Opinion ID: 198081
Heading Depth: 4
Heading Rank: 2

Heading: they materially alter it; or

Text: 26 (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. 27 (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 Title. UCC § 2-207. 5 28 Section 2-207 thus affords three main avenues to contract formation. See generally White & Summers § 1-3, at 19-20. First, if the parties exchange forms with divergent terms, yet the seller's invoice does not state that its acceptance is made expressly conditional on the buyer's assent to any additional or different terms in the invoice, a contract is formed, and its precise terms are determined through recourse to the three-part test in § 2-207(2). 29 Second, if the seller does make its acceptance expressly conditional on the buyer's assent to any additional or divergent terms in the seller's invoice, the invoice is merely a counteroffer, and a contract is formed only when the buyer expresses its affirmative acceptance of the seller's counteroffer. Unlike the mirror image rule at common law, however, the seller's invoice is not deemed expressly conditional under § 2-207 merely because its terms do not match the terms of the buyer's offer. Rather, to be deemed expressly conditional, the seller's invoice must place the buyer on unambiguous notice that the invoice is a mere counteroffer. See id. at 20 (noting that express conditionality is not easily invoked). 30 Finally, where for any reason the exchange of forms does not result in contract formation (e.g., the buyer expressly limits acceptance to the terms of [its offer] under § 2-207(2)(a), or the buyer does not accept the seller's counteroffer under the second clause of § 2-207(1)), a contract nonetheless is formed if their subsequent conduct--for instance, the seller ships and the buyer accepts the goods--demonstrates that the parties believed that a binding agreement had been formed. The terms of their agreement would then be determined under the default test in § 2-207(3), which implicitly incorporates the criteria prescribed in § 2-207(2). 31 The present controversy implicates the very different interpretation of § 2-207 announced more than three decades ago in Roto-Lith, Ltd. v. F.P. Bartlett & Co., 297 F.2d 497 (1st Cir.1962). But see Ionics, 110 F.3d at 187 (overruling § 2-207 interpretation announced in Roto-Lith ). There, Roto-Lith sent Bartlett a purchase order which did not mention warranties. Bartlett returned an invoice expressly excluding all warranties and limiting Roto-Lith's remedies for breach of contract to the replacement cost of any goods which differed materially from specified samples. The Bartlett invoice further required that Roto-Lith notify it at once in the event the additional conditions in the invoice were unacceptable. Instead, Roto-Lith accepted delivery of the goods and remained silent. When the goods proved defective, Roto-Lith brought an action for breach of contract against Bartlett. See id. at 498-99. 32 At trial, Bartlett moved for directed verdict on the ground that its invoice was an acceptance ... expressly made conditional on assent to [its] additional or different terms, and therefore constituted a mere counteroffer under the second clause of § 2-207(1), rather than an acceptance which formed a binding contract. Bartlett argued that (i) a binding contract thereafter was formed when Roto-Lith accepted delivery of the goods without objecting to Bartlett's exclusion of warranties, (ii) all terms of the invoice then became part of the sales contract by operation of the common-law mirror-image rule, and (iii) therefore the statutory criteria for determining the terms of the contract-- i.e., subsections 2-207(2) and (3)--were rendered inapposite. See id. at 499-500. 33 Roto-Lith responded that notwithstanding the divergent term in the Bartlett invoice excluding all warranties, the invoice did not announce itself as a counteroffer; hence, the invoice qualified as an acceptance within the meaning of the first clause of § 2-207(1), and a contract was formed. Further, Roto-Lith argued, since the warranty exclusion in the Bartlett invoice materially altered the terms of the Roto-Lith offer, § 2-207(2)(b) controlled and precluded the warranty exclusion from becoming a contract term. Id. 34 The district court accepted Bartlett's interpretation, holding that the drafters did not intend that the UCC displace the common law tests applicable to these everyday commercial transactions. We affirmed. See id. at 500 (holding that a response [viz., an invoice] which states a condition materially altering the obligation solely to the disadvantage of the offeror is an 'acceptance ... expressly conditional on assent to the additional terms' ); see also Ionics, 110 F.3d at 185 (noting that Roto-Lith abandoned subsections 2-207(2) and (3), and reverted to the common law). 