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# Session 05 - UCC vs common law, acceptance, and battle of the forms

> I. INDEFINITENESS AND AGREEMENT TO AGREE; II. UCC vs. COMMON LAW; III. MODERN TREND: AGREEMENT TO AGREE; IV. SEVERABILITY; V. ACCEPTANCE; VI. UCC § 2-207: BATTLE OF THE FORMS

## I. INDEFINITENESS AND AGREEMENT TO AGREE

### A. Classic View: Agreement to Agree is Unenforceable

#### 1. Joseph Martin Jr. v. Schumacher (Page 38)

**Facts:**

* Schumacher leased store to Martin for 5-year term (1973)
* Rent: \$500/month (year 1) increasing to \$650/month (year 5)
* Renewal clause stated: "tenant may renew this lease for an additional period of 5 years at annual rentals **to be agreed upon**"
* Martin gave 30-day notice to exercise renewal right
* Landlord demanded \$900/month; Martin's appraiser valued at \$545/month
* Martin sued to force extension at fair market value

**Procedural History:**

* Trial court: ruled for Schumacher - agreement to agree unenforceable
* Appellate Division: reversed - held renewal clause enforceable if parties intended not to terminate
* Court of Appeals: **reversed Appellate Division**

**Holding:**

* **A mere agreement to agree in which a material term is left for future negotiations is unenforceable**

**Rule:**

* Before the power of law can be invoked to enforce a promise, it must be **sufficiently certain** and specific so that what was promised can be ascertained
* Court will not impose its own conception of terms; court's job is to **enforce terms of contract, not manufacture them**
* Rent is a **material term** in a lease contract

**Key Language (Page 39):**

> "The court is not going to substitute its own judgment. The court is not going to bring an appraisal to figure out what that figure might be. Agree to agree means if I don't agree, you got no deal."

**IMPORTANT DISTINCTION:**

* **"Agree to agree"** = unenforceable (no commitment)
* **"Agree to negotiate in good faith"** = potentially enforceable
  * Can sue for failure to negotiate in good faith
  * Breach is failure to negotiate in good faith, not failure to agree on terms

**Formula Exception:**

* If contract includes a **methodology/formula** for determining the missing term, the contract may be enforceable
* Examples: arbitration provision, market rate determination, third-party appraisal
* The formula itself must be found **within the four corners** of the contract

***

### B. Haines v. City of New York (Page 41)

**Facts:**

* City created sewage system and treatment plant
* Haines owned property and wanted sewage connection
* City denied connection
* Contract was silent on **duration** of city's obligation

**Issue:**

* When contract is silent as to duration, how long does the obligation last?

**Holding:**

* When contract is silent on duration: **reasonable duration** applies
* Duration is **NOT perpetual/indefinite**
* Duration is **NOT zero**
* Court applies **reasonableness standard**

**Rule:**

* **Prevailing view:** If duration is not stated in contract, court will supply a **reasonable time**
* Court can draft terms to fill gaps when parties are silent

***

## II. UCC vs. COMMON LAW

### A. Predominant Factor Test - BMC Industries v. Barth Industries (Page 57)

**Facts:**

* BMC Industries (manufacturer of eyeglass lenses) hired Barth Industries
* Contract: design, build, and install equipment to automate BMC's production
* Barth failed to complete by deadline
* BMC sued for breach of contract

**Issue:**

* Was this a contract for **goods** (Article 2 UCC) or **services** (common law)?
* **Hybrid contract** - both goods and services involved

**Holding:**

* Courts apply **predominant factor test** to hybrid contracts
* No single factor is controlling

**Factors Considered:**

* Contract's language
* Billing terms
* Allocation of costs
* Nature of the goods involved

**Significance:**

* Whether UCC or common law applies can **change entire outcome** of case
* Determines what remedies are available
* Affects what terms are required for enforceability

***

### B. UCC Formation Requirements - Southwest Engineering v. Martin Tractor (Page 67)

**Facts:**

* Southwest Engineering (contractor) needed generator for government contract
* Met with Martin Tractor representative
* Agreed on specific generator for **\$18,500**
* Southwest relied on agreement and got government bid
* When Southwest returned, price increased to **\$21,500**
* Southwest bought generator elsewhere for **\$27,000**
* Southwest sued Martin for breach

**Issue:**

* Was there an enforceable contract under UCC Article 2?

