Problems with Standard Form Contracts

1. Problems with Standard Form Contracts
   1. Note: Understanding § 2-207
      1. §2-207 takes a much different position than the common law precedents do. In common law, any response that didn’t look exactly like the offer was not an acceptance, but a counter offer. This doesn’t work well with the nature of current businesses using standardized forms. §2-207comes in to help this.
      2. This section’s goal is to deal with written confirmations of either oral or informal correspondence or the exchange of a purchase order and acceptance/acknowledgement form where the second form may offer slight differences.
      3. Additional Terms in Acceptance or Confirmation
         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:
            1. the offer expressly limits acceptance to the terms of the offer;
            2. they materially alter it; or
            3. 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 Act.
      4. There seems to be general agreement that §2-207has not been a success.
      5. Important pieces:
         1. Definite acceptance, or written confirmation
         2. Does not expressly limit acceptance to the terms proposed (no conditional acceptance)
         3. Does not materially alter the offer
         4. Objection not received in a reasonable time
         5. Conduct by both parties suggests a contract was intended
         6. No unwillingness to proceed absent the terms
   2. Gardner Zemke Co. v. Dunham Bush, Inc. (Prototypical Case)
      1. Facts: Π entered a K with Δ to provide chillers for Π’s DOEnergy contract. Π provided an offer on standard form, and Δ responded with another standard form. Δ’s chillers were not to spec, Π sues for damages, but Δ claims that their version of the K is controlling. 
      2. “Battle of the Forms”:  controlled by UCC 2-207
      3. “Mirror Image Rule” under common law: 2-207 was intended to mitigate this requirement to “conform contract law to modern day business transactions.”
         1. A responding document will fall outside the provisions of 2-207 and convey a counteroffer only when its terms differ radically from the offer, or when “acceptance is expressly made conditional on assent to the additional or different terms.”
         2. Court relies on Dorton, 1972: Dorton court concluded that 2-207 was “intended to apply only to an acceptance that 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.”
         3. There has to be an explicit, clear and unambiguous statement.
            1. Can “boilerplate” language ever satisfy this provision? There is a sense that the boilerplate language doesn’t display the requisite “seriousness” that “we don’t intend to be bound unless you agree to these additional terms.” Under certain conditions, if “boilerplate” language has been “dickered” by the parties, then it’s sufficient. But when one party attempts to use boilerplate language as a sneaky strategy to get terms into a contract without bargaining those terms, the UCC is trying to discourage THAT.
            2. Furthermore, if the party continues to perform, how can it assert that it wouldn’t enter into the agreement unless the other party assented to the terms? 
      4. Court also considers: If the Acknowledgment was an acceptance and not a counteroffer, which terms will control the exchange of forms?
         1. There are three different views:
            1. That, in spite of the omission, “different” terms are to be analyzed under subsection (2)–comes from Comment 3 to the section, that “whether or not additional or different terms will become part of the agreement depends upon the provisions of subsection (2).” Relying on the observation in Comment 4 that negating implied warranties “materially alters” the contract, the Dunham warranty terms would not become part of the contract, and Zemke’s warranty provision and Article 2 warranties would control.
            2. That the omission was intentional, and regarding Comment 3: “the Official Comments do not happen to be the statute.” However, this theory postulates that a “different” term in a responsive document operating as an acceptance can never become a part of the parties’ contract under the plain language of the statute.
               1. Reasoning supporting this position is that once an offeror addresses a subject it implicitly objects to variance of that subject by the offeree, thereby preventing the “different” term from becoming a part of the contract by prior objection and obviating the need to refer to “different” terms in subsection (2). 
               2. In the instant case, again, the outcome would be that Zemke’s Order and Article 2 warranties control.
            3. An analysis arising from Comment 6: that “different” terms cancel each other out and that existing applicable code provisions stand in their place. There are flaws (p. 167) but the analysis has found acceptance. Application of the analysis in the instant case would cancel out the parties conflicting warranty terms and allows the warranty provisions of Article 2 to control
         2. Prof. notes these different options. Under the first two options, the first form wins. Under the third option, the UCC wins. Some scholars and critics contend, though, that the “default” warranty provisions of the UCC (unfairly) generally benefit one party, and act to the detriment of the other. The three warranties of the UCC are: 1) Title conveyed is good. 2) Goods are merchantable. 3) Goods are fit for a particular purpose. The Buyer generally benefits from these provisions.
