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Battle Of The Forms- International Acceptance Of Standard Contractual Terms


Introduction

Contracts across the world have the ability to cost individuals and companies a fortune, what often goes unnoticed in these contracts can end up making a substantial difference in its implementation. To protect clients from the burdensome costs of damages, lawyers have attempted to negotiate standard clauses in a contract to their advantage. After discussing and finalizing the key terms of a contract some more seemingly meaningless terms are left to be drafted, at this stage there is most definitely and intention to contract but no substantial contract so what is the validity of such an incomplete contract and who’s version of the contract is to be considered final.

 

Courts and international law commissions have come up with varied approaches to address this conundrum. The need to strike a balance between intention and lack of an actual contract is apparent and hence leads to the battle of the forms. The Restatement (Second) of Contracts,  CISG and PICC all attempt to address this concern at a local and global scale. They form a basis of implementation based on various approaches developed over time as part of international jurisprudence. This paper conducts an in depth analysis into the various methods in which this battle of forms has been addressed by international collaborations in an attempt to bring legal clarity on the applicability of contracts that are not final but have a clear intention of implementation.

 

There are different approaches to address the battle of forms. To better understand these approaches we can look at the landmark judgement Butler Machine Tool Co. Ltd. v. Ex-Cell-O Corporation (England) Ltd, where there was a back and forth of a contract with renegotiated terms but no final contract, yet the contract was acted upon. On breach of the terms of the contract the issue that arose was which version of the contract was valid. Using this case as an example we can discuss below the various solutions used in different jurisdictions to address such a concern.

 

Mirror Image Rule-

As per the “Mirror Image Rule” a contract is only formed when both parties to a contract agree to the exact same version of the contract. This avoids any form of miscommunication or lack of agreement in a contract. This rule has been codified in the Restatement (Second) of Contracts under section 59 and is often considered the easiest solution to the battle of forms issue. The primary argument made in implementation of this rule is that every future contract was only a counter offer and there was no acceptance and hence there is a lack of a valid contract. The application of this rule can be seen in Tinn v. Hoffmann where the court clarified that if the contract between parties are on different terms then there is no binding contract and hence neither party is liable under the said contract.

 

The primary critique of this rule is that in a scenario like the Butler case above, the court would conclude that there was no final contract and both parties would be left remedy less despite an evident intention to contract. This would make the contracting process more difficult and instill a lack of faith during the negotiation process among parties to a commercial transaction.

 

Last Shot Doctrine-

The “Last Form Rule” or “Last Shot Doctrine” was put forth by Lord Denning in the above mentioned case as a solution to the battle of forms. Lord Denning believed that the last contract before performance had been implicitly accepted by the other party. Hence, in a scenario where one party sends a contract, the second party replies with new contract terms and the original party on receiving the new terms begins performance there is implied acceptance of the revised contract. As per this theory the conduct of the parties determines the final contract and due importance is given to intention of the parties. This is applicable in several jurisdictions, such as in India where it is codified as Section 8 of the Indian Contract Act, 1872.

 

This rule does take a more inclusive approach the issue posed by the battle of forms, however, fails to address some key concerns. One of the many concerns flagged by jurists regarding this approach is the lack of a date for revocation of contract as an implied contract can only be accepted upon conduct and there is ambiguity on the final day of acceptance. This approach also places a lot of discretion on the party who received the last offer to either accept it through contract or not to perform the contract despite an earlier intention to contract.

 

Knock-out Rule-

The Knock-out rule removes any clauses that are inconsistent with both parties final contract and retains all the clauses that are common between both contracts. This rule has been evolved over time as a result of international frameworks. It was initially put forth in the Unites States under Section 2-207 of the Uniform Civil Code(UCC) which highlights the importance of retaining material clauses that are common. The court further elaborated on this rule in Daitom v. Pennwalt Corp, by applying this rule while also introducing default rules to replace the inconsistent clauses in a contract. 

 

The United Nations Convention on Contracts for the International Sale of Goods (CISG), proposed a different alternative where it clarified that immaterial changes to a contract constitute acceptance and not a counter offer as per Article 19(2). However, Article 19(3) defeated the purpose of this Article as it defined materiality extremely broadly so all replies to an offer would have material changes and be a counter-offer rather than acceptance. In order to rectify this problem the UNIDROIT Principles of International Commercial Contracts (PICC), combined the solutions proposed by CISG and UCC under Article 2.1.2, it retained the same clause as the CISG but removed Article 19(3) clarifying that immaterial changes are acceptance and not a counter offer. It further clarified that all material changes would be knocked out of the contract and the final contract would be determined by the common material clauses of both contracts. 

 

The actual application of the PICC is limited since it only applies in scenarios where parties expressly bind themselves to the PICC, in all other matters there remains an area of dispute around which rule should be applicable.

 

Conclusion

The PICC conclusively addresses the concern of the Battle of forms however is not legally binding unless parties contractually agree to be bound by it and hence either the CISG or domestic laws must incorporate Article 2.1.2 of the PICC into legal practice. Failing to make this statutory change will lead to ambiguity regarding the applicable rule and varying judgements applying the Mirror Image Rule, Last Shot Doctrine and Knock-out Rule.



Author: Manvi Talwar

University and Year : Jindal Global Law School, 3rd Year

Programme: BBA LLB (Hons.)

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