Contracts Quick Tip: Counteroffer and Battle of the Forms
Negotiating parties typically engage in a lot of back-and-forth before forming an enforceable contract. To correctly analyze a contracts fact pattern, you must be able to identify which communications operate as an acceptance and form a binding contract.
Identifying the Governing Law
The Common Law’s Mirror-Image Rule
When evaluating whether a response adds terms not contained in an offer, be sure to consider the offer’s express and implied terms. If the response merely adds terms that were already impliedly part of the offer, the response is an acceptance, not a rejection and counteroffer.
To spot a response that’s conditional on the initial offeror’s assent to the additional or different terms, watch out for words like “but only if” in the fact pattern. For example, “I accept your offer, but only if you will agree to a price of $100 instead of $50.”
The above framework will help identify whether a binding contract has formed. But what exactly did the parties in a contract for the sale of goods agree to if the offer and the acceptance don’t match? The answer depends first on whether all the contracting parties are merchants. A merchant is someone who deals in the goods of the kind being bought or sold or who by occupation holds himself out as having knowledge or skill particular to the type of goods or type of transaction involved.
At Least One Party Is Not a Merchant
All Contracting Parties Are Merchants
Additional terms are not addressed in the offer at all. The offer is silent on additional terms, and the acceptance adds them. For example, if the offer says nothing about a delivery date but the acceptance contains a delivery date of March 15, the delivery date is an additional term.
If all contracting parties are merchants, the default rule for additional terms flips—additional terms automatically become part of the contract unless one of three exceptions applies. First, additional terms won’t become part of the contract if the offer expressly limits acceptance of the terms of the offer. Second, additional terms won’t become part of the contract if they materially alter the contract. Third, additional terms won’t become part of the contract if the offeror objects within a reasonable time.
Different terms are addressed in both the offer and the acceptance. For example, if the offer specified a delivery date of March 1 but the acceptance states a delivery date of March 15, the delivery date is a different term. Under the knockout rule, any different terms in the offer and acceptance are knocked out of, or removed from, the resulting contract. Any gaps in the contract left by knocking out different terms are filled by implication. The knocked-out terms can be implied by fact, with evidence of trade usage in the industry, or by the parties’ course of dealing in prior transactions. Alternatively, they can be implied by law with the UCC’s gap-filler terms.
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