Battle of the Forms Under the UCC

For many small business owners who don't have the time or inclination to write their own contracts, preprinted purchase order and order acknowledgment forms offer a convenient alternative. Not only are these forms evidence of a written agreement, but many of them also come with detailed legal terms written in small print at the bottom or on the back.

If you have your own purchase order or order acknowledgment form and have squinted long and hard at those terms on the back, you might like what you see. These boilerplate forms typically represent only the interests of whoever's using them.

But a business deal built solely on preprinted forms with conflicting one-sided terms has the potential to create challenges and uncertainty if a dispute arises. The threshold question for resolving these disputes is: Does the deal involve goods?

When to Use the UCC Battle of the Forms

If the deal involves goods, the transaction falls under the Uniform Commercial Code (UCC). If the deal involves anything other than goods, like services or real estate, then common law contract rules apply instead.

Battle of the Forms for Goods

Transactions involving goods are governed by Article 2 of the UCC. The UCC has special rules for contract disputes involving conflicting terms.

Typically these so-called battles of the forms occur when a buyer and seller of goods never reach a final agreement on the terms of a deal. Instead, the parties exchange pre-printed order forms with their own different terms on the back and then proceed with the transaction without ever signing any final contract.

Mirror Image Rule for Services and Real Estate

Under well-established common law rules, no contract is formed when parties exchange documents unless the terms match exactly. This doctrine is called the "mirror image rule" and it applies to contracts for services or real estate.

Under common law rules, if an acceptance contains different terms, it's a counteroffer instead. If the parties perform without ever reaching an agreement on the terms, then whatever's in the final document exchanged between the parties is the final binding contract (also known as the "last shot rule").

For example, suppose Leonard wants to hire Penny to design his website. Penny sends him a service agreement with her terms and conditions. Leonard doesn't sign the agreement but instead sends Penny another contract with different terms. Penny receives Leonard's contract, doesn't sign it, but proceeds to design Leonard's website.

So, which contract governs the website design services under the mirror image rule? Leonard's. His contract would be the final binding contract because it's the final document exchanged between him and Penny. In other words, Penny's performance (design of the website) is her acceptance of Leonard's counteroffer.

When the Contract Involves Both Goods and Services

If your agreement includes both goods and services (or real estate), look to which of these comprises its primary or prevailing purpose. If the agreement is primarily for the sale and purchase of goods, then UCC law should control; if it's primarily for the sale of services or real estate, then you'd apply the mirror image rule.

For example, suppose you own a gym and you want to retire and sell your business. You're looking to sell the gym building, the land its on, and some miscellaneous fitness equipment. A contract for the building, land, and equipment would likely apply the mirror image rule because selling the real estate (the land and building) is the primary purpose behind the deal and the equipment (goods) is just included.

How the UCC Battle of the Forms Works

If a dispute arises over a contract involving goods, how it gets resolved will depend in part on whether the parties involved are considered merchants under the UCC.

When the Deal Is Between Merchants

Generally speaking, a merchant is someone who regularly deals in the kind of goods involved in the transaction. In other words, merchants are sophisticated, regular buyers or sellers of the goods in question.

Which Terms Become Part of the Final Agreement?

If the deal is between merchants, then once an offer has been made, any new or additional terms included in the acceptance of that offer become part of the final agreement unless:

• the offer limits acceptance to only its own terms
• the responding party objects to the additional or different terms within a reasonable time, or
• the additional or different terms materially alter the terms of the offer.

When Do Terms Materially Alter the Offer?

What does it take to materially alter the terms of the other party's offer? The general rule is that any change that would surprise or impose hardship on the other party by shifting risk in a significant way would be considered "material."

Modifications or changes to any of the following provisions would likely be considered a material alteration:

• the price or quantity of the product being offered
• the warranties or disclaimers provided
• the governing law or dispute resolution provisions
• any breach of contract remedies, and
• the attorneys' fees provisions.

So any change in an acceptance of an offer that involves any of these provisions wouldn't be considered part of the final agreement if a dispute arose.

In sum, the final agreement in a battle of forms dispute between merchants includes the terms that match the offer, and any additional terms that aren't material or rejected become part of the agreement.

When the Deal Involves a Non-Merchant

If neither the buyer nor the seller is a merchant—or only one of them is—then slightly different rules apply. If there are additional terms in an acceptance, those are considered proposals only (they're not binding or included as part of the final agreement).

If the terms are different, then any different term included in an offer is incorporated into the contract. One exception to this would be if the acceptance was conditioned on the other party's agreement to all of its terms. This would constitute a rejection of the offer and act as a counteroffer instead.

Ways to Avoid the Battle of the Forms

The battle of the forms isn't necessarily a deal-breaker. Although in situations where no written agreement exists, the buyer and seller can still walk away from the transaction before it begins.

In many instances, as long as both sides want to proceed, the UCC will keep alive a transaction that would otherwise fail for lack of an agreement (unless a written agreement is required under the UCC). The potential downside of this preservation is that the UCC's default gap-filler terms might not be what one or both parties want—especially concerning implied product warranties and the seller's liabilities to the buyer.

Sign a master agreement. The best way to avoid uncertainty over conflicting forms is to negotiate a business agreement that'll supersede those forms. A negotiated master agreement is practical when the buyer and seller expect to engage in multiple purchase orders and deliveries over time. This overarching agreement will by its terms take precedence over any conflicting buyer and seller form-based terms.

Resolve conflicting terms early. Another way to avoid problems with conflicting terms is to clearly identify them at the outset and to negotiate acceptable alternatives with the other party before going ahead with the purchase and sale. This can head off contract disputes before they occur, or reduce their potential negative effects if they can't be avoided in advance.

Talking to a Business Attorney

Determining whether your contract is controlled by the UCC's battle of the forms or the common law's mirror image rule is usually straightforward. But how the contract is drafted and which terms become the final terms can become more complicated. If you have experience reviewing and drafting contracts and there's not much disagreement between you and the other side, you can probably come to an agreement without any (or with limited) outside assistance.

But if the circumstances of your deal are complex, you and the other side can't reach an agreement, or the contract price is high, consider talking to a business lawyer. Having the assistance of an attorney can help to ensure that you address all foreseeable problem areas and negotiate the most favorable terms possible.