Contracts for the Sale of Goods

December 15, 2014

A contract has three elements: an offer (containing all material terms), acceptance, and consideration. Material terms of a sales contract include: identification of the Buyer and Seller; time for performance; price; and quantity.

U.S. Common Law

Under the court-made common-law, the terms of an acceptance must mirror those of the offer in order to form an enforceable contract. For example: Buyer submits a purchase order for 100 widgets at $3/widget delivered to a named location on a specified date. Seller issues a written confirmation of acceptance. This is an enforceable agreement.

An acceptance with different or additional terms is not effective as an acceptance; rather, it is deemed a rejection and a new offer – a counteroffer.1 Frequently, the parties trade counteroffers with the terms of the last document prior to performance controlling.

For example: Seller submits a proposal to Buyer to supply 100 widgets at $3/widget delivered to a named location on a specified date with 10% due on acceptance. Seller submits a purchase order for 100 widgets “of the highest quality” with other terms per the proposal. This is not an enforceable contract; it is a counteroffer.

Buyer issues a written confirmation that it will supply 100 widgets “of ordinary quality” at $3/widget delivered to a named location on a specified date. This is a counteroffer.

Buyer pays 10%. This payment is deemed acceptance of the last counteroffer. An exchange of counteroffers with the last document controlling the terms of the agreement is referred to as the “last shot doctrine.”

The Uniform Commercial Code

Article 2 of the Uniform Commercial Code (“Sales”) has been adopted, with some local variation, in all 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands; and, when adopted, it codifies the rules of commercial sales transactions. (In Wisconsin, Article 2 is at Ch. 402, Wis. Stats.)

Under the UCC (402.206), “An offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances.” “Acceptance” under 204.207 is a little more complicated. Subsection (1) abolished the mirror-image rule. An acceptance is effective even if it includes additional or different terms, although the acceptance is not a mirror-image of the offer, unless:

  • Acceptance is expressly conditioned on assent to the additional or different terms; or
  • The new or different terms materially alter the offer; or,
  • The other party timely objects to the new or different terms.

The UCC approach is called the “first-shot” rule and generally is pro-Buyer because the first document is often a purchase order, and the contract is formed by the Seller’s acknowledgment.

This is the first of five sections of a comprehensive article regarding contract law. Section 2 will discuss “gap-fillers,” or how the courts provide default terms when the parties’ documents conflict. Section 3 will demonstrate how these theoretical provisions can be difficult to apply to real facts by discussing the different interpretations offered by the trial court, Court of Appeals, and Wisconsin Supreme Court in the same case. Section 4 will summarize provisions in the United Nations Convention on Contracts for the International Sale of Goods (CISG) that are analogous to UCC Article 2. Section 5 will discuss cases interpreting the CISG provisions.

We will see the UCC is not always the best option for international sales contracts and that the CISG should not always be avoided. The article concludes with considerations that will make it more likely the contract terms that are enforced are terms agreed to by the parties, rather than default terms cobbled together by the court.

Restatement (Second) of Contracts § 59 (1979)

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