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47. In that suit, which of the following arguments best supports the seller's position that the buyer must submit the dispute to arbitration?
A buyer sent a seller an offer to buy 50 tons of cotton of a specified quality. The offer contained no terms except those specifying the amount and quality of the cotton. The seller then sent an acknowledgment by fax. The acknowledgment repeated the terms of the buyer's offer and stated that shipment would occur within five days. Among 12 printed terms on the acknowledgment was a statement that any dispute about the cotton's quality would be submitted to arbitration. Neither the buyer nor the seller said anything further about arbitration. The seller shipped the cotton, and it was accepted by the buyer. A dispute arose between the buyer and the seller as to the quality of the cotton, and the seller asserted that the dispute had to be submitted to arbitration. The buyer instead sued the seller in court.
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One of the principal purposes of the bargain requirement is to prevent the enforcement of promises that in reality are just promises to make gifts. In the ordinary case of a promise to make a gift, the promise fails to be enforceable for lack of consideration not only because the promise is not part of the bargain, but also because no legal detriment is suffered by the promisee. Even in a business context, a promise can be unenforceable because of a lack of the requisite bargaining, such as a promise to allow tenants to renew leases or any other quasi-option contract scenario.
Under the pre-existing duty rule, if a party does or promises to do what he is already legally obligated to do, or if he forebears or promises to forebear from doing something which he is not legally entitled to do, he has not incurred the kind of legal detriment necessary to constitute consideration.
A common application of the pre-existing duty rule involves a creditor's agreement to accept payment by his debtor of lesser summer in satisfaction of the full debt. Since the debtor owes the full amount, by paying a partial amount, he is not doing anything that he was not already legally obligated to do. Therefore, most courts hold that the creditor's promise not to require payment of the full amount is not binding, for lack of consideration.
Under Uniform Commercial Code (UCC) § 2-207(2), an additional term is considered a proposal for addition to the contract. UCC § 2-207(2) also provides that an additional term becomes a term of the parties' contract if both parties are merchants unless certain specified circumstances are present. One such circumstance is where an additional term materially alters the parties' contract.
C is correct. Because the buyer's offer was silent as to arbitration, the arbitration provision in the seller's acknowledgment should be characterized as an additional term. Because both parties are merchants, the arbitration provision will be considered a term of the contract if the seller can successfully argue that the provision did not materially alter the parties' contract.
A is incorrect. Even assuming that arbitration is a more efficient dispute resolution mechanism, arbitration's relative efficiency is not the governing standard for assessing whether the arbitration provision became a term of the parties' agreement. As explained above, under the UCC, the arbitration provision will be considered a term of the contract if the seller can successfully argue that the provision did not materially alter the parties' contract.
B is incorrect. The question as to whether the arbitration provision did or did not contradict an express term of the offer is not the appropriate standard for determining whether the provision became a term of the parties' contract. As stated above, the correct standard is whether the seller's acknowledgment should be characterized as an additional term or if it materially alters the contract.
D is incorrect. Under the common law, an additional material term in a response to an offer constitutes a counteroffer. However, UCC Article 2 governs this transaction because it involves a sale of goods. Under UCC § 2-207, the presence of an additional term — the arbitration provision in the seller's acknowledgment — did not give rise to a counteroffer. Rather, a contract was formed, and the arbitration provision constituted a proposal for an addition to the contract. Moreover, under UCC § 2-207, a buyer's mere acceptance of goods does not constitute assent to an additional term contained in a seller's acceptance. However, under the standards set out in UCC § 2-207(2), the arbitration provision will be considered a term of the contract if the seller can successfully argue that the provision did not materially alter the parties' contract.