Summary. Two businesses agree on price, quantity, and delivery, exchange preprinted forms whose terms contradict each other, and perform without anyone reading the back pages. Section 2-207 exists to decide what happened, and it produces answers that surprise both parties, because the common-law rules it replaced gave everything to whoever sent the last form. This article works through the section clause by clause, explains the difference between additional and different terms and why the knockout rule usually decides it, covers the narrow escape hatch for acceptances expressly conditional on assent, and addresses the very different result when a contract forms through conduct. It closes with drafting and process changes that keep a company out of the problem.

Here is the fact pattern, which repeats in every industry that sells goods.

A buyer sends a purchase order. The front says: 1,000 units, $42 each, delivery March 15. The back says: seller warrants merchantability and fitness for purpose, seller indemnifies buyer for all claims, disputes are heard in the buyer's home county, buyer may cancel without charge, and consequential damages are recoverable.

The seller sends an order acknowledgment. The front repeats: 1,000 units, $42 each, March 15. The back says: all warranties disclaimed except a 90-day repair-or-replace obligation, liability capped at the purchase price, consequential damages excluded, disputes resolved by arbitration in the seller's home state, and title passes at the seller's dock.

The goods ship. The goods fail. The buyer's customer sues the buyer for $2 million.

Whose terms govern? The answer is not "the last form wins," it is not "the first form wins," and it is frequently "neither, and the Code supplies the answer instead." Getting from those forms to that answer is what § 2-207 does, and it is the single most misunderstood provision in Article 2.

What § 2-207 replaced

At common law, an acceptance had to be the mirror image of the offer. A response with any different or additional term was a counteroffer, which rejected the original offer. If the parties then performed, the performance was treated as acceptance of the counteroffer — the last shot doctrine.

Why that was intolerable in commercial practice. It meant that the party who sent the final piece of paper before performance imposed all of its terms, regardless of what anyone negotiated or intended. It rewarded procedural gamesmanship and had nothing to do with the parties' actual agreement, which was about goods, price, and delivery. Worse, it let a party that wanted out of a bad deal comb the forms for a discrepancy and declare that no contract had ever formed.

UCC § 2-207 rejects both features: it allows a contract to form despite mismatched terms, and it decides which terms are in without simply handing victory to whoever wrote last.

The text, in three parts

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter it; or (c) notification of objection has already been given or is given within a reasonable time.

(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

Three questions follow, in order: Did a contract form on the writings? If so, which of the responding form's terms came in? If not, did a contract form by conduct, and what are its terms?

Step one: did the second form accept?

"A definite and seasonable expression of acceptance." A responsive document qualifies if it indicates agreement to the deal — the dickered terms of quantity, description, and price. Boilerplate divergence on the back does not prevent acceptance. A document that differs on quantity, price, or the goods themselves is not an acceptance at all; it is a counteroffer under ordinary contract principles.

The escape hatch: "unless acceptance is expressly made conditional on assent." A responding party can avoid § 2-207(1) by making its response a counteroffer, but the courts read this clause narrowly.

Dorton v. Collins & Aikman Corp., 453 F.2d 1161 (6th Cir. 1972), set the standard formulation: the clause is effective only if it demonstrates that the offeree is unwilling to proceed with the transaction unless assured of the offeror's assent to the additional or different terms. Language stating that acceptance is "subject to" the seller's terms, or that the seller's terms "govern," typically does not suffice. The provision must track the statute and make clear that no contract exists without express assent.

C. Itoh & Co. (America) Inc. v. Jordan International Co., 552 F.2d 1228 (7th Cir. 1977), shows what happens when the clause does work and it is not what the drafter expected. The seller's acknowledgment contained a properly conditional arbitration clause. No contract formed on the writings. The parties then performed. The court held that a contract formed under § 2-207(3) — by conduct — and that its terms were the terms on which the writings agreed plus Code gap-fillers. The arbitration clause was not in the contract. The seller's carefully drafted conditional clause defeated the very term it was designed to protect.

