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Battle of the forms: Part 1 of 2.

Let's think again about the way modern commerce works. Material suppliers send offers and contractors send back purchase orders. Both offers and purchase orders often have detailed "fine print." The fine print terms on the offer often conflict with the fine print terms on the purchase order.

This is the Battle of the Forms, and it determines what provisions exist in the contract between a buyer and a seller. The first thing to remember is that these parties have a contract on the terms on which there is agreement. It doesn't matter that some terms are missing or in complete conflict.

Firm Offers and Price Quotes

The terms of the offer will be an enforceable contract, if the offer is accepted. (1) It can be important in establishing the terms of the contract whether the buyer or seller made the initial offer. Once an initial offer is made, the recipient must object to terms in the offer or those terms will be part of the contract. Additional or different terms in a response do not become a part of the contract if there is an objection or if those additional or different terms "materially alter" the agreement.

Accordingly, it is easier to establish terms in an initial offer than via a response. (2) All buyers and sellers would prefer to "fire the first shot" in the Battle of the Forms by making the first firm offer. It is sometimes difficult to tell whether a correspondence is a firm offer or simply conversation. An offer must be sufficiently detailed regarding the product, quantity and price so that an acceptance would result in an enforceable contract. (3)

Some prejudice seems to exist in the courts regarding seller quotes as firm offers. Price quotes are not typically considered offers, but rather a "mere invitation to enter into negotiations." (4) Submission of a purchase order by a buyer is generally viewed as an offer. (5) Sellers should be particularly careful to include all important terms in proposals or quotes and clarify that the documents are an "offer" that can be accepted by acknowledgment or calling for delivery. (6)

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A seller should either sign the offer or ensure there is no signature line for the seller. (7) An offer should not state that all orders are subject to review and acceptance at seller's place of business, as this would mean that there was no offer ready for acceptance. (8) A seller can overcome prejudice offers by making sure an offer is clearly expressed and ready for acceptance. (9)

Responses and Confirmations

When the second party (buyer or seller) sends the return document (which is definitely accepting or confirming an agreement), the parties will have a contract even though the confirmation contains provisions adding to or differing from the original offer. (10)

Under common law prior to the Uniform Commercial Code (UCC), the "mirror image" rule required that the buyers acceptance be the same as the seller's offer. (11) If the acceptance is not a mirror image of the offer, it rejects the initial offer and operates as a counteroffer. This is still the rule for most contract negotiations unless the contract involves the sale of goods. In that event, the UCC controls.

The UCC rejects the mirror image rule and converts a common law counteroffer into an acceptance even if it states additional or different terms." It states:
   A definite and seasonal expression of acceptance
   or a written confirmation which is sent within a
   reasonable time operates as an acceptance even
   though it states terms additional to or different
   from those offered or agreed upon, unless acceptance
   is expressly made conditional on assent to
   the additional or different terms. (12)


This means that if there is a timely response to an offer that indicates an acceptance, the parties have a contract even if the response has additional or different terms than the offer. In a response, there is a difference between "additional" terms (that add some new term to the offer) and "different" terms (that conflict with a term in the offer).

The UCC considers "additional terms" to be "proposals for addition to the contract." If the transaction is between merchants, these additional terms will become a part of the contract unless the additional provisions: (1) "materially alter" the agreement, (2) the other party objects to the new terms or (3) the original offer was expressly limited to the terms of the offer. The UCC states that:

The additional terms are to be construed as proposals for additions to the contract. Between merchants, such terms become part of the contract unless:

* the offer expressly limits acceptance to the terms of the offer;

* they materially alter it; or

* notification of objection to them has already been given or is given within a reasonable time after notice of them is received. (13)

Courts have disagreed on the fate of "different" terms that conflict with terms in the offer. Some courts follow the same rule as for additional terms and the different terms become a part of the contract if there is no objection. (14) The majority view, however, is the "knockout rule." (15) The conflicting terms in the offer and acceptance eliminate each other from the contract. UCC filler terms are used to fill in the gaps. The contract would be the terms agreed by the parties, which would be the terms in the offer and acceptance that do not conflict, plus the contract terms added by the UCC.

It is important to join the "Battle of the Forms" within the meaning of the UCC. It is not enough to respond with a confirmation that is silent about the terms in an offer. The recipient must expressly reject or object to any objectionable terms of sale or propose different terms. Sending purchase orders that only acknowledge the material and pricing, but were otherwise silent, constitutes an acceptance of a suppliers proposal and cannot be a "counteroffer" proposing a sale with no terms. Telephoning a supplier and verbally requesting shipment of materials, as often happens, also constitutes an acceptance of a suppliers proposal and would not be a counteroffer. (16) Even terms limiting the sellers liability may be included in an initial offer and will become a part of the contract unless the buyer expressly objects. (17)

A response or confirmation can be made conditional on an agreement to the additional or different terms. A buyer could respond to an offer by stating, "I will agree to this only if you agree to remove your limitations of liability and extend your payment terms to 90 days." This would not be an acceptance. This is a counteroffer, and there is no contract unless the additional or different terms are accepted. (18)

If additional or different terms are added in a response or confirmation (and the response or confirmation is not made conditional on an agreement to the additional or different terms), it becomes relevant whether the additional or different terms were "material." Lawyers can spend a long time and a lot of a company's money arguing about whether the additional provisions "materially altered" the contract. This exception is possible protection if a return purchase order has a very important and costly provision in the fine print. It is normally better and easier, however, to limit acceptance of an offer and object to any new terms added later.