      5. Result: Remanded to address questions that
         1. Π could reasonably believe that a K had been formed 
         2. When the offeree’s acceptance lists a term in conflict with the offer, neither is part of the contract, and general rules of fairness prevail.
   3. Seven Scenarios for UCC § 2-207
      1. The Acceptance is expressly made conditional on the offeror’s assent to the terms additional or different
         1. Any expression of acceptance or written confirmation acts as an acceptance. (General Rule) 
         2. The acceptance does not form a contract if it is “expressly made conditional on assent to the additional or different terms.”
         3. Courts will general only accept the exception if it is shown that the Acceptor is unwilling to proceed absent the changes.
      2. Acceptance discusses an issue on which the offer is silent (additional term)
         1. The additional term does not prevent the offeree’s response from giving rise to a contract.
         2. If both parties are merchants, the change automatically becomes part of the K unless the offeror rejects in a reasonable time.
         3. If one party is not a merchant, the offeror has to explicitly assent to the change for the term to be part of the K.
      3. Offer discusses an issue on which the acceptance is silent
      4. Acceptance and Offer deal with a particular issue in conflicting (different) ways
         1. Majority view: KNOCKOUT RULE – conflicting clauses knock each other out. Neither gets into the K. A UCC gap-filler is used in its place if available. Criticism: the knockout theory strips the offeror of writing the terms to which he will do business.
         2. Minority view – second form’s term fails to have any effect.
      5. Acceptance recites terms that diverge so much from those contained in the offer
         1. No contract is formed
         2. In the usual purchase order-acknowledgement context the forms do not fail to give rise to a contract if they do not diverge as to price, quality, quantity, or delivery terms, but only as to the usually unbargained terms on the reverse side concerning remedies, arbitration and the like.
      6. Oral agreement, then one or both sends a confirmation which adds to or conflicts with the oral agreement
         1. Additional terms in confirmation are treated just the same as if the offer was written.
         2. Different terms – the court will almost certainly say that the different term in the confirmation does not enter the contract. The Knockout rule will not be applied.
      7. The parties don’t use forms, but exchange custom-drafted documents that differ.
         1. No contract is formed
   4. Step-Saver Data Systems, Inc. v. Wyse Technology
      1. Facts: Π entered a K with Δ by calling Δ on the phone to order goods. Δ would then ship them the goods with a warrantee disclaimer applied on the packaging, containing an integration clause. When Δ’s product failed, Π sued for breach.
      2. Issue: Do the additional terms on the received goods override the terms of the oral agreement on the phone? Do they materially alter the parties’ contract?
      3. Analysis: 2-207 governs the analysis
         1. RULE: When the parties’ conduct establishes a contract, but the parties have failed to adopt expressly a particular writing as to the terms of their agreement, and the writings exchanged by the parties do not agree, 2-207 determines the terms of the contract.
            1. A writing will be a final expression of, or a binding modification to, an earlier agreement only if the parties so intend. 
         2. TSL argues the box top license was a conditional acceptance and counter-offer under 2-207(1) 
            1. Court disagrees: TSL could make a conditional acceptance only if it clearly and unequivocally indicated it was unwilling to proceed with the transaction unless its additional or different terms were included in the contract. “Consent by opening” language provides no real indication of a party’s intent that it is willing to forgo the transaction if the additional language is not included in the contract
         3. TSL argues that SS, by continuing to order and use the product with notice of the terms of the box-top license, consented to the terms of the license. The repeated expression of these terms by TSL eventually incorporates them within the contract. 
            1. Court responds: There are TWO reasons why the repeated sending of a writing which contains certain terms, without any action with respect to the issues addressed by those terms, cannot constitute a course of dealing which would incorporate a term of the writing otherwise excluded under 2-207:
               1. The repeated exchange tells SS that TSL desires certain terms, but TSL, by failing to obtain SS’s express consent, has essentially agreed to do business on other terms–those terms expressly agreed upon by the parties. 
               2. A seller in “multiple transaction” cases will have the opportunity to negotiate the precise terms of the parties’ agreement–but the seller’s unwillingness or inability to obtain a negotiated agreement reflecting its terms strongly suggests that, while the seller would like a court to incorporate its terms if a dispute were to arise, those terms are NOT, in fact, part of the parties’ bargain.
