CELEBREZZE, Circuit Judge.

This is an appeal from the District Court’s denial of Defendant-Appellant’s motion for a stay pending arbitration, pursuant to Section 3 of the United States Arbitration Act of 1925, 9 U.S.C. § 3. The suit arose after a series of over 55 transactions during 1968, 1969, and 1970 in which Plaintiffs-Appellees *1163 [hereinafter The Carpet Mart], carpet retailers in Kingsport, Tennessee, purchased carpets from Defendant-Appellant [hereinafter Collins & Aikman], incorporated under the laws of the State of Delaware, with its principal place of business in New York, New York, and owner of a carpet manufacturing plant [formerly the Painter Carpet Mills, Inc.] located in Dalton, Georgia. The Carpet Mart originally brought this action in a Tennessee state trial court,, seeking compensatory and punitive damages in the amount of $450,000 from Collins & Aikman for the latter’s alleged fraud, deceit, and misrepresentation in the sale of what were supposedly carpets manufactured from 100% Kodel polyester fiber. The Carpet Mart maintains that in May, 1970, in response to a customer complaint, it learned that not all of the carpets were manufactured from 100% Kodel polyester fiber but rather some were composed of a cheaper and inferior carpet fiber. After the cause was removed to the District Court on the basis of diversity of citizenship, Collins & Aikman moved for a stay pending arbitration, asserting that The Carpet Mart was bound to an arbitration agreement which appeared on the reverse side of Collins & Aikman’s printed sales acknowledgment forms. Holding that there existed no binding arbitration agreement between the parties, the District Court denied the stay. For the reasons set forth below, we remand the case to. the District Court for further findings.

I

We initially note that the denial of a motion to stay pending arbitration, although interlocutory in nature, is appealable to this Court. In Shanferoke Coal & Supply Corp. v. Westchester Service Corp., 293 U.S. 449, 55 S.Ct. 313, 79 L.Ed. 583 (1935), the Supreme Court held that a motion to stay pending arbitration under 9 U.S.C. § 3 is, in effect, an application for an interlocutory injunction, the denial of which is appealable under Section 9 of the Judicial Code [now, as amended, 28 U.S.C. § 1292.] See also Hoover Motor Express Co., Inc. v. Teamsters, Chauffeurs, Helpers and Taxicab Drivers, Local No. 327, 217 F.2d 49, 51 (6th Cir. 1954). We also find that there is no conflicts of law problem in the present case, the Uniform Commercial Code having been enacted in both Georgia and Tennessee at the time of the disputed transactions. G.C.A. Tit. 109A (eff. April 1, 1963) (without Official Comments); T.C.A. Tit. 47 (eff. June 30, 1964) (with Official Comments).

II

The primary question before us on appeal is whether the District Court, in denying Collins & Aikman’s motion for a stay pending arbitration, erred in holding that The Carpet Mart was not bound by the arbitration agreement appearing on the back of Collins & Aik-man’s acknowledgment forms. In reviewing the District Court’s determination, we must look closely at the procedures which were followed in the sales transactions which gave rise to the present dispute over the arbitration agreement.

In each of the more than 55 transactions, one of the partners in The Carpet Mart, or, on some occasions, Collins & Aikman’s visiting salesman, telephoned Collins & Aikman’s order department in Dalton, Georgia, and ordered certain quantities of carpets listed in Collins & Aikman’s catalogue. There is some dispute as to what, if any, agreements were reached through the telephone calls and through the visits by Collins & Aik-man’s salesman. After each oral order was placed, the price, if any, quoted by the buyer was checked against Collins & Aikman's price list, and the credit department was consulted to determine if The Carpet Mart had paid for all previous shipments. After it was found that everything was in order, Collins & Aikman’s order department typed the information concerning .the particular order on one of its printed acknowledgment forms. Each acknowledgment form bore one of three legends: “Acknowledgment,” “Customer Acknowledg *1164 ment,” or “Sales Contract.” The following provision was printed on the face of the forms bearing the “Acknowledgment” legend:

“The acceptance of your order is subject to all of the terms and conditions on the face and reverse side hereof, including arbitration, all of which are accepted by buyer; it supersedes buyer’s order form, if any. It shall become a contract either (a) when signed and delivered by buyer to seller and accepted in writing by seller, or (b) at Seller’s option, when buyer shall have given to seller specification of assortments, delivery dates, shipping instructions, or instructions to bill and hold as to all or any part of the merchandise herein described, or when buyer has received delivery of the whole or any part thereof, or when buyer has otherwise assented to the terms and conditions hereof.”

Similarly, on the face of the forms bearing the “Customer Acknowledgment” or “Sales Contract” legends the following provision appeared:

“This order is given subject to all of the terms and conditions on the face and reverse side hereof, including the provisions for arbitration and the ex-' elusion of warranties, all of which are accepted by Buyer, supersede Buyer’s order form, if any, and constitute the entire contract between Buyer and Seller. This order shall become a contract as to the entire quantity specified either (a) when signed and delivered by Buyer to Seller and accepted in writing by Seller or (b) when Buyer has received and retained this order for ten days without objection, or (c) when Buyer has accepted delivery of any part of the merchandise specified herein or has furnished to Seller specifications or assortments, delivery dates, shipping instructions, or instructions to bill and hold, or when Buyer has otherwise indicated acceptance of the terms hereof.”

