Contract law, at its very essence, is simple: offer, acceptance, consideration and an intention to create legal relations. However, it's not always that simple in practice, and neither is determining what the contract actually says. As commercial transactions increase in complexity, and entering into them becomes more fluid, the terms can become less clear.
Battle of the forms
Standard form contracts are often used in supply agreements. While such contracts are advantageous in that all transactions are entered into on the same basis, problems arise where both parties to a transaction purport to contract upon their own standard terms.
Whose terms will ultimately prevail in the "battle of the forms"? The outcome is determined by a traditional offer and acceptance analysis. In practice, this frequently means that the party whose terms were last dispatched and not explicitly rejected by the recipient will prevail. In other words, the last shot fired before the contract is concluded wins the battle.
However, the following examples show that determining when the last effective shot is fired is not always as simple as it sounds and parties can get caught out:
- S offers to sell goods on S's terms. P places an order on P's own terms. S responds confirming it is entering the order "in accordance with" its offer. The goods are then delivered and accepted by P. Despite S having 'fired the last shot' with its last communication, the court held S's response did not reiterate its own terms, but simply identified the subject matter of the contract. P's terms were incorporated due to S's acceptance by conduct.
- The same factual situation arises as above but S's terms also state that they prevail over any terms and conditions in P's order. Again the contract is on P's terms because again S accepted P's order by conduct without reiterating that its terms applied. The use of a 'prevail' clause will only be effective where a party's standard terms and conditions form the basis of the contract. However, tactically, even if such a clause may not ultimately be effective as a matter of law, it may be worth using anyway as it could be sufficient during negotiations to persuade the other party that there is nothing to be gained from seeking to impose its own terms.
- The same factual situation arises as above but this time S reiterates its terms and P makes it clear it will only accept on its terms. Performance occurs. Either there will be no contract, though the supplier will have a claim for quantum meruit, or the contract will be on some other, implied terms - see below.
Although the battle of the forms can be arbitrary and unpredictable it continues to be upheld by the courts as a concept.
Where the situation as in example 3 arises or the contract records only the most important basic terms, leaving others to be understood, or where the parties have not considered that a particular situation would arise, the court can imply certain terms into the contract:
- By usage and custom of a particular trade or place.
- By previous course of dealings where it can be shown that the reasonable expectation of the parties was that that term would apply.
- Where it is necessary to give business efficacy to the contract.
- By statute. The most commonly implied terms are those contained in the Sale of Goods Act 1979 such as those relating to title, quality, time for performance and consideration.
- Don't forget though that implied terms:
- Can be negated where there is an inconsistent express term. For some suggested wording for excluding implied terms see Wragge & Co's previous alert.
- Are not excluded where an entire agreement clause is silent on their inclusion/exclusion. Implied terms are regarded as an unexpressed part of the contract itself, so are within the entire agreement.
Points to consider
An agreed, complete, signed contract on your terms and conditions is the only way to ensure contractual certainty. This is not always possible but there are a number of tactics to be employed to help persuade the court that your standard terms should prevail:
- Consider including a 'prevail' clause in your standard terms. Although this will not have any legal effect if your terms are not accepted, it may convince the other party that attempting to impose its terms is pointless.
- Ensure all discussions with the other party and as much of the pre-contractual documentation as possible expressly refers to your terms to maximise your chances of firing the last shot. This applies equally to electronic communications. Terms should be (preferably) attached or at least referred to (by hyperlink to a web page displaying them) in all relevant communications.
- If acting as a seller, ensure that nothing said in any pre-contractual documentation constitutes an offer which a buyer could accept before you have submitted your own terms.
- Make sure sales or purchase staff do not accept orders or packing slips which seek to incorporate the other party's terms and/or exclude yours, without making it clear that they are not accepted and responding with documentation bearing your terms.
- Provide guidance to staff where a standard contract has blank spaces which must be filled in. Any blanks completed in a way inconsistent with the standard terms have the effect of adding provisions which override those standard terms.