Qualified Acceptance: The “Battle of Forms”

Princess v. General Electric

Citation

GE is the defendant. They filed for motion to rule as a matter of law that the contract should be held under common law rules, not UCC. The trial court denied the motion and GE appealed.

Question

Is this agreement of the admiralty law be interpreted by common law or the UCC?

Rule

When a contract is formed predominantly of goods, it falls under the UCC. When the agreement is primarily formed of services, they fall under common law.

Holding

This contract falls under common law. Reversed and remanded.

Facts

General Electric (GE) had manufactured the boat owned and operated by Princess. The boat needed an inspection and repairs so they hired GE to provide the services, tools, and parts necessary for any repairs. To do so, they sent GE an order form which GE changed and added to in a quotation titled “Engineering Services”. Princess accepted the price of the quotation by paying the price listed there meeting the other terms.

However, during the inspection, GE noticed an issue with the rotor, made some repairs (and damaged it with their repairs) which caused Princess to cancel a 10 day Christmas cruise. They filed suit for breach of contract.

The trial court said that this agreement was predominately of goods and so it fell under the UCC. Although GE filed several motions to change this judgement as a matter of law, they were unsuccessful. A jury was provided with UCC based instructions and awarded damages of ~4,000,000. Had the jury been given the common law instructions, they could only award damages up to ~230,000.

Analysis

The circuit court disagreed. They examined three principles to determine whether these were primarily goods or services. First, they look at the language of the contract. Second, they look at the nature of the business of the supplier. Finally they examine the intrinsic worth of the materials.

Here, the court applied each principle each in turn. First, the language of the contract has “service” written all over it, quite literally. Second, The nature of the supplier was to provide inspection, parts were more of a necessity for any repairs coming from the inspection. Finally, the worth of the materials was not separated from the goods and services so the court weighs more on the first and second factor. Therefore, this is a contract predominantly of services and falls under common law.

Takeaway

We look at the language of the contract, the nature of the supplier, and the worth of materials to determine the predominant purpose of the contract.

Additional Notes

We are looking at how companies interact when they form contracts through their own forms.

Plaintiff send Defendant a Purchase Order for 260,000 that includes a warranty limitation and no damages limit.

Defendant responded with a quotation for 230,000 that includes a warranty limitation but has a damages limit up the amount on the quotation, and disclaimed liability for lost profits and consequential consequences.

So, the court is really trying to decide whether they should use the Purchase Order or the Quotation.

Here, the UCC does not apply. Therefore, we use the common law. Under the common law, the defendants quotation was a counteroffer accepted by Princess by paying the 230,000 in the quotation.

This is a battle of forms because we are battling between the Purchase Order and the Quotation from the different companies. Thus, we are trying to see which prevails.

Brown Machine, Inc. v. Hercules, Inc.

770 S.W.2d 416 (1989) Missouri

Brown Machine is the plaintiff. Sued for defamation. Won. Hercules appeals.

Question

Whether the parties agreed to an indemnification provision in their contract. In other words, which contract prevails?

Since the courts determined that the Hercules PO was the offer, was Brown’s acknowledgment containing the indemnity provision a counter offer or an acceptance with additional terms?

Rule

For the first question:

  1. A quotation is not an offer but rather an invitation to enter into negotiations or to induce offers from others.

Rule for second question

  1. If a reply to an offer contains conditions, it is a counteroffer.
  2. If it is not a counteroffer, then additional terms become a part of the original contract unless:
    1. the offer expressly limits acceptance to the terms of the offer.

Holding

The purchase order from Hercules is an offer. The acknowledgement from Brown is not a counteroffer but the additional terms do not apply. Thus, the trial court’s ruling is reversed.

Facts

Hercules wanted a piece of machinery and reached out to Brown for a quote. Brown provided a quote with several terms including an indemnity provision. Instead of accepting the quote, Hercules sent a purchase order that contained different terms requiring acknowledgement from Brown. Significantly, this purchase order expressly stated that the terms in the purchase agreement were final. Instead of sending a return acknowledgement of Hercules form, Brown sent their own acknowledgment with the original terms stated.

Later, one of Hercules workers was hurt with the machinery, and sued Brown. Brown then sued Hercules because they did not follow the indemnity clause.

Analysis

The court fist determined that the quotation sent by Brown was not an offer but an invitation to begin negotiations. Therefore, the purchase agreement from Hercules is the offer. Consequently, acceptance of that purchase agreement means that a contract would have been formed unless Brown sent a counteroffer. Here, the courts say that Brown did not send a counteroffer because there were no other conditions that required Hercules to agree to.

Then the court looks to see whether the terms in the acknowledgment from Brown can be included in the agreement. Although typically, acknowledgement with other terms can be included in the agreement, there are some exceptions. One exception is that the offer expressly limits acceptance to the terms of the offer. Here, the offer did expressly limit acceptance to the terms so the indemnity clause was not a part of the agreed upon contract.

Takeaway

Be clear in all your decision making. If you want certain things, make sure the other party knows that there is a counteroffer or that certain terms are to be included.

Additional Notes

§2-207 of the UCC is designed to handle the conflict of battles of the forms.

When a party is not a merchant, a form with additional terms is seen as a counteroffer. If one or more of the parties are merchant, the terms become a part of the contract unless the contract meets one of the exceptions.

An indemnification agreement allows for those injured by a machine to collect against those who purchased the machine. So, if Hercules employee was injured and collected against Brown, then Brown can go ahead and collect from Hercules.

Paul Gottlieb & Co., Inc. v. Alps South Corp.

985 So. 2d 1 (2007) Florida

Alps are the plaintiffs and won. Gottlieb appeals.

I’m running out of time before class so this brief will be brief and will be updated further.

Question

Whether the limited liability clause materially altered the contract and whether the trial court erred by refusing to enforce the clause.

Rule

Additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:…

(b) They materially alter it

One can show that a clause materially altered a contract if there is surprise or hardship on the party who did not assent to the clause.

Holding

There was no surprise or hardship from the clause therefore circumstantial damages are to be excluded. Reversed and Remanded for a new trial to determine actual damages from the breach.

Facts

Plaintiff deals with prosthetic arms and contracted defendant to produce a fabric that would be comfortable to the wearer. They had an agreement but defendant began to run out of material, so they substituted the contracted yarn for a similar substitute. The substitute caused lots of complaints and so the plaintiff failed to pay a bill. Defendant sued for damages of not paying the bill and plaintiff countersued for breach of warranty.

Trial court found consequential damages on behalf of plaintiff. Defendant appealed because there was a clause that limited liability from consequential damages. Plaintiff was not aware of the clause and the defendant was not aware of the result of breach.

Analysis

The court then looks to see whether or not the clause could be admitted. Here, they say that it can. The clause did not materially alter the contract because it was not a surprise and the plaintiff showed no actual harm from the clause being there.

A surprise can occur even if the plaintiff did not read the contract in its entirety.

Since the liability clause is included, consequential damages cannot be gathered but the company can still collect direct and incidental damages.

Additional Notes

There are times when one thing can be considered material while other things are not for the same product (i.e. type of fabric for curtains does not matter as much as type of fabric used in prosthetics).

A material alteration means:

  1. Unreasonable surprise
  2. Hardship

The issue here is surprise. The clause was there and even though it wasn’t read, it is still applicable. Alps could have avoided the issue by including a clause during negotiations that says “you can’t change the material below this [certain] standard.”

Disclaimer

The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.

Categories: 1L Fall, Contracts I

Will Laursen

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