The small print on the reverse side of the forms provided, among other things, that all claims arising out of the contract would be submitted to arbitration in New York City. Each acknowledgment form was signed by an employee of Collins & Aikman’s order department and mailed to The Carpet Mart on the day the telephone order was received or, at the latest, on the following day. 1 The carpets were thereafter shipped to The Carpet Mart, with the interval between the mailing of the acknowledgment form and shipment of the carpets varying from a brief interval to a period of several weeks or months. Absent a delay in the mails, however, The Carpet Mart always received the acknowledgment forms prior to receiving the carpets. In all cases The Carpet Mart took delivery of and paid for the carpets without objecting to any terms contained in the acknowledgment form.

In holding that no binding arbitration agreement was created between the parties through the transactions above, the District Court relied on T.C.A. § 47-2-207 [UCC § 2-207], which provides:

“(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 *1165 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 to them has already been given or is given within a reasonable time after notice of them is received.

“(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 chapters 1 through 9 of this title.”

The District Court found that Subsection 2-207(3) controlled the instant case, quoting the following passage from 1 W. Hawkland, A Transactional Guide to the Uniform Commercial Code § 1.-090303, at 19-20 (1964):

“If the seller . . . ships the goods and the buyer accepts them, a contract is formed under subsection (3). The terms of this contract are those on which the purchase order and acknowledgment agree, and the additional terms needed for a contract are to be found throughout the U.C.C.

[T]he U.C.C. does not impose an arbitration term on the parties where their contract is silent on the matter. Hence, a conflict between an arbitration and an no-arbitration clause would result in the no-arbitration clause becoming effective.”

Under this authority alone the District Court concluded that the arbitration clause on the back of Collins & Aikman’s sales acknowledgment had not become a binding term in the 50-odd transactions with The Carpet Mart.

In reviewing this determination by the District Court, we are aware of the problems which courts have had in interpreting Section 2-207. This section of the UCC has been described as a “murky bit of prose,” Southwest Engineering Co. v. Martin Tractor Co., 205 Kan. 684, 694, 473 P.2d 18, 25 (1970), as “not too happily drafted," Roto-Lith Ltd. v. F. P. Bartlett & Co., 297 F.2d 497, 500 (1st Cir. 1962), and as “one of the most important, subtle, and difficult in the entire Code, and well it may be said that the product as it finally reads is not altogether satisfactory.” Duesenberg & King, Sales and Bulk Transfers under the Uniform Commercial Code, (Vol. 3, Bender’s Uniform Commercial Code Service) § 3.03, at 3-12 (1969). Despite the lack of clarity in its language, Section 2-207 manifests definite objectives which are significant in the present case.

As Official Comment No. 1 indicates, UCC § 2-207 was intended to apply to two situations:

“The one is where an agreement has been reached either orally or by informal correspondence between the parties and is followed by one or both of the parties sending formal acknowledgments or memoranda embodying the terms so far as agreed upon and adding terms not discussed. The other situation is one in which a wire or letter expressed and intended as the closing or confirmation of an agreement adds further minor suggestions or proposals such as ‘ship by Tuesday,’ ‘rush,’ ‘ship draft against bill of lading inspection allowed,’ or the like.” T.C.A. § 47-2-207 [UCC § 2-207], Official Comment 1.

Although Comment No. 1 is itself somewhat ambiguous, it is clear that Section 2-207, and specifically Subsection 2-207(1), was intended to. alter the “ribbon matching” or “mirror” rule of common law, under which the terms of an acceptance or confirmation were required to be identical to the terms of the offer or oral agreement, respectively. 1 W. Hawkland, supra, at 16; R. Nords- *1166 trom, Handbook of the Law of Sales, Sec. 37, at 99-100 (1970). Under the common law, an acceptance or a confirmation which contained terms additional to or different from those of the offer or oral agreement constituted a rejection of the offer or agreement and thus became a counter-offer. The terms of the counter-offer were said to have been accepted by the original offeror when he proceeded to perform under the contract without objecting to the counter-offer. Thus, a buyer was deemed to have accepted the seller’s counter-offer if he took receipt of the goods and paid for them without objection.

Under Section 2-207 the result is different. This section of the Code recognizes that in current commercial transactions, the terms of the offer and those of the acceptance will seldom be identical. Rather, under the current “battle of the forms,” each party typically has a printed form drafted by his attorney and containing as many terms as could be envisioned to favor that party in his sales transactions. Whereas under common law the disparity between the fine-print terms in the parties’ forms would have prevented the consummation of a contract when these forms are exchanged, Section 2-207 recognizes that in many, but not all, cases the parties do not impart such significance to the terms on the printed forms. See 1 W. Hawkland, supra; § 1.0903, at 14, § 1.-090301, at 16. Subsection 2-207(1) therefore provides that “[a] definite and seasonable expression of acceptance or a written confirmation . . . 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.” Thus, under Subsection (1), a contract is recognized notwithstanding the fact that an acceptance or confirmation contains terms additional to or different from those of the offer or prior agreement, provided that the offeree’s intent to accept the offer is definitely expressed, see Sections 2-204 and 2-206, and provided that the offer-ee’s acceptance is not expressly conditioned on the offeror’s assent to the additional or different terms. When a contract is recognized under Subsection (1), the additional terms are treated as “proposals for addition to the contract” under Subsection (2), which contains special provisions under which such additional terms are deemed to have been accepted when the transaction is between merchants. Conversely, when no contract is recognized under Subsection 2-207(1) — either because no definite expression of acceptance exists or, more specifically, because the offeree’s acceptance is expressly conditioned on the of-feror’s assent to the additional or different terms — the entire transaction aborts at this point. If, however, the subsequent conduct of the parties — particularly, performance by both parties under what they apparently believe to be a contract — recognizes the existence of a contract, under Subsection 2-207(3) such conduct by both parties is sufficient to establish a contract, notwithstanding the fact that no contract would have been recognized on the basis of their writings alone. Subsection 2-207(3) further provides how the terms of contracts recognized thereunder shall be determined.

