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Richardson v. Union Carbide Industrial Gases, Inc.

347 N.J. Super. 524, 790 A.2d 962 (App. Div. 2002)

UCC; INTERPRETATION— For the sale of goods, where a supplier’s proposal and a customer’s purchase order have conflicting terms, those conflicting terms fall out and are replaced by the suitable UCC gap-filler provisions.

This appears to be the first reported appellate ruling in New Jersey interpreting UCC Section 2-207(3), the “battle of the forms” provision of the Uniform Commercial Code. As is typical in these cases, a proposal was issued by a supplier and it was made expressly subject to attached terms and conditions which were to be applied “in lieu of any conflicting terms proposed by purchaser.” The order form was also subject to its own terms and conditions, which rejected any provisions of a quote that were different from or in addition to those conditions listed on the purchase order. In this case, the critical provision was that the seller’s quotation required that the buyer indemnify the seller and the buyer’s order form required that the seller indemnify the buyer. In the “battle of the forms” provision of the UCC (Section 2-207), there are three subsections. Subsection (1) says that an acceptance of an offer is binding “even though its 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.” As applied to this situation, it would appear that if the buyer’s order was intended to be an acceptance, then it may not have acted as an acceptance because the order was “expressly made conditional on assent to the additional or different terms.” If it was construed to be a counteroffer, then the seller’s performance (which actually took place) would have acted as an acceptance of the buyer’s counteroffer (which was reflected in the form of the buyer’s purchase order).

Subsection (2) of UCC 2-207 deals with “additional terms,” not “different terms.” Essentially, “additional terms are to be construed as proposals for addition to the contract.” Where a transaction is between merchants, “additional terms” become part of the contract unless: “(a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.” There are two views of a subsection (2)‘s use of only the words “additional terms.” One is that the phrase was meant to expressly exclude “different terms” from the subsection, the other that “different” equates to “additional.”

Disputes under UCC Section 2-207 have generated three recognized approaches by courts throughout the country. “The majority view is that the conflicting terms fall out and, if necessary, are replaced by suitable UCC gap-filler provisions.” On the other hand, “[t]he minority view is that the offeror’s terms control because the offeree’s different terms cannot be saved by [UCC Section 2-207(2)], because that section applies only to additional terms.” The third and least adopted rule is that “different” and “additional” mean essentially the same thing, “so that the terms of the offer prevail over the different terms in the acceptance only if the latter are materially different.”

The Appellate Division concluded that the majority rule, known as the “knock-out” rule, “is preferable and should be adopted in New Jersey. [It reached] this conclusion because the other approaches are inequitable and unjust and run counter to the policy behind [Section 2-207], which addresses a concern that existed at common law.” Under common law, there was a “mirror-image” rule, which meant that if there was no agreement on all of the terms of the contract, there was no contract. Article 2 of the UCC “jettisoned” this rule “by recognizing the existence of a contract even though certain terms [were] in conflict or [were] unresolved.”

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