That is the central irony of this area: a well-drafted "expressly conditional" clause usually gets you to subsection (3), which is often worse for the drafter than subsection (2) would have been.

Step two: additional terms

If the response operated as an acceptance, its additional terms — terms addressing subjects the offer did not cover — are proposals. Between non-merchants they require assent. Between merchants they come in automatically unless one of three exceptions applies.

Exception (a): the offer expressly limits acceptance to its terms. A purchase order stating "acceptance is expressly limited to the terms of this order; any additional or different terms are rejected" is effective and is standard drafting on the buyer side.

Exception (b): material alteration. The operative exception in most cases. Comment 4 to § 2-207 describes terms that materially alter as those that would "result in surprise or hardship if incorporated without express awareness by the other party."

Terms courts commonly find materially altering (and therefore excluded):

  • Disclaimers of implied warranties — Comment 4 names this expressly.
  • Limitations of remedy and exclusions of consequential damages — most courts, though not all, and there is real variation.
  • Arbitration clauses — courts split, with a growing number holding that arbitration is not per se material given its ubiquity, particularly in industries where it is customary.
  • Indemnification obligations.
  • Requirements that a claim be made within an unreasonably short time.
  • Significant liquidated damages or penalties.
  • Attorney's fee provisions, in most jurisdictions.

Terms courts commonly find NOT materially altering (and therefore included), per Comment 5:

  • A clause fixing a reasonable time for complaints within customary limits.
  • A clause providing for interest on overdue invoices at a customary rate.
  • A clause limiting remedy in a reasonable manner consistent with trade practice.
  • A clause requiring reasonable inspection of the goods.
  • Credit terms within the range of trade practice.

Trade usage and course of dealing matter enormously here. A term that is standard in an industry, that the parties have used before, or that the offeror has accepted repeatedly is unlikely to produce "surprise," which is half of the test. That is why the same arbitration clause can be material in one relationship and not in another.

Exception (c): objection. Notification of objection given before or within a reasonable time after receipt keeps the term out. Practically, this means a buyer that reads acknowledgments and objects in writing gets a better result than one that files them.

Step three: different terms

The Code says "additional terms." It does not say what happens to different terms — those that contradict a term in the offer. Section 2-207(1) mentions "additional to or different from," but subsection (2) addresses only "additional." Whether that omission was deliberate is one of the most-discussed drafting puzzles in American commercial law, and courts have taken three positions.

1. The knockout rule — the majority, and the approach of Comment 6. Conflicting terms cancel each other out, and the resulting gap is filled by the Code's default provisions. Northrop Corp. v. Litronic Industries, 29 F.3d 1173 (7th Cir. 1994), surveys the approaches and adopts the knockout rule as the majority position and the one most consistent with the section's purpose of not privileging either form.

2. Treat different terms like additional terms — apply subsection (2), so the different term comes in unless it materially alters. A minority approach; note that a term genuinely contradicting the offer will almost always materially alter it, so this frequently converges with option 3.

3. The offeror's terms control — the different term simply drops out, leaving the offer's term. A smaller minority, sometimes called the California approach.

Under the majority knockout rule, the opening hypothetical resolves like this:

  • Warranty: buyer's warranty demand and seller's disclaimer knock out. The Code's implied warranties of merchantability (§ 2-314) and fitness for a particular purpose (§ 2-315) apply by default. The seller loses its disclaimer entirely — the worst outcome available to it.
  • Consequential damages: buyer's provision allowing them and seller's exclusion knock out. Code default under § 2-715 allows consequential damages that were foreseeable. Seller loses again.
  • Arbitration: the buyer's form is silent, so arbitration is an additional term analyzed under subsection (2), and in a majority of courts it materially alters. No arbitration.
  • Forum: knock out; ordinary venue rules apply.
  • Liability cap: additional or different depending on the forms; likely material either way. Gone.

The seller wrote a careful protective form and ended up with implied warranties, uncapped consequential damages, and litigation in the buyer's chosen forum. That is the ordinary result, and it is why sellers should care about this section more than buyers do.