With the above analysis and purposes of Section 2-207 in mind, we turn to their application in the present case. We initially observe that the affidavits and the acknowledgment forms themselves raise the question of whether Collins & Aikman’s forms constituted acceptances or confirmations under Section 2-207. The language of some of the acknowledgment forms (“The acceptance of your order is subject to . ”) and the affidavit of Mr. William T. Hester, Collins & Aikman’s marketing operations manager, suggest that the forms were the only acceptances issued in response to The Carpet Mart’s oral offers. However, in his affidavit Mr. J. A. Castle, a partner in The Carpet Mart, asserted that when he personally called Collins & Aikman to order *1167 carpets, someone from the latter’s order department would agree to sell the requested carpets, or, alternatively, when Collins & Aikman’s visiting salesman took the order, he would agree to the sale, on some occasions after he had used The Carpet Mart’s telephone to call Collins & Aikman’s order department. Absent the District Court’s determination of whether Collins & Aik-man’s acknowledgment forms were acceptances or, alternatively, confirmations of prior oral agreements, we will consider the application of section 2-207 to both situations for the guidance of the District Court on remand.

Viewing Collins & Aikman’s acknowledgment forms as acceptances under Subsection 2-207(1), we are initially faced with the question of whether the arbitration provision in Collins & Aikman’s acknowledgment forms were in fact “additional to or different from” the terms of The Carpet Mart’s oral offers. In the typical case under Section 2-207, there exist both a written purchase order and a written acknowledgment, and this determination can be readily made by comparing the two forms. In the present case, where the only written forms were Collins & Aikman’s sales acknowledgments, we believe that such a comparison must be made between the oral offers and the written acceptances. 2 Although the District Court apparently assumed that The Carpet Mart’s oral orders did not include in their terms the arbitration provision which appeared in Collins & Aikman’s acknowledgment forms, we believe that a specific finding on this point will be required on remand. 3

Assuming, for purposes of analysis, that the arbitration provision was an addition to the terms of The Carpet Mart’s oral offers, we must next determine whether or not Collins & Aikman's acceptances were “expressly made conditional on assent to the additional terms” therein, within the proviso of Subsection 2-207(1). As set forth in full above, the provision appearing on the face of Collins & Aikman’s acknowledgment forms stated that the acceptances (or orders) were “subject to all of the terms and conditions on the face and reverse side hereof, including arbitration, all of which are accepted by buyer.” The provision on the “Acknowledgment” forms further stated that Collins & Aikman’s terms would become the basis of the contract between the parties

“either (a) when signed and delivered by buyer to seller and accepted in writing by seller, or (b) at Seller’s option, when buyer shall have given to seller specification of assortments, delivery dates, shipping instructions, or instructions to bill and hold as to all or any part of the merchandise herein described, or when buyer has received delivery of the whole or any part thereof, or when buyer has otherwise assented to the terms and conditions hereof.”

Similarly, the provision on the “Customer Acknowledgment” and “Sales Contract” forms stated that the terms therein would become the basis of the contract

“either (a) when signed and delivered by Buyer to Seller and accepted in writing by Seller or (b) when Buyer has received and retained this order for ten days without objection, or (c) *1168 when Buyer has accepted delivery of any part of the merchandise specified herein or has furnished to Seller specifications or assortments, delivery dates, shipping instructions to bill and hold, or when Buyer has otherwise indicated acceptance of the terms hereof.”

Although Collins & Aikman’s use of the words “subject to” suggests that the acceptances were conditional to some extent, we do not believe the acceptances were “expressly made conditional on [the buyer’s] assent to the additional or different terms,” as specifically required under the Subsection 2-207(1) proviso. In order to fall within this proviso, it is not enough that an acceptance is expressly conditional on additional or different terms; rather, an acceptance must be expressly conditional on the offeror’s assent to those terms. Viewing the Subsection (1) proviso within the context of the rest of that Subsection and within the policies of Section 2-207 itself, we believe that it was intended to apply only to an acceptance which clearly reveals that the offeree is unwilling to proceed with the transaction unless he is assured of the offeror’s assent to the additional or different terms therein. See 1 W. Hawkland, supra, § 1.090303, at 21. That the acceptance is predicated on the offeror’s assent must be “directly and distinctly stated or expressed rather than implied or left to inference.” Webster’s Third International Dictionary (defining “express”).

Although the UCC does not provide a definition of “assent,” it is significant that Collins & Aikman’s printed acknowledgment forms specified at least seven types of action or inaction on the part of the buyer which — sometimes at Collins & Aikman’s option — would be deemed to bind the buyer to the terms therein. These ranged from the buyer’s signing and delivering the acknowledgment to the seller — which indeed could have been recognized as the buyer’s assent to Collins & Aikman’s terms — to the buyer’s retention of the acknowledgment for ten days without objection— which could never have been recognized as the buyer’s assent to the additional or different terms where acceptance is expressly conditional on that assent. 4

To recognize Collins & Aikman’s acceptances as “expressly conditional on [the buyer’s] assent to the additional terms” therein, within the proviso of Subsection 2-207(1), would thus require us to ignore the specific language of that provision. 5 Such an interpretation is not justified in view of the fact that Subsection 2-207(1) is clearly designed to give legal recognition to many contracts where the variance between the offer and acceptance would have precluded such recognition at common law.

