Opinion ID: 472663
Heading Depth: 2
Heading Rank: 1

Heading: Metal-Matic's Disclaimer of Liability for Consequential Damages

Text: 13 If the contract between Metal-Matic and Krack contains Metal-Matic's disclaimer of liability, Metal-Matic is not liable to indemnify Krack for part of Diamond's damages. Therefore, the principal issue before us on this appeal is whether Metal-Matic's disclaimer of liability became part of the contract between these parties. 14 Relying on Uniform Commercial Code (U.C.C.) Sec. 2-207, Or.Rev.Stat. Sec. 72.2070 (1985), 3 Krack argues that Metal-Matic's disclaimer did not become part of the contract. Metal-Matic, on the other hand, argues that section 2-207 is inapplicable to this case because the parties discussed the disclaimer, and Krack assented to it. 15 Krack is correct in its assertion that section 2-207 applies to this case. One intended application of section 2-207 is to commercial transactions in which the parties exchange printed purchase order and acknowledgment forms. See U.C.C. Sec. 2-207 comment 1. 4 The drafters of the U.C.C. recognized that [b]ecause the [purchase order and acknowledgment] forms are oriented to the thinking of the respective drafting parties, the terms contained in them often do not correspond. Id. Section 2-207 is an attempt to provide rules of contract formation in such cases. In this case, Krack and Metal-Matic exchanged purchase order and acknowledgment forms that contained different or additional terms. This, then, is a typical section 2-207 situation. The fact that the parties discussed the terms of their contract after they exchanged their forms does not put this case outside section 2-207. See 3 R. Duesenburg & L. King, Sales and Bulk Transfers under the Uniform Commercial Code (Bender's U.C.C. Service) Sec. 3.05 (1986). Section 2-207 provides rules of contract formation in cases such as this one in which the parties exchange forms but do not agree on all the terms of their contract. 16 A brief summary of section 2-207 is necessary to an understanding of its application to this case. 5 Section 2-207 changes the common law's mirror-image rule for transactions that fall within article 2 of the U.C.C. At common law, an acceptance that varies the terms of the offer is a counteroffer and operates as a rejection of the original offer. See Idaho Power Co. v. Westinghouse Electric Corp., 596 F.2d 924, 926 (9th Cir.1979). If the offeror goes ahead with the contract after receiving the counteroffer, his performance is an acceptance of the terms of the counteroffer. See C. Itoh & Co. v. Jordan International Co., 552 F.2d 1228, 1236 (7th Cir.1977); J. White & R. Summers, Handbook of the Law Under the Uniform Commercial Code, Sec. 1-2 at 34 (2d ed. 1980). 17 Generally, section 2-207(1) converts a common law counteroffer into an acceptance even though it states additional or different terms. Idaho Power, 596 F.2d at 926; see U.C.C. Sec. 2-207(1). The only requirement under section 2-207(1) is that the responding form contain a definite and seasonable expression of acceptance. The terms of the responding form that correspond to the offer constitute the contract. Under section 2-207(2), the additional terms of the responding form become proposals for additions to the contract. Between merchants the additional terms become part of the contract unless the offer is specifically limited to its terms, the offeror objects to the additional terms, or the additional terms materially alter the terms of the offer. U.C.C. Sec. 2-207(2); see J. White & R. Summers, Sec. 1-2 at 32. 18 However, section 2-207(1) is subject to a proviso. If a definite and seasonable expression of acceptance expressly conditions acceptance on the offeror's assent to additional or different terms contained therein, the parties' differing forms do not result in a contract unless the offeror assents to the additional terms. See J. White & R. Summers, Sec. 1-2 at 32-33. If the offeror assents, the parties have a contract and the additional terms are a part of that contract. If, however, the offeror does not assent, but the parties proceed with the transaction as if they have a contract, their performance results in formation of a contract. U.C.C. Sec. 2-207(3). In that case, the terms of the contract are those on which the parties' forms agree plus any terms supplied by the U.C.C. Id.; see Boise Cascade Corp. v. Etsco, Ltd., 39 U.C.C.Rep.Serv. (Callaghan) 410, 414 (D.Or.1984); J. White & R. Summers, Sec. 1-2 at 34. 19 In this case, Metal-Matic expressly conditioned its acceptance on Krack's assent to the additional terms contained in Metal-Matic's acknowledgment form. That form tracks the language of the section 2-207(1) proviso, stating that Metal-Matic, Inc.'s acceptance ... is hereby expressly made conditional to purchaser's acceptance of the terms and provisions of the acknowledgment form. (emphasis added). See C. Itoh & Co., 552 F.2d at 1235. Therefore, we must determine whether Krack assented to Metal-Matic's limitation of liability term. 20 Metal-Matic argues that Krack did assent to the limitation of liability term. This argument is based on the discussions between Zver for Krack and Van Krevelen for Metal-Matic. Some time during the ten-year relationship between the companies, these two men discussed Krack's objections to the warranty and liability limitation terms in Metal-Matic's acknowledgment form. Krack attempted to persuade Metal-Matic to change its form, but Metal-Matic refused to do so. After the discussions, the companies continued to do business as in the past. Metal-Matic contends that Krack assented to the limitation of liability term when it continued to accept and pay for tubing after Metal-Matic insisted that the contract contain its terms. 