Battle of the forms

An important problem of contract formation connected with incorporation by reference is the problem of the battle of the forms. It involves an offer or a solicitation of offers that is communicated, where traditional methods of communication apply, on a preprinted²²⁵ form containing contract terms favourable to the form´s author. In a response, the recipient of the preprinted form, instead of accepting the terms contained therein, replies by sending another form containing his own terms. This problem could appear electronically between two sets of contract terms behind a hyperlink.

223 Troye at the Helsinki seminar on 27.11.1991. Central registries facilitating electronic commerce can also publish the general conditions of their participants, see infra.

224 A more coherent European contract law, An Action Plan, OJ C 63, 15.3.2003, para. 87.

225 In the purest sense of the concept of battle of the forms.

There are basically three ways of approaching the discepancy of the offer and the acceptance, at least in the mechanical sense.²²⁶ According to the theory of the

´first shot´, the conflict is resolved by applying unconditionally the offeror´s general conditions communicated to the offeree. The theory of the ´last shot´, on the contrary, builds on the binding nature of the offeree´s conditions, which are the last communicated conditions, provided that the offeror does not protest against them. A third theory purporting to build a consensus between the first two theories is called ´knock-out´ and means the reciprocal cancellation of the conflicting terms.²²⁷

Contract formation will not, however, be allowed, if the law concerned requires a strict compliance between the offer and the acceptance (the so called

´mirror image´ rule). This rule is found within traditional common law. Most legal systems allow contract formation to take place if there are only minor

divergences between the offer and the acceptance. Under Finnish law, for

instance, an acceptance of an offer with amended conditions is regarded as a new offer from the offeree, unless the conditions exchanged are so close that the parties ought to regard the offeree´s response as accepting his offer under

virtually identical conditions, in which case the offeror has the onus to notify the offeree of his objection.

The United Nations Sales Convention does not deal explicitly with the battle of forms issue, and if it is taken to deal with it, it does so in a traditional manner from a technical offer-acceptance angle.²²⁸ This is the case also with many national legal systems such as the French, Belgian, German and English laws.²²⁹

226 In addition to the classical pattern of two declarations of will – offer and acceptance – one can understand the formation of a contract as taking place through performance, even though the content of the contract is incomplete. Another alternative to resolve battle of the forms issues is the good faith principle, which leads to a neutral solution, preventing either party from gaining an advantage by being the first or the last to send a declaration of will. See Perales Viscasillas, p. 4.

227 Delforge in ´Le processus de formation du contrat´, p. 481.

228 Ibid., pp. 525-531. Article 19 provides:

(1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counteroffer.

(2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.

(3) Additional or different terms relating, among other things, to the price, payment, quality, and quantity of the goods, place and time of delivery, the extent of one party´s liability to the other or the settlement of disputes are considered to alter the terms of the offer materially.

According to Delforge, CISG Article 19 is perhaps slightly biased towards the ´last shot´

rule and reflects a a relatively strict ´mirror image rule´. See Delforge, op.cit. p. 525 note 126. See also Honnold, pp. 182 et seq.

229 Delforge in op.cit,., p. 483; Schlechtriem, p. 1. For Germany, on the other hand, an important case was the Schwelfelbrocken case (WM 1957, 1064 et seq.) which led to the result that the steady referral to one´s own terms and conditions despite the actual performance of the contract did not lead to any side prevailing with its term;

nevertheless, a contract had been concluded the content of which was to be governed by statutory rules. An important case is also BGH 9.1.2002, reproduced in English at http://

cisgw3.law.pace.edu/cases/020109g1.html, visited on 16.4.2004. In this case, the court confirmed that the parties´ contract is valid despite conflicting standard clauses, and that the conflicting terms are void and replaced by the provisions of the CISG regulating the respective subject matter.

French and Belgian jurisprudences are sympathetic to the ´first shot´ theory whilst English jurisprudence based on common law seems to apply a mechanistic

´last shot´ approach²³⁰, and the same goes for German law.²³¹

As is the case with Finland, contract formation may be allowed by law, even if the conditions exchanged do not fully match. The Uniform Commercial Code of the United States permits contract formation even though the terms exchanged conflict.²³² Moreover, the UNIDROIT Principles on International Commercial Contracts contain a provision on the battle of the forms with a similar approach.

Article 2.1.22 stipulates namely that “where the parties use standard terms and reach agreement except on those terms, a contract is concluded on the basis of the agreed terms and of any standard terms which are common in substance unless one party clearly indicates in advance, or later and without undue delay informs the other party, that it does not intend to be bound by such a contract”.

The European Principles of Contract Law (Art 2: 209) repeat the same approach, but add that the indication in advance must be done “explicitly, and not by way of general conditions”.