Because Collins & Aikman’s acceptances were not expressly conditional on the buyer’s assent to the additional terms within the proviso of Subsection 2-207(1), a contract is recognized under Subsection (1), and the additional terms are treated as “proposals” for addition to the contract under *1169 Subsection 2-207(2). 6 Since both Collins & Aikman and The Carpet Mart are clearly “merchants” as that term is defined in Subsection 2-104(1), the arbitration provision will be deemed to have been accepted by The Carpet Mart under Subsection 2-207(2) unless it materially altered the terms of The Carpet Mart’s oral offers. T.C.A. § 47-2-207(2) (b) [UCC § 2-207(2) (b)]. 7 We believe that the question of whether the arbitration provision materially altered the oral offer under Subsection 2-207(2) (b) is one which can be resolved only by the District Court on further findings of fact in the present case. 8 If the arbitration provision did in fact materially alter The Carpet Mart’s offer, it could not become a part of the contract “unless expressly agreed to” by The Carpet Mart. T.C.A. § 47-2-207 [UCC § 2-207], Official Comment No. 3.

We therefore conclude that if on remand the District Court finds that Collins & Aikman’s acknowledgments were in fact acceptances and that the arbitration provision was additional to the terms of The Carpet Mart’s oral orders, contracts will be recognized under Subsection 2-207(1). The arbitration clause will then be viewed as a “proposal” under Subsection 2-207(2) which will be deemed to have been accepted by The Carpet Mart unless it materially altered the oral offers.

If the District Court finds that Collins & Aikman’s acknowledgment forms were not acceptances but rather were confirmations of prior oral agreements between the parties, an application of Section 2-207 similar to that above will be required. Subsection 2-207(1) will require an initial determination of whether the arbitration provision in the confirmations was “additional to or different from” the terms orally agreed upon. Assuming that the District Court finds that the arbitration *1170 provision was not a term of the oral agreements between the parties, the arbitration clause will be treated as a “proposal” for addition to the contract under Subsection 2-207(2), as was the case when Collins & Aikman’s acknowledgments were viewed as acceptances above. The provision for arbitration will be deemed to have been accepted by The Carpet Mart unless the District Court finds that it materially altered the prior oral agreements, in which case The Carpet Mart could not become bound thereby absent an express agreement to that effect.

As a result of the above application of Section 2-207 to the limited facts before us in the present case, we find it necessary to remand the case to the District Court for the following findings: (1) whether oral agreements were reached between’the parties prior to the sending of Collins & Aikman’s acknowledgment forms; if there were no such oral agreements, (2) whether the arbitration provision appearing in Collins & Aikman’s “acceptances” was additional to the terms of The Carpet Mart’s oral offers; and, if so, (3) whether the arbitration provision materially altered the terms of The Carpet Mart’s oral offers. Alternatively, if the District Court does find that oral agreements were reached between the parties before Collins & Aik-man’s acknowledgment forms were sent in each instance, it will be necessary for the District Court to make the following findings: (1) whether the prior oral agreements embodied the arbitration provision appearing in Collins & Aik-man’s “confirmations”; and, if not, (2) whether the arbitration provision materially altered the prior oral agreements. Regardless of whether the District Court finds Collins & Aikman’s acknowledgment forms to have been acceptances or confirmations, if the arbitration provision was additional to, and a material alteration of, the offers or prior oral agreements, The Carpet Mart will not be bound to that provision absent a finding that it expressly agreed to be bound thereby.

III

If, on remand, the District Court finds that the arbitration provision exists as a term of the contracts recognized under this application of Section 2-207, Collins & Aikman’s motion for a stay pending arbitration must be granted despite the fact that this is an action in fraud. In Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), the Supreme Court held that in passing upon a motion for a stay pending arbitration under 9 U.S.C. § 3, a federal court may not consider claims of fraud in the inducement of the overall contract when the arbitration clause is sufficiently broad to encompass claims of fraud. Rather, in such cases a federal court may consider only claims which relate to the “making” of the arbitration agreement itself. 388 U.S. at 402-404, 87 S.Ct. 1801. In the present case, the language of Collins & Aikman’s arbitration clause is virtually identical to that of the- arbitration agreement in the Prima, Paint case. 9 Moreover, although The Carpet Mart challenges the legibility of the fine-print arbitration provision on the reverse side of Collins & Aikman’s forms (which was specifically called to the buyer’s attention on the face of those forms), The Carpet Mart’s claim of fraud relates only to the substitutions for Kodel polyester fibers under the overall contract and ndt to the arbitration clause itself. Therefore, upon a finding by the District Court that the arbitration clause was a term of the contracts recognized under T.C.A. § *1171 47-2-207 (UCC § 2-207), Collins & Aik-man’s motion for a stay pending arbitration must be granted.

For the reasons set forth above, the case is remanded to the District Court for further findings consistent with this opinion.

SPRECHER, Circuit Judge.

The sole issue on this appeal is whether the district court properly denied a stay of the proceedings pending arbitration under Section 3 of the Federal Arbitration Act, 9 U.S.C. § 3.

I

C. Itoh & Co. (America) Inc. (“Itoh”) submitted a purchase order dated August 15, 1974 for a certain quantity of steel coils to the Jordan International Company (“Jordan”). In response, Jordan sent its acknowledgment form dated August 19, 1974. On the face of Jordan’s form, the following statement appears:

Seller’s acceptance is, however, expressly conditional on Buyer’s assent to the additional or different terms and conditions set forth below and printed on the reverse side. If these terms and conditions are not acceptable, Buyer should notify seller at once.

One of the terms on the reverse side of Jordan’s form was a broad provision for arbitration. 1 Itoh neither expressly assented nor objected to the additional arbitration term in Jordan’s form until the instant litigation.

