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Problem.Dispute.University purchase of fire extinguishers
Part A
1. Upon the recommendation of its local fire department, University contacted FlameOut, a manufacturer of fire extinguishers, about the possibility of purchasing new fire extinguishers for all buildings on campus. Representatives of each party met to discuss the University's needs and FlameOut's pricing, payment, and delivery options. At the end of the meeting, FlameOut gave the University representative a copy of its standard form sales agreement. The agreement contained several blank spaces in which to fill in the name of the buyer, model number of items being purchased, the quantity of each item being purchased, the delivery date, and the unit price. The agreement included several other clauses, including the following clause:
13. In the event of the inability of the parties to resolve any dispute arising under or by virtue of this agreement, the parties shall submit such dispute for resolution to binding arbitration under the auspices of JAMS.
After investigating other alternative sources of supply,
University sent a signed letter to FlameOut reading, in pertinent part, as follows:
"We would like to enter into an agreement for the purchase
of 250 fire extinguishers, Model No. XTGISH 2000, at the $25,000 figure previously
discussed, with delivery in July, payment 2/10/30,
and pursuant to attached. If not pursuant to attached, we would not be desirous of
proceeding."
The attachment referred to in the letter was the standard form
sales agreement that FlameOut had given to University. University had not written anything
in the blanks on the agreement but it had lined through Clause 13 such that clause 13
looked as follows:
13. In the event of the inability of the parties to resolve any dispute arising under or by virtue of this agreement, the parties shall submit such dispute for resolution to binding arbitration under the auspices of JAMS.
A few days later, FlameOut signed and sent to University
another copy of its standard form sales agreement. FlameOut had completed the appropriate
blanks on the agreement in a manner consistent with the letter received from University
except that it had not lined through any of clause 13.
A University employee filed the sales agreement sent by FlameOut
without taking any note of clause 13. FlameOut timely delivered the fire
extinguishers to University and University timely paid the purchase price.
A year later, a fire caused extensive damage to a University
dormitory. The damage was covered under the University's insurance policy. The
University's insurance carrier, subrogated to the claims of the University, sought
reimbursement from FlameOut and its insurance carrier, arguing that damage from the fire
would have been substantially reduced but for the failure of FlameOut fire extinguishers
to work properly. FlameOut and its insurance carrier denied liability. The
University's insurance carrier, sued FlameOut in state court. FlameOut tendered
defense of the suit to its insurance carrier, whose attorneys filed a motion in state
court to dismiss the lawsuit in favor of arbitration. You may assume for purposes of
this problem that if a contract is formed, and if one of the terms of the contract calls
for arbitration as the method of dispute resolution, then a court must dismiss a lawsuit
in favor of arbitration. How should the court rule on the motion? See U.C.C 2-207, including, especially, its Official Comments 4 and 5. Also see U.C.C.
2-104 and its Official Comment 2.
[You will find a useful explanation of arbitration and other methods of dispute resolution by pursuing the appropriate links at the JAMS web site (the link to JAMS is highlighted above or easily located through a Google search). I strongly encourage you to do some reading at that web site. In particular, note the difference between arbitration (a decision resolving a dispute, made by a third party neutral based upon an agreed set of rules) and mediation (non-binding efforts by a third party neutral to facilitate a negotiated settlement between disputing parties). Arbitration has long been a method of dispute resolution for disputes between unionized labor and management governed by collective bargaining agreements but has become much more widely utilized in the past couple of decades. Indeed, its use has become ubiquitous in standardized contracts offered by merchants to consumers (e.g. credit cards, furnishing of utilities). Arbitration is typically more expeditious and less expensive than litigation through the court system, but its use in standardized contracts between merchants and consumers as well as in other contexts has attracted scrutiny and criticism. Elsewhere in the materials, we see one example of many contemporary court challenges to the validity of arbitration clauses.]
2. How would your analysis differ, if at all, had FlameOut sent University its completed standard form sales agreement under cover of a letter stating: "This acceptance is expressly made conditional on assent to terms of the enclosed sales agreement"? What if the letter stated: "Our acceptance is subject to all terms and conditions of the enclosed sales agreement"?
3. Suppose that University had only lined through the word "JAMS" in paragraph 13 of the standard form sales agreement and had written in its place "American Arbitration Association." A few days later, FlameOut signed and sent to University another copy of its standard form sales agreement. FlameOut had completed the appropriate blanks on the agreement in a manner consistent with the letter received from University except that it had left paragraph 13 unchanged (i.e. paragraph 13 still referred to JAMS). Before whom should an arbitration take place?
4. Suppose that University and FlameOut had agreed orally at their initial meeting to the key terms of a deal (model, quantity, price, manner and time of delivery and payment). Nothing was said, however, about a method of dispute resolution. A few days later, FlameOut signed and sent to University another copy of its standard form sales agreement. FlameOut had completed the appropriate blanks on the agreement in a manner consistent with the oral agreement. In a subsequent lawsuit, how should a court rule on FlameOut's motion to compel arbitration?
Part B
Suppose that the University of Pennsylvania were to order an integrated computer system from Avenet Computer Marketing. Look at the terms and conditions that the University of Pennsylvania would send in its purchase order and the terms and conditions that would appear in a responsive document from Avenet Computer Marketing. What conflicting terms do you see?
Part C
As we have seen in Part A, above, U.C.C 2-207 addresses two distinct issues: (1) have parties mutually assented to an exchange notwithstanding forms exchanged by the parties that are not identical (or notwithstanding a form confirmation that differs from a prior agreement)? (2) If the parties have mutually assented in such circumstances, what are the governing terms of their agreement? Amendments to U.C.C Article 2, recognizing the distinction between the two issues, both amend U.C.C 2-207(1) and relocate it as part of amended U.C.C 2-206. The balance of U.C.C 2-207 is altered significantly. See amended U.C.C 2-207. How would your answers to questions 1, 2, and 4 of Part A, above, change, if at all, under amended U.C.C 2-206 and 2-207?