The Battle of Forms

[Narayan Gupta is a final year law student at Jindal Global Law School, Sonepat]

Introduction

This post seeks to envisage the problems that arise in the Battle of Forms and the solutions to tackle them. Before we get into the problems encapsulated in the Battle of Forms, it is necessary to understand what leads us to that concept.

As the name suggests, it is a battle between ‘forms’, which refers to the document that enlists the terms of a contract. Basically, it is a tussle between the parties as to which form or whose terms should govern their contract. These terms are generally the standard terms of the contract, also known as the boilerplate provisions of the contract.

In order to understand this battle of forms, I would like to draw the attention of the readers towards a landmark case, Butler Machine Tool Co. Ltd. v. Ex-Cell-O Corporation (England) Ltd.[1] In this case, Butler Machine Tool Co. Ltd contracted with Ex-Cell-O Corporation (hereinafter “Cell”) for sale of a machine tool worth £ 75,535. Butler had sent a quotation with certain terms and conditions which included a price variation clause and delivery date (10 months) (hereinafter “First Form”). Cell replied by filling an order form which had certain terms and conditions written on its back which included an additional installation cost and delivery date (10-11 months) (hereinafter the “Second Form”). It did not have a price variation clause. Then, Butler replied acknowledging the order form with a revised quotation which had a revised date of delivery (10-11 months) (hereinafter the “Last Form”). This exchange of documents/ forms leads to the “Battle of Forms”.

Now, the problem that arises is when is this contract said to be concluded: what are the final terms that govern this contract? These questions constitute the Battle of Forms. Often, this leads to prolonged litigation resulting in excessive delays and costs incurred by both the parties. Matters may worsen when the contracting parties are from different nations because then the question arises as to which law governs the contract, thereby leading us back to the terms of the contract. We will now look at few solutions to this problem that have been devised over a period of time under various legal systems. For the purpose of clarity, we will continue using the facts of the Butler case as an illustration in these solutions.

Solutions to Battle of Forms

The first solution is known as the “Mirror Image Rule[2]” of contract formation. According to this rule, a contract is not formed until the terms and conditions of both the parties are exact mirror image of each other, i.e. are the same. This solution solves this problem at the first stage itself, i.e. when is the contract concluded. Since there is no dispute regarding the terms and conditions of the contract, the question as to whose terms prevail never arises. Applying this Mirror Image Rule to the facts of the Butler case, it would have been held that the contract between Butler and Cell was not concluded on the Second Form because the terms and conditions of both the sides were different. Now the question arises whether it was concluded on Third Form. Not really, because there existed a difference between terms and conditions between the Second Form and Third Form. The Third Form referred to the First Form by using the term “revised quotation”. Therefore, there contract between Butler and Cell cannot be said to be concluded until both the parties explicitly agree on the same terms of the contract. This rule is also enshrined in section 59 of Restatement (Second) of Contracts.[3] In Tinn v. Hoffmann,[4] the Court held that in cases where the terms of a contract are not consistent, then there is no binding contract between the parties. Though this is the most easy and straight-forward solution to the Battle of Forms, it does not help much. If we use this principle as a solution to Battle of Forms, it would make the commercial transactions not only difficult but also time-consuming.

The second solution is known as “Last Shot Rule”[5]. This is an addition to the previous solution. In Butler case, Lord Denning came up with the “Last Shot Rule” to solve the Battle of Forms. According to this rule, terms and conditions mentioned in the Last Form will govern the contract between the parties, if the other party never objected to the Last Form and has acted in furtherance of the contract. Therefore, the conduct of the party depicts the consent to the terms and conditions set out in the Last Form. We will now apply this rule to the facts of the Butler case. The contract between Butler and Cell would be said to have been concluded when Cell, through its conduct, accepted the terms and conditions mentioned in the Last Form. Since, it never objected to the Last Form before fulfilling its obligations under the contract, it would be concluded that the terms and conditions set by Butler in its revised quotation would prevail over the Cell’s terms of the contract. Even though this solution is better than the previous solution, one of its drawbacks is the duration for revocation of the offer. Since, in accordance with this rule, the contract will be concluded only upon performance by the other party, it gives too much discretion to the party who gave the Last Form to revoke the offer. Going back to facts of the Butler case, assume that the Last Form had a condition that Cell needs to pay half of the amount for the machine tool within 10 months of execution of the contract. Now, until Cell has actually paid Butler, the terms and conditions offered in the Last Form can be revoked by Butler.