21 To address Metal-Matic's argument, we must determine what constitutes assent to additional or different terms for purposes of section 2-207(1). The parties have not directed us to any cases that analyze this question and our research has revealed none. 6 We therefore look to the language and structure of section 2-207 and to the purposes behind that section to determine the correct standard. 22 One of the principles underlying section 2-207 is neutrality. If possible, the section should be interpreted so as to give neither party to a contract an advantage simply because it happened to send the first or in some cases the last form. See J. White & R. Summers, Sec. 1-2 at 26-27. Section 2-207 accomplishes this result in part by doing away with the common law's last shot rule. See 3 R. Duesenberg & L. King, Sec. 3.05[a][iii] at 3-73. At common law, the offeree/counterofferor gets all of its terms simply because it fired the last shot in the exchange of forms. Section 2-207(3) does away with this result by giving neither party the terms it attempted to impose unilaterally on the other. See id. at 3-71. Instead, all of the terms on which the parties' forms do not agree drop out, and the U.C.C. supplies the missing terms. 23 Generally, this result is fair because both parties are responsible for the ambiguity in their contract. The parties could have negotiated a contract and agreed on its terms, but for whatever reason, they failed to do so. Therefore, neither party should get its terms. See 3 R. Duesenberg & L. King, Sec. 3.05 at 3-88. However, as White and Summers point out, resort to section 2-207(3) will often work to the disadvantage of the seller because he will wish to undertake less responsibility for the quality of his goods than the Code imposes or else wish to limit his damages liability more narrowly than would the Code. J. White & R. Summers, Sec. 1-2 at 34. Nevertheless, White and Summers recommend that section 2-207(3) be applied in such cases. Id. We agree. Application of section 2-207(3) is more equitable than giving one party its terms simply because it sent the last form. Further, the terms imposed by the code are presumably equitable and consistent with public policy because they are statutorily imposed. See 3 R. Duesenberg & L. King, Sec. 3.05 at 3-88. 24 With these general principles in mind, we turn now to Metal-Matic's argument that Krack assented to the disclaimer when it continued to accept and pay for tubing once Metal-Matic indicated that it was willing to sell tubing only if its warranty and liability terms were part of the contract. Metal-Matic's argument is appealing. Sound policy supports permitting a seller to control the terms on which it will sell its products, especially in a case in which the seller has indicated both in writing and orally that those are the only terms on which it is willing to sell the product. Nevertheless, we reject Metal-Matic's argument because we find that these considerations are outweighed by the public policy reflected by Oregon's enactment of the U.C.C. 25 If we were to accept Metal-Matic's argument, we would reinstate to some extent the common law's last shot rule. To illustrate, assume that the parties in this case had sent the same forms but in the reverse order and that Krack's form contained terms stating that Metal-Matic is liable for all consequential damages and conditioning acceptance on Metal-Matic's assent to Krack's terms. Assume also that Metal-Matic objected to Krack's terms but Krack refused to change them and that the parties continued with their transaction anyway. If we applied Metal-Matic's argument in that case, we would find that Krack's term was part of the contract because Metal-Matic continued to ship tubing to Krack after Krack reaffirmed that it would purchase tubing only if Metal-Matic were fully liable for consequential damages. Thus, the result would turn on which party sent the last form, and would therefore be inconsistent with section 2-207's purpose of doing away with the last shot rule. 26 That result is avoided by requiring a specific and unequivocal expression of assent on the part of the offeror when the offeree conditions its acceptance on assent to additional or different terms. If the offeror does not give specific and unequivocal assent but the parties act as if they have a contract, the provisions of section 2-207(3) apply to fill in the terms of the contract. Application of section 2-207(3) is appropriate in that situation because by going ahead with the transaction without resolving their dispute, both parties are responsible for introducing ambiguity into the contract. Further, in a case such as this one, requiring the seller to assume more liability than it intends is not altogether inappropriate. The seller is most responsible for the ambiguity because it inserts a term in its form that requires assent to additional terms and then does not enforce that requirement. If the seller truely does not want to be bound unless the buyer assents to its terms, it can protect itself by not shipping until it obtains that assent. See C. Itoh & Co., 552 F.2d at 1238. 27 We hold that because Krack's conduct did not indicate unequivocally that Krack intended to assent to Metal-Matic's terms, that conduct did not amount to the assent contemplated by section 2-207(1). See 3 R. Duesenberg & L. King, Sec. 3.05[a][iii] at 3-74. 7