Diamond Fruit Growers, Inc. v. Krack Corp.

Brief Fact Summary.

A supplier of tubing and a company that manufactured cooling units had a long-term relationship.  The parties constantly sent documents back and forth to one another documenting their transactions.  A second company bought a cooling unit from the manufacturer and the pipes supplied by the tubing supplier were faulty, causing the unit to leak ammonia.

Synopsis of Rule of Law.

To satisfy the assent requirement in §2-207 of the Uniform Commercial Code (the "UCC") there must be a "specific and unequivocal expression of assent."

Facts.

The Defendant, Krack Corp. (the "Defendant"), is a manufacturer of cooling units.  Metal-Matic supplies steel tubing to the Defendant for the cooling units.  The Defendant and Metal-Matic have followed the same course of dealing for several years.  The Defendant sends a blank purchase order to Metal-Matic stating how much tubing they would need each year.  Throughout the year when tubing was needed, the Defendant would release purchase orders.  Metal-Matic would respond by sending an acknowledgement form and then shipping the tubing.  Metal-Matic's acknowledgement form "disclaimed all liability for consequential damages and limited Metal-Matic's liability for defects in the tubing to refund of the purchase price or replacement or repair of the tubing."  This term was not in the Defendant's purchase order.  Metal-Matic's acknowledgement form also included the following statement "Metal-Matic, Inc.'s acceptance of purchaser's offer or its offer to purchaser is hereby expressly made conditional to purchaser's acceptance of the terms and provisions of the acknowledgment form." An employee of the Defendant corporation once confronted an employee of Metal-Matik about the terms of the acknowledgement form in an attempt to get them amended.  However, Metal-Matic's employee refused and the parties continued doing business.  In February 1981, the Defendant sold one of its cooling units to the Plaintiff, Diamond Fruit Growers, Inc. (the "Plaintiff").  The unit began leaking ammonia in January 1982.  The Plaintiff brought suit against the Defendant to recover the value of the fruit lost due to the leak.  The Defendant brought a third party complaint against Metal-Matic.  The jury found that the Defendant was liable to the Plaintiff, but that Metal-Matic was liable to the Defendant in contribution for 30% of its liability.  Metal-Matic appealed.

Issue.

Is the disclaimer in Metal-Matic's acknowledgement form part of the contract with the Defendant?

Held.

No.  The court recognizes that §2-207 of the UCC governs this situation.  Section 2-207 of the UCC applies in situations like here where "parties exchange printed purchase orders and acknowledgement forms" that include different or additional terms.  Section 2-207 turns the common law mirror-image rule on its head.  The usual effect of §2-207 is to "convert[ ] a common law counteroffer into an acceptance even though it states additional or different terms."  The responding form, however, must contain "a definite and seasonable expression of acceptance".  Those terms in the responding form that are the same as in the offer are what comprise the contract.  Pursuant to §2-207(2), additional terms in the responding form "become proposals for additions to the contract."  If two merchants are involved, the additional terms become part of the contract "unless the offer is specifically limited to its terms, the offeror objects to the additional terms, or the additional terms materially alter the terms of the offer."  However, a proviso exists under §2-207(1), "[i]f a definite and seasonable expression of acceptance expressly conditions acceptance on the offeror's assent to additional or different terms contained therein, the parties' differing forms do not result in a contract unless the offeror assents to the additional terms."  If the offeror assents, then those additional terms become part of the contract.  Section 2-207(3) states that if the offeror does not assent, but the parties "proceed with the transaction as if they have a contract, their performance results in formation of a contract." 
•    Here, Metal-Matic expressly conditioned is acceptance of the contract on the Defendant's "assent to the additional terms contained in Metal-Matic's acknowledgment form."  The facts of this case clearly fall within the proviso under §2-207(1) because Metal-Matic's exception was "expressly made conditional" on the Defendant's acceptance of all the terms in the Acknowledgement Agreement. 
•    The court then discusses whether the Defendant accepted the additional terms.  In doing so, it felt that the fairest thing to do was to apply §2-207(3).  The court was worried about reenacting the last shot rule if it accepted Metal-Matic's argument that the Defendant assented to the disclaimer when it continued to accept and pay for tubing after the conversation between the officials from both companies concerning amending the terms of the Metal-Matic acknowledgement form.  In order to contravene the last shot rule, the court said the UCC requires "specific and unequivocal expression of assent on the part of the offeror when the offeree conditions its acceptance on assent to additional or different terms".  If the seller, in this instance Metal-Matic did not want to be bound unless the buyer, the Defendant, assented to its terms, it could have refused to ship until it received the requisite assent.  If that assent is not received, then §2-207(3) applies to fill the gaps in the contract.  The court then concluded "because Krack's conduct did not indicate unequivocally that Krack intended to assent to Metal-Matic's terms, that conduct did not amount to the assent contemplated by section 2-207(1)."

Discussion.

Section 2-207 of the UCC does away with both the mirror image rule and the last shot rule, both prominent in the common law.