## Facts

- A general contractor issued a purchase order to a chiller manufacturer for chillers to be used on a government project; the purchase order included a one-year manufacturer’s warranty and required compliance with attached specifications.
- The manufacturer responded with a preprinted customer acknowledgment containing warranty disclaimers and limitations, a clause stating its terms controlled, and a clause treating silence as assent.
- The parties did not resolve the conflicting boilerplate terms; the manufacturer delivered the chillers and the buyer paid.
- The buyer alleged the chillers were nonconforming and that it incurred added installation and remedial costs.
- After startup, problems were reported with two chillers; the buyer requested on-site warranty repairs.
- The manufacturer offered limited warranty service consistent with its acknowledgment terms; repairs were ultimately performed by an independent contractor, and the buyer claimed resulting losses.
- The trial court treated the acknowledgment as a counteroffer accepted by the buyer’s silence and performance and entered judgment for the manufacturer based on the acknowledgment’s warranty limitations.

## Issues

1. Under UCC § 2-207(1), whether the manufacturer’s acknowledgment with different warranty terms was a definite and seasonable expression of acceptance or a counteroffer because it purported to make its terms controlling.
2. If a contract was formed by the exchange of forms, how conflicting warranty terms should be handled under UCC § 2-207, including whether to apply the knock-out rule and substitute UCC gap-fillers.

## Decision

- The Supreme Court of New Mexico reversed.
- The court held the acknowledgment should not have been treated as a counteroffer solely because it contained materially different warranty terms.
- The court concluded the acknowledgment could constitute an acceptance under UCC § 2-207(1) because it did not make acceptance expressly conditional on the buyer’s assent to the new terms.
- The court adopted the knock-out rule for conflicting terms under UCC § 2-207: conflicting warranty provisions in the parties’ forms cancel each other and are replaced by UCC default provisions.
- The case was remanded for further proceedings applying the correct UCC § 2-207 framework, including determining warranty obligations, breach, and damages under the resulting terms.

## Legal Principles

- A written response can form a contract under UCC § 2-207(1) even if it states terms additional to or different from the offer, unless acceptance is expressly conditional on the other party’s assent to those terms.
- Boilerplate language asserting that the seller’s terms control, or deeming silence to be assent, does not by itself satisfy the “expressly conditional” requirement.
- In a merchant “battle of the forms,” directly conflicting terms are removed under the knock-out rule, and the UCC supplies the governing default warranties and remedies.

## Conclusion

The court rejected a mirror-image, counteroffer-by-different-terms approach in a merchant sale-of-goods dispute, held that the seller’s acknowledgment could be an acceptance under UCC § 2-207 absent an expressly conditional acceptance, and adopted the knock-out rule so conflicting warranty clauses are replaced by UCC default provisions on remand.


Gardner Zemke Co. v. Dunham-Bush, Inc., 115 N.M. 260, 850 P.2d 319 (N.M. 1993)