      4. Result: Because K was sufficiently definite without the Δ added terms, and Π never assented to the terms, and there was no conditional acceptance because the terms did not specify Δ’s unwillingness to proceed, K without the added terms is controlling. Warranty terms materially altered the contract, so were not controlling.
   5. Carnival Cruise Lines, Inc. v. Shute
      1. Facts: Δ bought a ticket on Π’s cruise line. When the ticket arrived, it contained many terms and conditions on the reverse side, including the forum clause. Δ was injured on board, and is trying to sue in the court near their residence. Π wants to enforce its forum selection clause to get the case to be tried in Π’s home district.
      2. Issue: Is the forum clause controlling?
      3. Analysis: Court finds the Shutes arrangement with Carnival “purely routine” and “doubtless identical” to every commercial passage contract issued by most cruise lines.
         1. “Unreasonable” to think, therefore, that the Shutes would have bargained with Carnival regarding the forum selection clause; furthermore, it’s “reasonable” that there wouldn’t be bargaining parity b/w the parties.
         2. Just b/c a forum-selection clause in a form ticket contract is nonnegotiated and not the subject of bargaining, that doesn’t mean it’s not enforceable (a cruise ship has a special interest in limiting the fora in which it potentially could be subject to suit; also, a clause establishing ex ante the forum spares the parties later from additional expense and litigation over this issue; lastly, because of this reduced cost, passengers actually benefit in the form of reduced fares).
            1. Shutes do not meet the heavy burden of proof required to set aside the clause on the grounds of inconvenience. The Court does not defer to the Appeals’ Court’s findings of fact–Court does not find that the Shutes are physically and financially incapable of pursuing the litigation in Florida. 
            2. Also, no evidence of bad faith. 
      4. Dissent says this is bunk:
         1. Many passengers, like the Shutes, will not have an opportunity to even read the forum selection clause until they have already purchased the tickets–and by that point (after purchasing the tickets) such passengers are bound by the condition set forth in paragraph 16(a) which provides that Carnival “shall not be liable to make any refund” to passengers who do not use their tickets–so, essentially, if the Shutes disagree with the forum-selection clause, their only option to protest it is to not go on the ship and NOT get a refund. 
            1. Such a provision is NOT reasonable. 
            2. Contracts of adhesion, form contracts offered on a take-or-leave basis by a party with stronger bargaining power to a party with weaker power, should be reviewed with heightened scrutiny.
      5. Result: Because Δ had notice of the clause, and because Π had no bad faith motive for including the clause, and because the court felt the clause did not limit Δ in any way (JJW disagrees), the clause is controlling.
   6. Hill v. Gateway 2000, Inc.
      1. Facts: Π orders and purchases a computer from Δ by phone. Upon its arrival, the computer has a list of terms limiting liability that the customer must assent to or return the computer. When the computer doesn’t work, Π complains of breach of warranty, and Δ notes the arbitration clause. (Π does not want to arbitrate.)
      2. Issue: Since the terms were not read prior to purchase, are the terms controlling?
      3. Analysis: Court holds the terms inside the computer box constitute the parties’ contract–a contract may be formed, not necessarily in a store or over the phone with the payment of money or a general “send me the product” statement, but after the customer has had a chance to inspect both the item and the terms. 
      4. Rule: (Prof. points this out) An agreement to arbitrate must be enforced “save upon such grounds as exist at law or in equity for the revocation of any contract.”
         1. Court uses Pro-CD (“shrink-wrap license” case) to frame its decision: holding in that case was that terms inside a box of software bind consumers who use the software after an opportunity to read the terms and to reject them by returning the product
            1. Rather than accepting the contention that the contract is formed when the consumer pays for the software, Easterbrook proposed another way: (Prof. points this out–vendor can invite acceptance by specific conduct) that the vendor, “as master of the offer, may invite acceptance by conduct, and may propose limitations on the kind of conduct that constitutes acceptance. A buyer may accept by performing the acts the vendor proposes to treat as acceptance.” 
            2. Payment preceding the revelation of full terms is common; practical considerations support allowing vendors to enclose the full legal terms with their shipments; customers are better off when vendors skip costly and ineffectual steps such as telephonic recitation of terms (Prof. points out concerns regarding “time-consuming, burdensome, inefficient means”).
