Business Contracts: What You Need to Know About the Battle of the Forms

The vendor’s maintenance proposal looks pretty good -- but there's a hook.  After a 90-day trial period, if certain conditions of the contract are met the contract automatically rolls over into an annual commitment.  Of course the conditions are easy to meet, so the renewal is virtually guaranteed. The buyer knows what the vendor is trying to do, and decides to issue a purchase order for the maintenance work that includes some additional performance requirements.

Will the buyer be able to achieve his objectives through the purchase order?  Can he make those additional performance requirements stick?

The answer: It depends.

What we have here is a variation on the classic battle of the forms, except instead of a preprinted offer to sell the vendor is using a “proposal” that is written in letter form but still includes terms and conditions of sale.  The battle ensues in trying to figure out whose terms and conditions govern the transaction: the seller's terms and conditions of sale or the buyer's terms and conditions of purchase that are on the back of the purchase order.

The common law system on which U.S. law is based uses a "last in time" rule to determine whose terms and conditions prevail.  In other words, what happens last, the offer or the acceptance?  The party who has the last say is the party whose terms and conditions rule.  Ironically, that may be the buyer’s or it may be the seller’s.

How can that be?  It all depends on how the events are characterized and how the transaction is initiated.  If the seller’s proposal is the “offer” that is accepted by the buyer’s purchase order, an argument can be made that the buyer’s terms prevail.  But if the purchase order is characterized as the “offer” to purchase that needs to be accepted by the seller, then the seller gets the last word.  

Sometimes buyers and seller will issue “order acknowledgements” to make sure they get the last word.  People often sign them under the mistaken assumption that the acknowledgment is a receipt of some kind.  A careful read, however, often reveals that the acknowledgment is designed to shift the playing field.  By signing they are asking you to “acknowledge” that their terms and conditions control the deal.  As a result, there’s no clear cut answer to the question of who wins the battle of the forms without looking at all of the forms.

To make matters worse, it’s not uncommon for each party’s terms and conditions to have what is sometimes characterized as an integration or entire contract clause.  Look for them at the end of the contract, in the miscellaneous section that most people skip over.  

Those paragraphs are significant because they often say no additional or inconsistent terms and conditions can be added without written consent.  What that means for you is that getting the last word in with a purchase order or an acknowledgment won’t work.  Those additional terms get excluded unless you get written buy-in from the other side.  In other words, being sneaky will backfire.

In sum when it comes to contracts, as in all business dealings, it’s always better to put all of the issues of concern squarely on the table and to negotiate them.  Transparency helps avoid predictable surprises and increases the odds of your business getting the goods and services it really needs.

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Hanna Hasl-Kelchner is a business legal strategist, author, speaker and trainer who teaches and coaches business people on how to avoid lawsuits.  She is the author of The Business Guide to Legal Literacy: What Every Manager Should Know About the Law and forthcoming How to Turn Your Business into a Litigator’s Chew Toy: Taking the Bite Out of Legal Liability.  Follow Hanna on Twitter @nononsenselawyr and her Chew Toy sidekick @acelitigatorwit.  Subscribe to this blog’s RSS feed to get the latest updates.