As the CISG does not explicitly address the problem of the battle of the forms, there are various schools of thought as to whether and how the Convention should be applied in case of conflicting contract terms. Some

commentators think that the regulation of the battle of the forms must be found in the applicable domestic law. Some think that the general principles behind the Convention (referenced in Article 7) should come into play to fill in the gap.

Some scholars think that parties performing the contract despite differences in contract forms have implicitly excluded the application of the Convention. There are also those who think that the CISG provisions apply in part. This school of

230 Butler Machine Tool co Ltd. v. Ex-Cell-O Corpn (England) Ltd. [1979] 1 All ER 965. The

´last shot´ means a positive answer with qualifying additions, which together constitute a new offer.

231 Delforge in op.cit, p. 483.

232 U.C.C. § 2-207. Perritt Jr. in Baum-Perritt Jr., pp. 322-323. U.C.C. § 2-207(1) provides that a definite and reasonable expression of acceptance or a written confirmation which is sent within reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. Moreover, § 2-207(2)(c) provides that additional terms by the offeree become part of of the contract unless notification of objection to them is given within a reasonable time after notice of them is received. Such additional terms do not, however, constitute additions to an original offer, if they alter it materially.

The UCC rules on the battle of forms have been widely criticised and are subject to revision. The draft of November, 2000, for a revised Article 2-207 put the battle of the forms in a larger context of contract interpretation. It states that “ (i)f

(i) conduct by both parties recognizes the existence of a contract although their records do not otherwise establish a contract,

(ii) a contract is formed by offer and acceptance, or

(iii) a contract is formed in any manner is confirmed by a record that contains terms additional to or different from those being confirmed, the terms of the contract, subject to Section 2-202, are:

1) terms that appear in the records of both parties;

2) terms, whether in a record or not, to which both parties agree; and 3) terms supplied or incorporated under any provision of the [UCC].”

thought builds on the significance of performance, which turns the problem into a substantive one rather than one relating to formation.²³³

According to Perales Viscasillas the legislative history of CISG Article 19 indicates that the battle of the forms is regulated by the Convention. Her view is that the Convention´s rules, despite their rigidity, add predictability. She also refers to the possibility of substantive scrutiny of the winning terms by national courts on the basis of unconscionability.²³⁴ This view does not make it easy to resort to the contract law principles which tackle the question more flexibly and neutrally. If the principles cannot be brought in by virtue of CISG Article 7, the only way to bring them is (express) contractual incorporation. In case the offer and the acceptance differ, and the difference is regarded as material, no contract exists. This leads to the incorporation of the principles being invalid as well.

The possibility of using automated computer systems for making and accepting offers could, in any case, make traditional rules cumbersome or redundant. Computers should not normally permit a contract to be construed unless the terms match, provided that all terms and conditions are exchanged through the electronic system. But this may not be certain. For instance, as illustrated in the literature, should additional terms regarding packaging be included in the free text segment of an electronic message, a computer might simply disregard them, and the result would have to be examined in the light of circumstances. The question may be asked of whether the improperly packed goods could be rejected.

On the other hand, a solution whereby a party is bound by terms which are attached (by a hyperlink etc.) later²³⁵ does not work either since the CISG and electronic commerce practice as reflected e.g. by well-known interchange agreements build largely on the reception rule. Following this rule, a contract may be formed without the addressee having read the non-compliant

conditions.²³⁶ Therefore, an international solution should probably still build on UNIDROIT Principle 2.22. Parties using machinery should probably have to bear the risks involved without any new rules for allocating them.

The UNCITRAL Working Party on Electronic Commerce will probably refrain from addressing the question of the battle of forms in the draft convention on electronic contracting.²³⁷ My view is that a universal solution to the mechanistic problem should be dealt with in the convention, since national rules are largely based on jurisprudence and are too divergent, and no view on the relationship between the CISG and the relevant contract law principles has received widespread consent.

233 For these approaches and references see Perales Viscasillas, pp. 13-15.

234 Ibid., page 17. Perales Viscasillas refers to Article 4(a) which excludes the application of the Convention to questions of validity. Unconscionability does not, however, necessarily relate to validity. The Finnish Contracts Act § 36 gives the courts a right to adjust unconscionable terms, although these are formally valid.

235 For the ´first shot´ and ´last shot´ models, see Ulf Göransson, Kolliderande standardavtal, Uppsala 1988, pp. 25 et seq. and Wilhelmsson DL 3/2000, p. 447.

236 CISG 19(2) mentions “without undue delay” in a manner which can be interpreted objectively independent of the addressee being informed of the counteroffer. The logic of the Convention does not support any information theory here.

237 A/CN.9/WG.IV/WP.95, paras. 67-68.