by the provisions of the UCC.
Karl N. Llewellyn, the principal draftsman of Article 2, described it as '[t]he heart of the Code.' Karl N. Llewellyn, Why We Need the Uniform Commercial Code, 10 U.Fla.L.Rev. 367, 378 (1957). Section 2-207 is characterized by commentators as a 'crucial section of Article 2' and an 'iconoclastic Code section.' Bender's Uniform Commercial Code Service (Vol. 3, Richard W. Duesenberg & Lawrence P. King, Sales & Bulk Transfers Under The Uniform Commercial Code) § 3.01 at 3-2 (1992). Recognizing its innovative purpose and complex structure Duesenberg and King further observe Section 2-207 'is one of the most important, subtle, and difficult in the entire Code, and well it may be said that the product as it finally reads is not altogether satisfactory.' Id. § 3.02 at 3-13.
The purpose of Section 2-207 is to interpret a contract that has been made, not to determine that one exists.” James J. White, Contracting Under Amended 2-207, 2004 WIS. L.REV. 723, 723 (2004).
UCC 2-207 provides: '(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. '(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: '(a) The offer expressly limits acceptance to the terms of the offer; '(b) They materially alter it; or '(c) Notification of objection to them has already been given or is given within a reasonable time after notice of them is received. '(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this code.'
This section of the UCC has been described as a 'murky bit of prose,' Southwest Engineering Co. v. Martin Tractor Co., 205 Kan. 684, 694, 473 P.2d 18, 25 (1970), as 'not too happily drafted,' Roto-Lith Ltd. v. F. P. Bartlett & Co., 297 F.2d 497, 500 (1st Cir. 1962), and as 'one of the most important, subtle, and difficult in the entire Code, and well it may be said that the product as it finally reads is not altogether satisfactory.' Duesenberg & King, Sales and Bulk Transfers under the Uniform Commercial Code, (Vol. 3, Bender's Uniform Commercial Code Service) § 3.03, at 3-12 (1969).
UCC § 2-207 was intended to apply to two situations: 'The one is where an agreement has been reached either orally or by informal correspondence between the parties and is followed by one or both of the parties sending formal acknowledgments or memoranda embodying the terms so far as agreed upon and adding terms not discussed. The other situation is one in which a wire or letter expressed and intended as the closing or confirmation of an agreement adds further minor suggestions or proposals such as 'ship by Tuesday,' 'rush,' 'ship draft against bill of lading inspection allowed,' or the like.' T.C.A. § 47-2-207 [UCC § 2-207], Official Comment 1. It is clear that Section 2-207, and specifically Subsection 2-207(1), was intended to alter the 'ribbon matching' or 'mirror' rule of common law, under which the terms of an acceptance or confirmation were required to be identical to the terms of the offer or oral agreement, respectively. 1 W. Hawkland, supra, at 16; R. Nordstrom, Handbook of the Law of Sales, Sec. 37, at 99-100 (1970).
Under the common law, an acceptance or a confirmation which contained terms additional to or different from those of the offer or oral agreement constituted a rejection of the offer or agreement and thus became a counter-offer. The terms of the counter-offer were said to have been accepted by the original offeror when he proceeded to perform under the contract without objecting to the counter-offer. Thus, a buyer was deemed to have accepted the seller's counter-offer if he took receipt of the goods and paid for them without objection. Under Section 2-207 the result is different.
This section of the Code recognizes that in current commercial transactions, the terms of the offer and those of the acceptance will seldom be identical. Rather, under the current 'battle of the forms,' each party typically has a printed form drafted by his attorney and containing as many terms as could be envisioned to favor that party in his sales transactions. Whereas under common law the disparity between the fine print terms in the parties' forms would have prevented the consummation of a contract when these forms are exchanged, Section 2-207 recognizes that in many, but not all, cases the parties do not impart such significance to the terms on the printed forms. See 1 W. Hawkland, supra; § 1.0903, at 14, § 1.090301, at 16. Subsection 2-207(1) therefore provides that '[a] definite and seasonable expression of acceptance or a written confirmation . . . operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.'
Viewing Subsection (1) within the context of the rest of that Subsection and within the policies of Section 2-207 itself, many believe that it was intended to apply only to an acceptance which clearly reveals that the offeree is unwilling to proceed with the transaction unless he is assured of the offeror's assent to the additional or different terms therein. See 1 W. Hawkland, supra, § 1.090303, at 21. That the acceptance is predicated on the offeror's assent must be 'directly and distinctly stated or expressed rather than implied or left to inference.' Webster's Third International Dictionary (defining 'express').
