Virtually every transaction for the sale of construction materials involves an exchange of the contracting parties’ respective terms and conditions, along with several documents including credit applications, price quotes, purchase orders, order acknowledgments, and invoices. At some point during the sale process, parties will likely send or reference forms containing standard terms and conditions. Because these terms are usually peripheral to the transaction and often considered to be boilerplate, they are rarely discussed and frequently overlooked.
When a dispute arises, however, the parties’ terms are thrown front and center. When faced with two different sets of terms, a judge or arbitrator must determine which party’s terms are the controlling language of the parties’ contract. This sorting process is known as “the battle of the forms” and can dramatically affect the outcome of the dispute.
For example, a material supplier’s terms might disclaim all liability to the purchaser except for the replacement of defective materials, which means a contractor might be unable to recover damages for delays caused by late deliveries. Likewise, a contractor’s standard terms might allow it to cancel orders up to the last minute, even if the materials were specially fabricated for the job. Standard terms might also require lawsuits to be brought in a particular state, which may be inconvenient and expensive for the other party. Or the terms might bar lawsuits altogether, instead of requiring binding arbitration or mediation. In short, the party that wins the battle of the forms will have a significant advantage in any dispute that arises from the contract.
In almost every state, the Uniform Commercial Code (UCC) (or some variation of it) provides the rules that govern a court’s battle of the forms analysis. The UCC rules take into consideration the content of the parties’ terms, the timing of their exchange, the communications between the parties, and the conduct of the parties. The outcome often turns on factual nuances that vary from case to case and may have initially received little thought from the parties. As a result, contractors and their suppliers are frequently rolling the dice when it comes to protecting themselves in the event of a dispute.
We offer two suggestions you can easily implement to minimize your company’s exposure to onerous terms and maximize the effect of your preferred terms.
The first and most important step for controlling the battle of the forms is to include a copy of your terms with the first document you send to your counterparty. This will not guarantee that all of your terms are included in the contract, but it will ensure that no contract is formed before you send your terms. For suppliers, the first document might be a price quote or a credit application. For contractors, it would probably be a purchase order. By way of example, suppose a supplier sends a price quote and a copy of its terms to a contractor and the contractor sends back a purchase order that only addresses the price and quantity of materials. Even if the contractor sends its terms at a later date, a court would probably find that a contract had already been formed under the supplier’s terms. By sending the purchase order without objecting to or countering the supplier’s terms, the contractor creates the impression (intentionally or otherwise) that it wants to proceed with the deal and that the supplier’s proposed terms are acceptable. On the other hand, if the contractor sends back a purchase order along with a copy of its terms, there is an increased likelihood that the contractor’s terms will be included in the contract. In short, it matters little what your terms say if you send them too late. The longer you wait, the more likely it is that you will be at the mercy of the counterparty’s terms.
The second key for controlling the battle of the forms is to state on all of your standard documents (and in your terms and conditions) that your assent to any deal is expressly conditioned on the acceptance of your terms. This is particularly important when the contractor and supplier both send their standard terms in a timely manner and then complete the purchase without further negotiation of those terms. If only one party makes its assent expressly conditional on its terms, there is a much greater possibility that a court would find the contract to include only that party’s terms. If both parties make their assent expressly conditional, then the contract will consist of the terms that both parties agree on, and any gaps will be filled by the default provisions of the UCC. Thus, by including “expressly conditional” language in your standard terms and other forms, you can establish a baseline level of protection against your counterparty’s onerous terms and you will increase the chance that your terms will control.
While the battle of the forms is frequently overlooked, it has a significant impact on disputes that arise from contracts to buy or sell materials for construction projects. By simply making a habit of sending your terms early and ensuring your assent is expressly conditioned on those terms, you will minimize your exposure to burdensome terms and maximize the effect of your preferred terms.
