Here is the all-too-common scenario:

  • Buyer issued the Request for Quotation with Buyer’s standard Terms and Conditions (“T&C”)
  • Seller provides its quotation with Seller’s standard T&C
  • The parties negotiate the high points (price, quantity, timeline, etc.)
  • Buyer issues a Purchase Order with Buyer’s standard T&C (sometimes asks Seller to sign)
  • Seller sends its Order Acknowledgement with Seller’s standard T&C (sometimes asks Buyer to sign)
  • Seller ships the goods and Buyer accepts shipment
  • Something falls apart and dispute arises (defective product, late delivery, lack of payment, etc.)
  • Despite initial efforts, the dispute cannot be resolved

Now what?! Do you have a contract? What are the terms of the contract? Whose T&C is in control?

Companies that are engaged in the business of purchasing and selling goods understand the importance of being intimately familiar with Article 2 of the Uniform Commercial Code (“UCC”). Article 2 governs, among other things, the formation of contracts for the sale of goods, offers and acceptances which contain differing terms, interpretation of contracts that are missing some of their essential terms, modifications to contracts, and the acceptance and rejection of goods.

In those situations in which there is a divergence between offer and acceptance, we deal with the “battle of the forms.” At common law, a contract is formed following an offer and acceptance. The “mirror image” rule, under common law, does not allow for a contract to be formed if the acceptance does not mirror the terms of the offer. The UCC follows a much more liberal interpretation of the common law “mirror image” rule that makes it easier for parties to form a contract.

The UCC provides that “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.” Given this provision, a contract will be formed even if the response to the offer contains additional or different terms, as long as: (a) the acceptance is sent in a reasonable time frame; and (b) it constitutes a definite expression of acceptance. When these elements are met, and the additional terms do not materially alter or change the bargain, a contract will be formed which includes the additional terms.

As is usually the case under the law, this rule is not without its exceptions. Where the accepting party expressly states that a contract will not be formed unless the offeror accepts the additional or different terms in the contract, there will be no meeting of the minds or formation of a contract unless and until the original offer “assents” to the additional or different terms. For this exception to apply, the requirement of assent must be imposed “expressly.” The mere fact that a seller responds to an offer by enclosing its terms and conditions does not constitute a “requirement of assent.” To be deemed a requirement of assent, the seller must expressly make the contract conditional on the buyer’s assent to the additional or different terms - effectively creating a counteroffer. If a seller or buyer is adamant about having its terms control, the best practice is to include an acknowledgment form in the offer or acceptance which contains assent language.

As is frequently the case, when a buyer or seller receives an acknowledgment form requiring that assent to the additional or different terms, it will ignore the acknowledgment form and commence performance without signing the acknowledgment. Although the law is not entirely settled as to whether such conduct constitutes sufficient “assent” to the additional or different terms, the UCC does contain language under which conduct can be deemed acceptance of an offer.

Once it has been determined whether a contract has been formed, the next question that comes into play is whether the divergent terms become part of the contract. If it is determined that there is a contract based on the documents exchanged, any mirror terms are accepted as well as additional terms that are not material. Any material alterations would not be accepted. Any contradictory terms would be removed entirely. Typically speaking, a seller’s protective terms do not become part of the contract and the buyer wins the battle of the forms.

When it is determined that there is no contract on the writings, the buyer and seller could theoretically walk away from the deal, as they are not bound by contract. However, if a seller ships and the buyer accepts shipment, a contract may exist as a result of conduct of the parties. The terms of the contract would be any non-divergent terms, and all remaining terms would be supplied by pro-buyer UCC “gap fillers.” These “gap fillers” include implied warranties of merchantability and fitness, no limit of liability for seller, consequential damages, four-year statute of limitations, and a full palate of buyer’s remedies.

The importance of careful contract drafting and contract review should not be overlooked. Considering the results that can stem from the application of the UCC, buyers and sellers alike would be remiss to simply rely on the terms and conditions of their respective contract forms. Although tempting to assume that the UCC will result in the reasonable intent of the parties, such assumptions can be fatal and can result in the inclusion of terms to which neither the buyer nor seller agreed.

The following elements can serve as practice pointers to avoid the “battle of the forms”:

  • Become intimately familiar with Article 2. Having understanding of Article 2, and the court’s interpretation of its provisions, will provide invaluable guidance on how to structure contracts for the sale of goods;

  • Carefully drafted contract documents. Well-drafted contract documents (such as an offer, acceptance, and terms and conditions) are necessity for a seamless contract for the sale of goods. The contract documents should contain all necessary terms and conditions, including, if desired, an express acknowledgment providing that modifications to the terms and conditions will not be accepted; and

  • Diligent contract administration. Even a well-drafted contract cannot substitute for diligent contract review. The best practice is to create a set of procedures to review standard terms in the other party’s forms and respond with express objections to any unacceptable terms prior to commencing performance under the contract. Although this practice may not be practical in all business situations, it will provide the most protection for you as a contracting party.

The attorneys at the Law Firm of Conway, Olejniczak & Jerry, S.C. have a wealth of knowledge in UCC matters and regularly assist our clients with contract drafting, contract review, drafting standard terms and conditions, counseling related to the interpretation of contractual terms, and dispute resolution related to existing contracts. We are always happy to help guide you through this challenging area of the law and help you win the “battle of the forms.”

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Written By:
Attorney Steven J. Krueger

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