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Presenting a live 90-minute webinar with interactive Q&A
UCC Battle of the Forms: Confronting
Conflicting Terms in Purchase Orders,
Invoices and Related Documents Minimizing Disputes Over Contract Formation, Enforceability, Terms
and Conditions in Commercial Sale of Goods Transactions
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
WEDNESDAY, NOVEMBER 18, 2015
William J. Serritella, Jr., Partner, Taft Stettinius & Hollister, Chicago
John M. Riccione, Partner, Taft Stettinius & Hollister, Chicago
Douglas H. Fleming, Principal, Riddell Williams, Seattle
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5
Welcome
UCC Battle of the Forms: Confronting Conflicting Terms in
Purchase Orders, Invoices and Related
Documents
November 18, 2015
6
Minimizing Disputes Over Contract Formation,
Enforceability, and Terms and Conditions in
the Commercial Sales of Goods Transactions
John M. Riccione
Partner, Taft Stettinius & Hollister
William J. Serritella, Jr.
Partner, Taft Stettinius & Hollister
Douglas Fleming
Principal, Riddell Williams
7
The Bottom Line
1. Battle of the Forms is critical to your business
– Unless you have a signed contract, you will be in a Battle of the Forms
– For the sale of goods, it’s the buyer’s game to lose
– For the sale of services, the winner may be whoever fires the “last shot”
2. You must have terms and conditions
– If not, you are potentially stuck with the other side’s terms
– Their terms will not favor you
3. You should reference and attach your terms and conditions – Every time
– URL
4. “Magic Language” matters
5. Watch out for international transactions
– The United Nations Convention on the International Sale of Goods (CISG) is not the same as the UCC
– Default favors seller, not buyer
8
How Sales Contracts are Formed
3. By conduct
2. By exchange of purchase and sale
documents
1. By signed agreement
9
Contract by
Signed Agreement
Best Case Scenario
No Battle of the Forms
10
Countersigning
• Avoid the battle and win the war
– There is no battle of the forms if the other side signs your form —
you win!
– Create forms that give you a chance
– When possible, try to get it signed
o Casual efforts often work best
o Little risk in trying unless you have no leverage and invite a request
that you sign the other side’s form
– Do not sign the other side’s forms
– Countersigning is even more important for purchases of services
11
Contracts Formed by Exchange of
Documents (Sale of Goods)
Purchase and sale documents: Request for Quote, Quote, Purchase Order, Order Acknowledgement Shipping documents, Invoice (usually too late)
When conflicts arise, 2-step analysis:
1. If/when was a contract formed? OFFER + ACCEPTANCE = CONTRACT
Offer:
o Typically Purchase Order
o Can be Quote if the terms are sufficiently definite to invite
acceptance by simply saying “yes” (varies by jurisdiction)
Acceptance:
o Typically Order Acknowledgment, but could be a Purchase
Order if the Quote was sufficiently definite to constitute an Offer
12
UCC § 2-206: Offer and Acceptance in
Formation of a Contract
• An offer will be construed as inviting acceptance
in any manner and by any medium reasonable
under the circumstances.
• UCC 2-201: The Statute of Frauds
13
The UCC Supplies “Gap Fillers” to Fill in
Terms Which are Missing from a Contract
• UCC § 2-305: Open Price Term
• UCC § 2-306(1): Quantity Only if Output or
Requirement
• UCC § 2-308: Place for Delivery
• UCC § 2-309: Time for Performance
• UCC § 2-310: Time for Payment
• UCC § 2-312: Title
14
Mirror Image Rule
• Common Law
• UCC 2-207(1) modifies the Mirror Image Rule
• Exception: The Offer/Acceptance is expressly
conditioned upon the assent to the terms and
conditions in this offer/acceptance, including any
additional or different terms.
• Exception to Exception: Performance
15
UCC § 2-207(2)(a) – (c):
Proposed Additional Terms Do Not
Become Part of the Contract When:
a) The offer expressly limits acceptance to the terms
of the offer;
b) The proposed terms materially alter the contract; or
c) The recipient previously objected to inclusion of
any additional terms or objects within a reasonable
time after notice of the proposed terms was
received
16
Material vs. Non-Material Additions (Sale of Goods)
Material Terms:
OUT
Split Among
Jurisdictions
Non-Material
Terms: IN
Why: Result in surprise or
hardship
Examples:
LIMITING REMEDY IN A
REASONABLE MANNER*
Why: No unreasonable
surprise
Examples:
• Price, quantity, quality
• Choice of law
• Limitation/disclaimer of
remedies?