Subsection (3): contracts formed by conduct

If the writings do not establish a contract — because the response was expressly conditional, or because a party's document was a genuine counteroffer — but the parties nonetheless ship and pay, subsection (3) supplies a contract.

Its terms are:

  1. Terms on which the writings agree. Quantity, price, description, delivery — and, importantly, any boilerplate that happens to match.
  2. Supplementary terms incorporated under other Code provisions — the gap-fillers.

The gap-fillers that fill the space, and which every drafter should know because they are the default outcome of a failed battle of the forms:

  • § 2-314: implied warranty of merchantability, where the seller is a merchant in goods of that kind.
  • § 2-315: implied warranty of fitness for a particular purpose, where the seller knows of the purpose and the buyer relies.
  • § 2-308: place of delivery is the seller's place of business.
  • § 2-310: payment due at the time and place the buyer receives the goods.
  • § 2-509: risk of loss rules, which for a non-shipment contract with a merchant seller pass risk on the buyer's receipt of the goods.
  • § 2-714 and § 2-715: buyer's damages for breach, including incidental and consequential damages.
  • § 2-725: a four-year limitations period.
  • No arbitration, no forum selection, no liability cap, no indemnity, no fee-shifting. These are not Code defaults, so they are simply absent.

The strategic asymmetry. A subsection (3) outcome is generally favorable to buyers and unfavorable to sellers, because Article 2's defaults are protective of buyers. A seller whose form fails to make it into the contract is left with full implied warranties and open-ended consequential damages exposure. This is the single most important practical point in this article for anyone who sells goods.

Written confirmations, and the same analysis in different clothes

Section 2-207(1) covers not only responsive acceptances but "a written confirmation which is sent within a reasonable time." That applies where the parties reached an oral agreement — a phone call, a trade show handshake — and one or both then sends a confirming document with additional terms.

The analysis is the same: additional terms are proposals, they come in between merchants unless they materially alter, and conflicting confirmations knock out. Where only one party sends a confirmation, that party's non-material additional terms come in unless objected to — which makes a prompt written objection valuable and cheap.

Section 2-207 also does work under the statute of frauds. § 2-201(2) provides that between merchants, a written confirmation sufficient against the sender satisfies the statute against the recipient unless written notice of objection is given within ten days. A company that receives confirmations it disagrees with and says nothing has both satisfied the statute of frauds against itself and let the sender's non-material terms into the contract.

Software, click-through, and rolling contracts

The battle of the forms has a digital analogue that the courts have handled inconsistently.

Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3d Cir. 1991), applied § 2-207 straightforwardly: the parties formed a contract by phone and purchase order, and the box-top license that arrived later contained additional terms, including a warranty disclaimer, which materially altered and therefore did not become part of the contract.

ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996), and Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997), took a different route. Judge Easterbrook reasoned that § 2-207 applies where two forms are exchanged, and that in a consumer transaction with only one form, the vendor is the master of the offer and may propose that acceptance occur by conduct — using the software, keeping the computer past a return period — after the terms are disclosed. The result is the "rolling contract," in which terms delivered inside the box are enforceable.

Klocek v. Gateway, Inc., 104 F. Supp. 2d 1332 (D. Kan. 2000), rejected the Hill analysis and applied § 2-207, holding that the vendor's standard terms were additional terms that did not become part of the contract absent express agreement.

Where this leaves practitioners. For business-to-business goods transactions, § 2-207 is the operative framework and the ProCD line is a poor fit. For consumer and software transactions, the enforceability question is generally analyzed today under the reasonable-notice-and-manifestation-of-assent framework applied to clickwrap and browsewrap agreements rather than under Article 2 at all. The practical lesson is the same in both settings: present terms before or at the moment of assent, and obtain an affirmative act of acceptance. Terms delivered after the deal is done are vulnerable everywhere.

Article 2A, and the CISG

Leases of goods. UCC § 2A-207 exists in some enacting states but is not uniform; several states omitted it, applying common-law formation rules to equipment leases. Check the state.