Itoh also entered into a contract to sell the steel coils that it purchased from Jordan to Riverview Steel Corporation, Inc. (“Riverview”). The contract between Itoh and Riverview contained an arbitration term which provided in pertinent part:

Any and all controversies arising out of or relating to this contract, or any modification, breach or cancellation thereof, except as to quality, shall be settled by arbitration. .

After the steel had been delivered by Jordan and paid for by Itoh, Riverview advised Itoh that the steel coils were defective and did not conform to the standards set forth in the agreement between Itoh and Riverview; for these reasons, River-view refused to pay Itoh for the steel. Consequently, Itoh brought the instant suit against Riverview and Jordan. Itoh alleged that Riverview had wrongfully refused to pay for the steel; as affirmative defenses, Riverview claimed that the steel was defective and that tender was improper since delivery was late. Itoh alleged that Jordan had sold Itoh defective steel and had made a late delivery of that steel.

Jordan then filed a motion in the district court requesting a stay of the proceedings pending arbitration under Section 3 of the Federal Arbitration Act, 9 U.S.C. § 3. The district court concluded that, as between Itoh and Riverview, the issue of whether the steel coils were defective was not referable to arbitration because of the “quality” exclusion in the arbitration provision of the contract between Itoh and Riverview. Since arbitration would not necessarily resolve all the issues raised by the parties, the district court, apparently assuming arguendo that there existed an agreement in writing between Jordan and Itoh to arbitrate their dispute, denied the stay pending arbitration. In the district court’s opinion, sound judicial administration required that the entire litigation be resolved in a single forum; since some of the issues — those relating to quality between Itoh and River-view — were not referable to arbitration, this goal could only be accomplished in the judicial forum.

It is from this denial of a stay pending arbitration that Jordan appeals. 2

*1231 II

Our inquiry begins with the question of whether, assuming arguendo that there existed an agreement in writing between Jordan and Itoh to arbitrate their dispute, the district court had the discretion under Section 3 of the Federal Arbitration Act, 9 U.S.C. § 3, to deny Jordan’s request for a stay pending arbitration of that dispute on the ground that sound judicial administration requires resolution of the entire lawsuit in a single forum and at least some of the disputed issues between Itoh and River-view were not referable to arbitration.

Section 3 of the federal statute provides: If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration (emphasis added).

The use of the word “shall” rather than “may” in Section 3 indicates that a district court, when presented with an application for a stay of proceedings pending arbitration, must grant the requested stay where two conditions are satisfied: (1) the issue is one which is referable to arbitration under an agreement in writing for such arbitration, and (2) the party applying for the stay is not in default in proceeding with such arbitration. As the Supreme Court held in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404, 87 S.Ct. 1801, 1806, 18 L.Ed.2d 1270 (1967):

[I]n passing upon a § 3 application for a stay while the parties arbitrate, a federal court may consider only issues relating to the making and performance of the agreement to arbitrate. In so concluding, we not only honor the plain meaning of the statute but also the unmistakably clear congressional purpose that the arbitration procedure, when selected by the parties to a contract, be speedy and not subject to delay and obstruction in the courts.

Considerations of judicial economy bear no relation to “the making and performance of an agreement to arbitrate,” and to permit a district court to deny a stay pending arbitration based on such discretionary considerations would, in our opinion, frustrate the strong federal policy in favor of arbitration which is expressed in the Federal Arbitration Act as interpreted by the Supreme Court. This conclusion is supported by the First Circuit’s decision in Hilti, supra. In that case, the district court had denied a stay pending arbitration because, inter alia, one of the defendants was not a party to the arbitration agreement. In summarily rejecting this basis for the district court’s decision, Judge Coffin stated:

Appellee did not — wisely, we think — attempt to support this basis for decision in brief or argument. If arbitration defenses could be foreclosed simply by adding as a defendant a person not a party to an arbitration agreement, the utility of such agreements would be seriously compromised. Id. at 369 n.2.

See also Acevedo Maldonado v. PPG Industries, Inc., 514 F.2d 614 (1st Cir. 1975); Lawson Fabrics, Inc. v. Akzona, Inc., 355 F.Supp. 1146 (S.D.N.Y.1973).

Accordingly, we hold that if Jordan was otherwise entitled to q stay pending *1232 arbitration of its dispute with Itoh under Section 3 of the Federal Arbitration Act, it was error to deny its application on the ground that the controversy between Itoh and Riverview had to be resolved in the judicial, not the arbitral, forum.

Ill

Having concluded that the district court had no discretion under Section 3 of the Federal Arbitration Act, 9 U.S.C. § 3, to deny Jordan’s timely application for a stay of the action pending arbitration if there existed an agreement in writing for such arbitration between Jordan and Itoh, the remaining issue is whether there existed such an agreement.

The pertinent facts may be briefly restated. Itoh sent its purchase order for steel coils to Jordan which contained no provision for arbitration. Subsequently, Jordan sent Itoh its acknowledgment form which included, inter alia, a broad arbitration term on the reverse side of the form. 3 On the front of Jordan’s form, the following statement also appears:

Seller’s acceptance is . expressly conditioned on Buyer’s assent to the additional or different terms and conditions set forth below and printed on the reverse side. If these terms and conditions are not acceptable, Buyer should notify Seller at once.

After the exchange of documents, Jordan delivered and Itoh paid for the steel coils. Itoh never expressly assented or objected to the additional arbitration term in Jordan’s form.

In support of its contention that there exists an agreement in writing to arbitrate, Jordan places some reliance on certain New York decisions interpreting Section 2-201 of the Uniform Commercial Code, the UCC Statute of Frauds provision. That section provides in pertinent part:

(1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought .

