The battle of forms - what are the terms of my business deal?

  • JEFFREYPLATT

    JEFFREYPLATT

 
Updated 2/3/2017 10:34 AM

It is not uncommon in the sale of goods setting for there to be the following documents exchanged, all with their own set of terms and conditions; (1) a request for quote from a buyer for the purchase of goods, (2) a quote from the seller for the sale of goods, (3) a purchase order from the buyer, and (4) an invoice for the goods.

This swirling mess of competing terms and conditions (T&Cs) is commonly referred to as the "battle of the forms." Parties in a sale of goods setting often exchange competing T&Cs without addressing the effect of T&Cs, and without knowing what the terms of the business deal actually are.

                                                                                                                                                                                                                       
 

 In Illinois, the Uniform Commercial Code (UCC) Article 2, which only applies to the sale of goods, addresses the question of whether a contract has been formed and provides rules related to acceptance of terms sent by a party.

 As a result of the UCC, a number of outcomes from the battle of the forms can occur. First, the seller's form could be treated as an "acceptance" and, therefore, a contract exists on the writings exchanged. Second, no contract exists because the seller expressly conditions its acceptance on buyer's acceptance of seller's T&Cs. Third, ambiguity as to whether a contract on the writings exists when the buyer expressly conditions its offer on the seller's acceptance, and seller accepts with different terms and conditions.

 If there is no contract on the writings, a couple of things can happen: (1) the buyer and seller can walk away from the deal; and (2) the seller can ship goods and the buyer can accept shipment. If the latter occurs, a contract now exists "per conduct" and terms that do not clash, form the contract between the parties. The remaining necessary contract terms that do not exist are supplied by the pro-buyer UCC "gap fillers."

These include, but are not limited to, implied warranties of merchantability and fitness (which are often much longer and much broader than the Seller wants), no limit of liability for the seller, and potential consequential damages.

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How can the seller avoid the pro-buyer UCC "gap filler" provisions? Assuming the seller has leverage in the deal, the seller can either negotiate a revision of the boilerplate terms that removes clauses providing for superseding the T&Cs and results in the ability to revise the buyer T&Cs to terms more acceptable to the seller; or the seller can seek to negotiate a supply agreement or other form of master contract between the parties that lays out all of the applicable and acceptable T&Cs between the parties for contractual dealings, and which supersedes any competing T&Cs in the parties RFQs, quotes, purchase orders, invoices, etc.

A supply agreement or master agreement is usually preferable to attempt at negotiating a revision to boilerplate terms. With proper drafting on the front end of a sales transaction, the parties can go into a business deal with a full understanding of the legal and business risks involved in such a transaction, and obtain a clear understanding of their rights and responsibilities.

 

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.

• Ice Miller Attorney Jeffrey Platt has significant experience in dealing with the "battle of the forms" and other issues that often arise with both domestic and international contracts for the sale of goods. For more, jeffrey.platt@icemiller.com.

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