V. ACCEPTANCE VARYING FROM OFFER

A. Common law "mirror image" rule: Under the common law, the offeree's response operates as an acceptance only if it is the precise mirror image of the offer. If the response conflicts at all with the terms of the offer, or adds new terms, the purported acceptance is in fact a rejection and counter offer, not an acceptance. (Example: A writes to B, "I'll sell you my house for $100,000, closing to take place April 1." B writes back, "That's fine; let's close April 2, however." At common law, B's response is not an acceptance because it diverges slightly from the offer, so there is no contract.)

B. UCC view: The UCC rejects the "mirror image" rule, and will often lead to a contract being formed even though the acceptance diverges from the offer. Wherever possible, the UCC tries to find a contract, so as to keep the parties from weaseling out (as they often try to do when the market changes). This entire "battle of the forms" is dealt with in UCC §2-207, probably the most important UCC provision for the Contracts student.

1. General: At the most general level, §2-207(1) provides that any "expression of acceptance" or "written confirmation" will act as an acceptance even though it states terms that are "additional to or different from" those contained in the offer. (Example: Buyer sends a "purchase order" containing a warranty. Seller responds with an "acknowledgement," containing a disclaimer of warranty. There will be a contract under the UCC, even though there would not have been one at common law.)

2. Acceptance expressly conditional on assent to changes: An "expression of acceptance" does not form a contact if it is "expressly made conditional on assent to…additional or different terms." §2-207(1). So if the purported "acceptance" contains additional or different terms from the offer, and also states something like, "This acceptance of your offer is effective only if you agree to all of the terms listed on the reverse side of this acceptance form," there is no contract formed by the exchange of documents.

a. Limited: Courts are reluctant to find that this section applies. Only if the second party's form makes it clear that that party is unwilling to proceed with the transaction unless the first party agrees to the second party's changes, will the clause be applied so as to prevent a contract from forming.

3. "Additional" term in acceptance: Where the offeree's response contains an "additional" term (i.e., a clause taking a certain position on an issue with which the offer does not deal at all), the consequences depend on whether both parties are merchants.

a. At least one party not merchant: If at least one party is not a merchant, the additional term does not prevent the offeree's response from giving rise to a contract, but the additional term becomes part of the contract only if the offeror explicitly assents to it.

Example: Consumer sends a purchase order to Seller, which does not mention how disputes are to be resolved. Seller sends an acknowledgement form back to Consumer, which correctly recites the basic terms of the deal (price, quantity, etc.), and then says, "All disputes are to be arbitrated." Even though the acknowledgement (the "acceptance") differed from the purchase order by introducing the arbitration term, the acknowledgement formed a contract. However, since at least one party (Consumer) was not a merchant, this additional term will only become part of the contract if Consumer explicitly assents to that term (e.g., by initialing the arbitration clause on the acknowledgement form).

b. Both merchants: But if both parties to the transaction are "merchants," then the additional term automatically becomes part of the contract, as a general rule. (Example: On facts of prior example, if Buyer was a merchant, the arbitration clause would become part of the contract.) However, there are two important exceptions to this "additional term becomes part of the contract" rule:

i. Materiality: The addition will not become part of the contract if it is one which "materially alters" the contract. For instance, a disclaimer of warranty will always be found to materially alter the contract, so if the seller includes such a disclaimer in his acknowledgement form after receiving the buyer's purchase order, the disclaimer will not become part of the contract.

ii. Objection: If the offeror objects to having the additional term become part of the contract, it will not so become.

4. Acceptance silent: If an issue is handled in the first document (the offer), but not in the second (the acceptance), the acceptance will be treated as covering all terms of the offer, not just those on which the writings agree. (Example: Buyer's purchase order says that disputes will be arbitrated; Seller's acknowledgement is silent on the issue of arbitration. The Seller's form will be found to be an acceptance, and disputes will be arbitrated.)

5. Conflicting terms in documents: If an issue is covered one way in the offering document and another (conflicting) way in the acceptance, most courts apply the "knock out" rule. That is, the conflicting clauses "knock each other out" of the contract, so that neither enters the contract. Instead, a UCC "gap-filler" provision is used if one is relevant; otherwise, the common law controls.

Example: Buyer's purchase order states that disputes will be litigated in New York state court. Seller's acknowledgement form states that disputes will be arbitrated. Most courts would apply the "knock out" rule, whereby neither the "New York courts" nor "arbitration" clauses would take effect. Instead, the common law — allowing an ordinary civil suit to be brought in any state that has jurisdiction — would apply.

6. Response diverges too much to be acceptance: If a purported acceptance diverges greatly from the terms of the offer, it will not serve as an acceptance at all, so no contract is formed.

7. Contract by parties' conduct: If the divergence referred to in the prior paragraph occurs (so that the exchange of documents does not create a contract), the parties' conduct later on can still cause a contract to occur. Section 2-207(3) provides that "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."

Example: Buyer's purchase order is for 100 widgets at $5 each. Seller's acknowledgement form is for 200 widgets at $7 each. Buyer does not say anything in response to the acknowledgement form. Seller ships the 200 widgets, and Buyer keeps them. Even though the exchange of documents did not create a contract, the parties' conduct gave rise to a contract by performance.

a. Terms: Where a contract by conduct is formed, the terms "consist of those terms in which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act." §2-207(3). For instance, the price term would be a "reasonable price at the time for delivery," as imposed by §2-305's price "gap filler."

8. Confirmation of oral contract: If the parties initially reach an oral agreement, a document later sent by one of them memorializing the agreement is called a "confirmation."

a. Additional terms in confirmation: If the confirmation contains a term that is additional to the oral agreement, that additional term becomes part of the contract unless either: (1) the additional term materially alters the oral agreement; or (2) the party receiving the confirmation objects to the additional terms.

b. "Different" term in confirmation: If a clause contained in the confirmation is "different" from a term on the same issue reached in the oral agreement, the new clause probably does not become part of the agreement.