A buyer sent a purchase order for 100 widgets at $10 each to a seller. The purchase order stated, 'Ship immediately.' The seller responded with an acknowledgment form that confirmed the order but added a clause stating, 'All disputes arising under this contract shall be submitted to arbitration in New York.' The buyer received the acknowledgment form and did not object to the arbitration clause. The seller then shipped the widgets, and the buyer accepted them. Later, a dispute arose regarding the quality of the widgets. The buyer filed a lawsuit in court. The seller moved to compel arbitration based on the clause in the acknowledgment form. Will the arbitration clause be considered part of the contract?
- ANo, because the arbitration clause was a different term and not expressly agreed to by the buyer.
- BYes, because both parties are merchants, and the clause was not expressly rejected.
- CYes, because the buyer received the acknowledgment and did not object within a reasonable time.
- DNo, because the arbitration clause materially altered the original offer.
Show answer & explanationAnswer & explanation
Correct answer: D. No, because the arbitration clause materially altered the original offer.
This scenario involves the UCC's 'battle of the forms' (UCC 2-207). When both parties are merchants, additional terms in an acceptance (or confirmation) become part of the contract UNLESS (1) the offer expressly limits acceptance to the terms of the offer, (2) they materially alter the offer, or (3) notification of objection to them has already been given or is given within a reasonable time. An arbitration clause is generally considered a 'material alteration' because it significantly impacts the parties' dispute resolution rights, changing the forum for resolving disputes. Therefore, it would not automatically become part of the contract simply by silence, even between merchants.
Why the other options are wrong
- A. The term is an 'additional' term, not a 'different' term, but the key issue is its material alteration nature, not merely being 'different'.
- B. While both parties are merchants and there was no express rejection, the 'material alteration' exception prevents the clause from being included.
- C. This is incorrect because a material alteration prevents the term from becoming part of the contract even without objection.
UCC 2-207 (Battle of the Forms)
Governs contract formation when an acceptance or confirmation contains terms additional to or different from those in the offer. Between merchants, additional terms become part of the contract unless they materially alter the offer, the offer limits acceptance to its terms, or objection is made.
- Applies to contracts for the sale of goods.
- Acceptance with additional/different terms can still form a contract.
- Between merchants, additional terms are included unless material alteration, objection, or offer limits acceptance.
- Material alteration substantially changes the terms (e.g., arbitration clauses, disclaimers of warranty).
Memory trick: 2-207: Terms clash, who wins the contract hash?