Monday, October 5, 2009

How do parties enter into contracts with conflicting forms?

As I explained today in connection with Princess Cruises, Inc. v. General Electric Co., 143 F.3d 828 (4th Cir. 1998), one reason Princess Cruises would not have objected to the limitation of liability contained in GE's "acceptance" of Princess Cruises' "offer" to have GE repair Princess Cruises' ship was that GE's for the job price was $231,000, almost $30,000 less than the price Princess Cruises proposed in its initial purchase order.

Thus, Princess Cruises would have had to judge the value of the price (13% less than they had initially sought) against either (a) the likelihood that damages in excess of $231,000 (the cap on liability under GE's proposal) would result from a breach by GE or (b) if they tried to negotiate the limitation on liability the price would not turn out nearly as attractive. Quite plainly, Princess Cruises considered the price worth the risk of ignoring the term.

It is important in regard to the situations that arise under UCC 2-207 to understand the following:
These disputes arise only when the parties do not explicitly dicker over the terms at issue. Thus, the law cannot resolve the battle of the forms with a simple inquiry into the parties' intent. It is useless to ask what terms the parties intended to govern this transaction. The buyer and seller were content to leave their mutual rights uncertain, because greater certainty would have come only with negotiations, the cost of which probably would have exceeded the expected cost of leaving things open to dispute.
Baird, Douglas G. ; Weisberg, Robert, Rules, Standards, and the Battle of the Forms: A Reassessment of 2-207, 68 Va. L. Rev. 1217, 1219 (1982).

Unfortunately for Princess Cruises, however, the case was decided under the common law, not under the UCC, so GE's limitation on liability constituted the "last shot" (that is, a counter-offer) that Princess Cruises accepted by delivering its ship for service.

What is important for you to realize, in addition to the rules and how to apply them, is that these disputes do not arise because parties mess up -- these disputes, instead, are the inevitable consequence of the ways business is done every day. In the vast majority of instances, circumstances work out to everyone's satisfaction; the lawyers get involved in resolving disputes when something no one hoped (or even anticipated) would happen actually happens.