Do you use standard terms and conditions on your purchase order or invoice when buying or selling goods or services? If so, you may find yourself embroiled in a "battle of the forms" one day if problems arise in one of your transactions.
What is a Battle of the Forms?
The typical scenario looks something like this: a buyer sends a seller a purchase order with the buyer’s terms and conditions on the back. The seller sends back an invoice with its own terms and conditions on the back, some of which conflict with or raise issues not covered by the buyer’s form purchase order. Should a dispute arise, the court hearing the case will have to decide which form’s terms apply.
What do Courts do in These Cases?
Who will win a "battle of the forms" is always hard to predict because the courts follow no clear rules when deciding which terms apply. Instead, the facts of each case determine the outcome. Fortunately, some general guidelines exist.
Courts first examine the buyer and seller’s conduct in order to assess what each believed were the terms and conditions applicable to the transaction. Courts may also consider the parties’ previous dealings for evidence that one party knew and accepted the other’s terms and conditions.
Next, courts will look at when the contract was formed, keeping in mind two basic contract law principles: (1) an offer and acceptance must occur to create a contract and (2) a fully formed contract’s terms generally cannot be modified without all parties’ consent. In light of these principles, courts hearing "battle of the forms" cases often hold that the contract’s terms are those the parties had agreed on at the time the offer was accepted.
The problem is that determining precisely when the offer was accepted and the contract made is not always easy. A court may find that a contract was completed when the parties orally agreed to price, quantity and shipment date over the telephone. Or it may find that the seller’s response to the buyer’s purchase order by fax or delivery of goods, before sending its own standard form, completed the contract. On the other hand, the seller may accept the buyer’s offer in writing and make acceptance subject to its own printed terms and conditions. A court may find that the seller’s printed form was a counter-offer that the buyer accepted by taking delivery of and paying for the goods.
In the first two cases, the buyer’s terms and conditions would likely apply to the contract because the seller’s terms and conditions would have arrived after the contract was formed. In the latter case, the agreement likely would be governed by the seller’s terms.
Because these "battles" are so fact specific, even slight changes in the facts can alter the analysis – and the outcome – significantly.
How do You Avoid a Battle of the Forms?
Following a set procedure when entering into sales contracts involving standard forms can prevent a "battle of the forms." Make sure that the other party receives notice of your terms and conditions as early in the transaction as possible and include your terms and conditions with your offer or acceptance. For example, sellers should send their standard form with their initial acceptance of the buyer’s purchase order, rather than including it in an invoice delivered after shipping goods or performing services.
Placing a signature line on the standard form above a statement acknowledging consent to the form’s terms and conditions and asking the other party to sign also can prevent disputes. A signature of consent to terms usually binds the party who signed.
Some companies’ policies prohibit signing such statements on standard forms and you may prefer not to require such an acknowledgement. If you prefer not to require a signature, the signature lines should be removed from your standard form as an unsigned form suggests that the parties did not complete a portion of the contractual procedure or that one party rejected the terms.
Although business, rather than litigation needs drive buying and selling practices, commercial parties should be aware that disputes over terms and conditions can arise in transactions involving standard forms and take this into account when reviewing their own procedures and dealing with other people’s materials.
The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.
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