BATTLE OF THE FORMS (a/k/a maybe not the deal you thought you had)

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Have you ever negotiated the purchase or sale of materials for a construction project?  You likely focused on key business points such as the type of materials, price and quantity, but maybe you did not focus so much on the fine print or the boilerplate terms.   While parties may agree on key business points, such as description, price and schedule, oftentimes other conflicting or additional contract provisions may be exchanged during the negotiations.  These conflicting provisions may be included in various form documents such as an RFQ, PO, order acknowledgment, invoice, bill of lading, etc., but these documents and their terms will all too frequently be ignored by the parties until a dispute arises over the materials themselves.  Only then do the parties recognize that they have exchanged documents containing varying or conflicting contract terms.  Let’s be clear - a contract generally exists between the parties but the question is what are the terms of that contract?  Rather than having agreed upon the terms of their contract in advance, the parties are left to fight over which of the various conflicting or additional terms are included in their contract.  This unfortunate but common situation is referred to as “The Battle of the Forms.” Many people think that he who fires the “last shot” wins or that commencement of performance equals acceptance – not so as to the sale and purchase of materials.  The rules of engagement relating to this “battle” are addressed below.^[1]

A. What Happens When The Offer And Acceptance Differ? 

As we all know, it takes an offer and an acceptance plus consideration to create a contract.  When a contract involves the sale of goods (materials), the Uniform Commercial Code (“UCC”) controls. UCC §2-207 addresses the situation where the acceptance, whether it be the PO, the order acknowledgment, or some other document, contains terms that are in addition to or different than those contained in the offer, whether it be the proposal, the PO or some other document.  This UCC section is intended to deal with the situation where an agreement has been reached, either orally or by an exchange of communications between the parties, which is followed by one or both of the parties sending a written acknowledgment containing and confirming what each believes to be the terms agreed upon and adding terms not discussed.  If the parties have reached an agreement as to the fundamental contract terms (usually description, price and quantity), the UCC typically recognizes the existence of a contract. 

What happens to any “additional” terms contained in either party’s written confirmation?  They are “construed as proposals for addition to the contract” and they become a part of the contract unless (a) the offer “expressly limits acceptance to the terms of the offer”, (b) they “materially alter” the contract, or (c) objection to the additional terms has already been given or is given within a reasonable time.  In short, if the additional terms are such as to materially alter the original agreement or understanding (i.e., they are a big deal and might result in surprise or hardship), they will not be included unless expressly agreed to by the other party. If, however, they are terms which would not materially alter the bargain (i.e., not a big deal and would not result in surprise or hardship), they will be incorporated unless notice of objection to them has already been given or is given within a reasonable time. 

Examples of “standard” clauses which would normally “materially alter” the contract and result in surprise or hardship if incorporated without express agreement by the other party might include provisions addressing warranty disclaimers/limitations, indemnity, exclusion of consequential damages, application of liquidated damages and schedule.  Such clauses might not become a part of the contract.  At the end of the day, the omission of such terms from the contract is typically to the detriment of the seller since its terms and conditions are loaded with protective clauses.

Examples of clauses that do not involve surprise or hardship and which will be incorporated in the contract unless notice of objection is given include a clause fixing a reasonable time for complaints or inspection within customary limits and a clause providing for interest on overdue invoices or incorporating the seller's standard credit terms where they are within the range of trade practice.  If no response is received within a reasonable time after such additional terms are proposed, it is assumed that their inclusion has been agreed to. 

What if the terms in the exchanged documents are different and conflict with each other?  The majority rule is that each party is assumed to object to the other’s different and conflicting terms.  As a result, the requirement that there be notice of objection is satisfied and the conflicting terms do not become a part of the contract. The contract then consists of the terms originally expressly agreed to and terms supplied by the UCC as “gap fillers”.  For example, if no time is stated for performance then the UCC would impose a “reasonable” time for performance. 

B. What Does It All Mean?  Practical Tips. 

Confused?  I am!!  This is a complex topic and hard to cover in 1500 words or less.  The facts matter such that the specific back and forth of documents, communications and negotiations are critical to any analysis.  Sometimes it is hard to even identify what is the offer and what is the acceptance.  As you can see, “form” documents can have a significant effect on the rights and obligations of the parties if a dispute develops over the materials being purchased.  It is therefore important for both the buyer and the seller to review the form documents (yes, read the fine print on the reverse page) received from the other party and to notify the other party immediately if there is any disagreement regarding the terms contained in those documents.  Better yet, make sure that your form includes a preemptive objection to any terms in the other party’s form that are different than or in addition to those in your form.  Here is an example of a Buyer’s preemptive objection: 

ACCEPTANCE:    This Purchase Order (“Order”) is subject to withdrawal by Buyer at any time and is expressly conditioned on the acceptance, without changes, deletions or additions, of these terms and conditions by Seller (“Terms and Conditions”).  This Order becomes a binding contract on these Terms and Conditions when it is accepted by Seller either by acknowledgment or by commencement of performance hereunder.  Buyer objects to and rejects any different, conflicting or additional terms or conditions contained in the Seller’s quotation, proposal, acceptance, acknowledgement, confirmation or other documents.  These Terms and Conditions cannot be modified, canceled, excepted, rescinded, waived or supplemented except by written agreement signed by an authorized representative of Buyer.

If the parties fail to address these concerns in advance of delivery of the materials, they will be left to argue not only over whether the materials conformed to the substantive requirements of the contract, but also over whether certain terms were part of their contract at all.  As noted above, there are common notions that he who fires the last shot wins the battle or that the commencement of performance equals acceptance of terms.  These notions are generally not the law when it comes to the purchase and sale of goods. 

While the UCC recognizes that commercial parties often fail to address these differences in advance and seeks to establish rules to determine which terms will be deemed part of the contract, the interpretation of the UCC by the courts is not always consistent.  For that reason, it is essential that any party who either purchases or sells materials carefully review the form documents exchanged as part of the transaction to ensure there is a common understanding of the applicable terms in advance of agreement.  An easy way to avoid the “battle of the forms” situation is for the parties to negotiate and execute a formal contract containing all of the essential terms of the parties’ agreement in advance of performance.   By doing so, the parties can ensure that their legitimate concerns are addressed and resolved and that they do not face surprises as to the terms of the contract when something goes wrong. 

Alas, that’s often not how the construction industry works – the work of the project proceeds and the paperwork follows later which may mean that the project gets going quickly but it also ensures plenty of work for lawyers fighting the “Battle of Forms” on behalf of their clients.

_{[1] The author acknowledges reliance upon the Official Comments to UCC §2-207 and commentary on this subject by noted commentators White, Summers and Hillman.  See § 2:13 Battle of the Forms, 1 White, Summers, & Hillman, Uniform Commercial Code § 2:13 (6th ed.); and § 2-207 Additional Terms in Acceptance or Confirmation, U.C.C. (Official Comments).}