The third solution is covered under section 2-207 of the Uniform Commercial Code. This code applies to transactions in United States. It proposes a solution to the drawback of Last Shot Rule by stating that in case of Battle of Forms, “any definite and reasonable expression of acceptance or a written confirmation which is sent within a reasonable time” would be construed as an acceptance even if there exists some additional or different terms in the acceptance. This principle would not apply to cases where the acceptance explicitly states that assent to additional or different terms of the acceptance is a condition for the acceptance. Section 2-207(2) creates a difference between contracts entered into between merchants and non-merchants. In case of non-merchants, additional terms stated in the acceptance would be seen as a proposal for addition to the contract whereas, in case of merchants, additional terms would automatically “become a part of the contract unless the offer expressly limits acceptance to the terms of the offer” or there is any material alteration or objection to the additional terms have been notified. Section 2-207(3) includes the principle of acceptance by conduct of the parties. It also states the terms of the contract would not only include the terms that both the parties have agreed in writing but also any supplementary terms present in Uniform Commercial Code. If we read Uniform Commercial Code in its entirety, it supports the party who has sent the First Form. In Daitom v. Pennwalt Corp,[6] it was held that when there are inconsistent terms in the contract, those terms should be removed and filled by default rules, also known as gap fillers of Uniform Commercial Code.

The fourth solution is covered under United Nations Convention on Contracts for the International Sale of Goods (also known as “CISG”). It applies to international business transactions and can be opted out by the parties. Article 19 of CISG states that any reply made to an offer would amount to an acceptance if the additional or different terms (if any) stated in the acceptance do not materially alter the contract unless any objection is raised by the offeror without undue delay. The next question that arises is what constitutes material alteration of a contract. Article 19(3) state that a material alteration includes price, payment, quality and quantity of goods, place and time of delivery, liability of the parties or settlement of the disputes. This provision makes article 19 redundant because it almost covers all the substantive provisions of the contract. In effect, the difference between Mirror Image Rule and CISG is just that CISG takes into account any immaterial alteration of contract. Therefore, if the forms exchanged between the parties have material alterations, the Last Form would prevail. If we would apply this principle to facts of Butler case, then only those terms would be binding that are agreed by Cell and Butler mutually, for instance, 10-11 months.

The fifth solution is known as “Knock-out Rule”. This principle is enshrined in article 2.1.2 of UNIDROIT Principles of International Commercial Contracts (also known as “PICC”). The PICC rules apply only if both the parties agree to be bound by it. Article 2.1.2 provides that in case of battle of forms, a contract is said to be concluded but only on the terms which parties have mutually agreed to or are common in substance unless either of the parties explicitly indicate, without undue delay, that they do not want to be bound by the said term. Therefore, all the additional or different terms of the contract get knocked out or become inapplicable. Applying this principle to facts of Butler case, assuming Butler and Cell have agreed to bind themselves by PICC, Butler and Cell would be bound to fulfill the mutually agreed obligations.

Under Indian law, a mixture of the Mirror Image Rule and the Last Shot Rule is used to tackle the Battle of Forms. Under section 3 of the Indian Contract Act, 1872 read with section 4 of the same, it is stated that a proposal is said to be accepted when the other party communicates or has the effect of communicating the acceptance by the other party. This depicts that terms of both the parties should be identically same. Section 8 of the Indian Contract Act, 1872 states that acceptance can also be made by conduct, specifically by performing the conditions of the proposal. This section intends to move towards the Last Shot Rule from the Mirror Image Rule.

Conclusion

As will be evident by now from the above solutions, not every proposed solution applies to every contract and each solution has some drawback or the other. Therefore, none of the abovementioned solutions is a perfect one to tackle the Battle of Forms. It is advisable for contracting parties to ensure that their contract is governed by whichever rule they choose to apply to their contract. The parties to the contract should start with writing down their mutual understanding in form of a memorandum. In an ideal scenario, the party to a contract should try to ensure that it is the last one to send the Form and get that accepted by the other party. This will help in avoiding the situation of Battle of Forms.

– Narayan Gupta

[1] [1979] 1 All ER 965.

[2] Concord Blog, The Mirror Image Rule: How understanding common law doctrines will help you better manage your contracts.

[3] Restatement (Second) of Contracts.

[4] 29 L.T.R. 271 (1873).

[5] Marell Law Firm, Mirror Image Rule vs. Last Shot Rule.

[6] 741 F.2d 1569 (10 Cir. 1984).

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