(2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within ten days after it is received.

Several New York lower court decisions have apparently held that under Section 2 — 201, where there has been an oral offer or agreement followed by a written confirmation containing an additional arbitration term and where the merchant recipient of the confirmation has reason to expect that a provision for arbitration would be included in any written confirmation of an oral offer or agreement, the arbitration provision becomes a part of the parties’ agreement unless notice of objection is given within the prescribed period. See, e. g., Trafalgar Square, Ltd. v. Reeves Brothers, Ltd., 35 A.D.2d 194, 315 N.Y.S.2d 239 (1970); In re Wolf kill Feed & Fertilizer Corp., 16 UCC Rep.Serv. 1188 (N.Y.Sup.Ct.1975); In re Dalil Fashions, Inc., 12 UCC Rep.Serv. 478 (N.Y.Sup.Ct.1973).

These decisions are premised on a fundamental misconception of the purpose and effect of Section 2-201. See generally Duesenberg & King, Sales and Bulk Transfers Under the Uniform Commercial Code § 308[1] at 97 — 99 (1976). The only effect of a failure to object to a written confirmation of an oral offer or agreement under Section 2-201 is to take away from the receiving *1233 merchant the defense of the Statute of Frauds. See Official Comment 3 to Section 2 — 201. See also Windsor Mills, Inc. v. Collins & Aikman Corp., 25 Cal.App.3d 987,101 Cal.Rptr. 347 (1972); American Parts Co. v. American Arbitration Ass’n., 8 Mich.App. 156, 154 N.W.2d 5 (1968); John Thallon & Co. v. M&N Meat Co., 396 F.Supp. 1239 (E.D.N.Y.1975). Although Section 2-201 may make enforceable an oral agreement which was in fact reached by the parties, it does not relieve the party seeking enforcement of the alleged oral agreement of the obligation to prove its existence. Official Comment 3 to Section 2-201. Section 2-201 obviously cannot be relied on to make a particular term, such as a provision for arbitration, binding on a party if that section does not even serve to establish the existence of an agreement.

The Official Comments make clear that, while under Section 2-201 the failure to object to a written confirmation of an oral agreement has the limited effect of removing the Statute of Frauds as a bar to the enforceability of an oral agreement, under Section 2-207 a failure to object to a term in a written confirmation may, under the circumstances specified by that section, have the effect of making that term a part of, whatever agreement is proved to have been reached by the parties. Official Comment 3 to Section 2-201. Hence, once the existence and terms of an alleged oral agreement have been established, it is necessary to refer to Section 2-207, Additional Terms in Acceptance or Confirmation, not Section 2-201, to ascertain whether a term included in a written confirmation but not in the parties’ oral agreement is binding on the recipient of the written confirmation. See, e. g., Dorton v. Collins & Aikman Corp., 453 F.2d 1161 (6th Cir. 1972); American Parts, supra; Frances Hosiery Mills, Inc. v. Burlington Industries, Inc., 285 N.C. 344, 204 S.E.2d 834 (1974); Medical Development Corp. v. Industrial Molding Corp., 479 F.2d 345 (10th Cir. 1973). See also White & Summers, Uniform Commercial Code 30 (1972); Davenport, How To Handle Sales Of Goods: The Problem Of Conflicting Purchase Orders And Acceptances And New Concepts In Contract Law, 19 Bus.Law 75, 81-82 (1963).

However, even if we assume that New York’s highest court would adhere to those lower court decisions and their extremely questionable application of the Statute of Frauds to situations where a party has added an arbitration term to a written confirmation of an oral offer or agreement, this is not such a situation. Jordan does not suggest that its acknowledgment form was simply a confirmation of a prior oral offer or agreement. Rather, Jordan’s argument is that the exchange of forms between itself and Itoh created a contract, which includes the additional arbitration term in Jordan’s form.

The instant case, therefore, involves the classic “battle of the forms,” and Section 2-207, not Section 2-201, furnishes the rules for resolving such a controversy. Hence, it is to Section 2-207 that we must look to determine whether a contract has been formed by the exchange of forms between Jordan and Itoh and, if so, whether the additional arbitration term in Jordan’s form is to be included in that contract. See, e. g., Application of Doughboy Industries, Inc., 17 A.D.2d 216, 233 N.Y.S.2d 488 (1962); In re Tunis Manufacturing Corp., 20 UCC Rep.Serv. 284 (N.Y.Sup.Ct.1976); Tunis Manufacturing Corp. v. Mystic Mills, Inc., 40 A.D.2d 664, 337 N.Y.S.2d 150 (1972); In re Barclay Knitwear Co., 8 UCC Rep.Serv. 44 (N.Y.Sup.Ct.1970); Construction Aggregates Corp. v. Hewitt-Robins, Inc., 404 F.2d 505 (7th Cir. 1968); Valmont Industries, Inc. v. Mitsui & Co., 419 F.Supp. 1238 (D.Neb.1976); Just Born, Inc. v. Stein, Hall & Co., 13 UCC Rep.Serv. 431, 59 Pa.D&C 407 (1971); Air Products & Chemicals, Inc. v. Fairbanks Morse, Inc., 58 Wis.2d 193, 206 N.W.2d 414 (1973). 4

*1234 IV

Section 2-207, Additional Terms in Acceptance or Confirmation, provides:

(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 to them has already been given or is given within a reasonable time after notice of them is received.

(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.

Under Section 2-207 it is necessary to first determine whether a contract has been formed under Section 2-207(1) as a result of the exchange of forms between Jordan and Itoh.

