Jan. 21, 2021

Don’t be the loser in the battle of the forms with your sale or purchase of goods

In connection with recent litigation for several of our commercial clients, we have been once again reminded of some unique terms in the law governing the sale or purchase of goods, and in particular how the law can create inadvertent winners and losers in what is known as the battle of the forms. 

Florida, along with every other state, the District of Columbia and Guam have adopted the Uniform Commercial Code in order to promote consistency throughout the country in laws dealing with certain types of loans and commercial transactions. Article 2, which is codified in section 672 of the Florida Statutes, governs the sale of goods. Unfortunately, most business executives whose companies deal with the sale or purchase of goods are unaware of the significant pitfalls that are lurking in the law which can create unfortunate losses and litigation. If you or your business are a merchant of goods or buyer of goods from merchants, then it is important to understand how Article 2 of the UCC can not only set the terms of your transactions, but also override or otherwise discard terms that you may believe govern your transactions.

In order to provide our clients and friends with some guidance in this area, below are some highlights of areas of importance:

  • In order for an agreement for the sale of goods where the contract price is more than $500, yes, $500, to be enforceable, the agreement must be in writing. Thus, even if the parties have reached an agreement for the sale or purchase of goods, if the purchase price exceeds $500 and there is no writing, it is not a legally enforceable contract in Florida or elsewhere. Although there are some limited exceptions to this that turn on specific facts and circumstances, it remains extremely important to reduce your agreements to writing.
  • Terms of sale that are placed on an invoice, shipping memo or billing statement are generally not enforceable unless expressly agreed to in writing by the other side. That means, unless a written agreement incorporates by reference or otherwise provides that these terms become part of the agreement, they can be rendered useless. Thus, the traditional "net 30 days" or similar payment terms on invoices mean nothing and are not enforceable.
  • If a purchase order or other proposal is sent to a seller, all of the terms in the purchase order become part of the agreement unless modified by the seller in writing. Thus, it is important to review all of the fine print on purchase orders.
  • If on receipt of a purchase order the seller returns a written acceptance with additional or different terms, then those additional or different terms can become part of the agreement formed in combining with the purchase order. When the original purchase order terms and the acknowledgment terms are inconsistent, there is what is known as the battle of the forms, and issues can arise as to what is binding on the parties.
  • With appropriately drafted language by competent legal counsel, and a systemized process for taking or making orders, an overall purchase order or sales agreement can encompass future terms on invoices and statements, and can further neutralize or make ineffective inconsistent or contrary terms in an acknowledgment or purchase order.
  • Many sales agreements attempt to give the seller a security interest or lien on the goods to be purchased. Such a security interest is not effective unless the agreement is signed by all of the parties, and is perfected by the filing of a UCC-1 financing statement. There is no such thing as a unilateral creation of a security interest by the seller.
  • The Uniform Commercial Code creates certain implied warranties that exist in all sales of goods. It is very difficult to exclude or disclaim the implied warranties, and only appropriately drafted language can do so. Likewise, express warranties must be clearly drafted and comply with both federal and state laws. Exclusion of all warranties, must have the exact language required by the statute.

The common example of how things go astray is when the purchase order from a buyer contains one set of terms and the an acknowledgement by the seller or an invoice contains a conflicting set of terms. The issue then becomes which, if either, set of terms controls the transaction, or if the UCC itself gap-fills and replaces any conflicting terms. Each situation tends to by very fact-specific, but systematizing your order process and ensuring your forms give the maximum protection possible is nevertheless important to avoiding unintended results.

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