Last month we wrote to you about two basic ways to sell product - through a distributor or with the assistance of a sales representative - and we addressed state laws that govern sales representative agreements. We referenced Exclusive Supply Agreements, but supply agreements need not be exclusive. For your larger orders or repeat customers, a Supply Agreement will help ensure that you get paid, address how returns are handled, and provide rules as to how and when orders may be canceled.
For routine orders, however, it is not practical to obtain a customer's signature on a written agreement. One way to protect yourself is to include Terms of Sale on your invoice. Invoices may be, but are usually not, signed by the customer. If you require your customers to sign the invoice, then it is contractually binding. If you do not, then the winner of the Battle of the Forms dictates whose terms will govern the relationship.
The Uniform Commercial Code (UCC) is a model statute adopted by all fifty states, with slight variations. The UCC governs the sale of goods, not services; therefore, this article pertains only to the sale of goods. Section 2-207 of the UCC specifically governs the exchange of forms between merchants, for example, a purchase order and an invoice with conflicting terms. The purchase order might state that the customer may cancel an order at any time without penalty, whereas the invoice might state that the customer may not cancel an order within thirty days of the delivery date. It is important to keep in mind that the UCC applies only to "merchants" (that is, businesses) and not to sales to ordinary consumers. In the absence of a written agreement, the battle of the forms would apply to your sales to a distributor or retailer.
Most Terms of Purchase/Sale state that the buyer or seller expressly rejects any different or additional terms proposed by the other party. This makes it difficult for courts to determine (a) whether a contract exists (there must be a "meeting of theminds" in order for there to be a contract) and (b) if so, what the terms of the contract are. The UCC addresses the first issue by stating that if the parties act like there is a contract, there is a contract. The trickier issue is the second one.
Here is where timing matters. If the buyer's purchase order includes Terms and Conditions, then that document is treated as the first "offer." If the buyer's purchase order does not include terms, or if the buyer does not issue a purchase order, then the first offer would be the Terms and Conditions on the seller's invoice. The buyer may or may not respond with a document accepting or rejecting the seller's terms. At this point, several general rules come into play.
First, terms that are the same in both the buyer's and the seller's documents are accepted. Second, additional terms in the second offer that are non-material are deemed accepted unless expressly objected to. Third, additional terms in the second offer that are material are rejected. Fourth, contradictory terms are knocked out (omitted from the contract altogether). MiB Law is a website where law students post helpful tools for tackling legal issues, and a law student named Andrew has posted a flowchart intended specifically to help navigate the battle of the forms.
We recommend that sellers routinely include Terms and Conditions on their invoices because a buyer may not issue a purchase order, and if it does, the purchase order may not include terms other than quantity and price. If the buyer's terms do not include a clause stating that contrary terms are rejected, then the buyer's silence may constitute acceptance of the seller's terms.
In sum, there are a number of tools that sellers may use to protect themselves legally. These include Manufacturing Agreements, Distributorship Agreements, Supply Agreements, Retail Policies, and Terms and Conditions. All of these documents typically address intellectual property rights to some degree. We work with clients to develop the forms and agreements that work best for them.