International sales. The United Nations Convention on Contracts for the International Sale of Goods applies by default to contracts between parties whose places of business are in different Contracting States, displacing the UCC unless the parties opt out expressly. Its formation rules are materially different:

  • Article 19 retains a modified mirror image rule. A reply purporting to accept but containing additions or modifications is a rejection and counteroffer.
  • But additional terms that do not materially alter the offer become part of the contract unless the offeror objects without undue delay.
  • Article 19(3) lists what is deemed material: terms relating to price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other, and the settlement of disputes. That list captures nearly every term in a standard-form fight, which means the CISG effectively restores the last shot doctrine for the terms that matter.
  • The CISG has no parol evidence rule and no statute of frauds (Article 11), so oral agreements and prior negotiations are admissible.

Practical instruction: decide deliberately whether the CISG applies, and if you want the UCC, say so explicitly — "the United Nations Convention on Contracts for the International Sale of Goods shall not apply." A choice-of-law clause selecting "the laws of the State of New York" does not opt out, because the CISG is part of the law of New York.

Getting out of the problem

The doctrine is interesting. Living inside it is not. Here is how companies avoid it.

1. Sign a master agreement. A negotiated master purchase or supply agreement, with releases and purchase orders operating only as ordering documents for quantity, price, and delivery, eliminates the battle entirely. Include an express provision stating that the master agreement governs and that any additional or different terms in any purchase order, acknowledgment, invoice, packing slip, or other form are void and of no effect, regardless of when sent or whether objected to.

2. If you are the seller, do not rely on an "expressly conditional" clause. As C. Itoh shows, it usually leads to subsection (3), where the Code's buyer-friendly defaults apply. If you use one, be prepared to actually stop performance until the buyer assents. Most sales organizations will not, which makes the clause worse than useless.

3. If you are the buyer, use the subsection (2)(a) lever. State on the purchase order that acceptance is expressly limited to the terms of the order and that additional or different terms are rejected. This is effective, it is cheap, and it costs nothing operationally.

4. Object in writing, promptly. Both exceptions (a) and (c) of subsection (2) reward the party that reads the other side's form. A short standard letter — "we object to the terms in your acknowledgment dated X; our purchase order terms govern" — sent within days of receipt, preserves the position. Build it into order processing rather than leaving it to counsel.

5. Get the important terms onto the front page. Terms that appear in the dickered portion of a document, particularly if initialed or specifically referenced, are far harder to characterize as boilerplate proposals, and they are much less likely to produce "surprise."

6. Make warranty and remedy terms conspicuous and compliant. § 2-316 requires that a disclaimer of merchantability mention merchantability and, if written, be conspicuous, and that a fitness disclaimer be in writing and conspicuous. § 2-719 permits limitation of remedy but the limitation fails if the exclusive remedy fails of its essential purpose, and a limitation of consequential damages for personal injury in consumer goods is prima facie unconscionable. A disclaimer that survives § 2-207 can still fail under § 2-316.

7. Audit the forms. Most companies' purchase order and acknowledgment terms were drafted once, long ago, by someone no longer there, and have never been read against each other. An hour spent comparing your own two forms — and comparing them to your five largest counterparties' forms — is the highest-value work available in this area.

Litigating a 2-207 dispute

When the dispute arrives, the analysis is document-driven and the record usually already exists.

Assemble the chronology. Every communication in sequence: RFQ, quotation, purchase order, acknowledgment, invoice, packing slip, delivery receipt, payment, and every email. The order in which documents were sent determines who was the offeror, and that determines which subsection (2) exception is available.

Identify the offer. A quotation is usually not an offer — it is an invitation, unless it is detailed and definite and uses language of commitment. That means the purchase order is typically the offer and the acknowledgment is the acceptance, which places the buyer in the favorable position of being able to limit acceptance to its own terms. Where a quotation is sufficiently definite to be an offer, the roles reverse, and sellers who want that outcome should draft quotations accordingly — with quantity, price, and a stated commitment to sell.

Classify each disputed term. Additional or different? Material or not? Was there an express limitation, or a timely objection?

