Magazine article Business Credit

Battle of the Forms: Part 1 of 2

Magazine article Business Credit

Battle of the Forms: Part 1 of 2

Article excerpt

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. …

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