Business-to-business transactions in the United States, and in most of the industrialized world for that matter, are often created at the contract management level through an exchange of preprinted forms between the contracting parties. These forms, often purchase orders issued by the customer and acknowledgement forms issued by the vendor, include terms and conditions (beyond the basic business terms such as description of the goods or services, quantity, and price) that are generically created to maximize the issuing party’s benefits and rights and to minimize its obligations and risks. Not surprisingly, the terms and conditions are often significantly at odds (of course, the disparity can be between other forms, such as a vendor’s proposal form and the customer’s purchase order). The differences can be in the nature of additional terms or inconsistent terms. An example of a significant additional term would be the requirement in a purchase order that the vendor maintain certain insurance coverages, naming the customer as an additional insured. An example of inconsistent terms would be a customer’s purchase order setting forth the vendor’s expansive representations and warranties and customer remedies while the acknowledgment form states a more limited warranty with more restrictive remedies, with a disclaimer of all other warranties.
A battle of forms dispute arises in two scenarios.
The first scenario in which a battle of forms dispute may arise is whether the exchanged forms evidence an offer and acceptance sufficient to create a legally binding contract. This dispute arises when, usually for a business reason, one party decides not to proceed with the transaction and points to the disparity between the forms to argue, in the most classic case, that the vendor’s acknowledgment form constituted not an acceptance, but a counter-offer, to the customer’s purchase order. The second scenario is where the transaction has been completed or has been performed to the extent that it cannot be argued that the parties did not intend to create a contract. Both scenarios can create significant problems. In the first, a vendor may make an unusually heavy investment to fulfill an order which the vendor thought was binding (but was not). In the second, the customer acquired and paid for the goods, but it may have no recourse when the goods do not perform as required in its purchase order.
Most jurisdictions have laws, both common law and statutory, to address these issues when a dispute arises. The Convention on Contracts for the International Sale of Goods (CISG) (which applies to the sale of goods between parties of different States unless application of the CISG is expressly disclaimed), also addresses this issue in Article 19. But the application of these laws to a given dispute is far from predictable. If one has to try to resolve a battle of forms dispute, there are an abundance of court opinions and lengthy scholarly articles debating the intricacies of applicable laws which should be consulted to help construct the best argument to achieve the desired result.
Businesses should strive to utilize a practical approach to satisfy the needs to both establish a process by which transactions can be efficiently conducted by contract managers and to protect the business’s larger economic and risk management interests.
In part two of this series, attorney Rich Israel will describe laws that address battle of form issues and how to avoid these battle of the forms disputes in future agreements. If you or your company has questions about your contracts or forms, please contact us for assistance.
*Richard S. Israel, Esquire, Earp Cohn PC, © 2019