The Conditional Acknowledgment: Formation, Arbitrability, and the Statute of Frauds
Harbor Bakery sends a purchase order to OvenWorks for a custom deck oven: $48,000, delivery and installation by June 1, and a statement that 'this offer is firm for ten days.' Two days later OvenWorks returns an acknowledgment with the same price and delivery date but adds (i) a mandatory arbitration clause and (ii) a conspicuous disclaimer of the implied warranty of merchantability, and states that 'acceptance is expressly conditioned on these additional terms.' Harbor's vice president signs the acknowledgment, emails it back, and writes 'approved - but we really need the June 1 date.' OvenWorks never delivers or installs the oven. On June 15, Harbor buys a comparable oven from a competitor for $61,000 and sues in state court for the $13,000 difference plus consequential losses. OvenWorks moves to compel arbitration. Harbor responds that the conditional acknowledgment was a counteroffer that was never accepted, that the arbitration clause is unenforceable, and that the Statute of Frauds bars enforcement.
1. Was a contract formed, and on whose terms?
Read the worked answer
Formation is governed by UCC §2-207. A definite and seasonable expression of acceptance operates as an acceptance even if it states additional or different terms, unless it is expressly made conditional on assent to those terms. OvenWorks's acknowledgment was expressly conditional, so it did not accept Harbor's offer; it was a counteroffer.
The counteroffer was then accepted. Harbor's vice president signed the acknowledgment and returned it with 'approved.' The added note about the June 1 date is best read as a reminder of a term already in both documents rather than as a new condition, so it does not prevent the acceptance from being operative. The result is a contract on OvenWorks's terms, including the arbitration clause and the conspicuous merchantability disclaimer.
Even if the June 1 language were treated as an added term, it would be a consistent additional term between merchants and would not defeat formation. Either way, Harbor cannot argue that no contract exists while simultaneously suing for its breach - the inconsistency in its position is itself telling.
2. Who decides whether the arbitration clause is enforceable, and how should the court rule on the motion to compel?
Read the worked answer
Under the Federal Arbitration Act and Prima Paint, the court decides whether the parties agreed to arbitrate at all, but the line is drawn by what the challenge targets. A challenge to the validity of the contract as a whole goes to the arbitrator; a challenge aimed specifically at the arbitration clause - fraud in the inducement of the clause itself, unconscionability of the clause - stays with the court. Harbor's argument that the conditional acknowledgment was a counteroffer never accepted attacks the entire agreement, not the arbitration clause alone. Unless that challenge is wholly groundless, it is for the arbitrator.
The 'material alteration' analysis under §2-207 does not help Harbor here, because the clause entered through acceptance of a counteroffer rather than through the additional-terms route. And the FAA preempts any state rule that would single out arbitration clauses for disfavored treatment. The court should compel arbitration; Harbor's formation defense is preserved for the arbitrator.
3. Is the Statute of Frauds satisfied? Explain the independent routes to satisfaction.
Read the worked answer
Yes, on several independent grounds. UCC §2-201 requires a writing signed by the party to be charged, indicating a transaction for goods and stating a quantity. OvenWorks's acknowledgment - its own form, on its own terms, sent to Harbor - is a writing authenticated by OvenWorks that states the quantity, so it satisfies the requirement against OvenWorks. Harbor's signed return of that document also functions as a merchant's confirmatory memorandum against Harbor.
The specially-manufactured-goods exception provides another route. A custom deck oven built to Harbor's specifications is not suitable for sale to others in the ordinary course, OvenWorks had reason to know it was for Harbor, and the circumstances - an order placed and accepted, a delivery date missed, and a substitute purchase - corroborate that the goods were specially made. The failure to deliver does not defeat the exception.
Damages are measured under the cover provisions: the $13,000 difference between the cover price and the contract price, plus consequential losses proved with reasonable certainty. The merchantability disclaimer is a separate question and is effective only because it is conspicuous.