Peter's Plastic Pencil Co. buys a special kind of plastic in sheets, then cuts the plastic into wedges and glues the wedges around thin graphite cylinders. Recently, Peter's business has been booming and its demand for plastic rising. Also, it has been dissatisfied with its plastics supplier. One day while Peter is leafing through a plastics trade journal, he spots an ad for Polly's Plastics Corp. He calls Polly's and requests a catalog, which on review shows that Polly's quality and prices are slightly better than those of Peter's current supplier. Polly appears to have the capacity to supply Peter's needs even if Peter's current rate of growth continues.
Peter sends Polly a purchase order for six thousand 4'x 8' sheets of P8631H plastic, which has a nice purple color. Peter's form had no date for shipment. Peter's purchase order states on the back, in fine print:
Interest on overdue payment for any shipment made pursuant to this purchase order shall not exceed nine percent (9%).
Polly shipped the plastic the day she received Peter's purchase order. To the plastic, Polly attached an invoice, which stated on the front, in addition to identifying the item ordered and stating a quantity, a shipment date (February 2). Polly's invoice also stated:
SEE REVERSE SIDE. The provisions of this form, including on the reverse hereof, are binding on any person accepting the goods shipped hereunder, and this form shall not constitute an acceptance of any purchase order or any other offer unless the purchaser expressly assents to any terms contained herein which are different or additional to terms contained in such order or offer.
The back of the form, in fine print, stated among other provisions:
Payment is due for shipment within thirty (30) days after the shipment date noted on the front side of this form. Interest on overdue payments shall accrue from the due date thereof at eighteen percent (18%), or, if such rate exceeds the rate allowed by law, then at the maximum allowed by law.
Neither Peter nor Polly read the other's form. The shipment arrived on February 10. Peter had never paid a bill prior to 90 days after shipment. Ninety days is industry custom. In fact, Peter's cash flow was so restricted because of his rapid expansion that he could not have paid within 30 days, or even 60 days. Polly sent an overdue notice on March 12th, and another on April 12th. Peter sent Polly a check on April 18th, but Polly returned it and demanded another $250 in interest for the two months that the bill was overdue.
You are Peter's lawyer. He calls you, presents the foregoing scenario, and asks whether Polly has a legal right to that much interest. He of course wants you to answer immediately, as only $175 is at stake and the phone call has already cost him $10. Assume your court has no decisions construing UCC § 2-207. What do you say to him? Explain your reasoning completely.
Not everything in this sample analysis would earn points on an exam. The sample was written for classroom discussion purposes, so that the class could talk about what would get points and what not. But the form and organization of the discussion is good, and the student is asking the right questions and citing the law correctly. The analysis is pretty good, too, although of course some things could be said better, and I'm sure you could think of more facts to bring to bear on the questions. -VR
First tell Peter that this call will cost him some more.
Issue 1: Did a contract form under 2-207(1)?
Issue: Did definite and seasoanable expression of assent occur? Dickered or essential terms same, not radically different is the rule. IN this case, Peter's form asked for 6,000 sheets of a certain size of P8631H. There was no shipment date. Polly's form had the same item and stated "a quantity," we are told, but not which quantity. Polly's form also had a shipment date. Are the essential terms the same? Yes, if the quantity was the same. Will want to ask Peter. Quantity is definitely an essential term under the code and for these parties. Probably shipment date was not, because if it was Peter would have put it in. At any rate, Polly shipped immediately, so there is not likely any dispute over shipping date.
Issue: Was the acceptance expressly conditional? Maybe. Some courts say that if the language in the form tracks the language in the statute, then the form is expressly conditional. This form more or less expressly condition its being an acceptance on the buyer's expressing assent to additional or different terms. The language is not identical to the statute, but seems to have the same import. Even so, Polly shipped. It does not appear that Peter did anything to assent than take the goods and use them. He also tendered a payment. These probably are not enough to show assent under the rule in one of the cases we learned that assent in this context must be unequivocal. Is that unequivocal? Probably not. Moreover, to allow taking the goods and tendering payment to be assent would be to allow the seller to veto the buyer's form (or vice versa) and put in place the last shot rule again, the very thing 2-207 was intended to overrule.
Some courts instead look to the commercian undersntaind of the parties, under all the cirucmstances, to see whether the acceptance really was condition on the other's assent. In this case, it doesn't look like it, because Polly attached her form to the invoice. She was going to ship whether Peter assented or not. Nor did Polly ever say anything about tyhe form to try to get Peter to assent or makre sure that he had. It seems that Polly was not really thinking her acceptance was conditional on Peter assenting to her form. Perhaps industry custom would help us here-could ask Peter. We have no past dealing.
