Presenting a live 90-minute webinar with interactive Q&A UCC Battle of the Forms: Confronting Conflicting Terms in Purchase Orders, Invoices and Related Documents Minimizing Disputes Over Contract Formation, Enforceability, Terms and Conditions in Commercial Sale of Goods Transactions WEDNESDAY, JANUARY 4, 2017 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Darrell W. Pierce, Member, Dykema Gossett , Ann Arbor, Mich. Jeffrey G. Raphelson, Member, Bodman , Detroit The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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The Battle of the Forms Managing the Contracting Process Darrell W. Pierce Jeffrey G. Raphelson Dykema Gossett PLLC Bodman PLC 734-214-7634 313-393-7559 dpierce@dykema.com jraphelson@bodmanlaw.com
Applicable Law for Sales of Goods • UCC Article 2 governs sales of goods, supplemented by: – United Nations Convention on International Sale of Goods (CISG) – can be disclaimed by agreement – Incoterms (Int’l Chamber of Commerce Terms – generally governing shipping and delivery) – Common law – principles of equity • Primary purpose test: software and medical devices 6
Basic Advice: What’s at Stake • Basic Article 2 advice: – There is simply no substitute for reading the documents. • Goal = “our” terms, or fight Battle of Forms to a draw • Key Misconceptions – First communication controls – Being the [offeror/acceptor] is best – It’s just boilerplate 7
Contract Formation • Classic Offer and Acceptance – Which communication is the offer? What is mere discussions? – Counteroffers – Conditional Acceptances • Common law “mirror image” and resulting problems once performance is commenced • Article 2 allows “mirror image” contracting, but rejects it as a requirement (more below), and takes other aspects of the parties relationship into account 8
Contract Formation: Minimum Requirements • To be enforceable, agreements must: – Be verifiable • Usually a writing is required (Statute of Frauds) – Provide for consideration from each party to the other • Although a promise for a promise is adequate, and • Fairness is generally not an issue – Identify and quantify the subject goods 9
UCC Statute of Frauds • 2-201(1) requires: signed writing with quantity for sales over $1,000 • But- – 2-201(2): timely written confirmations between merchants and no objection within 10 days – 2-201(3)(a): substantial reliance by seller of specially manufactured goods not suitable for sale to others – 2-204 & 2-207(3): conduct recognizing existence of a contract – 2-201(3)(c): accepted payment or goods • Casual “done deals” are not “as is” 10
Consideration: Adequacy and Firm Offer Exception • Adequacy of consideration is generally irrelevant – Except fraudulent transfers under the Bankruptcy Code or UFTA (UFCA) • Exception: Firm Offers Signed by a Merchant UCC 2-205 – Irrevocable as stated or reasonable time not > 3 months – Useful in bidding – Merchant: deals in relevant kind of goods or otherwise has held itself out as having knowledge or skill 11
Quantity: Output and Requirements Contracts • Output and requirements contracts, that lack fixed quantities, are acceptable – As long as not “unreasonably disproportionate” to any estimate provided or to past activity: UCC 2-306 – In addition, if the contract is exclusive, on either side, best efforts of seller to produce or best efforts of buyer to promote sales are required UCC 2-306 12
Contracts in Context: Course of Performance or Course Dealing • Course of Performance: any course of performance accepted without objection is relevant to interpret an agreement • Course of Dealing: previous conduct between the parties which is fairly regarded as establishing a common basis of understanding for interpreting their expressions and other conduct UCC 2-208 13
Contracts in Context: Usage Trade • Usage of Trade: any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question • These concepts can: – Add express terms – Interpret terms without regard to parole evidence rule – Supersede or vary effect of UCC implied provisions – Supplement definitions of contract terms • Precedence: Express terms, the CoP, then CoD, then UoT UCC 2-208 14
Contract Formation – Even When Additional Terms are Proposed • 2-206(1)(a): Acceptance is invited in any reasonable manner or medium, unless unambiguously indicated otherwise • 2-207(1): An acceptance works even if additional or different terms are proposed, unless it is expressly made conditional on assent to such new terms • 2-207(2): New terms survive unless offer expressly limits acceptance to terms of offer, they are material or notice of objection has been or is given 15
UCC Favors Contracts - and Will Provide One, Even When Key Terms Are Disputed: UCC 2-207(3) • Conduct creates contract even when writings do not – Accepted goods or payment will establish a contract of some sort – The terms are those on which the parties’ writings agree, modified by CoP, CoD and UoT, plus terms provided by the UCC – Implied terms even include price UCC 2-305 16
Electronic Contracting • The good news and the bad news…electronic contracting works – UETA and E-Sign – UCC 1- 201(b)(37) and (43): “Signed” includes using any symbol executed or adopted with present intention to adopt or accept a writing. “Writing” includes printing, typewriting, or any other intentional reduction to tangible form. • Embrace email – It’s fast and cheap and makes actual agreement easy – But it’s also a two -edged sword 17
Typical Contract Scenario 18
The Battle of the Forms UCC 2-207 • Acceptance can occur even if different terms are proposed, unless acceptance is expressly made conditional on assent to the new terms • New terms are treated as proposals, that become part of a contract between merchants unless: – Offer limits acceptance to the terms of the offer – The new terms materially alter the offer, or – The offeror has objects within a reasonable time 19
Case Law – What Proposed Changes are Material? • When is an additional or changed term proposed by an offeree merchant so material that it does not become part of a contract between merchants (assuming the offer did not expressly limit acceptance to its terms)? – Arbitration clause? No, when arbitration was a common trade practice – Forum selection clause? Yes – Remedy limited to return of price? No (somewhat surprising as that is a specific example of an allowed limitation on remedies in UCC 2-719) 20
Battle of the Forms – Fully Engaged • Obviously, “my way or the highway” language is important so everyone will be advised to include it. Given that, parties often end up with a contract, but with no agreement (indeed conflict) on various terms. – Note the effect of offer and acceptance analysis in determining where the parties agree – outcomes still depend in part on the court’s determination of who made the offer • UCC 2-207(3): Contract will be on written agreed terms, plus Article 2 terms. “Knockout” Rule eliminates disputed terms 21
Importance of Offer • UCC does not define “offer” – Willingness to enter contract – Inviting acceptance of terms • Courts look beyond language used 22
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