**Rule - UCC § 2-204:**
A writing under UCC must:

1. Indicate a contract for sale of goods
2. Be signed or authenticated by the bound party
3. **Specify the quantity** of goods to be sold

**Holding:**

* Contract was enforceable under UCC
* **Generator = movable good** (UCC applies)
* All necessary terms present: **quantity = one generator**
* Meeting of the minds existed
* Court found for Southwest based on **detrimental reliance**

**Key Principle:**

* Under UCC, **don't need all terms** - just need **quantity**
* UCC is more liberal than common law in finding contracts

***

### C. UCC Formation Provisions (Page 66)

#### UCC § 2-204: Formation in General

**Subsection 1:**

> "A contract for the sale of goods may be made in **any manner sufficient to show agreement**, including **conduct by both parties** which recognizes the existence of such a contract"

**Subsection 2:**

> "An agreement sufficient to constitute a contract for the sale may be found **even though the moment of its making is undetermined**"

* Don't even need to show WHEN contract was formed

**Subsection 3:**

> "Even though **one or more terms are left open**, a contract for sale does **not fail for indefiniteness** if:
> (a) the parties **intended to make a contract**, AND
> (b) there is a **reasonably certain basis for giving an appropriate remedy**"

**Key Takeaway:**

* UCC looks for contract **any way it can**
* UCC will **enforce intent of parties**
* UCC will **furnish missing terms** (gap fillers)
* Very different from strict common law approach

***

### D. UCC Gap Fillers (Page 66-67)

**UCC provides default terms when parties are silent:**

* **UCC § 2-305:** Open price terms
* **UCC § 2-307:** Delivery in single lots or several lots
* **UCC § 2-310:** Payment terms
  * **Default rule:** Payment due **upon receipt of goods**
  * Common law has same rule
  * Parties can contract around this (e.g., Amazon - pay first, then goods delivered)

**Requirements for Gap Fillers:**

* Must have **quantity**
* Must have **intent to be bound**

***

## III. MODERN TREND: AGREEMENT TO AGREE

### A. Oglebay Norton v. Armco (Page 71)

**Facts:**

* Armco and Oglebay had long-standing shipping agreement (23+ years)
* Modified contract 4 times
* Armco's capacity demands kept increasing
* 1984: Unable to agree on satisfactory shipping rate

**Holding:**

* **Modern trend:** Agreement to agree as to material terms **may be valid** under:
  * **UCC**
  * **Restatement (Second) of Contracts**

**Rule - Restatement (Second) § 33:**

* Court can supply missing term if parties intended to be bound
* Court applied **reasonable rates** to 1986 shipping season
* Restatement (Second) follows "virtually identical language" to UCC § 2-305

**Key Principle (Page 75):**

> "The trial court recognized the failure of the 1957 contract pricing mechanism, yet the trial court held competent, credible evidence before it to conclude that **the parties intended to be bound**, despite the failure of the pricing mechanism"

***

### B. Current Trend (Page 74-75)

**Rule:**
Under **UCC** and **Restatement (Second)**, an **agreement to agree as to material terms may be valid**

**Key Distinctions:**

#### 1. Agreement to Agree vs. Agreement to Negotiate in Good Faith

**Agreement to Negotiate in Good Faith:**

* After good faith negotiations, parties' obligations are **discharged** even if no agreement reached
* Damages: **Reliance damages only** (usually cannot prove agreement would have been reached)
* Obligation is to negotiate in good faith, not to reach agreement

**Valid Agreement to Agree:**

* Failure to reach agreement **does not end the matter** even after good faith negotiations
* Court may supply the missing term
* More extensive remedies potentially available

***

## IV. SEVERABILITY

### A. Eckles v. Sharman (Page 78)

**Facts:**

* Sharman = NBA basketball coach (1970s)
* Contract with Los Angeles Stars (later went bankrupt)
* Contract had great incentives but **ambiguous/missing essential terms**
* Sharman later went to Lakers
* Utah team sued for breach (claimed Sharman never agreed to their terms)

**Issue:**

* Can contract be valid if missing essential terms?
* Essential terms in sports contract: base pay, bonuses

**Holding:**

* Contract **NOT valid** under California law
* Essential terms must be agreed upon before contract is signed
* **Any non-essential term missing makes contract unenforceable**

