Don’t Be Surprised if You Are on the Hook for More Than You Asked for
DON’T BE SURPRISED IF YOU’RE ON THE HOOK FOR MORE THAN YOU ASKED FOR
By: Robert S. Tanner, Esq.
About the Author: Larry Leiby, Esq. was the founder and first chairman of the Florida Bar Construction Law Committee in 1976. He is the author of the Florida Construction Law Manual. He is Board Certified in Construction Law and was on the Construction Law Certification Committee that creates and grades the tests for construction law board certification. He was awarded the lifetime achievement award by the Florida Bar Construction Law Committee and teaches construction law at the Florida International University College of Law. He can be reached at [email protected]. For more information, please visit www.mkpalaw.com.
Contracts are formed upon an offer and acceptance. But, how the law treats acceptance is quite different when the agreement concerns goods than when the agreement concerns services. The law of the sale of goods says that when the deal is between two merchants, an acceptance that contains additional or different terms from the offer is enforceable and, generally, the additional or different terms become part of the contract. Not so with agreements concerning services where the law requires the acceptance to be the “mirror image” of the offer. The issue of whether additional terms presented in an “acceptance” in the sale of goods often arises because the buyer submits a purchase order to the seller and the seller sends back a form acknowledging the order in, yet that acknowledgment form contains terms that were not in the purchase order or are in some way different from the purchase order.
In Paul Gottlieb & Co., Inc. v. Alps South Corporation, Gottlieb supplied specialty knitted fabrics to Alps, which used them in prosthetic devices it manufactured. When the relationship between them soured and lawsuits were filed, the terms of their offer and acceptance became central. Presumably, Alps had issued purchase orders to Gottlieb and Gottlieb acknowledged those purchase orders with its form “finished goods contract.” Gottlieb’s form finished goods contract contained a limitation of liability clause, which Alps never expressly accepted. The clause said:
- Buyer shall not in any event be entitled to, and seller shall not be liable for indirect or consequential damages of any nature, including, without being limited to, loss of profit, promotional or manufacturing expenses, injury to reputation or loss of customer.
The trial court found that the limitation of liability clause in Gottlieb’s “acceptance” was not part of the contract and awarded Gottlieb $28,846.29 in damages for Alps’ failure to pay for goods, and awarded to Alps $694,640.04 against Gottlieb on its counterclaim for breach of warranty, which was based on Gottlieb’s unilateral substitution of materials. Gottlieb appealed.
The appellate court reversed the trial court, concluding that although Alps had not expressly agreed to the limitation of liability clause, it was subject to the term. The law of the sales of goods between merchants “allows the formation of a contract where an acceptance contains additional or different terms than the original offer.” The additional terms stated in the acceptance become a part of the contract unless: (1) the offer expressly limits acceptance to the terms of the offer (thus barring the addition of new terms by the accepting party); (2) the acceptance requires the assent to the additional terms; (3) the additional terms materially alter the offer; or, (4) the offering party objects to the additional terms within a reasonable time after receiving notice of them.
The question in the Gottlieb v. Alps case was whether the limitation of liability clause constituted a material alteration to Alps’s offer to purchase the goods from Gottlieb. It was Alps’ burden to prove that the clause was a material alteration. To meet its burden, the law required Alps to show that the limitation of liability clause would be unexpected by a “reasonable” merchant, that under the circumstances, a reasonable merchant would not have consented to the term, and that if the additional term were incorporated into the contract, it would result in a severe economic hardship for Alps. The evidence in the case was that Gottlieb had returned its form finished goods contract including the limitation of liability provision in six transactions with Alps. Because of that, the appellate court found that Alps could not prove that the provision was an unreasonable surprise. Further, the appellate court concluded that Alps failed to show that the limitation of liability clause would result in severe economic hardship. Consequently, the additional term was deemed a part of the contract, even though it had not been included in Alps’ purchase order and appeared in the transaction only when Gottlieb, the seller, acknowledged the order.
It is not difficult to see how this rule applicable in the sales of goods between merchants can have a potentially substantial impact. The easiest lesson to take from it is that it is usually better to be in the position of accepting offers and, when doing so, include terms in the acceptance that benefit you. Another easy takeaway is that, if you are the person making the offer, ensure that the offer contains a statement to the effect that acceptance is limited to the terms of the offer and any additional terms contained in the acceptance are expressly rejected. Since these issues typically arise in connection with forms utilized by merchants selling and buying goods, the advantages and protections for the ordinary transactions can be built in.