Forced to sign

contract on dotted
lines? -PART II

Battle of Forms under “The Uniform Commercial Code”

By
Karthik Kannappan S - Senior Corporate counsel
Madhusmita Borthkur – Researcher K.L.E. Society LAW
College, Bangalore

Copyright © 2009 The following material is provided for informational purposes only. Before taking any
action that could have legal or other important consequences speak with a qualified professional who can provide
guidance that considers your own unique circumstances. The author does not accept any responsibility or liability
whatsoever for loss damage or costs incurred or claimed in any manner as a consequence of any action or inaction
of any person or party based on this Report.
Background:

1. Standard form contracts1, (i.e., contracts with preprinted terms containing “boilerplate” language), have
been in common use in the United States since at least the late nineteenth century. There are various legal
implications when alternate terms and conditions are proposed by either party.
2. At common law, a contract was not enforceable unless there was a meeting of the minds on all terms. But
this “mirror image rule2” was abandoned by the Uniform Commercial Code3 (“UCC”), which allows parties
to form a valid contract even if their proposed terms are not identical. Under UCC § 2-207 and state
statutes modeled after it4, additional terms contained in an acceptance do not prevent contract formation.
However, the question that remains is which of these additional terms will become part of the enforceable
contract!

Issue #
Does UCC apply to Computer software service providers?
1
Issue #
Legal implication of varying terms or additional terms proposed by parties?
2
Issue # Which of the additional terms will become part of the enforceable contract? Key
3 strategy in drafting?

B. Additional term under § 2-207 (2):

a)Where no conflicting terms and additional terms are proposed, UCC Gap filler would not be
applicable and it would be analyzed if such additional terms alter the material terms of the contracts.
(Examples of material terms would be price, quantity, delivery date and payment terms).
b)As long at the additional terms do not alter the material terms they would not be struck out and they
may positively be retained to form part of the contract.
c)NOTE: Typically most of the PO Standard Terms and conditions DO NOT have limitation of liability.
They same should be proposed as additional terms while accepting to other terms and conditions.
Courts decided that additional terms on Limitation of liability proposed by seller do not amount to
alteration of material terms5.

C. Key Strategy in light of Courts interpretation of critical clauses:

1. No material Alteration: Include additional terms with reference to terms that do not alter the material
terms.
2. Material Alteration: Avoid additional terms that materially alter the contract if its incorporation without
express awareness would result in surprise or hardship.
3. Include liability cap: Include limitation of liability clause as additional terms.
4. Indemnification: For indemnification clause specifically state as, “notwithstanding anything Contractor
shall indemnify only for third party claim for Intellectual property misappropriation claim.” This way any
conflicting clause would be struck out while the above mentioned limitation of liability would still protect
the exposure of liability.
5. To ensure that desired terms become part of the contract and do not “fall out” as a conflicting term, sellers
may include a provision in a responsive form or acknowledgment that explicitly states that formation of a
contract between the parties is expressly conditional on the buyer’s agreement with the terms in the
seller’s form. This type of conditional acceptance must be an explicit statement on the part of the seller.

1
Typically Standard forms are a strategy to help businesses become more efficiently by eliminating the need for
extensive negotiations between the parties. This puts the Service providers at the disadvantage.
2
Under mirror rule an acceptance had to be a “mirror image” of the offer in order for a contract to be formed.
Thus, if differing terms were contained in the seller’s acknowledgement, no contract was formed. The party that
fired the “last shot” was favored because that party’s terms were viewed as assented to and binding.
3
Presently Commercial Code (UCC) is the dominant source of American commercial law and is applicable to the
contracts. All 50 States have enacted all or most of the UCC.
4
See, e.g., N.J. Stat. Ann. § 12A:2-207; NY CLS UCC § 2-207.
5
In Zenith Electronics Corp. v. WH-TV Broadcasting Corp., 2003 WL 1627458 (N.D. Ill. 2003) court stated that
Limitation of liability provision contained in sales order acknowledgment was not a material alteration to parties’
contract. Therefore, since buyer did not object to the term, such term was added to the contract, and buyer’s
ability to recover lost profits was limited.
 Exhibit 1 – Legal implication when Conflicting terms exist

Was Acceptance of
different terms (that
conflict opposed by
Supplier made

NO
YES

Conflicting terms will be No Contract unless agreed

“knocked out” in case there upon by Buyer
is a dispute between parties
as per UCC§ 2-207 (3)

Contract formed with non-

conflicting terms. The surviving
additional terms if any shall have
to pass materiality clause test.

No contract has been formed NO Did the parties

between the parties. continue to
conduct

YES

Contract has been formed

between the parties by actual
performance and “UCC gap
fillers” would be applied by
Court as per UCC§ 2-207 (3)
Exhibit 2 – Legal implication when Additional terms exist
 with

Was Acceptance Of
Additional Proposed
By Supplier Made
Conditional On
Assent From Buyer?
YES
NO

No contract unless agreed

upon by Buyer
Did the Offer
(with Add.
Terms)
Expressly Limit

N YE

Does Additional
YE
Terms Contract without
Materially Alter Additional Terms
The

N YE

Did The Parties

Did the Buyer Continue To
give Notification Conduct
of objection to Business?
the Seller?
N

YE

Contract with Additional Terms No Contracts Contracts with UCC

Formed “gap fillers” as per
Between The UCC§ 2-207 (3)
Parties.