**Severability Concept:**

* **Severability clause** = standard provision in contracts
* **Purpose:** If court finds one provision unenforceable, court will **sever that provision** and enforce remainder
* **Without severability clause:** Court might throw out entire contract

**Best Practice:**

* Always include severability language in contracts
* Prevents entire contract from failing due to one bad provision

**California Rule (Page 80):**

> "Good faith negotiations over various terms of an agreement do not make a fatally ambiguous contract valid and enforceable"
> "For there to be an enforceable contract, the parties must agree on the **essential and material terms**"
> "If all that remains is good faith negotiations or elaborations of **non-essential terms**, the contract will be held legally cognizable"

***

## V. ACCEPTANCE

### A. Definition

**Acceptance =** An **assent** to the terms of the offer **in the proper form**

**Key Questions:**

1. Did the **offeree intend to be bound** by the terms of the offer?
2. Did the offeree **receive and understand** the offer?
3. Did the offeree **attempt to change the terms** of the offer?

***

### B. Mirror Image Rule (Common Law)

**Rule:**
Under common law, a **purported acceptance CANNOT function as an acceptance** if the offeree has **changed ANY of the terms** of the original offer

**Key Principles:**

* Acceptance must be **mirror image** of offer (identical twins)
* **Not one iota can change**
* Otherwise = **NOT an acceptance**

**Examples of Changes (Any of these kills acceptance):**

* Offer: "Laptop for \$2,000"
* Response: "I accept if you deliver to my car" → **COUNTEROFFER** (added delivery term)
* Response: "\$1,999.99" → **COUNTEROFFER** (changed price, even by 1 penny)
* Response: "\$2,000 by check" when offer said "cash" → **COUNTEROFFER** (changed payment method)
* Offer: "Show up at 12:59 PM Saturday"
* Response: "I'll show up at 12:58 PM" → **COUNTEROFFER** (changed time, even though earlier)

**Proper Form Requirement:**

* Offeror is **master of the offer**
* Offeror dictates **how** offer can be accepted
* Offeror can specify: time, place, manner, method
* Offeree must accept **exactly as specified**

**Example:**

* Offer: "If you accept **now**, I will give you this price"
* Acceptance must be **now** - not after lunch, not this afternoon
* Timing is part of proper form

***

### C. Counteroffers

**Definition:**
A counteroffer is **BOTH**:

1. **Rejection** of the original offer, AND
2. **Publication** of an entirely new offer

**Effect of Counteroffer:**

* **Original offer is DEAD** (D-E-A-D)
* Original offer is **non-existent** until revived
* Cannot later accept original offer
* Roles reverse: original offeree becomes new offeror

**Example:**

* Dealer: "Take this car for \$135,000 if you accept now"
* Buyer: "I accept if you shave off another \$2,000"
* **Result:** Dealer's offer is DEAD
* Buyer cannot come back 1 minute later and say "I'll take it" for \$135,000
* Buyer has made NEW offer; dealer would need to accept

**Exception - Mere Inquiry:**

* "Would you consider \$130,000?" = **mere inquiry** (NOT counteroffer)
* Original offer **remains open**
* If seller says no, buyer can still say "Okay, \$135,000"
* Distinguish from counteroffer: inquiry is asking, not demanding/conditioning

**Exam Tip:**

* Watch for whether statement is:
  * **Counteroffer** (kills original offer)
  * **Mere inquiry** (keeps offer alive)
* Language matters: "Would you consider..." vs. "I accept if..."

***

## VI. UCC § 2-207: BATTLE OF THE FORMS

**Most Important:** This section is **ALWAYS tested** on bar exam and in Contracts class

### A. Overview

**UCC § 2-207** = "Battle of the Forms"

* Applies to **sale of goods** only
* **Article 2 only** (only article tested on bar)
* Completely different from common law mirror image rule

***

### B. UCC § 2-207(1) - Acceptance with Additional/Different Terms

**Full Text:**

> "A **definite and seasonable** expression of acceptance or a written confirmation which is sent within a reasonable time operates as an **acceptance**, even though it states terms **additional to or different from** those offered or agreed upon, **UNLESS** acceptance is expressly made conditional on assent to the additional or different terms"

