The Battle of the Forms
My partner and Supply Chain teammate Heather Mallard and I recently presented a Webinar on “Drafting and Interpreting Contracts” for the Association of Corporate Counsel (ACC), following up on our preparation of an InfoPAK for the ACC on the same subject. Of course, concepts of Supply Chain Management were infused throughout both of these projects. One area we discussed was the ever-present “battle of the forms.”
The “battle of the forms” erupts when a buyer and seller of goods each use terms in their purchase order, acceptance, or other communication that can form the basis for an agreement under the UCC. Under U.C.C. § 2-207, a “definite and seasonable 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 made conditional on assent to the additional or different terms.”
U.C.C. § 2-207 provides the rules governing which terms form the basis of the contract when parties exchange different invoices and terms and conditions. When each side uses standard forms of PO’s, acceptance, etc., you can easily get unintended results as to what the exact terms of the sale of goods are, based on trying to consolidate these differing terms.
And often the results are unpredictable as well. In a recent case (Henry Avocado Corporation v. Polo’s Produce, Inc.,2010 WL 4569136 9 (E.D. Cal.)), the United States District Court for the Eastern District of California found that a provision for attorneys fees and pre-judgment interest were part of the agreement between the merchants related to claims under the Perishable Agricultural Commodities Act (“PACA”).
In this case, the plaintiff’s invoice contained a provision allowing it to recover its reasonable attorneys fees and interest on unpaid invoices. The Court noted that PACA was silent as to both issues. The Court then determined that the provision in plaintiff’s invoice form became “part of the contract under section 2207 of the California Uniform Commercial Code” (equivalent to §2-207 of the model UCC). The Court then quoted the salient language of the California UCC provision: “This statute provides that new or different terms added in an invoice, for example, ‘become part of the contract unless: (a) The offer expressly limits acceptance to the terms of the offer; (b) They materially alter it; or (c) Notification of objection to them has already been given or is given within a reasonable time after notice of them is received.’”
The real kicker was the finding of the Court that “neither the interest nor attorneys fees terms materially alter the contract for the PACA goods,” and therefore the additional terms became part of the agreement.
Determining if the terms of your company’s agreements for the sale or purchase of goods governed by the UCC are clear requires, among other things, dealing with the “battle of the forms.” Make sure your standard terms on clear on how new, different, or conflicting terms are handled.
- Greg Chabon