         2. Why should we care about contracts of adhesion? Other contracts are long and involved, and filled with legalese. What is it about contracts of adhesion that cause courts to scrutinize them for fundamental fairness? Disparate bargaining power, I would think; disparate knowledge & expertise; the manner in which these contracts come into existence; the fact that the contract has been drafted by one party and handed to the other, not negotiated between the two.
         3. REMEMBER: The U.C.C. IS RELEVANT in cases where there is only ONE form (unlike what Judge Easterbrook says, which is that the UCC is irrelevant where there is only one form)!
            1. By its terms, Section 2-207 applies to an acceptance or written confirmation. It states nothing which requires another form before the provision becomes effective. In fact, the official comment to the section specifically provides that 2-207(1) and 2-207(2) apply ‘where an agreement has been reached orally…and is followed by one or both of the parties sending formal memoranda embodying the terms so far agreed and adding terms not discussed.’ (See note 5, p. 196).
            2. A better reason for taking a contract like the one in Gateway out of 2-207 is to propose that the form which includes the clause at issue “was not a ‘material alteration’ of an [preexisting] oral agreement, but, rather, simply one provision of the sole contract that existed between the parties. That contract, the court explained, was formed and acceptance was manifested not when the order was placed but only with the retention of the merchandise beyond the 30 days specified in the Agreement enclosed in the shipment…Accordingly, the contract was outside the scope of UCC 2-207.” (Brower v. Gateway 2000, 1998).
      5. Result: By keeping the computer for more than 30 days, Π accepted the additional terms, and must go through arbitration.
      6. This is a policy ruling and is very flawed. It uses ProCD as precedent (written by the same judge) and will not distinguish its facts from the instant case. Murray observes: “The [7^th Circuit] has provided particularly valuable insights in the interpretation of various provisions of UCC Article 2, many of which are cited elsewhere in this volume. The most charitable statement that can be made concerning the ProCD/Hill analysis, however, is that, even Homer nods.” (Ouch.) 
   7. C&J Fertilizer, Inc. v. Allied Mutual Insurance Co.
      1. Facts: Π’s business was burglarized and Π tries to recover their loss from Δ, their insurer. Π and Δ intended to exclude liability for inside jobs. The door was found to not be locked after the burglary. In small type, burglary was defined such that this loss was not covered.
      2. Analysis: This case represents a radically different way of approaching standard-form contracts. The court looks at the “perception” of the parties in determining what they could “reasonably expect” the contract to include (so much for what the contract actually says). 
         1. This case takes a sweeping approach to the reasonable expectations doctrine. Currently in Iowa, the state of affairs is much different. The precedential value of this case is diminished. 
            1. The Court has reaffirmed Rodman instead: the doctrine will not “extend to cases where an ordinary layman would not misunderstand his coverage from a reading of the policy AND where no circumstances appear attributable to the insurer which would foster coverage expectations.”
         2. Prof. points out 2^nd Rst., Section 211 regarding reasonable expectations w/ regard to “standardized agreements.” 
         3. 2^nd Rst., Sec. 211, Comment f: “Customers…are not bound to unknown terms which are beyond the range of reasonable expectation.”
            1. P should have reasonably expected no coverage for an “inside job;” however, there was “nothing relating to the negotiations with D’s agent which would have led P to reasonably anticipate D would bury within the definition of ‘burglary’ another exclusion denying coverage when, no matter how extensive the proof of a third-party burglary, no marks were left on the exterior of the premises.”
            2. Moreover, this definition of burglary doesn’t comport with either a layman’s understanding or legal interpretation.
      3. Held: That Π had reasonable expectation to believe this was covered when he purchased the policy. Also, it was unconscionable that the fine print would overrule the reasonable meaning of the dickered terms. 
      4. Dissent: Π didn’t read the contract, and thus Δ shouldn’t be liable for Π’s lack of understanding. Dissenting justice pointed out that the language was NOT ambiguous–the majority is invalidating unambiguous language just because the majority thinks it’s not fair, and this is not the appropriate way to interpret a contract.
         1. Majority determines, though, “instead of thinking about ‘assent’ to boiler-plate clauses, we can recognize that so far as concerns the specific, there is no assent at all…The fine print which has not been read has no business to cut under the reasonable meaning of those dickered terms which constitute the dominant and only real expression of agreement…” (Prof. Llewellyn).
      5. Notes: Reasonable expectations doctrine largely confined to insurance cases.