Supply Chain Survival Series: Battle of The Forms (Article #4)

Just as you’re about to leave ABC Corp. for the weekend, you are forwarded an email from one of ABC Corp.’s sales managers. The email is from a customer that is demanding a full refund from ABC Corp. for an item the customer recently purchased. You know that ABC Corp.’s standard terms and conditions of sale are clear that customers are not entitled to refunds. However, the customer is adamant that ABC Corp. agreed to provide a full refund for any items that the customer wishes to return when ABC Corp. agreed to the customer’s standard terms and conditions of purchase that were attached to the customer’s purchase order (“PO”).

After reviewing the customer’s PO, you see that it states that the customer’s purchase is subject to its own standard terms and conditions of purchase. Sure enough, after reviewing the standard terms and conditions of purchase, you see that they clearly allow for full refunds for items that the customer returns within 30 days. You also notice that the PO says that the customer rejects any other terms and conditions proposed by ABC Corp. However, as you thought, ABC Corp.’s order acknowledgment—issued to the customer in response to the PO—has similar terms stating that ABC Corp.’s terms apply and ABC Corp. rejects all other terms. Neither party signed the PO or order acknowledgment, but ABC Corp. delivered all of the items, and the customer paid ABC Corp.’s invoice in full. You settle back into your office as you realize this situation is more complex than you initially thought.

The terms in the purchase order and the terms in the order acknowledgment conflict—so, what terms apply? This situation is frequently referred to as the “Battle of the Forms” (i.e., where the terms of acceptance are different from the terms of the offer). Generally, parties in these situations are allowed to enforce their agreements despite discrepancies in an offer or acceptance.¹ That said, an express contract will not be formed if one party expressly states that an agreement will not be reached if such party’s terms are not accepted. For example, in the above scenario, the customer made its purchase order contingent on its terms and conditions. ABC Corp. then made a counteroffer with its order acknowledgement. There was no express written contract because each party expressly rejected any other terms and conditions proposed by the other. However, the parties’ conduct likely formed a contract because both parties proceeded with the transaction. ABC Corp. delivered the items, and the customer paid the invoices in full. Thus, a valid and enforceable contract based on conduct can exist where parties have not entered a formal written agreement but nevertheless proceed with a transaction.²

The terms of a contract based on conduct consist of any terms the parties agreed to in writing plus any applicable UCC provisions. Any conflicting terms in the written correspondence are not enforceable terms under a contract based on conduct alone. As such, in our example, all of the terms that ABC Corp. and the customer agreed upon (i.e., price, quantity, and quality) would still be enforceable. However, any conflicting terms, like the refund provision, would not be enforceable. Consequently, although the customer would not be able to enforce its terms and conditions for a full refund, the customer could potentially pursue other remedies for defective goods under the UCC (which is outside the scope of this article).

Now picture a Battle of the Forms scenario where parties exchange a PO and quote and neither party expressly rejects any proposed additional terms. You can assume an express contract is formed, but the question is what terms apply when the counteroffer contains additional terms? Between merchants, any additional terms intended to close or confirm a deal will typically be interpreted as enforceable terms of the contract (as opposed to mere proposals for addition to the contract).³ That said, additional terms provided in an acceptance will not become enforceable parts of the contract if:

1. The offer expressly limits acceptance to the terms of the original offer (as mentioned above);
2. The proposed additional terms materially alter the contract; or
3. The party previously objected to the proposed additional terms, or objects to them within a reasonable time after receiving them.

While the UCC clearly addresses what happens with additional proposed terms, the more challenging “Battle of the Forms” scenario is when there are different or directly conflicting terms in an offer and an acceptance, such as a quote and PO. How do you determine which terms apply? Unfortunately, the UCC does not clearly answer this question, and so courts have had to decide. There are currently three different approaches:

1. Majority view: Most courts hold that conflicting or “different” terms cancel each other out and are replaced by standard UCC provisions (which will be covered in a future article).
2. Minority view: A minority of courts hold that “different” terms do not become part of the contract and therefore the original terms apply, finding that the omission of the word “different” from UCC 2-207(2) was intentional.
3. Middle view: Several courts treat “different” terms similarly to proposed additional terms under UCC 2-207(2), finding that there is no difference between “additional” and “different” terms.

Overall, UCC 2-207 establishes that additional or different terms added in a party’s acceptance of an offer can be enforceable, regardless of the offeror’s original intent. This means that it is critical for businesses to carefully draft all contracts and related correspondence. In addition, parties should pay close attention to what terms they accept, counter, and reject. Similarly, while Battle of the Forms issues often arise unintentionally, businesses can also identify situations where Battle of the Forms and divergent acceptance terms can be used advantageously instead of engaging in formal contract negotiations.

Now that we’ve established what contract terms apply in various Battle of the Forms scenarios, we move to the next article: Key Statutory Default Terms (Article #5)

If you have questions, please contact the authors:

• Brandon Krajewski:
  (414) 277-5783 / brandon.krajewski@quarles.com
• Patrick Taylor: (414) 277-5523 / patrick.taylor@quarles.com
• Hannah Schwartz:
  (414) 277-5551 / hannah.schwartz@quarles.com

Quarles & Brady attorneys Michael Chargo and Lauren Zenk also contributed to this article.

END NOTES

Resources