Develop trade usage and course of dealing. § 1-303 makes course of performance, course of dealing, and usage of trade relevant to interpreting the agreement and to the "surprise" element of materiality. Depose the purchasing and sales personnel about what they understood the terms to be and what the industry does. Prior transactions between the same parties on the same forms are the strongest evidence available.

Watch for the arbitration wrinkle. If arbitration is one of the disputed terms, the threshold question of whether the parties agreed to arbitrate is for the court, not the arbitrator, unless there is clear and unmistakable evidence of an agreement to delegate — and where the very existence of an agreement is disputed under § 2-207, courts generally decide it themselves.

Consider partial performance and modification. § 2-209 permits modification without consideration, and a course of performance in which one party repeatedly honored the other's term can amount to modification or waiver. A seller that paid several consequential-damage claims without objection has a problem arguing its exclusion was in the contract.

A short worked example

Facts. A food processor emails a supplier: "Please quote 40,000 lbs of pectin, delivery weekly through Q3." The supplier responds with a quotation stating price, delivery schedule, and "subject to Seller's standard terms and conditions, available at [URL]," which include a warranty disclaimer, a liability cap at the price of the nonconforming goods, and arbitration. The processor sends a purchase order stating "acceptance of this order is expressly limited to its terms; seller's additional or different terms are rejected," with its own back-page terms including full warranties and consequential damages. The supplier ships without further comment. Six weeks in, contaminated pectin forces a recall costing $3.1 million.

Analysis.

  • The quotation is likely not an offer, because "quote" language plus incorporated standard terms generally signals an invitation. So the purchase order is the offer.
  • Shipment is acceptance by performance under § 2-206. No responsive form was sent, so there is nothing to trigger the additional-terms analysis at all.
  • The supplier's standard terms, referenced only in the quotation, were not incorporated into the offer the buyer made. They are not in the contract.
  • The processor's terms govern, including consequential damages. The supplier faces the recall claim with no cap and no disclaimer.

Change one fact. Suppose the supplier had sent an acknowledgment repeating its terms. Now § 2-207(2) applies, the buyer's purchase order expressly limited acceptance to its own terms, and subsection (2)(a) keeps the supplier's terms out anyway. The supplier loses either way, and the only path that would have helped it was refusing to ship until the processor signed a supply agreement.

That is the honest bottom line for sellers: in a form fight, the Code's defaults are the floor, and the floor is not comfortable. The only reliable protection is a signed agreement, obtained before the goods leave the dock.

Closing thought

Section 2-207 has a reputation as the most confusing provision in the Uniform Commercial Code, and the drafting is genuinely imperfect — the omission of "different" from subsection (2) has generated fifty years of litigation over what is probably an oversight. The 2003 amendments to Article 2 would have rewritten the section to eliminate the additional-versus-different distinction and adopt a clean knockout rule, but no state adopted them and they were withdrawn in 2011.

What survives is a section that does something valuable despite its flaws: it lets commerce proceed on the terms the parties actually negotiated, and refuses to let a party manufacture an escape from a deal by pointing at inconsistent boilerplate nobody read. The cost is unpredictability about the terms in the back pages. The cure for that is not better litigation. It is a signed agreement, a form that says the right thing, and a process that objects to the other side's form within a week.

A form audit, in practice

The recommendation to "audit the forms" is easy to state and rarely done, so here is what it involves. Budget half a day.

Step 1 — Collect every document your company sends or receives in an order. In most companies this is more than anyone expects: a web quote, a PDF quotation, a proposal, an order confirmation email generated by the ERP system, an invoice, a packing slip, a bill of lading, an installation acceptance form, and a portal click-through. Each may contain terms, and several were probably configured by an implementation consultant years ago.

Step 2 — Determine, for each document, whether it is an offer, an acceptance, a confirmation, or none of the above. Then check whether the document's language matches that role. A quotation intended to be an offer should say so and should contain quantity, price, and a commitment. An acknowledgment intended to accept should not contain language that turns it into a counteroffer by accident.

Step 3 — Compare the terms across your own documents. It is common to find that the invoice's terms conflict with the acknowledgment's terms, which conflict with the terms on the website. That inconsistency is a gift to an opponent, because it undermines any argument that a particular set of terms was the company's known and consistent practice.