35 Thirty-five years later, Ionics displaced Roto-Lith. There, Ionics had sent Elmwood a purchase order expressly reserving all remedies provided by law or equity and insisting that [a]cceptance by [Elmwood] of this order shall be upon the terms and conditions set forth [herein] ... [and][n]o terms which are in any manner additional to or different from those herein set forth shall become a part of, alter or in any way control the terms and conditions herein set forth. Id. Elmwood returned an invoice which excluded all warranties not expressly set forth herein, disclaimed any liability for consequential or incidental damages, and limited Ionics's remedy for breach to a refund of the purchase price upon return of the goods. Id. at 186. After Ionics accepted delivery, the goods proved defective and Ionics sued Elmwood for contract damages. Relying on Roto-Lith, Elmwood moved for partial summary judgment, contending that the express exclusion of any implied warranty of fitness contained in its invoice became part of the contract which was formed when Ionics accepted Elmwood's counteroffer by taking delivery of the goods without any objection to its divergent terms. 36 The district court denied the Elmwood motion for summary judgment. Ionics, Inc. v. Elmwood Sensors, Inc., 896 F.Supp. 66 (D.Mass.1995). It distinguished Roto-Lith on the ground that the Roto-Lith purchase order had been silent in regard to warranties, whereas the Ionics purchase order expressly reserved all implied warranties provided by law, thus directly contradicting and precluding ab initio the subsequent proposal in the Elmwood invoice to exclude all implied warranties. If Roto-Lith applied in [both types of] cases [viz., to objecting and silent buyers alike] ..., § 2-207(3) would be preempted entirely by the mirror image rule. Id. at 69. The district court then certified its partial summary judgment ruling for immediate appeal. 37 In the ensuing appeal by Elmwood, we rejected the attempts by Ionics and the district court to distinguish Roto-Lith on its facts: It would be artificial to enforce language [viz., the warranty disclaimer in the Roto-Lith invoices] that conflicts with background legal rules while refusing to enforce language [viz., the warranty disclaimer in the Ionics invoices] that conflicts with the express terms of the contract. Ionics, 110 F.3d at 188 (emphasis added). From a policy standpoint, we observed that such distinctions also would lead parties to include more of the background [legal] rules in their initial forms, making forms longer and more complicated, which in turn would have the perverse effect of discouraging the contracting parties from reading the forms exchanged between them. Id. 38 Finding no principled basis on which to distinguish the circumstances in Ionics and Roto-Lith, we overruled Roto-Lith. See id. at 189. Shifting our focus from the common-law mirror image rule to the UCC, we noted that the Ionics-Elmwood transaction fit squarely within the ambit of Comment 6 to § 2-207: 39 Where clauses on confirming forms sent by both parties conflict[,] each party must be assumed to object to a clause of the other conflicting with one on the confirmation sent by himself. As a result the requirement that there be notice of objection which is found in subsection (2)[ (c) ] is satisfied and the conflicting terms do not become a part of the contract. The contract then consists of the terms originally expressly agreed to, terms on which the confirmations agree, and terms supplied by this Act, including subsection (2). 40 UCC § 2-207 cmt. 6. 41 We thus rejected the Roto-Lith mirror image rule that the mere proposal of an additional or different material term by the seller would make its invoice a counteroffer to the buyer's purchase offer (i.e., an acceptance ... expressly made conditional on [the buyer's] assent), rather than an outright acceptance of the buyer's purchase offer. Instead, the forwarding of such an invoice gives rise to a binding contract and in the event of a contract dispute the terms of the contract are determined under the test set forth in § 2-207(3), which in turn implicitly incorporates the criteria in § 2-207(2). Ionics, 110 F.3d at 189. 42 Chipco urges--as the trial judge held--that Ionics controls the present dispute even though the Chipco purchase orders contained no express objection to a damages-limitation clause, on the ground that our background legal rules discussion in Ionics necessarily implied that all so-called UCC gap-fillers--those UCC provisions designed to supply necessary default terms where the parties' contract is silent--must be read into all silent purchase orders, and thus serve as the buyer's [prior] notification of objection under § 2-207(2)(c). According to Chipco, these gap-fillers include not only a reservation of the implied warranties, see, e.g., UCC §§ 2-314 (implied warranty of merchantability) & 2-315 (implied warranty of fitness for a particular purpose), which were at issue in Roto-Lith and Ionics, but also the buyer's presumptive right to recover in full measure all contract damages attributable to the seller's breach, see id. §§ 2-714 (damages for breach) & 2-715 (recovery of incidental and consequential damages). We conclude that the reading given our background legal rules discussion by the trial judge is more expansive than its context warranted. 