(Paralegal) Uniform Commercial Code and altered sales contracts (Discussion)

Case Study:

When merchants negotiate sales contracts, they often exchange pre-printed forms. These “boilerplate” forms usually contain terms that favor the drafter. Thus, an offerer who sends a standard form contract as an offer to the offeree may receive an acceptance drafted on the offeree’s own form contract. This scenario is commonly called the battle of the forms, and it raises important questions:

Assume Smith offers to sell Brown 100 chairs at $10 each with a one-year period for action on breach of warranty.  Brown copies Smith’s offer to his own form that contains a four-year period for action on breach of warranty pre-printed on the back of the form and sends the acceptance to Smith.  Is there a contract? Why or why not? If so, what are its terms? Please be sure to cite to the Uniform Commercial Code (UCC), which provides guidance in answering these questions.

Discussion:

A contract for a mix of goods and services is categorized by its dominant element. Since Smith is providing chairs, or goods, to Brown, their contract is mostly for goods and falls under Article 2 of the UCC.

In common law, for something to be a valid contract, you need an offer, acceptance of that offer, and then an agreement on terms of payment or exchange of one valuable item for another. Under common law (some contract-formation defenses related to common law contracts are included in sales contracts, under UCC § 1-103, such as remedies in the case of fraud), if sales contracts were treated the same way, then this would be required to establish a valid contract:

  • Smith has made an offer: 100 chairs for $10 each, with a one-year warranty.
  • Brown has made a counter-offer, changing the warranty coverage to four years.
  • Until Smith accepts the counter-offer, there has not been a valid contract made.

Under sales contract rules, however, a contract is formed at the moment a seller offers goods for sale. There is a contract whether or not the seller accepts or rejects a buyer’s counter-offer or request for altered terms.

This makes sense; it would complicate everyday life if we all had to stop and make sure we were not in breach of a contract for every item we choose to purchase. Grocery shopping, for example, would take a very long time indeed if we had to locate the seller of the goods and then formally agree to the price of a bunch of bananas, then formally agree to the price of a gallon of orange juice, and so on. Bartering and haggling may be fun once in a while at a roadside fruit stand or at a flea market, but for most purchases, it is simpler for sellers and buyers both to agree that “apples are $5 per pound and in this store they are sold by the 3-pound bag” (take it or leave it) and allow a consumer to put the apples into a shopping cart and buy them, or to decide those apples are too expensive (or that she or he doesn’t want that many apples) and to pass them by.

Sales contract rules, which are covered by the UCC, are a little more flexible when defining “acceptance” (methods are outlined in UCC § 2-206(1)). Smith could simply ship the goods to Brown rather than making a formal statement of acceptance or signing a contract. Shipping the chairs to Brown, if Smith fails to note the changed terms, signifies acceptance on Smith’s part whether he or she would want to agree to Brown’s revised warranty terms or not. Under Article 2, Smith needs to “expressly specify” that an offer made to sell goods or services for a certain price and with certain terms must be accepted “as is”.

Brown can make an acceptance of an offer which alters the offer in a reasonable way (UCC § 2-206 does not require a “mirror image” acceptance, so Brown is free to try to negotiate a better bargain for himself or herself and include his or her preferred terms in his or her response to Smith), and Smith can opt whether to accept those terms or not.

When buyer and seller have conflicting ideas about terms of a sale, typically due to differences between the seller’s standard terms written on one contract and the buyer’s which are written on another,  this can, as noted, lead to a “battle of the forms,” where the buyer can add terms to the original offer, or where the seller’s standard form and the buyer’s standard form have boilerplate language which fails to agree on the terms of the contract. Naturally, a seller’s boilerplate forms are designed to benefit, protect and favor the seller, and the same applies for forms drafted by the buyer; his or her forms will attempt to outline terms most advantageous to him or her.

The buyer’s terms, if the seller fails to note the discrepancy, are considered part of the offer (this is where UCC-defined sales contracts and the acceptance of those contracts is not strictly equivalent to a common-law counter offer; UCC § 2-207 leaves the definition of what is and is not to be included in sales contracts up to the courts if there is a dispute, and does not require that terms be in writing…if seller and buyer have conflicting boilerplate contracts, however, a court may decide that they have not had a “meeting of minds” about a particular offer) and the seller may be bound by those changes if she or he does not notice the altered agreement terms and object to them and reject them promptly.

Sellers can preempt this kind of back-and-forth by stating that their offer for a particular item is limited to the terms they have outlined. If Smith fails to notice that Brown has altered the terms, and if she or he has not stated clearly that the proffered price and warranty are to be accepted or rejected as offered without any alterations of the offered terms being allowed by the buyer, and if Smith still enters an agreement with Brown, Smith may be held to Brown’s revised terms.

The Statute of Frauds also originally required Smith to put his offer in writing, as the value of the goods (and warranty, a service) would exceed $500. Revised Article 2 (UCC § 2-201) increased that amount to $5,000, so Smith could, if she or he chose, opt not to use a written contract.

Smith has the right to cancel the contract with Brown, to refuse to deliver the chairs under the revised terms Brown has requested (which would extend the warranty), and the right to accept an offer from another buyer who will accept his terms as originally given.

Smith would also be wise not to accept a check for partial payment from Brown for his chairs if Brown has indicated on the check for the goods (on the memorandum line, for example) that a partial payment is actually a “payment in full”. Accepting a check for partial payment which is marked as “paid in full” may be interpreted by a court as signifying a “meeting of the minds” between buyer and seller, but this kind of “restrictive endorsement” is not usually legally bullet-proof.

It would be unwise to try, say, writing “paid in full” on the memo line of a check for a car or house payment (the terms of your purchase would be covered by a formal contract anyway) or for a partial payment to someone selling a service or wedding cake or pedigreed pet (et cetera) and hoping that a court will see matters your way when the seller gets understandably upset that you are keeping the goods but trying to pay less than the seller asked.

Likewise, a seller cashing a check that you wrote “paid in full” on, but altering your memo to read “NOT paid in full” may not be protected, as they cashed the check and their changes were not authorized by you: the payee can’t claim that she or he failed to see the memo note because she or he actually altered it, then cashed the check.

UCC § 3-311 clarifies the limitations of this strategy when it applies to goods (but even then, different states may have different interpretations). The short answer is that it is a risky strategy if you are trying to either “get a discount” for a good or service you originally agreed to pay more for (and shame on you!), or if you are trying to resolve a dispute (such as disagreement with a vendor or service provider over the quality of goods or a service provided) by using “paid in full” written on a check to attempt to enforce an agreement that is not backed up in writing in a contract or which is being actively disputed by the payee.

 

(Resources: Twomey (class textbook) & SUO Week Two interactive class lecture)
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