At common law, “an acceptance . which contained terms additional to . those of the offer . . . constituted a rejection of the offer . . . and thus became a counter-offer.” Dorton, supra, at 1166. Thus, the mere presence of the additional arbitration term in Jordan’s acknowledgment form would, at common law, have prevented the exchange of documents between Jordan and Itoh from creating a contract, and Jordan’s form would have automatically become a counter-offer.

Section 2-207(1) was intended to alter this inflexible common law approach to offer and acceptance:

This section of the Code recognizes that in current commercial transactions, the terms of the offer and those of the acceptance will seldom be identical. Rather, under the current “battle of the forms,” each party typically has a printed form drafted by his attorney and containing as many terms as could be envisioned to favor that party in his sales transactions. Whereas under common law the disparity between the fine-print terms in the parties’ forms would have prevented the consummation of a contract when these forms are exchanged, Section 2 — 207 recognizes that in many, but not all, cases *1235 the parties do not impart such significance to the terms on the printed forms. . Thus, under Subsection (1), a contract . . . [may be] recognized notwithstanding the fact that an acceptance . . . contains terms additional to those of the offer .

Id. at 1166. See also Comment 2 to Section 2-207; Air Products & Chemicals, supra; John Thallon, supra. And it is now well-settled that the mere presence of an additional term, such as a provision for arbitration, in one of the parties’ forms will not prevent the formation of a contract under Section 2-207(1). See, e. g., Dorton, supra; Valmont Industries, supra ; Just Born, supra ; John Thallon, supra; In re Barclay Knitwear Co., supra ; In re Tunis Manufacturing Corp., supra ; Mystic Mills, supra ; Air Products & Chemicals, supra. 5

However, while Section 2-207(1) constitutes a sharp departure from the common law “mirror image” rule, there remain situations where the inclusion of an additional term in one of the forms exchanged by the parties will prevent the consummation of a contract under that section. Section 2 — 207(1) contains a proviso which operates to prevent an exchange of forms from creating a contract where “acceptance is expressly made conditional on assent to the additional . . . terms.” In the instant case, Jordan’s acknowledgment form contained the following statement:

Seller’s acceptance is . expressly conditional on Buyer’s assent to the additional or different terms and conditions set forth below and printed on the reverse side. If these terms and conditions are not acceptable, Buyer should notify Seller at once.

The arbitration provision at issue on this appeal is printed on the reverse side of Jordan’s acknowledgment, and there is no dispute that Itoh never expressly assented to the challenged arbitration term.

The Court of Appeals for the Sixth Circuit has held that the proviso must be construed narrowly;

Although . . . [seller’s] use of the words “subject to” suggests that the acceptances were conditional to some extent, we do not believe the acceptances were “expressly made conditional on [the buyer’s] assent to the additional or different terms,” as specifically required under the Subsection 2-207(1) proviso. In order to fall within this proviso, it is not enough that an acceptance is expressly conditional on additional or different terms; rather, an acceptance must be expressly conditional on the offeror’s assent to those terms (emphasis in original).

Dorton, supra, at 1168. In Construction Aggregates Corp. v. Hewitt-Robins, Inc., 404 F.2d 505 (7th Cir. 1968), this court found that an acceptance came within the ambit of the Section 2-207(1) proviso even though the language employed in the acceptance did not precisely track that of the proviso. Under either Construction Aggregates or Dorton, however, it is clear that the statement contained in Jordan’s acknowledgment form comes within the Section 2-207(1) proviso. 6

*1236 Hence, the exchange of forms between Jordan and Itoh did not result in the formation of a contract under Section 2 — 207(1), and Jordan’s form became a counteroffer. “[T]he consequence of a clause conditioning acceptance on assent to the additional or different terms is that as of the exchanged writings, there is no contract. Either party may at this point in their dealings walk away from the transaction.” Duesenberg & King, supra, § 3.06[3] at 73. However, neither Jordan nor Itoh elected to follow that course; instead, both parties proceeded to performance — Jordan by delivering and Itoh by paying for the steel coils.

At common law, the “terms of the counter-offer were said to have been accepted by the original offeror when he proceeded to perform under the contract without objecting to the counter-offer.” Dorton, supra, at 1166. Thus, under pre-Code law, Itoh’s performance (i. e., payment for the steel coils) probably constituted acceptance of the Jordan counter-offer, including its provision for arbitration. However, a different approach is required under the Code.

Section 2-207(3) of the Code first provides that “[cjonduct 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.” As the court noted in Dorton, supra, at 1166:

[W]hen no contract is recognized under Subsection 2-207(1) . . . the entire transaction aborts at this point. If, however, the subsequent conduct of the parties — particularly, performance by both parties under what they apparently believe to be a contract — recognizes the existence of a contract, under Subsection 2-207(3) such conduct by both parties is sufficient to establish a contract, notwithstanding the fact that no contract would have been recognized on the basis of their writings alone.

Thus, “[s]ince . . . [Itoh’s] purchase order and . . . [Jordan’s] counter-offer did not in themselves create a contract, Section 2-207(3) would operate to create one because the subsequent performance by both parties constituted ‘conduct by both parties which recognizes the existence of a contract.’ ” Construction Aggregates, supra, at 509.

What are the terms of a contract created by conduct under Section 2-207(3) rather than by an exchange of forms under Section 2-207(1)? 7 As noted above, at common law the terms of the contract between Jordan and Itoh would be the terms of the Jordan counter-offer. However, the Code has effectuated a radical departure from the common law rule. 8 The second sentence of Section 2-207(3) provides that where, as here, a contract has been consummated by the conduct of the parties, “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.” Since it is clear that the Jordan and Itoh forms do not “agree” on arbitration, the only question which remains under the Code is whether arbitration may be considered a supplemen *1237 tary term incorporated under some other proyision of the Code.

