“The Silent Battle in Every Day Business Transactions” by Christiaan D. Horton

Many small business owners and even owners of large companies do not realize they are at a silent battle in the marketplace. Sure, our economic slowdown has reminded everyone to be prepared for challenging times, but in day-to-day operations, how can this goal be accomplished? For starters, every owner of a business should have a good command of the “rules of engagement”. When it comes to the sale of goods, this is much more complex than most people realize.
Sales often begin with a request by a long-standing customer or a new client for a “quote” or estimate of cost. Many businesses do not take this initial opportunity to exercise their power and right to frame the Battlefield. The initial quote often does not include standard terms and conditions of sale (those terms that appear on the back of a form in small type and require a magnifying glass to read), and this is a missed opportunity that gives the buyer an advantage. Standard terms and conditions should be included with each quote or original writing from a seller to a buyer to adequately protect contract rights. The quote is usually the first volley in the battle, and buyers are likely to return fire whether or not standard terms and conditions are initially provided with a quote.
Basic Training.
Under common law, a contract is formed when an offer is accepted and the agreement is supported by consideration. This requires a “meeting of the minds” between the buyer and the seller, and if the terms of acceptance are not a “mirror image” of those offered, no contract is formed. Rather, the “acceptance” is deemed a counter-offer. The inquiry then shifts to part performance as the parties actions are scrutinized for contract formation. Did the buyer pay the price? Was the price accepted by the seller? These facts will support a contract between them, but what are the terms?
Quite often, the “last shot” rule under common law will invoke the terms that are contained in the counter-offer. Under this rule, those terms that are contained in the last document sent before contract performance (ie., before payment) will control the transaction. The party with the “last shot” wins.
Common law rules typically come into play when the subject of the contract involves services, real estate and lending contracts, but what happens when the contract involves the sale of goods covered by the Uniform Commercial Code?
Special Operations.
The UCC applies to goods only, and Missouri’s codified version that controls the “battle of the forms” is found at Section 400.2-207 of our Revised Statues. Parties selling goods turn to this provision for guidance on contract formation when both parties send Standard Terms and Conditions to the other. Building on our example above, the seller’s quote with its terms is typically followed by the buyer’s Purchase Order containing the buyer’s terms that in most instances drastically differ. This battle of the forms is what the UCC is designed to address. Section 400.2-207 usually ensures that there is a contract once the documents are exchanged by eliminating the mirror image and last shot rule under common law. The purchase order operates as “acceptance” even though it contains different terms, but which terms actually govern the contract between the parties?
The answer to this question will turn on whether the parties are both considered merchants under the UCC. If they are not, then additional terms will be construed as proposals and will not be binding. A “Merchant” is broadly defined as a person who deals in goods or by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction in question. So, if the parties are both merchants, then additional terms will become part of the contract. This approach favors the sophisticated knowledge and “training” of the parties in the transaction, but there are exceptions to this rule. If the offer expressly limits acceptance to the terms of the offer, if the terms materially alter the contract, or if notification of objection is provided within a reasonable time, additional terms will not be part of the deal. However, those terms that differ result in the application of the UCC “knock out” rule and are stricken from the contract and replaced by the default rules established by the UCC.
The Battle Plan.
Business owners must be aware of this battle and take precautionary steps. Reviewing quotes, purchase orders, and invoices after the fact usually leads to a realization that the enemy has engaged in a “sneak attack” and has shifted risks in the transaction that could cost the company thousands of dollars. Consider the “knock out” of an attorney fee provision that is originally designed to create a strong incentive for the performance of the contract. If a seller is forced to litigate the enforcement of payment without an attorney fee provision because it was knocked out, a significant cost to pursue the debt will be placed on the company that could have otherwise been avoided. What about a forum selection clause that is stricken forcing the Seller to sue in a distant jurisdiction, or an arbitration clause that is eliminated forcing costly and time-consuming litigation? Periodic review of Standard Terms and Conditions as well as policies and procedures in contract formation by a qualified attorney should alleviate exposure to these potential company losses and others, and will give business owners a much greater command on the Battlefield.