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Commerce & Industry Ins. Co. v. Bayer Corp.

    Brief Fact Summary.

    At trial Commerce & Industry Ins. Co. (plaintiff) and Bayer Corp. (defendant) argued whether an arbitration provision was valid.

    Synopsis of Rule of Law.

    Under UCC Section 2-207(3) a contract is still formed between two merchants despite the fact one merchant expressly conditions assent on additional or conflicting terms, but the terms of the contract will only be those terms that the parties agreed upon.

    Facts.

    The defendant entered into a contract with a third party for the sale of nylon and the third party sent a purchase order to the defendant, which contained an arbitration provision. However, the invoice retuned to the defendant by the third party did not mention the arbitration clause and was expressly conditioned on the defendant’s assent to any additional or conflicting terms in the invoice. After a fire destroyed the third parties building, the plaintiff who insured the third party, sued the defendant claiming their nylon was the cause of the fire. The defendant claimed the arbitration clause in the purchase order was controlling and thus the dispute should be submitted to arbitration.

    Issue.

    Whether under UCC Section 2-207(3) a contract is still formed between two merchants despite the fact one merchant expressly conditions assent on additional or conflicting terms, but the terms of the contract will only be those terms that the parties agreed upon.

    Held.

    Yes. Under UCC Section 2-207(3) a contract is still formed between two merchants despite the fact one merchant expressly conditions assent on additional or conflicting terms, but the terms of the contract will only be those terms that the parties agreed upon.

    Discussion.

    At common law, an acceptance of an offer containing additional or different terms would be considered a counteroffer under the mirror image rule. However, under 2-207 when an acceptance contained additional or different terms between merchants, a contract can still be formed. If acceptance of the offer is expressly conditioned on assent to those additional or different terms, and the offeror doesn’t assent, a contract will still be formed with only the terms that the parties agreed upon. The knockout rule states that those terms that the parties did not agree upon will be knocked out and the contract will only contain terms which the parties agreed upon, if the parties intended to contract. Here, because the third party and the defendant never agreed on the arbitration clause but still intended to contract, that provision will be knocked out of the contract.


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