**Key Terms:**

* **Definite** = clear, certain
* **Seasonable** = timely (not seasons of the year!)
* **Written confirmation** = Battle of the Forms (forms going back and forth)

**Revolutionary Principle:**

* Acceptance is STILL valid **even if it adds or changes terms**
* Opposite of common law mirror image rule

**Exception - Conditional Acceptance:**

* If acceptance says: "**I accept ONLY IF you agree to these additional terms**"
* Then = **NOT an acceptance** (this is counteroffer)
* Acceptance cannot be **expressly conditional** on assent to new terms

**Example:**

* Offer: "Sell laptop for \$2,000"
* Response: "I accept, and also deliver to my house"
* **Result:** This IS an acceptance under UCC § 2-207(1)
* Question becomes: what happens to the additional term (delivery)?

***

### C. UCC § 2-207(2) - What Happens to Additional Terms

**Subsection (2): The additional terms are to be construed as proposals for addition to the contract**

#### 1. Non-Merchants (One or Both Parties NOT Merchants)

**Rule:** Additional terms are **mere proposals**

* Do NOT automatically become part of contract
* Other party can accept or reject
* Contract exists even without agreement on additional terms

#### 2. Between Merchants (ALL Parties are Merchants)

**Rule:** Additional terms **automatically become part of contract** UNLESS:

**Exception A:** The offer **expressly limits acceptance** to the terms of the offer

* Offer says: "Take it or leave it - no additional terms accepted"
* Offer says: "Only the terms of this offer - no additions or changes"

**Exception B:** The additional terms **materially alter** the contract

* **Material alteration** = fundamental change to contract
* **Example:** Arbitration clause
  * Takes away right to judge/jury trial
  * Courts have held this is material alteration
  * Does NOT become part of contract automatically

**Exception C:** **Notification of objection** has been given or is given within reasonable time

* Original offeror (merchant) **seasonably objects** to additional terms
* Must object within **reasonable time** after notice received
* Objection prevents terms from becoming part of contract

**Example:**

* Car dealer (merchant) offers to sell car
* Buyer (merchant) responds: "I accept, but deliver to my house"
* Delivery = additional term
* Analysis:
  * Does offer expressly limit acceptance? Check contract.
  * Does delivery materially alter? Probably not.
  * Did dealer object within reasonable time? Check facts.
  * If none of these apply → delivery term becomes part of contract

**Example 2:**

* Dealer (merchant) offers car to consumer (NOT merchant)
* Consumer: "I accept, deliver to my house"
* Delivery = **mere proposal** (consumer not merchant)
* Does NOT become part of contract unless dealer agrees

***

### D. Additional Terms vs. Different Terms

**Additional Term:**

* Term **NOT in original offer**
* Something **added**
* Examples: warranty, delivery location (when not mentioned), charger with laptop

**Different Term:**

* Term **changes existing term** in offer
* Offer had term X, acceptance changes to term Y
* Examples:
  * Offer: delivery at school → Acceptance: delivery at home
  * Offer: pay \$2,000 → Acceptance: pay \$1,999.99
  * Offer: cash → Acceptance: check

**Remember:** Under § 2-207(2), only **additional** terms are addressed

* Different terms follow different analysis (usually knockout rule)

***

### E. UCC § 2-207(3) - Conduct

**Full Text:**

> "**Conduct by both parties** which recognizes the existence of a contract is sufficient to establish a contract for sale, **although the writings of the parties do not otherwise establish a contract**"

**Principle:**

* Sometimes **conduct** (not language) shows contract exists
* Even if written documents don't establish contract, conduct might

**Examples:**

**Valid Conduct:**

* Sit in barber chair and say "give me haircut" → agreed to pay by conduct
* Painter shows up and paints your house → conduct shows contract existed
* You pay painter → further evidence of contract

**Questionable Conduct:**

* Restaurant adds \$500 "music charge" not disclosed in advance
* Not on menu, not told orally when seated
* Did conduct of sitting down = assent to pay \$500? **NO**
* Conduct must be **reasonable**
* No reasonable person would expect \$500 music charge for one violinist

**Key Limitation:**

> "Conduct by both parties which **recognizes the existence of a contract**"

* Conduct must actually signify agreement
* Not every conduct = assent
* Reasonableness applies