Step 4 — Compare against your top counterparties' forms. Line up the ten terms that matter — warranty, remedy limits, consequential damages, indemnity, insurance, title and risk of loss, dispute resolution, governing law, payment and interest, termination — and mark which of yours would survive under the knockout rule. The exercise usually reveals that the company's most important protections are the ones most likely to be knocked out.

Step 5 — Fix the process, not just the paper. Assign responsibility for objecting to counterparty forms, with a template letter and a five-day service level. Configure the ERP system to attach the current terms rather than a 2014 PDF. Train the sales team that "we'll just send our acknowledgment" is not a substitute for a signed agreement on any order above a threshold the company sets.

Step 6 — Set the threshold. Not every order justifies a negotiated contract. Pick a dollar figure, a risk category (anything installed in a customer's product, anything sold into a regulated end-use, anything with a recall exposure), or a customer tier, and require a signed agreement above it. Below it, accept that the Code's defaults will govern and price accordingly — which is a legitimate business decision, so long as someone has made it deliberately rather than by accident.

A note on insurance and indemnity as substitutes. When the contract terms are uncertain, the risk does not disappear; it moves to the insurance program. A seller whose disclaimers may be knocked out should confirm that its commercial general liability policy covers the products-completed operations hazard at adequate limits, that recall coverage exists if the products go into food, pharmaceuticals, automotive, or aviation applications, and that the policy's contractual liability exclusion has the standard carve-out for liability assumed in an "insured contract." A buyer in the same position should require additional insured status by endorsement rather than by contract language alone, obtain certificates that name the correct entity, and confirm that the endorsement is primary and non-contributory. These protections operate regardless of which form won, and they are frequently more valuable than the boilerplate the parties are fighting about.

Finally, keep the electronic trail. Section 2-207 disputes are decided on sequence, and sequence lives in email headers, ERP timestamps, and EDI transaction logs. Companies that purge order-related email on a short retention schedule routinely find themselves unable to prove which document arrived first — which is the fact the whole analysis turns on. Extend retention for order documents to at least the four-year period of § 2-725 plus a margin, and make sure the retention policy captures automatically generated confirmations, which are often stored outside the mail system entirely.

Primary authority

Section 2-207 is short, badly drafted, and endlessly litigated. Read it alongside the provisions that decide whether it applies at all.

  • UCC § 2-207 — the section itself, in the pre-2003 form still enacted in every state. The 2003 amendments were withdrawn in 2011 and adopted nowhere.
  • UCC § 2-204 and § 2-206 — contract formation generally, and the reason a contract can exist before anyone reaches the boilerplate.
  • UCC § 2-201 — the statute of frauds, including the merchant confirmatory memorandum exception in § 2-201(2) that turns a silent recipient into a bound party.
  • UCC § 1-303 — course of performance, course of dealing, and usage of trade, which fill the gaps § 2-207 knocks out.
  • UCC §§ 2-312 through 2-316 — the warranties that become the fight, and the conspicuousness and safe-harbor language required to disclaim them.
  • UCC § 2-719 — limitation of remedy, the failure-of-essential-purpose doctrine, and the unconscionability limit on consequential damage exclusions.
  • UCC § 2-207(3) — the knockout result when conduct establishes a contract the writings did not.
  • Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3d Cir. 1991) — the leading application of the "expressly conditional" proviso.
  • ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) and Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997) — the rolling-contract line that routes around § 2-207 by finding a single offer.
  • Klocek v. Gateway, Inc., 104 F. Supp. 2d 1332 (D. Kan. 2000) — the leading contrary view.
  • CISG Articles 14–24, and Article 19 in particular — the mirror-image-with- exceptions rule that displaces § 2-207 in cross-border sales unless opted out.

Related articles

This article is provided for general informational purposes and does not constitute legal advice. States differ on the treatment of different terms, on whether particular clauses materially alter, and on the adoption of Article 2A's formation provision. Consult qualified commercial counsel before relying on standard-form terms in a significant transaction.