43 The background legal rules discussion in Ionics addressed Ionics' attempt to hypothesize a factual distinction between its case and Roto-Lith. Assuming arguendo that the Roto-Lith rule were to remain intact as controlling circuit precedent, we posed the very narrow question whether it would make sense to establish an exception to Roto-Lith 's mirror image rule where the buyer expressly excludes ab initio, in its purchase order, the seller's additional terms, while withholding that same protection to a buyer--like Roto-Lith--which reasonably may have presumed that the court would use the UCC as its baseline guide for determining the buyer's contract expectations. For the policy reasons already noted, see supra, we were persuaded that engrafting a common-law exception (i.e., when the purchase order expressly forecloses the seller from proposing particular divergent terms) onto the common-law rule announced in Roto-Lith was not warranted. 44 In fashioning common-law rules--like the broad common-law exception to § 2-207 carved out in Roto-Lith--courts almost invariably weigh public policy considerations, often on their own motion if need be. See, e.g., Claypool v. Levin, 209 Wis.2d 284, 562 N.W.2d 584, 588 (1997). It is hardly surprising, therefore, that our opinion in Ionics discussed the policies which would be fostered were we to refine and perpetuate the common-law rule established in Roto-Lith. On the other hand, when called upon to interpret a statute, we are constrained in the first instance by the policymaking prerogatives of the legislative and executive branches as expressed or implied in the statute itself. See, e.g., Harrison v. Montgomery County Bd. of Educ., 295 Md. 442, 456 A.2d 894, 903 (1983) (noting that declaration of the public policy of [the State] is normally the function of the General Assembly, which is fully empowered to abrogate common-law rules). 45 Once we determined that Roto-Lith and Ionics could not be distinguished in a principled manner, however, the background legal rules discussion in Ionics went by the wayside with the common-law hypothetical from which it emerged, which explains why the phrase is never again mentioned in the Ionics decision. Instead, after concluding that routine recourse to common-law rules is not required by the second clause of UCC § 2-207(1), we turned to the more constringent task of statutory interpretation. Presented with a clean statutory slate, we announced the narrow holding that the UCC expressly protects a buyer, like Ionics, whose purchase order expressly forewarns the seller of particular contract terms which the buyer would find objectionable--pursuant to the [prior] notification of objection clause in § 2-207(2)(c). Ionics, 110 F.3d at 189. Indeed, given the emphatic language in its purchase order, it is likely that Ionics was entitled to the protection of § 2-207(2)(a) as well. 46 Further conclusions of law were not required. It was Elmwood which had sought partial summary judgment based on the per se rule announced in Roto-Lith that all new terms in a seller's counteroffer automatically become contract terms where the buyer remains silent and renders performance under the contract. Once the common-law rule in Roto-Lith became defunct, it necessarily followed that Elmwood was not entitled to judgment as a matter of law under Rule 56, and its appeal failed. Since Ionics was not a silent buyer of the Roto-Lith type, nor had it moved for summary judgment, we were not required to consider whether a silent buyer, such as Roth-Lith or Chipco, also would be protected by § 2-207(2)(c) or by any other provision in section 2-207. In other words, Ionics simply announced that both types of buyers were relieved from the per se common-law rule of inclusion laid down in Roto-Lith, and not that a Roto-Lith-type silent buyer may invoke § 2-207(2)(c). As Chipco is a silent buyer, however, we now address that unresolved issue. 47 After rejecting the Roto-Lith common-law mirror image rule of offer and counteroffer, we noted in Ionics that the transaction between Ionics and Elmwood came within the literal language of Official Comment 6 to § 2-207, 6 which excludes from the contract a new term proposed by a seller where clauses on confirming forms sent by both parties conflict. (Emphasis added.) Of course, where the buyer's purchase order includes no term relating to the subject matter dealt with in the new term proposed by the seller (i.e., the purchase order is silent), it literally cannot contain a clause with which the seller's invoice could conflict. 48 Whatever its policy implications, the rationale underlying this distinction is readily discernible. The buyer which explicitly includes a particular term in its purchase order--even a UCC gap-filler--presumably demonstrates that it has considered the allocation of business risks associated with the term, and, for example, has determined that it is unwilling to accept greater risk. Thus, as is the case with restricted offers under § 2-207(2)(a), it is appropriate to treat the buyer's explicit prior objection as a term which is material, per se, to the formation of any contract. 