Terms that would not be material alterations in a response or confirmation would include provisions for reasonable interest on unpaid invoices, limiting remedies for delays outside the seller's control, or a clause fixing a reasonable time for complaints. (19) Courts have held that addition of an attorney's fee provision is a material alteration. (20) An indemnification clause (21) or a "no damage for delay" clause (22) would materially alter the terms of an agreement. If the offer had included warranties, then a confirmation containing a disclaimer of warranties and limitation of remedies would "materially alter" the agreement. On the other hand, if the offer had excluded warranties, then a confirmation adding warranties would "materially alter" the agreement. (23) This difference exemplifies the importance of making the first firm offer.

(1.) Beaver Valley Alloy Foundry, Co. v. Therma-Fab, Inc., 814 A.2d 217 (Pa. Super. Ct. 2002).

(2.) Kraft Foods N. Am., Inc. v. Banner Eng'g & Sales, Inc., 446 F. Supp. 2d 551(E.D. Va. 2006); USEMCO, Inc. v. Marbro Co., Inc., 483 A.2d 88, 60 Md.App. 351 (1984).

(3.) Reilly Foam Corp. v. Rubbermaid Corp., 206 F.Supp.2d 643, 650 (E.D. PA 2002).

(4.) Kraft Foods v. Banner Eng'g & Sales; USEMCO Marbro; Reilly Foam v. Rubbermaid.

(5.) J. B. Moore Elec. Contractor, Inc. v. Westinghouse Elec. Supply Co., 221 Va. 745, 748, 273 S.E.2d 553 (1981).

(6.) Kraft Foods v. Banner Eng'g & Sales.

(7.) J. B Moore v. Westinghouse.

(8.) Kraft Foods v. Banner Eng'g & Sales, Inc; but see J. B. Moore v. Westinghouse.

(9.) J. B. Moore v. Westinghouse; Maryland Supreme Corp. v. Blake Co., 279 Md. 531, 369 A.2d 1017 (1977); Reilly Foam v. Rubbermaid; Beaver Valley Alloy Foundry, Co. v. Therma-Fab, Inc., 814 A.2d 217 (Pa. Super. Ct. 2002).

(10.) Uniform Commercial Code (UCC).

(11.) James J. White & Robert S. Summers, Uniform Commercial Code, [section]1-3 (5th ed. 2000).

(12.) UCC.

(13.) Ibid.

(14.) UCC Section 2-207, Official Comment 3; Boese-Hilburn Co. v. Dean Mach. Co., 616 S.W.2d 520, 527 (Mo.Ct.App.1981).

(15.) UCC Section 2-207, Official Comment 6; Flender Corp. v. Tippins Int'l, Inc., 830 A.2d 1279 (Pa. Super. Ct. 2003); Reilly Foam v. Rubbermaid.

(16.) Ibid.

(17.) Beaver Valley Alloy Foundry v. Therma-Fab; Idaho Power Co. v. Westinghouse Electric Corp., 596 F.2d 924, 926 (9th Cir. 1979) (Terms of the offer limiting sellers liability constituted terms of the agreement even though the purported acceptance omitted these terms).

(18.) If the parties perform at this point, as if they had a contract, the UCC applies. But if terms of the contract consist of those on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this act, See: Deere & Co. v. Ohio Gear, 462 F.3d 701 (7th Cir. 2006).

(19.) UCC Section 2-207, Official Comment 5.

(20.) Herzog Oil Field Serv., Inc. v. Otto Torpedo Co., 570 A.2d 549 (Pa. Super. Ct. 1990); Food Team Intern., Ltd. v. Unilink, LLC, 872 F.Supp.2d 405, 421-22 (2012).

(21.) Trans-Aire International, Inc. v. Northern Adhesive Co., 882 F.2d 1254,1263 (7th Cir. 111. 1989).

(22.) USEMCO, Inc. v. Marbro Co., Inc., 60 Md.App. 351, 483 A.2d 88, 94-95(1984).

(23.) Valtrol, Inc. v. General Connectors Corp., 884 F.2d 149,155 (4th Cir. S.C).

James D. Fullerton, Esq. is the president of the law firm of Fullerton & Knowles, PC. The firm represents owners, lenders, design professionals, suppliers, subcontractors, general contractors and other members of the real estate and construction industries, filing mechanic's liens, surety bond and other construction claims across all of the states in the Mid-Atlantic region. He also represents creditors in bankruptcy issues nationwide, particularly defense of bankruptcy preference claims. Fullerton graduated from the University of Colorado and the University of Virginia School of Law. The firm's Construction Law Survival Manual is well known and widely used by participants in the construction process. All of this information and recent construction law issues are constantly updated on its website.
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Title Annotation:SELECTED TOPIC
Author:Fullerton, James
Publication:Business Credit
Date:Sep 1, 2016
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