Cross-7e: Case Problem with Sample Answer
Chapter 11: Sales, Leases, and E-Contracts
11–6. Case Problem with Sample Answer
In 1998,Johnson Controls, Inc. (JCI), began buying auto parts from Q.C. Onics Ventures, LP. For each part,JCI would inform Onics of its need and ask the price. Onics would analyze the specifications, contact its suppliers, and respond with a formal quotation. A quote listed a part’s number and description, the price per unit, and an estimate of units available for a given year. A quote did not state payment terms, an acceptance date, timing of performance, warranties, or quantities. JCI would select a supplier and issue a purchase order for a part. The purchase order required the seller to supply all of JCI’s requirements for the part but gave the buyer the right to end the deal at any time. Using this procedure, JCI issued hundreds of purchase orders. In July 2001, JCI terminated its relationship with Onics and began buying parts through another supplier. Onics filed a suit in a federal district court against Johnson, alleging breach of contract. Which documents—the price quotations or the purchase orders—constituted offers? Which were acceptances? What effect would the answers to these questions have on the result in this case? Explain. [Q.C. Onics Ventures, LP v. Johnson Controls, Inc., __ F.Supp.2d __ (N.D.Ind. 2006)]
Sample Answer:
Onics argued that the price quotations constituted offers and JCI’s purchase orders were acceptances, which contained additional terms subject to UCC 2–207. According to Onics, the purchase orders’ termination clause would not then be part of the parties’ contracts. JCI disagreed, arguing that its purchase orders were offers and that the terms of the purchase orders were the terms of the contracts. The court ruled that the price quotations were not offers. “Price quotations are a daily part of commerce by which products are shopped and commercial transactions initiated. Without more, they amount to an invitation to enter into negotiations, but generally they are not offers that can be accepted to form binding contracts.” In this case, “[t]he parties' conduct and the surrounding facts and circumstances do not suggest that the parties considered the price quotations as offers.” The price quotations did not include important terms other than pricing. Most “[s]ignificantly, the price quotations do not reference the quantity term—JCI's requirements—that both parties agree was a term of their agreements.” If each quotation were an offer, “the requirements term would be knocked out [by UCC 2–207], leaving no quantity term. Other important material terms other than the termination clause may also be knocked out, leaving a contract much different than what the parties expected or intended.” The court ruled, “However, ... it is clear [JCI’s] purchase orders were offers and they were accepted by [Onics]. Therefore, the terms of those offers became the terms of the agreement, including the term allowing [JCI] to terminate the agreements.”