49 On the other hand, although the silent buyer may be signaling its implicit preference for the UCC's gap-filler terms, its silence alone provides no reliable basis for a per se rule of exclusion since it leaves open the key question whether the buyer regarded any particular gap-filler term as especially material in the circumstances of the transaction at hand. For instance, its purchase order may have omitted a clause precluding any damages-limitation clause, not because the buyer meant to insist that no such term be precluded, but rather, for example, because the parties' course of performance or course of dealing, or the relevant trade usage, establishes that a damages-limitation clause is presumptively included as an implicit term in the contract. See White & Summers § 1-3, at 18 (noting that the § 2-207(2)(b) materiality test may turn, inter alia, on course of dealing or performance, or trade usage); UCC § 1-205 (Course of Dealing and Usage of Trade); § 2-208 (Course of Performance or Practical Construction). In such a setting, the buyer's silence may simply reflect that it considers a damages-limitation clause immaterial to contract formation. See, e.g., Dale R. Horning Co. v. Falconer Glass Indus., 730 F.Supp. 962, 966 (S.D.Ind.1990); see also The Berquist Co. v. Sunroc Corp., 777 F.Supp. 1236, 1246 (E.D.Pa.1991). 50 The context of UCC § 2-207 conclusively confirms that its drafters intended to accord distinctive treatment to sales transactions involving silent buyers. Official Comments 4 and 5 set forth examples of the additional or different terms which may give rise to material and immaterial alterations under 2-207(2)(b). 7 Comment 5 lists, as an example of an immaterial alteration, a clause ... otherwise limiting remedy in a reasonable manner (see Sections 2-718 and 2-719). Section 2-719 envisions that contracting parties may agree to limit recoverable damages otherwise available under §§ 2-714 and 2-715. Thus, if Chipco's interpretation of Ionics were correct, and all UCC gapfillers (like §§ 2-714 and 2-715) were to be read into every silent purchase order, then damages-limitation clauses invariably would be excluded from the contract under 2-207(2)(c), whether or not the purchase order expressly objected to such a limitation clause, and the materiality inquiry at the very core of UCC § 2-207(2)(b) and Comment 5 would become wholly superfluous. See, e.g., Costos v. Coconut Island Corp., 137 F.3d 46, 49 (1st Cir.1998) ( 'Nothing in a statute may be treated as surplusage if a reasonable construction supplying meaning and force is otherwise possible.' ) (citation omitted). Thus, under the only harmonious interpretation available in the present context, these UCC provisions require that the silent buyer establish that it would have rejected a damages-limitation clause as a material alteration, within the meaning of § 2-207(2)(b), given all the circumstances surrounding the transaction. See supra note 7; infra Section II.B.2. 51 Nevertheless, Chipco has not cited--and we cannot find--any case which endorses its reading of § 2-207(2)(c) and Ionics. Rather, the courts which have interpreted § 2-207(2)(c) do not read UCC gap-fillers into purchase orders as a matter of law, but insist that a merchant-buyer prove, for example, that a given invoice term worked a material alteration to the contract. See, e.g., LTV Energy Prods. Co. v. Northern States Contracting Co. (In re Chateaugay Corp.), 162 B.R. 949, 952, 957-58 (Bankr.S.D.N.Y.1994) (summarizing extant case law supporting proposition that, where [buyer's] Purchase order ... did not contain any general terms or conditions of sale, and where UCC § 2-207(2)(a) and (2)(c) [thus] do not apply, the non-assenting party must prove, inter alia, that the seller's clause limiting the buyer's remedy to repair and replacement of the goods was a material alteration) (emphasis added). 52 In summary, Ionics does not support the proposition that a silent buyer is presumed to have objected in advance to any seller-term that conflicts with a UCC gap-filler provision. Instead, Ionics merely relieved the buyer of the burden imposed by the automatic rule announced in Roto-Lith, which, by removing the case entirely from UCC § 2-207 and relying on the common law, precluded a buyer who had performed under the contract from demonstrating at trial that the adverse seller-term at issue did not become part of the contract. But if the silent buyer's purchase order neither expressly limits acceptance to the terms of the offer under § 2-207(2)(a), nor necessarily constitutes [prior] [n]otification of objection to [any new terms added by the seller] under § 2-207(2)(c), the buyer must look to some other UCC provision to exclude the new seller-term. 53 As Ionics is inapposite, and Adell's damages-limitation clause is not excludable under § 2-207(2)(c), Chipco could prevail only if the damages-limitation clause (i) effected a material alteration to the contract, see UCC § 2-207(2)(b), (ii) was unconscionable, id. § 2-719(3), or (iii) failed of its essential purpose, id. § 2-719(2). See LTV Energy Prods., 162 B.R. at 957-58.