Two Courts of Appeals have not chosen to read the Subsection 2-207(1) proviso as strictly. See Roto-Lith, Ltd. v. F. P. Bartlett & Co., 297 F.2d 497, 499-500 (1st Cir. 1962); Construction Aggregates Corp. v. Hewitt-Robins, Inc., 404 F.2d 505, 509 (5th Cir. 1969) (dictum). But see Matter of Doughboy Industries, Inc., and Pantasote Co., 17 A.D.2d 216, 233 N.Y.S.2d 488 (1962). Thus, under Subsection (1), a contract is recognized notwithstanding the fact that an acceptance or confirmation contains terms additional to or different from those of the offer or prior agreement, provided that the offeree's intent to accept the offer is definitely expressed, see Sections 2-204 and 2-206, and provided that the offeree's acceptance is not expressly conditioned on the offeror's assent to the additional or different terms.
When a contract is recognized under Subsection (1), the additional terms are treated as 'proposals for addition to the contract' under Subsection(2), which contains special provisions under which such additional terms are deemed to have been accepted when the transaction is between merchants.
Conversely, when no contract is recognized under Subsection 2-207(1)-- either because no definite expression of acceptance exists or, more specifically, because the offeree's acceptance is expressly conditioned on the offeror's assent to the additional or different terms -- the entire transaction aborts at this point. If, however, the subsequent conduct of the parties -- particularly, performance by both parties under what they apparently believe to be a contract -- recognizes the existence of a contract, under Subsection 2-207(3) such conduct by both parties is sufficient to establish a contract, notwithstanding the fact that no contract would have been recognized on the basis of their writings alone. Subsection 2-207(3) further provides how the terms of contracts recognized thereunder shall be determined.
Under section 2-207, parties may conclude a contract even though, after reaching accord, the forms which they exchange to memorialize their agreement differ because each has drafted its form to its own advantage. (Steiner v. Mobil Oil Corp. (1977) 20 Cal.3d 90, 99 [141 Cal.Rptr. 157, 569 P.2d 751].) See Lockheed Electronics Co. v. Keronix, Inc. (1981) 114 Cal.App.3d 304 [170 Cal.Rptr. 591], wherein a purchase order was necessarily a part of the contract. The buyer made an offer by means of a purchase order which expressly limited acceptance to its terms, and provided that any additional terms proposed by seller would be rejected unless expressly assented to in writing by buyer. Under those facts, the additional terms proposed by seller were not part of the contract. (Id., at pp. 309-311.) See also American Parts Co., Inc. v. American Arbitration Ass'n. (1967) 8 Mich.App. 156 [154 N.W.2d 5].
In that case, the court held that whether the parties had entered into a firm oral contract later confirmed in writing was a question of fact which could not be resolved on the basis of affidavits submitted in support of summary judgment. Section 2-207 recognizes that among the methods whereby a seller and buyer can enter into a contract is an oral agreement followed by confirmatory memoranda embodying the terms agreed upon. (See Leonard Pevar Co. v. Evans Products Co. (D.Del. 1981) 524 F.Supp. 546, 550; § 2-207, U. Com. Code, com. 1.) If those memoranda add terms not discussed, these new terms are treated as proposals under subdivision (2) of section 2-207, and will not become part of the agreement if they materially alter it. (See Leonard Pevar Co., supra, at pp. 550-551; § 2-207, U. Com. Code, coms. 2, 3.)
In such a case, the provisions of the California Uniform Commercial Code will fill in the missing terms or gaps in the parties' contract. (Steiner v. Mobil Oil Corp., supra, 20 Cal.3d at p. 104; see Leonard Pevar Co., supra, at p. 551.) See UCC 2-204 for contract formation under 2-207. In Air Products & Chem., Inc. v. Fairbanks Morse, Inc. (1973) 58 Wis.2d 193 [206 N.W.2d 414, 78 A.L.R.3d 619], the court held that a disclaimer of damages for consequential loss was material within the meaning of Uniform Commercial Code section 2-207.
Air Products brought an action for breach of contract against Fairbanks, alleging that some large motors which it purchased failed to perform satisfactorily. As an affirmative defense, Fairbanks relied on a provision in its 'acknowledgement of order' form purporting to limit its liability for consequential damages. The court construed that form as a proposal for additional terms to the contract, which included not only its express terms but also those implied by law. Relying on Uniform Commercial Code sections 2-714 and 2-715 which authorize consequential damages for a seller, the court concluded under the facts of the case, a term providing potential recovery for consequential loss was implicit in the contract. Accordingly, the disclaimer which had the effect of eliminating millions of dollars in damages was sufficiently material to require express conversation between the parties. (Id., at pp. 420-425.)