We have been unable to find any case authority shedding light on the question of what constitutes “supplementary terms” within the meaning of Section 2-207(3) 9 and the Official Comments to Section 2-207 provide no guidance in this regard. We are persuaded, however, that the disputed additional terms (i. e., those terms on which the writings of the parties do not agree) which are necessarily excluded from a Subsection (3) contract by the language, “terms on which the writings of the parties agree,” cannot be brought back into the contract under the guise of “supplementary terms.” This conclusion has substantial support among the commentators who have addressed themselves to the issue. As two noted authorities on Article Two of the Code have stated:

It will usually happen that an offereeseller who returns an acknowledgment form will also concurrently or shortly thereafter ship the goods. If the responsive document [sent by the seller] contains a printed assent clause, and the goods are shipped and accepted, Subsection (3) of Section 2 — 207 comes into play. . [T]he terms on which the exchanged communications do not agree drop out of the transaction, and reference to the Code is made to supply necessary terms. . . . Rather than choosing the terms of one party over those of the other ... it compels supplying missing terms by reference to the Code.

Duesenberg & King, supra, § 3.06[4] at 73-74. Similarly, Professors White and Sumtners have concluded that “contract formation under subsection (3) gives neither party the relevant terms of his document, but fills out the contract with the standardized provisions of Article Two.” White & Summers, supra, at 29. 10

Accordingly, we find' that the “supplementary terms” contemplated by Section 2 — 207(3) are limited to those supplied by the standardized “gap-filler” provisions of Article Two. See, e. g., Section 2-308(a) (“Unless otherwise agreed . . . the place for delivery of goods is the seller’s place of business or if he has none his residence”); Section 2-309(1) (“The time for shipment or delivery or any other action under a contract if not . . . agreed upon shall be a reasonable time”); Section 2-310(a) (“Unless otherwise agreed . . . payment is due at the time and place at which the buyer is to receive the goods even though the place of shipment is the place of delivery”). Since provision for arbitration is not a necessary or missing term which would be supplied by one of the Code’s “gap-filler” provisions unless agreed upon by the contracting parties, there is no arbitration term in the Section 2-207(3) contract which was created by the conduct of Jordan and Itoh in proceeding to perform even though no contract had been established by their exchange of writings.

We are convinced that this conclusion does not result in any unfair prejudice to a seller who elects to insert in his standard sales acknowledgement form the statement that acceptance is expressly conditional on buyer’s assent to additional terms contained therein. Such a seller obtains a substantial benefit under Section 2-207(1) through the inclusion of an “expressly conditional” *1238 clause. If he decides after the exchange of forms that the particular transaction is not in his best interest, Subsection (1) permits him to walk away from the transaction without incurring any liability so long as the buyer has not in the interim expressly assented to the additional terms. Moreover, whether or not a seller will be disadvantaged under Subsection (3) as a consequence of inserting an “expressly conditional” clause in his standard form is within his control. If the seller in fact does not intend to close a particular deal unless the additional terms are assented to, he can protect himself by not delivering the goods until such assent is forthcoming. If the seller does intend to close a deal irrespective of whether or not the buyer assents to the additional terms, he can hardly complain when the contract formed under Subsection (3) as a result of the parties’ conduct is held not to include those terms. Although a seller who employs such an “expressly conditional” clause in his acknowledgement form would undoubtedly appreciate the dual advantage of not being bound to a contract under Subsection (1) if he elects not to perform and of having his additional terms imposed on the buyer under Subsection (3) in the event that performance is in his best interest, we do not believe such a result is contemplated by Section 2-207. Rather, while a seller may take advantage of an “expressly conditional” clause under Subsection (1) when he elects not to perform, he must accept the potential risk under Subsection (3) of not getting his additional terms when he elects to proceed with performance without first obtaining buyer’s assent to those terms. Since the seller injected ambiguity into the transaction by inserting the “expressly conditional” clause in his form, he, and not the buyer, should bear the consequence of that ambiguity under Subsection (3).

Moreover, even were we to assume arguendo that, in a simple diversity case, a disputed additional term, while not becoming part of a Section 2-207(3) contract as a consequence of the writings exchanged by the parties (which is clearly precluded by the language of Subsection (3)), could be brought into that contract as a “supplementary term” by implication from custom and usage, the district court’s denial of the stay application must still be affirmed. After the Supreme Court’s decision in Prima Paint, supra, it is clear that “this action is not a simple diversity suit, but involves federal rights asserted under the Federal Arbitration Act.” Commonwealth Edison Co. v. Gulf Oil Corp., 541 F.2d 1263 (7th Cir. 1976). Accordingly, “[f]ederal courts are bound to apply rules enacted by Congress with respect to matters' — here, a contract involving commerce — over which it has legislative power.” Prima Paint, supra, 388 U.S. at 406, 87 S.Ct. at 1807. Under Section 3 of the Federal Arbitration Act, 9 U.S.C. § 3, federal district courts may issue a stay order only where there is an agreement in writing for arbitration. While the arbitration provision need not be signed to come within Section 3, the Act requires that there be a written agreement to arbitrate. See Fisser v. International Bank, 282 F.2d 231 (2d Cir. 1960). As noted above, there is no written arbitration provision included in the contract created under Section 2-207(3) when Jordan and Itoh proceeded to performance.

Accordingly, for the reasons stated in this opinion, the decision of the district court is affirmed.

AFFIRMED.