Diamond Fruit Growers, Inc. v. Krack Corp. case brief

Diamond Fruit Growers, Inc. v. Krack Corp
794 F.2d 1440
Synopsis:
Defendant supplier appealed from a judgment of the United States District Court for the District of Oregon for defendant manufacturer on its third-party complaint against the supplier for selling it allegedly defective tubing, which it used to manufacture a cooling unit that it sold to plaintiff.

Facts:
-Defendant manufactured cooling units that contained steel tubing that it purchased from defendant supplier. The suppliers’ acknowledgement form disclaimed all liability for consequential damages and limited its liability for defects in the tubing. Defendant sold a cooling unit to plaintiff that began leaking ammonia from a cooling coil made of steel tubing. Plaintiff sued defendant which in turn sued its supplier. The trial court held in favor of defendant.

Holding:
The court affirmed the judgment of the trial court because defendant’s conduct did not indicate unequivocally that it intended to assent to the terms of the supplier’s disclaimer when it continued to accept and pay for tubing once the supplier indicated that it was willing to sell tubing only if its warranty and liability terms were part of the contract and, therefore, did not amount to the assent contemplated by Or. Rev. Stat. § 72.2070.

Rule:
UCC 2-207 holds that the exchange of differing purchase orders constitutes a binding contract only as to those portions upon which the writings agree.

Analysis:

• Or. Rev. Stat. § 72.2070 changes the common law’s mirror-image rule for transactions that fall within article 2 of the Uniform Commercial Code. At common law, an acceptance that varies the terms of the offer is a counteroffer and operates as a rejection of the original offer. If the offeror goes ahead with the contract after receiving the counteroffer, his performance is an acceptance of the terms of the counteroffer.

• Generally, Or. Rev. Stat. § 72.2070(1) converts a common law counteroffer into an acceptance even though it states additional or different terms. The only requirement under § 72.2070(1) is that the responding form contain a definite and seasonable expression of acceptance. The terms of the responding form that correspond to the offer constitute the contract. Under § 72.2070(2), the additional terms of the responding form become proposals for additions to the contract. Between merchants the additional terms become part of the contract unless the offer is specifically limited to its terms, the offeror objects to the additional terms, or the additional terms materially alter the terms of the offer.

• Or. Rev. Stat. § 72.2070(1) is subject to a proviso. If a definite and seasonable expression of acceptance expressly conditions acceptance on the offeror’s assent to additional or different terms contained therein, the parties’ differing forms do not result in a contract unless the offeror assents to the additional terms. If the offeror assents, the parties have a contract and the additional terms are a part of that contract. If, however, the offeror does not assent, but the parties proceed with the transaction as if they have a contract, their performance results in formation of a contract. Or. Rev. Stat. § 72.2070(3). In that case, the terms of the contract are those on which the parties’ forms agree plus any terms supplied by the Uniform Commercial Code.

• If the offeror does not give specific and unequivocal assent but the parties act as if they have a contract, the provisions of Or. Rev. Stat. § 72.2070(3) apply to fill in the terms of the contract. Application of § 72.2070(3) is appropriate in that situation because by going ahead with the transaction without resolving their dispute, both parties are responsible for introducing ambiguity into the contract. Further, requiring the seller to assume more liability than it intends is not altogether inappropriate. The seller is most responsible for the ambiguity because it inserts a term in its form that requires assent to additional terms and then does not enforce that requirement. If the seller truly does not want to be bound unless the buyer assents to its terms, it can protect itself by not shipping until it obtains that assent.

Conclusion:
-The judgment for defendant manufacturer was affirmed because it did not indicate unequivocally an intention to assent to the terms of defendant supplier’s disclaimer by continuing to accept and pay for allegedly defective tubing once the supplier made the equivalent of a counteroffer.