**Significance:**

* UCC very **liberal** in finding contracts
* Oral agreement + subsequent performance = contract
* Even if written contract is inadequate

***

## VII. EXAM TIPS & KEY TAKEAWAYS

### A. Agreement to Agree

**Classic View:**

* Agreement to agree = **unenforceable**
* Court will not manufacture terms

**Modern Trend (UCC & Restatement 2d):**

* May be valid if parties intended to be bound
* Court can supply missing material term
* Distinguish from "agree to negotiate in good faith"

**Always Check:**

* Is there a **formula** in contract to determine missing term?
* If yes → likely enforceable

***

### B. UCC vs. Common Law

**UCC Applies ONLY to:**

* **Sale of goods**
* Title passes from seller to buyer
* NOT lease (no title transfer)
* Financing/installment purchase = sale (title passes even if not paid off)

**Hybrid Contracts:**

* Apply **predominant factor test**
* Look at: language, billing, cost allocation, nature of goods

**Key Difference:**

* Common law: strict, all material terms required
* UCC: liberal, only need quantity + intent to be bound

***

### C. Acceptance Analysis

**Step 1:** Was there a valid offer still open?

**Step 2:** Did offeree receive and understand offer?

**Step 3:** Common Law or UCC?

**If Common Law:**

* Apply **mirror image rule**
* Any change = counteroffer (offer is DEAD)
* Check for mere inquiry vs. counteroffer

**If UCC:**

* Apply **§ 2-207**
* Additional/different terms don't prevent acceptance
* Analyze what happens to additional terms:
  * Both merchants? → Check 3 exceptions
  * Not both merchants? → Mere proposal

**Step 4:** Proper form?

* Did offeree accept in manner/time/place specified?
* Offeror is master of offer

***

### D. Severability

**Always include severability clause in contracts**

* Protects against total contract failure
* Allows court to sever bad provisions and enforce rest

***

### E. Common Pitfalls

1. **Don't confuse:**
   * Agreement to agree (unenforceable)
   * Agreement to negotiate in good faith (may be enforceable)

2. **UCC only applies to sale of goods**
   * NOT services
   * NOT real estate
   * NOT leases (unless title transfers)

3. **Mirror image rule is STRICT**
   * Even 1 penny difference = counteroffer
   * Even 1 minute time difference = counteroffer

4. **§ 2-207(2) only applies between MERCHANTS**
   * If one party not merchant → additional terms are mere proposals

5. **Material alteration always blocks additional term**
   * Arbitration clause = material alteration
   * Even between merchants

6. **Counteroffer KILLS original offer**
   * Cannot revive original offer
   * Can only make new offer

***

## VIII. KEY DEFINITIONS TO MEMORIZE

**Acceptance:** An assent to the terms of the offer in the proper form

**Mirror Image Rule:** Under common law, a purported acceptance cannot function as an acceptance if the offeree has changed any of the terms of the original offer

**Counteroffer:** Both the rejection of the original offer and the publication of an entirely new offer

**Seasonable:** Timely

**Material Term:** Essential term (e.g., price, quantity, subject matter)

**Severability:** Contract provision allowing court to sever unenforceable provisions while enforcing remainder

**Predominant Factor Test:** Test to determine if hybrid contract is for goods (UCC) or services (common law)

**Merchant:** Person who deals in goods of the kind or holds themselves out as having special knowledge/skill related to the goods

***

## IX. CASE LAW CHECKLIST

✓ **Joseph Martin v. Schumacher** - Agreement to agree unenforceable (classic view)
✓ **Haines v. City of New York** - Reasonable duration when contract silent
✓ **BMC Industries v. Barth** - Predominant factor test for hybrid contracts
✓ **Southwest Engineering v. Martin Tractor** - UCC formation (quantity required)
✓ **Oglebay Norton v. Armco** - Modern trend: agreement to agree may be valid
✓ **Eckles v. Sharman** - Severability; essential terms required

***

## X. STATUTORY PROVISIONS TO KNOW

* **UCC § 2-204** - Formation in general
* **UCC § 2-207** - Battle of the Forms (ALWAYS TESTED)
* **UCC § 2-305** - Open price terms (gap filler)
* **UCC § 2-310** - Payment due upon receipt of goods
* **Restatement (Second) § 33** - Agreement to agree may be valid