For many small business owners who do not 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, many of them come with detailed legal terms written in small print 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. This is because these boilerplate forms typically represent only the interests of whoever is offering to use them.
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 later. The threshold question for resolving these disputes is whether the deal involves goods. If it does, it falls under Article 2 of 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.
Under well-established common law rules, no contract is formed when parties exchange documents unless the terms match exactly. This is called the mirror image rule and it applies to contracts for services or land (not goods, which are governed by the UCC). Under common law rules, if an acceptance contains different terms, it is a counter-offer instead. If the parties perform without ever reaching agreement on the terms, then whatever is in the final document exchanged between the parties is the final binding contract (also known as the last shot rule).
If your agreement includes both goods and services, 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.
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 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 or reaching agreement on the terms of the deal. If a dispute later arises, how it gets resolved will depend in part on whether the parties involved are considered merchants under the UCC.
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. 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:
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:
So any change in an acceptance of an offer that involved any of these provisions would not be considered part of the final agreement if a dispute arose later.
In sum, the final agreement in a battle of forms dispute between merchants includes the terms that match in the buyer's and seller's forms; the conflicting terms cancel each other out; and any additional terms that are not material become part of the agreement.
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 are 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 a counteroffer instead.
The battle of the forms is not 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. 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.
The best way to avoid uncertainty over conflicting forms is to negotiate an agreement that will supersede those forms. This is practical when the buyer and seller expect to engage in multiple purchase orders and deliveries over time. The overarching agreement will by its terms take precedence over any conflicting buyer and seller form-based terms.
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 cannot be avoided in advance.
In either of these efforts, having the assistance of an attorney can help to ensure that you address all foreseeable problem areas and negotiate the most favorable negotiated terms possible.