May 30, 2014
I received a few questions about counter-offers and the UCC. Let's go slowly, this post will be a little longer than most:
MIRROR IMAGE RULE
The traditional, common-law contract rule is that to form a contract the terms of the acceptance must be the same as the offer. This is known as the "mirror image" rule. If Alan offers to sell Barry a car for $5,000, payment by Tuesday, Barry would only be able to accept the contract on those precise terms. If Barry says he "accepts" the offer but payment by Wednesday, our traditional rule is that there is no contract. Why? Because the acceptance and the offer are not the same - - the payment date is different.
Traditional contract rule says that Barry actually rejected Alan's offer (even though he thinks he might have accepted it) and made a counter-offer to Alan. The counter-offer is to buy the car for $5,000 payment by Wednesday. Now Alan has a choice. Alan can accept the offer or reject it.
This can create a problem. Barry might think he can buy the car on Wednesday but Alan, under our traditional rules, could refuse to sell the car. Alan could correctly say there was never a contract because Barry's acceptance did not mirror the terms of Alan's offer.
Mirror image rule video
THE UCC REJECTS THE MIRROR IMAGE RULE
The Uniform Commercial Code replaces the mirror image rule in contracts for the sale of goods. In practice, the UCC usually becomes a factor where parties are not orally negotiating but sending written forms back and forth. It might help to imagine Alan and Barry sending written purchase and sale forms back and forth in which Barry's terms in his purchase order are different from Alan's terms.
Pursuant to the UCC, if Barry writes that he accepts Alan's offer but with payment on Wednesday, this is not always a rejection.
The rule under the UCC depends on a few factors.
First, did Barry tell Alan that there would be no contract unless Alan accepts payment on Wednesday?
Second, are Alan and Barry "merchants"? Merchants means they professionally deal with the goods in question - - in this case, cars.
Third, do Barry's terms "materially" change the contract? Material here means significantly.
ADDITIONAL TERMS ARE PROPOSALS
The UCC tells us that if one party adds additional terms to an offer, this not a rejection unless the party insists that a contract will depend on acceptance of these additional terms. If Barry says he accepts Alan's offer and we don't think he is really insisting on payment by Wednesday, we have a contract. Barry's terms are considered additional proposals to the contract. That is, Barry is making a proposal for a different payment date.
THE PROPOSALS CAN BECOME PART OF THE CONTRACT
The UCC provides that the additional terms can become part of the contract if the parties are merchants. That is, Barry's proposal for payment by Wedensday can automatically become part of the contract if both he and Alan professionally deal in cars, unless an exception applies.
WHEN DO PROPOSALS NOT BECOME PART OF THE CONTRACT?
Proposals do not become part of the contract if the parties are not merchants, if the additional terms materially change the contract, or the other party rejects the proposed terms.
Let's assume that Alan and Barry are merchants. Barry's terms would not become part of the contract if payment by Wednesday would be considered a material change to the contract. Furthermore, if Alan tells Barry in a reasonable amount of time that he rejects Barry's proposal to pay by Wednesday, the proposed terms would not become part of the contract.