If the offeror doesn’t put in the language under (a) and does not object under (c), the proposed terms might still fall away under the exception provided by (b). This provision states that a proposed term is automatically rejected if it materially alters the terms of the contract. So if the offeree proposes an additional term that will result in surprise or hardship to the offeror, it is out. Bottom line – it is only the additional terms that don’t make much difference that are in. If you are wondering which ones materially alter and which ones don't, take a look at Official Comments 4 and 5 to § 2-207. They will give you a sense of what should be found to materially alter and what should be found to not materially alter.

Notice what has happened here. At common law, the additional term in the acceptance would make it a counteroffer, but under the Code it is an acceptance. And, in spite of the additional terms in the acceptance, the offeror is still going to get its terms except for the ones that won’t make a big difference. That is quite a change from the common law.

Now comes the hardest part. Subsection (2) tells us what to do with additional terms in the offeree’s form, but it doesn't tell us what to do with different terms. So the courts have had to fill this gap in the statute, and they have come up with three different solutions. One rule is that the different terms are automatically out because they are considered to be objected to by the offeror, so the offeror gets its terms. Another view is that you treat different terms the same as additional terms and you conduct the same analysis we just went through – construe them as proposals and see if they are in or out. So the offeror gets its terms except for the ones that are not materially different. But the most popular view is the “knockout rule” under which both different terms are knocked out and we read in the default rules.

For example, let’s assume that the offer has a choice of law clause specifying Montana law. The acceptance has a choice of law clause specifying New York law. Under the first view, the offeror would get its term – Montana law. Under the second view, if the offeror had not objected and New York law does not materially differ from Montana law (and it probably doesn’t since both have enacted the UCC), then the offeree would likely get its term – New York law. And under the third view, the knockout rule, both parties’ choice of law terms would be thrown out and the forum would determine the applicable law according to its choice of law rules.

Remember that each state will decide to apply one of these rules. The knockout rule is the most popular even though it can lead to some absurd results. For example, there was a New York case where one form called for “arbitration in New York” and the other called for “arbitration in New Jersey.” The court said these were different terms, knocked them both out and read in the default rule – they would go to court to resolve the dispute.

As a practical matter, the Battle of the Forms in many types of transactions is dying out because instead of exchanging forms, parties today frequently form their agreements over the internet. If a buyer goes to a seller’s web site, the buyer will likely have to accept the terms offered on that web site. If it has any bargaining power, then the buyer can negotiate for more favorable terms, but they will be incorporated in a single document, eliminating the issue as to whose terms will govern.

Let’s briefly review this podcast. At this point, you should be able to identify which form comes from the offeror and which from the offeree. You should be able to identify the additional and different terms in the offeree’s form. You should be able to analyze whether an additional term is part of the contract under subsection (2). And if there is a different term, you should be able to explain the three rules that different jurisdictions use to determine the terms of the contract.

Discussions Discussions in Contracts: UCC 2-207 2: Finding the Terms of the Contract Page 3 of 4

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