No. The seller's form with different terms doesn't automatically become a new offer. The court said that in modern business, companies use pre-printed forms that rarely match, and the law (the Uniform Commercial Code or UCC) recognizes that a deal is still a deal. A seller's form only becomes a counteroffer if it has very clear language stating that the seller refuses to do business unless the buyer agrees to the new terms. Standard fine print isn't enough. When the forms have conflicting warranty terms, the court applies the 'knockout rule': both sides' warranty clauses are canceled, and the standard warranties provided by law are used instead. This is considered the fairest approach.

The first court was wrong to automatically call Dunham Bush's form a new offer. Under the law, a response with different terms still counts as accepting unless it very clearly says the other side must agree to the new terms. It depends on what the businesses reasonably expected based on their usual dealings. The case goes back to the first court to decide this again. If they find Dunham Bush accepted the order, then the conflicting warranty terms cancel each other out and the regular warranty rules apply.

In its (relatively late) “first opportunity to consider a classic 'battle of the forms' scenario,” the Supreme Court of New Mexico articulated the reasonable expectations interpretation of § 2-207 clearly and persuasively.

—acknowledging that the common law mirror-image rule ignores modern commercial realities and fails to implement the actual deal agreed upon between the parties

For the first time it recognizes the possibility that a response which conflicts in some significant way with the offer can nevertheless be an acceptance-so making a contract

This section provides that a document responding to an offer and purporting to be an acceptance will be an acceptance, despite the presence of additional and different terms.

Since the conduct of manufacturer and seller made realizing that goal impossible, the dispute between them would be resolved by reference to the UCC's commitment to fairness, good faith and conscionable conduct.

There is a jurisdictional split regarding whether section 2-207 (2) properly governs the disposition of "different" terms as well as "additional" terms.

Litigants have even cited Llewellyn' s unpublished notes in the course of contract litigation under the UCC to argue that section 2-515 limits a seller' s right of inspection to situations where a buyer rejects or revokes acceptance of goods.

In light of Erie, the criticism of Roto-lith, and its rejection by most other courts who face the problem

However, it does remain true to the spirit of Article 2, as it calls the trial court to consider the commercial setting of each transaction and the reasonable expectations and beliefs of the parties acting in that setting.

As to New Mexico law, the court observed that terms in the June 4 and August 2 orders that conflicted would not become part of the contract. Id

No. A seller's acknowledgment form does not operate as a counteroffer merely because it states it is 'subject to' its own terms; it is only a counteroffer if it clearly communicates that the seller is unwilling to proceed with the deal unless the buyer assents to the different terms. The court reasoned that UCC § 2-207 was designed to reject the common law 'mirror image' rule, which converted any response with varying terms into a counteroffer. Adopting the test from Dorton v. Collins & Aikman Corp., the court held that a response becomes a counteroffer only when it is 'expressly made conditional on assent to the additional or different terms.' This requires a clear expression that the offeree will not proceed with the transaction without the offeror's agreement to the new terms. Boilerplate language making the acceptance 'subject to' the seller's terms is insufficient. The court further held that when a contract is formed under § 2-207(1) but the forms contain conflicting warranty terms, the 'knockout rule' applies: the conflicting terms cancel each other out, and the default warranty provisions of the UCC are used to fill the gap.

The trial court erred in concluding as a matter of law that Dunham Bush's acknowledgment was a counteroffer. Under UCC Section 2-207(1), an expression of acceptance operates as an acceptance even if it contains different terms, unless acceptance is expressly made conditional on assent to the different terms. Whether an acceptance is expressly conditional depends on the commercial context and the reasonable expectations and beliefs of the parties. The case is remanded for the trial court to reconsider this issue. If the acknowledgment is found to be an acceptance, the conflicting warranty terms cancel each other out under Section 2-207(3) and the UCC's default warranty provisions apply.

Gardner Zemke Co. v. Dunham Bush, Inc.

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