By Aaron E. Hall
Sales are negotiated and consummated between companies every day. Yet, what often gets overlooked in these negotiations is which company’s terms and conditions govern the transaction. In a typical commercial transaction, a variety of documents may be exchanged between the contracting companies. At minimum, a purchase order and a sales order are usually exchanged. Typically, parties’ affix their terms and conditions to these documents. A standard and simple procedure, right? Not necessarily. In the rush to finalize the deal, companies often fail to adequately take into consideration their contracting partner’s terms and conditions (or ignore them entirely), or the applicability or significance of their own terms and conditions. Even worse, a company may neglect to provide their own terms and conditions to their contracting partner. Best case scenario, the products are delivered and paid for without any issues or disputes arising. Worst case scenario, a dispute subsequently arises regarding the transaction. Once a conflict arises and litigation appears imminent, the failure to adequately review a contracting partner’s terms and conditions, or to understand the importance of one’s own terms and conditions, can significantly impact the outcome of the dispute.
What often transpires is that buyers and sellers exchange documents containing terms and conditions that directly conflict. For instance, the buyers’ terms and conditions may contain express warranty and indemnification provisions, while the seller/supplier’s terms may contain conflicting disclaimers of express or implied warranties. The parties’ terms and conditions may also have conflicting provisions as to which state’s law would govern any dispute or the venue in which disputes are to be litigated. One parties’ terms may have a liquidated damages provision while the other party’s terms may limit damages to replacement or a refund. In these scenarios, after a dispute arises and the parties find themselves in court, the question becomes whose terms and conditions control?
The determination as to which conflicting terms and conditions will govern a commercial transaction is referred to amongst lawyers as the “battle of the forms.” The resolution of such conflicts is resolved under the Uniform Commercial Code (“UCC”) section 2-207 (in Wisconsin, the applicable UCC section is Wis. Stat. § 402.207). Under § 2-207, once a court concludes that a contract was formed (despite the exchange of conflicting terms and conditions), the court determines which party’s terms and conditions govern the transaction and any dispute arising thereunder. This is a fact-intensive inquiry that focuses on the actual documents exchanged, as well as the manner and order in which they were exchanged. If the court finds that the neither party accepted or agreed with the other parties’ conflicting terms, it will find that the conflicting terms are “knocked out” of the parties’ agreement. In this scenario, the “knocked-out” terms of the agreement are being replaced by the standard UCC provisions that govern the commercial sale of goods. These substitute terms and conditions are often referred to as “gap fillers.” While “gap fillers” may be better than forced adoption of your opponent’s terms and conditions, they are generally considered to be pro-buyer.
There are many complex, fact-intensive issues that can arise in battle of the forms scenarios. Far too many to list here. Despite the inherent complexity, there are a few takeaways that are important for all companies that regularly contract for the purchase and sale of goods:
- You must draft and utilize terms and conditions that are customized to your business. Boilerplate, form terms and conditions may leave you vulnerable should a dispute arise.
- Assume that your contracting partner’s terms and conditions will not be favorable to you.
- Be sure to provide your contracting partner with your terms and conditions.
- Try to have your contracting partner sign the document (quote, purchase order, sales order, etc.) containing your terms and conditions. This may avoid a “battle of the forms” situation all together.
- Do not sign your contracting partner’s forms containing its terms and conditions.
- Try to position yourself as the initial offering party, because under the “battle of the forms” analysis there are advantages to having your form(s) constitute the original “offer.”
- Make your offer (typically a purchase order or possibly a quote) expressly conditioned upon acceptance of your terms and conditions. Also, include an affirmative rejection of any conflicting terms and conditions that may be contained in the offeree’s documents that follow.
- If you are the offeree, make sure that your acceptance (usually in the form of a sales order or order acknowledgment) is conditioned on the offeror’s agreeing to any different or additional terms and conditions contained within the documents you provided.
The ultimate goal should be to entirely avoid getting into the battle of the forms. Companies should do everything they can to have their terms and conditions govern its transactions with its contracting partners. At minimum, companies must take the steps necessary to ensure that any conflicting provisions contained in their contracting partner’s terms and conditions are “knocked-out” and that the standard UCC gap-fillers are read into the contract. With a little planning on the front end, companies can craft their terms and conditions to avoid or at least mitigate many of the pitfalls that could befall them if they should find themselves in a dispute.
If you have any questions regarding this article or would like to discuss crafting terms and conditions that are tailored to your business that will assure your company that, should a dispute arise, you will not be at the mercy of your adversary’s terms and conditions, please contact your Davis & Kuelthau attorney or the author, Aaron E. Hall at 414.225.1411 / ahall@dkattorneys.com.