C. Itoh & Co. v. The Jordan International Co.
552 F.2d 1228 (1977)
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Rule of Law:
Under UCC § 2-207(3), if parties proceed with performance after an exchange of forms fails to create a contract under § 2-207(1) because the acceptance was expressly conditional on assent to additional terms, a contract is formed by conduct. The terms of this contract consist only of those on which the writings agree, supplemented by UCC gap-fillers, thereby excluding the unagreed-upon additional terms.
Facts:
- C. Itoh & Co. (America) Inc. ('Itoh') submitted a purchase order for a quantity of steel coils to the Jordan International Company ('Jordan').
- Itoh's purchase order did not contain an arbitration provision.
- In response, Jordan sent an acknowledgment form that stated on its face: 'Seller’s acceptance is, however, expressly conditional on Buyer’s assent to the additional or different terms and conditions set forth below and printed on the reverse side.'
- An arbitration clause was included as one of the terms on the reverse side of Jordan's form.
- Itoh never expressly assented nor objected to the additional arbitration term in Jordan's form.
- Jordan delivered the steel coils, and Itoh paid for them.
- Itoh had a separate contract to sell the steel coils to Riverview Steel Corporation, Inc. ('Riverview').
- After delivery, Riverview advised Itoh that the steel coils were defective and refused to pay for them.
Procedural Posture:
- Itoh filed suit against Riverview and Jordan in the U.S. District Court.
- Jordan filed a motion in the district court to stay the proceedings pending arbitration, pursuant to the Federal Arbitration Act.
- The district court denied Jordan's motion for a stay, reasoning that sound judicial administration required resolving the entire litigation in a single forum.
- Jordan, as appellant, appealed the district court's denial of the stay to the U.S. Court of Appeals for the Seventh Circuit.
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Issue:
Does an arbitration clause contained in a seller's acknowledgment form become part of a contract under UCC § 2-207 when the form expressly conditions acceptance on the buyer's assent to the additional term, the buyer does not assent, but both parties proceed with performance?
Opinions:
Majority - Sprecher, Circuit Judge.
No, the arbitration clause does not become part of the contract. When an acceptance is expressly made conditional on assent to additional terms, as provided in UCC § 2-207(1), the exchange of forms does not create a contract, and the acceptance becomes a counteroffer. If the parties then proceed to perform by shipping and accepting goods, a contract is formed by their conduct under § 2-207(3). The terms of a contract formed by conduct consist of the terms on which the parties' writings agree, supplemented by the UCC's 'gap-filler' provisions. Since the parties' forms did not agree on arbitration and arbitration is not a UCC gap-filler, the arbitration clause is excluded from the contract.
Analysis:
This case provides a critical interpretation of UCC § 2-207, particularly the interplay between subsections (1) and (3). It solidifies the 'knock-out rule' for contracts formed by conduct, rejecting the common law's 'last shot' rule where the counter-offeror's terms would prevail upon performance. The decision clarifies that a party using an 'expressly conditional' acceptance clause under § 2-207(1) can walk away if the other party does not assent, but if they choose to perform anyway, they risk having their un-assented-to additional terms excluded. This puts the onus on the seller to obtain express assent to its terms before performance if those terms are essential to the deal.
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