Battle of the Forms under the Uniform Commercial Code
September 15, 2021
Many businesses, particularly small businesses, utilize purchase orders or other boilerplate order forms to buy and sell goods, as opposed to the often times lengthy processes of drafting and signing a contract between the seller and the buyer, for each transaction. These forms usually have numerous legal terms and conditions printed on the back of the forms, usually in fine print. These terms are often most favorable to the offeror. A business arrangement that is formed using these boilerplate forms may create a “battle of the forms” if the parties have different and or conflicting terms and conditions, usually found on the back side of the form. In this situation, whereby the seller and the purchaser have different terms and conditions on their forms, and where the arrangement is for the sale of goods, Article 2 of the Uniform Commercial Code governs the dispute.
The Mirror Image Rule
The Mirror Image Rule says that in order to form a valid and enforceable contract, the two parties must have documents that contain identical terms and conditions. This common-law rule applies to contracts for services or for real estate, but not for the sale of good (which, again, is governed by the UCC). Under common law contract rules, if one party makes an offer and the other party seemingly accepts the offer, but alters the terms and conditions, then there actually has been no acceptance, but rather the second party has rejected the offer and made a counter-offer. Now, under the “last shot rule”, if the parties perform under the above scenario, the contract that governs the relationship is the last document exchanged between the parties because in effect the counter-offer was accepted by performance. So, under the above scenario, the second party/offeree’s document (with the changed terms), is the one that governs. Again, this mirror image rule applies to contracts for services and real estate, not goods. However, if the contract is for both goods and services, one must look at the main purpose of the contract. If the key reason for the contract is services, then the mirror image rule applies; if the key reason for the contract is the sale of good, then the UCC applies.
Contracts for Goods: UCC Battle of the Forms
Article 2 of the UCC governs contract disputes (for the sale of goods) concerning conflicting terms. These battles of conflicting forms, with different contract terms, usually occur when a seller and buyer exchange order forms with their own small print terms on the reverse side of the forms. When the forms are exchanged, typically the transaction proceeds without having to sign a contract or reach an agreement on the specific terms and conditions of the relationship. This is done so that business can run efficiently and expeditiously and without having to waste time consulting with lawyers or requiring the parties to sit down together and sign a contract (or necessitate further correspondence), whenever an order is placed. This presents a problem when a dispute arises between the seller and buyer. Each believes that its own terms and conditions must apply to the relationship and govern the dispute. In these situations, the UCC will usually assume that a contract was formed, even if all the form terms are not identical, so long as there was a definite expression of acceptance on the part of the offeree and this acceptance was send in a reasonable time frame. The UCC’s resolution of a given dispute depends on if both parties are considered merchants (under the UCC) or not.
Contract Conflicts Between Merchants
A merchant is someone who is involved in the sale, purchase or trade of a specific good or commodity and usually has familiarity with that specific good. Merchants are typically knowledgeable as to the specific product with which they deal and do business consistently and repeatedly with that same type of good. Under the UCC, if the parties are each merchants, there is an assumption that the parties are sophisticated and therefore, any terms or conditions that are added by the offeree become a part of the contract.
This is true, unless one of the following conditions is present:
- the new terms or conditions fundamentally or materially alter the terms of the offer;
- the offeror objects to the new terms and conditions within a reasonable amount of time; or
- the offer specifically limits the offeree’s acceptance to the terms and conditions found in the offer.
The definition of “materially alter” is as follows: alterations to the terms that would impose a hardship on the other party, significantly shift risk within the agreement, or surprise the other party. A few examples of material alternations may be: (1) a change in the price or rate within the agreement; (2) a change in the law(s) that govern the agreement; (3) a change to or addition of attorney fee provisions; (4) a change in the remedies for a breach; (5) a change to a warranty provision; or (6) a change to the quantity of the goods being sold. Any of the above changes, made in an acceptance, would be stricken from the agreement, if a conflict arose.
In a battle of the forms dispute over a contract for goods, between merchants, the final agreement is to contain the terms and conditions that match both parties’ forms. The terms that do not match are eliminated and any terms that are added in the acceptance, but are not material, are also a part of the agreement.
Contract Conflicts Involving One or No Merchants
If one or both of the parties in a battle of the forms dispute is not a merchant, then there are different rules that apply, as there is not an assumption of highly sophisticated parties contracting. If there are any terms added in the acceptance, they are to be considered proposals and are not a part of the final agreement, unless agreed to by the offeror. If the acceptance alters any terms, then the term from the offer is a part of the final agreement. Finally, if the offer indicates that the acceptance is conditional upon the other party accepting all of the offeror’s terms, then if the offeree changes any terms, it is considered a rejection of the offer and a counteroffer.
Avoiding a Battle of the Forms: Best Practices
The battle of the forms is often times a huge headache. Entering the battle of the forms does not necessarily destroy a deal or agreement, but these battles are a waste of time and money. A battle also has potential for negative results in that the UCC may supply default gap filling terms, which may be disfavored by both or one of the parties. These gap-filling default terms are primarily pro-buyer and will only be supplied if the court finds that the parties intended to enter into an agreement and the parties did not agree on all material terms. So, it is best to do what you can to simply avoid the uncertainty and stress of a battle of the forms.
The best way to avoid the battle of the forms is to have a contract that supersedes all agreements between the parties. This is especially helpful for parties that plan on repeatedly doing business with each other. The idea here is to create a document that is overarching and takes precedence over any conflict between the parties. In this way, if a disagreement arises, the contract will dictate how to proceed and the uncertainty of the UCC rules will be avoided.
Another seemingly obvious way to avoid the battle of the forms would be to clearly identify the terms of the agreement (rather than having them in small print on the back side of the form). That way, the terms are clear to the parties, so that they may negotiate terms and truly come to an agreement, thus decreasing the probability that a dispute will arise.
One other way to avoid these types of disputes (as previously mentioned) is to simply include a provision in all offers or acceptances that indicates that the offer or acceptance is conditional on acceptance of your terms and conditions. This will prevent the other side from changing terms of the agreement or arguing that their terms should apply, should a dispute arise. You could also include an additional provision indicating that if the other party changes or adds any terms and conditions, that you affirmatively reject this counter-offer. Here is an example of such a provision:
This (offer/acceptance) is expressly conditioned on the (Buyer’s/Seller’s) assent to the terms contained in this (offer/acceptance), including any additional or different terms.
Finally, it is important to be familiar with UCC Article 2 and how Wisconsin courts interpret it. Also, it is vital to draft contract documents carefully, and have a diligent administrative process outlined to review the documents of another party. It is also a wise idea to enlist the aid of an attorney who can help to make certain that you are protected from any issues or problems and can help you to negotiate favorable terms, in your best interest.
Battle of the Forms Flow Chart