Battle of forms is one of those situations that is better of avoided in procurement given the amount of time it consumes with basically nothing much achieved for the parties involved.
In order understand battle of forms and how to avoid it one has to look back into how contracts come into existence.
Contracts start with one party making an offer to the other party who has a choice to accept the offer or reject it in one way or another. Assuming the party decides to accept the offer and both parties provide consideration then a legally binding agreement comes into existence.
But what if the other party doesn’t accept the offer?
A party, be it a seller or a buyer, may suggest their own offer or modify the other party’s offer in such a way that it changes the original meaning. This is called a counter offer. In effect a counter offer extinguishes the original offer.
In most cases, organizations are not even aware that they are making offers and counter offers. This is particularly the case where they are operating on standard terms.
Every company has its own standard terms and conditions. These are the baseline terms on which they buy or sell. The theory is that these are the terms which will apply in the absence of a more substantial contract.
They will be often printed on the back of the standard documents used in buying and selling processes, which may include some or all of the following; RFQs, Quotations submitted, Order forms, Delivery notes, goods received notes, Invoices etc.
You can quickly see that some of these documents are issued by the purchaser and others by the supplier. Logically, some will have the purchaser’s standard terms printed on them, the idea being to to limit the supplier’s risk and the same will goes for the purchaser.
You can straight away see how legal problem can arise if the buyer’s standard terms of purchase differ from those of the supplier, because of the principle of offer and acceptance.
The Battle of forms in practice
You see, if let’s say the buyer vary the terms presented by the supplier in anyway (for instance by stipulating that the transaction will be covered by buyer’s own standard terms of business) this is going to be interpreted as a counter offer. This will in effect create what is known as battle of forms.
The battle of the forms involves a series of forms such as orders, delivery notes, etc., issued in sequence by purchaser and supplier, each containing terms that appear to override those on the previous document
The question then becomes whose terms of business will end up governing the contract?
Here is a Practical look of that from a typical procurement cycle:
- The buyer may send a written enquiry to a potential supplier on a pre-printed form stating that any purchase made pursuant to the enquiry will be governed by the buyer’s standard terms (that are printed at the back of the form)
- The supplier could respond by quoting details of price and availability, stating that any sale will be governed by the supplier’s own standard terms (printed on the back of the form) note this is an invitation to treat.
- The buyer may place and order (in effect making the supplier an offer) on a standard form repeating its own terms.
- The supplier may reply with an acknowledge of order, repeating its terms, which means that they are countering the buyer’s offer.
A case that best explains this was the case of Butler Machine Tool Co Ltd v. Ex-Cell-O Corporation (1979)
Butler offered to sell using its own standard terms. Ex-Cell-O placed an order using its terms (which were different from Butler’s). That order form had a tear-off slip which the supplier had to return. That slip acknowledged the terms of the order. Butler did this.
The courts held that the return of this slip was an acceptance of the terms and created the contract.
The general principle also known as the last document rule is that the last set of terms and conditions sent will constitute the final counter offer, hence the rule the party who fires the last shot wins.
The seller is often in a good position to ‘win’ by simply delivering the goods and having their terms stated on the delivery note, so if the buyer accepts the goods and signs the delivery not the deal is concluded on the seller’s terms.
How to prevent battle of forms
The procurement staff can take the following action to prevent battle of forms:
- Send acknowledgment copies of all inquiries, accompanied by the buyer’s terms, which the given supplier must complete and return. This will indicate an agreement to the terms. Supposing the supplier instead sends in a quotation stating their own terms, the buyer must reject the quotation and ask the supplier to sign the agreement to the buyer’s terms.
- Send acknowledgment copies of all purchase orders, which the supplier should sign and return, indicating agreement with the buyer’s terms. If the seller acknowledges using its own documentation, for example by attaching terms and conditions, the buyer should write back stating that delivery will be on the buyer’s conditions.
- Negotiate contract with suppliers, agreeing on specific terms and conditions, which may include some of the buyer’s standard terms and some of the seller. Since this approach is likely to be time consuming, use it if you are procuring in large volume or looking at value of the business.
- Check any revised terms or conditions (basically counter offers) which may be attached to supplier documentation.
- Stamp delivery notes with ‘goods received on buyer’s terms and condition’ on receipt of good
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