• 90-100% guaranty of
deliveries
• Cancellation of contract upon
failure to pay a single invoice
when due
• Unreasonably short time for
complaints
• Arbitration clauses
• Attorneys fees
• Force majeure
• Choice of law
• Payment of costs of
collection/attorney’s fees
upon breach
*In jurisdictions that follow the
comments to UCC 2-718 AND
2-719
• Limited (reasonable) time to
complain
• Credit terms within trade
practice
• Limited right to rejection for
defects (within customary
trade tolerances)
• Interest on overdue invoices
17
What About Different Terms?
(Sale of Goods)
• Not the same everywhere
– “Majority Rule” o Knock-out Rule
o UCC gap fillers
– “Leading Minority Rule” o Acceptor’s terms rejected
o Offeror’s terms control!
– “California Rule” (possibly also followed by New York) o Different terms treated the same as additional terms
o Acceptor’s material terms rejected
o Acceptor’s non-material terms added
18
Battle of the Forms “Hot Topics”
The most common “Battle of the Forms” issues:
1.Warranty disclaimers
2.Limitations/exclusions of remedies
3.ADR clauses
4.Delivery terms
5.Insurance
19
Contracts Formed by Conduct:
No Additional Terms (Sale of Goods)
What happens when purchase and sale documents don’t
meet elements necessary to form a contract (i.e., no
agreement on key terms or “expressly conditional”
language of 2-207(1) is used in acceptance)?
UCC §2-207 continued. . .
(3) Conduct by both parties which recognizes the existence of a
contract is sufficient to establish a contract for sale although the
writings of the parties do not otherwise establish a contract.
In such case, the terms of the particular contract consist of those terms
on which the writings of the parties agree, together with any
supplementary terms incorporated under any other provisions of this
Act.
20
The “Mirror Image Rule”
(Sale of Services)
• UCC 2-207 does not apply to sales of services
• Common Law “Mirror Image Rule”
– An acceptance that does not “mirror” the offer is deemed a counteroffer
– Who fired the “last shot” before acceptance by performance?
• Courts look to mitigate
– Course of performance
– Industry practice
• Good forms won’t save you
• You must be vigilant about responding to seller’s documents
• Have countersigned agreements whenever possible
21
Buyer: Magic Language for
Front of Purchase Order
THIS PURCHASE ORDER IS EXPRESSLY LIMITED
TO, AND EXPRESSLY MADE CONDITIONAL ON,
SELLER’S ACCEPTANCE OF THE TERMS OF THE
ORDER AND THE ATTACHED ________
PURCHASE ORDER TERMS AND CONDITIONS.
(A COPY OF THE PURCHASE ORDER TERMS AND
CONDITIONS IS AVAILABLE AT [INSERT URL].)
BUYER OBJECTS TO ANY DIFFERENT OR
ADDITIONAL TERMS.
Acknowledged and Accepted By Seller:
Name: ________________________
Date: ________________
22
Seller: Magic Language for Front of Quotation, Order Acknowledgment, and Invoice
[THIS QUOTATION] or [SELLER’S ACCEPTANCE
OF THIS ORDER] IS EXPRESSLY LIMITED TO,
AND EXPRESSLY MADE CONDITIONAL ON,
BUYER’S ACCEPTANCE OF THESE TERMS AND
THE ATTACHED ______ TERMS AND
CONDITIONS. (A COPY OF THE ____ TERMS AND
CONDITIONS IS AVAILABLE AT [INSERT URL].)
SELLER OBJECTS TO ANY DIFFERENT OR
ADDITIONAL TERMS.
Acknowledged and Accepted By Buyer:
Name: ________________________
Date: ________________
23
International Sales - CISG
• Article 19 – “Last Shot Rule”
– Acceptance with different material terms = counteroffer
– Virtually everything is “material” under the CISG
– Performance after last form means that the last form wins
• Favors seller who sends order acknowledgment
– Buyer must object after receiving counteroffer
– Requires buyer vigilance
• Opting out – the chicken and egg problem
– CISG is a treaty signed by most industrial countries
– Both parties’ forms must opt out
o Buyer’s form should opt out
o Seller’s form should not opt out
24
Practical Tips
1. Review existing terms and conditions
Do you have standard Terms and Conditions?
Do those terms maximize your business advantage?
2. Review existing purchase/sale documents
Do they have the right magic language?
Do they properly incorporate your T&Cs?
25
3. Review existing purchase/sale processes
Do you have policies, practices, equipment and training in
place to ensure that your T&Cs are universally used and
that procurement personnel do not sign the other party’s
terms?
4. Establish a triage plan for potential claims
Do your employees know who to contact when potential
claims arise?
Does your legal department have the resources they need
to decide whether to pursue a claim?
o Ignoring or litigating to death are rarely the only options
o Quick early analysis is key to making good business decisions
Practical Tips
26
Questions?
John M. Riccione
Partner, Taft Stettinius & Hollister
William J. Serritella, Jr.
Partner, Taft Stettinius & Hollister
Douglas Fleming
Principal, Riddell Williams