Since acceptance occured and was not conditional, an agreement formed on the parties' writing. Had it not, we would go to 2-207(3). Assuming it didn't, I have included an analysis of 2-207(3) below.
Issue 2: What were the terms of the agreement with respect to time for payment? Peter's form didn't have a time for payment, but time for payment is 90 days after shipment in the industry. Polly's form said 30 days. Is this a conflict or an additional term? I don't know. I think some courts have held that this is a conflict, but some might say it's additional, because it really is not in Peter's form. Let's analyse additional first. If this is additional, then it is merely a proposal for the contract uniless the contracts is between merchants and ... [the rest of 2-207(2)]. Now, are they merchants? Yes, Peter of pencils and Polly of plastic. So Polly's term is added to the contract unless one of the three conditions applies.
Does (a) apply? No evidence here of the offer expressly limiting acceptance to its terms.
Does (b) apply? A term materially alters if it results in surprise or hardship? Comments 4 and 5 give examples. Perhaps it does here. First, it changes indsutry custom, a custom that Peter was apparently relying on to finance his business. That would be both surprise and hardship. It is true that comment 5 lists "a clause providing for interest on overdue invoices or sfixing the seller's standard credit terms," but only if these are "within the range of trade practice and do not limit any credit bargained for." That language does not fit this case, in which the term is not within the range of trade practice. Moreover, one can usually assume that if a form does not specify a trade custom then it is assuming it will hold. Peter's form appears to assume just that.
Does (c) apply? No notification has been given to the term. Has a reasonable time passed now so that Peter can no longer give one? Probably, because we are now more than 2.5 months since the shipment arrived. If Peter was going to complain about it, you might think he would on March 12th. Perhaps he has. Ask Peter.
Suppose we treat the terms as different, since Polly's form conflicts with industry custom. If we do, then we have a dilemma. 2-207 does not address different terms when a contract forms on paper. Courts have taken three approaches: omit, section (2), and knock-out. Omit says that 2-207 does not address the issue. Therefore, the different terms do not become part of the contract. This response at least makes the offeror the master of its offer. This would hold for Peter. Section (2) says we treat the different term as additional. If we do, then we have the exact analysis just completed for additional terms. This method also makes the offeror master of its offer. Moreover, it is supported by comment 3. However, both of these responses more or less enshrine the first form as the parties' deal. They transform the last shot rule into the first shot rule, and there is no indication that 2-207 meant to do that.
The last approach, the knock-out rule, takes both conflicting terms out of the picture and leaves only the code-provided provisions. What does the code provide? We might look at 2-309 and 2-310. 309 says that in the absence of time provision time shall be reasonable. A reasonable time here may well be industry custom of 90 days. There is no other evidence showing what a reasonable time might be, though I might ask Peter. 2-310 seems to say payment is due at time of shipment unless otherewise agreed. Perhaps in this case they have otherwise agreed, because neither required that paymennt would be due then. That would put us back to 309 and a reasonableness standard. So the 90 days would control. Moreover, this approach probably has won in a majority of courts and is perhaps the best reasoned. Courts have said that it is fair, consistent with good faith, and brings uniformity to states because it is the majority rule. These reasons make it more likely that our state courts will adopt it.
The next questions is what interest rate applies. Here there is a direct conflict of terms and the analysis of conflicting terms applies here as well, by reference to the above anaslysis. Under the omit and section (2) approaches, the buyer's form wins in this case because it is the first shot, at least so long as, under the section (2) analysis the interest term causes hardship or surprise. It's a closer question than the time for payment because Peter obviously expected some interest but just not this much. What is industry custom here? Ask Peter. Did Peter depend on the lower rate? How much of an increased payment is this? Perhaps under the section (2) analysis this is not material. Probably it is too late to object to it, under (2)(c), just as it was too late to object to the time for payment term, and for the same reasons. If we follow the knock-out rule, then we are probably without a late interest payment term.
Issue: What happens if no contract forms on paper? If no contract forms on paper, then we go to 2-207(3). In that case, the terms of the parties which conflict are gone and the supplentary provisions of the UCC apply, so for the interest term we have nothing. For the time for pyament term we have the same analysis as if the terms are considered different, not additional, and the knock-out rule would apply. Perhaps that could be implied under 2-309 again if not in its own right. Moreover, time for performance might be filled in under general law via 1-103.
Suggest Peter send a letter to Polly explaining Peter's form with a full payment check for half the interest, because it is not clear what a court would do. That would be enforceable because a bona fide dispute exists; that would be consideration. I would want to check with 3-311 to make sure the elements of that statute were met.