If you are like most businesses, you have your very own “Terms and Conditions” printed in tiny print on the back of your purchase order or invoice form.  So do your suppliers, vendors, and customers.  Suppose your customer’s form says nothing about warranties or remedies if the contract is broken, but yours specifically disclaims certain warranties or explicitly limits damages to a full refund of the purchase price and nothing more.  What if your form says Ohio law applies, but your vendor’s form says arbitration in New York is the only way disputes may be resolved?  If a problem arises, whose terms will be applied?

The answer depends on how adamant each side has been about insisting upon their own terms and whether the terms in question are deemed to be “different” or merely “additional” by the court.  Courts look at three criteria:

  • Has either party clearly insisted that they will do the deal only on exactly their terms?

  • Are the forms in direct contradiction with one another on a particular point?

  • If only one preprinted form includes terms about a particular issue such as warranties or arbitration, do those terms “materially alter” the nature of the transaction for the other party?

Battle of the Forms Defined.  The problem - known by lawyers everywhere as the “Battle of the Forms” — arises because pure contract law requires a “meeting of minds” before an enforceable agreement can exist.  This means that an acceptance must be a “mirror image” of the original proposal without even the smallest variation.   Then and only then will a contract exist.    

Under pure contract law, if a supplier’s response was even slightly different from the purchase order of a buyer, it would be considered only a counteroffer and not a confirmation of the deal.  No enforceable contract would exist unless the buyer subsequently accepted delivery.  As a result, whoever got the “last shot” in before goods were delivered would benefit by having only the terms in their canned form enforced, often to the surprise and misfortune of the other party.  So if the “last shot” response excluded warranties, no warranties would apply to the transaction regardless of what the other party thought the deal was.

To minimize the “last shot” ability to take advantage of the other party to the contract, all states have enacted law preventing what would reasonably be regarded as an acceptance and confirmation of the deal from being treated as a counteroffer simply because of minor variations appearing in a boilerplate response, but which were never really discussed or negotiated.  In Ohio, these provisions are found in Ohio Rev. Code §1302.10 and are similar to the law in other states.  Today the question is whether terms in one form are merely “additional” terms to be included or should be considered a “material difference” to be excluded from the agreement enforced by the court.  

Rules of the Road.  If either side has made it unambiguously clear that the only way they are willing to do the deal is if, and only if, all of the terms and conditions in their canned form are included and no others come in, he will be in a strong position.  Anything not in complete agreement in the other side’s response or canned form will be ignored.

In most cases, however, both sides have tried to insist on their terms and their terms only.  Suppose one side includes the following language in its quotation to a customer:

THIS ACCEPTANCE IS CONDITIONED EXPRESSLY ON BUYER’S ASSENT THAT ANY OTHER TERMS AND CONDITIONS SHALL HAVE NO FORCE OR EFFECT AND SHALL NOT CONSTITUTE ANY PART OF THE AGREEMENT BETWEEN SELLER AND BUYER.

In response, suppose the confirming purchase order sent by the buyer after the goods have already been shipped on the basis of a verbal acceptance states:

SELLER’S COMMENCEMENT OF WORK WILL CONSTITUTE SELLER’S ACCEPTANCE OF ALL TERMS AND CONDITIONS AS SET FORTH IN THE PURCHASE ORDER’S WHICH ARE INCORPORATED HEREIN BY REFERENCE.  ACCEPTANCE IS LIMITED TO SUCH TERMS AND CONDITIONS.

Now what?  Has each side insisted on their terms?  Assuming they have (and that’s a big assumption as explained below), and the canned or preprinted forms directly contradict one another on a particular point (e.g. warranties or arbitratioon) – i.e. they are “different” in the lingo of the statute — typically they will cancel each other out.  Neither form’s provision becomes a part of the contract.  What happens then?  Certain “gap-fillers” derived from prevailing practices in the industry, the course of dealing between the vendor and its customer, and applicable law as default provisions, will now come into the contract.  In general, this is more likely to favor the purchaser than the vendor or supplier because of warranties and other “defaults” favored by the law.

If one canned form addresses a certain issue and the other does not, courts focus on whether the provision truly changes the nature of the deal.  If not, the extra provisions become part of the enforceable contract because they are deemed “additional” rather than “different” terms.  If the essence of the bargain struck is changed by the extra provision, it is judged a “different” term and will not be enforced.  Whether a particular extra provision will be included is determined by whether, on an objective basis, its inclusion would cause undue surprise or hardship.

Practical Application.  So much for the academic rules.  How does this really work?  Consider  SST Bearing Corporation v. MTD Consumer Group, Inc., 1004 Ohio 6435, 2004 Ohio App. LEXIS 5944 (Hamilton County 2004) in which the seller and buyer used the disclaimers shown above. The Court first had to decide whether it in fact had a situation in which both sides were insisting on their own terms.  Looking at both the language used by the buyer and the buyer’s conduct, the Court held that the buyer had failed to properly make its acceptance conditional on the inclusion of its additional term requiring arbitration.  The Court said:

Here, the purchase order merely stated that the acceptance was “limited to” the added terms and did not state that SST’s assent to the added terms was necessary for the contract to be formed.  The purchase orders certainly did not expressly state that MTD would have been unwilling to go forward with the transaction unless SST assented to the additional terms.  The purchase orders’ language therefore did not make acceptance conditional on the inclusion of the arbitration clause.

Moreover, the parties’ course of performance militated against MTD’s position.  As we have already noted, MTD often accepted SST’s offers by telephone and would not send a purchase order until a considerable time after shipment.  There is no indication in the record MTD ever mentioned the arbitration clause or other conditions of acceptance in its verbal assent to SST’s offers.  On the contrary, MTD’s willingness to go forward with transactions based upon the terms of SST’s offers indicated that its acceptance was unconditional.  The evidence thus fails to support MTD’s assertion that it had accepted SST’s offers conditioned upon SST’s assent to additional terms.

The Court also analyzed the nature of the arbitration clause in MTD’s form, but not in SST’s form, concluding that because it would result in surprise and hardship to the other party by requiring it “to forgo its right to a jury trial on a potentially complex and wide-ranging lawsuit and to submit to arbitration in the Cleveland metropolitan area”, the arbitration clause constituted a “material alteration” of the contract and would not be enforced.    

Bizpointers.  To get the most benefit out of your “Terms and Conditions”:

  1. Make it absolutely clear that the transaction is contingent upon your terms — and your terms only - being accepted, regardless of whether the other party later sends you an invoice or other confirmation or documentation with other terms. Be very unambiguous about this.

  2. Specifically state that no other terms or conditions will be acceptable.

  3. Make sure to include detail regarding provisions such as warranties (or limitations thereof) which are important to you to lessen the likelihood of terms being deemed “additional’ rather than “different”.