Harmonizing the battle of the forms: a comparison of the United States, Canada, and the United Nations Convention on Contracts for the International Sale of Goods.

• Author: Sukurs, Charles

ABSTRACT

As trade between the United States and Canada continues to increase on the heels of the free trade agreements of the early 1990s, the question of which body of commercial law to apply to these transactions becomes increasingly important. The United Nations Convention on Contracts for the International Sale of Goods (CISG) serves as the default governing law for many of these transactions. In spite of its lack of use and the confusion it has brought to choice of law provisions as a self-executing treaty, many scholars have suggested that the CISG can continue to serve as a body of transnational contract law if it is harmonized with the domestic laws of the United States and Canada.

This Note illustrates the existing confusion by looking at a common contract hypothetical, the battle of the forms. It then surveys the various arguments that have been forwarded on behalf of harmonization and argues that international transactions will be ameliorated by efforts at vertical uniformity between domestic laws and the CISG, uniform interpretation of the CISG, and education of the practicing bar.

1. INTRODUCTION

   The United States has strengthened its commitment to free and fair trade with its largest trading partner, Canada, through free trade agreements that have been in effect for the last decade. (1) As a result of this commitment, trade between the United States and Canada has increased, rising to more than $365 billion in 1999. (2) With increased trade, however, comes an increase in private conflicts resulting from that trade and questions of how commercial law should resolve these transnational conflicts. (3) As the United States and other nations contemplate a Free Trade Area of the Americas, one can expect a proportional rise in private conflicts as trade barriers lower throughout the entire Western Hemisphere. (4)

   In response to these concerns, a number of commentators have called for a uniform commercial law to facilitate the standardization of business practice in areas of such high-volume transactions, both in the international arena generally and also among NAFTA trading partners. (5) In spite of continuing efforts to produce model laws and international restatements, (6) both the United States and Canada have acceded to the United Nations Convention on Contracts for the International Sale of Goods (CISG), which offers a solution for the uniformity problem that is already in place as ratified law in both the United States and Canada. (7)

   The CISG is a significant treaty because of the breadth of its application to a wide range of international contracts. (8) The CISG is binding, by default, upon private international transactions where each of the party's nations has ratified the treaty. (9) The CISG is therefore the default governing body of contract law over all U.S. trade in goods with six of its top ten trading partners. (10) As one scholar has put it, the CISG is "in effect the sales law of the North American Free Trade Area created by the NAFTA Treaty and its implementing legislation." (11)

   The ratification of the CISG in Canada and the United States illustrates its potential as the governing commercial sale of goods law over the myriad transactions between these nations. (12) There are, however, a number of hurdles to its ultimate success as a uniform trade law. (13) One such hurdle is the need for harmonization between the CISG and the domestic laws with which private parties in the United States and Canada are accustomed. The potential difficulty of this harmonization is illustrated by the classic contract formation dispute known as the "battle of the forms." This Note will identify the battle of the forms problem, describe domestic solutions to this problem in the United States and Canada, describe the solution to this problem forwarded by the CISG, and analyze the challenges of harmonizing the CISG and domestic laws.

2. THE "BATTLE OF THE FORMS" PROBLEM

   The twentieth century's increase in mass production and large-scale enterprise brought about the exchange of standardized form contracts in the sale of goods. (14) The standardization of repeated negotiations has efficiency justifications and illustrates an intent by parties to streamline contract negotiation. (15) As an outgrowth of these modern transactions, the "battle of the forms" arises in the contract formation stage when a reply to an offer identifies itself as an acceptance but contains provisions that are inconsistent with those in the offer. (16) Transactions are negotiated as to the fundamental elements--price, quantity, delivery, et cetera--and then the details of the transaction are left to the forms exchanged in the negotiation process, such as purchase orders, sales acknowledgments, and delivery slips. Attorneys draft these forms to serve their client's interests. (17) The details are usually contained in the boilerplate--minimized typeface at the bottom or on the back of the for--and often address limitations of liability, arbitration stipulations, and reservations of power to cancel upon stated contingencies. (18)

   The "battle of the forms" dispute arises in a fairly consistent scenario. Accordingly, this Note considers a hypothetical transaction in order to compare the various domestic and international solutions. The buyer, a Tennessee computer parts distributor, submits a purchase order form to the seller, a Canadian computer parts manufacturer, for a supply of a certain quantity and type of computer parts at a specific price. The purchase order contains "boilerplate" contract language in small print on the back of the order. This boilerplate includes a clause that provides for "all disputes to be resolved by the laws and in the courts of Tennessee." The purchase order provides that "acceptance of this order shall be deemed to constitute an agreement upon the part of the seller to the conditions named hereon." The seller responds with a sales acknowledgment form that agrees to the fundamental elements of the buyer's purchase order--type of good, price, and quantity--with the caveat that the agreement is "subject to the terms and conditions on the back of this form." Those "terms and conditions" include a provision that limits the seller's liability in the case of defects, and a second provision that calls for disputes to be settled by arbitration in the Canadian province of Saskatchewan.

   Two situations typically develop around these "battles":

   Situation #1: The parties' agreement breaks down before performance, and one party sues for breach of contract. The Tennessee distributor chooses not to perform his obligations after forms have been exchanged. The Canadian manufacturer moves for arbitration in Saskatchewan on a breach-of-contract theory, according to the terms of his form.

   Situation #2: The parties perform, and the agreement breaks down subsequent to that performance. The Canadian manufacturer sends the computer parts accompanied by his own form contract, and the Tennessee distributor accepts shipment, but later finds the computer parts defective and wants his money back. The manufacturer refuses, and the distributor sues in Tennessee state court, according to the terms of his form. The manufacturer answers the suit by pointing to his form, which provides for arbitration in Canada and nevertheless limits his liability for defects.

   In each of these situations, two questions must be answered. Is there a contract? If so, what are its terms? (19)

   1. The U.S. Common Law Approach

      Under U.S. common law, a counter-offer operates as an implicit rejection and terminates the offeree's power of acceptance. (20) For an acceptance to be valid, it must exactly correspond with the offer, a requirement known as the "mirror image rule." (21) A purported acceptance that adds conditions or makes any changes to the offer is treated like a counter-offer and therefore a rejection. (22) An alternative to acceptance is estoppel: a party's performance, such as the exercise of dominion by the buyer over the sold goods, operates as an acceptance on a theory of estoppel where the offeror can estop the offeree from denying the existence of a contract based upon the offeree's performance. (23)

      The common law rules on offer and acceptance have produced the "last shot doctrine" in the battle of the forms. (24) Under this doctrine, each new form is considered to be a counter-offer until the last one is accepted by the conduct of one of the parties. (25) The last party to send a form before performance on the agreement dictates the contract terms via "boilerplate." (26) The Restatement of Contracts, reflecting this common-law approach, provides, "[a] reply to an offer which purports to accept it but is conditional on the offeror's assent to terms additional to or different from those offered is not an acceptance but is a counter-offer." (27) Under this doctrine, parties trade forms back and forth until the buyer takes possession of the goods. The last form exchanged prior to possession operates as the final counter-offer and this "last shot" becomes the terms of the contract. (28)

      The rationale of the mirror-image rule is based on an expectation that the original offeror, making an offer according to his own terms, cannot anticipate being bound on terms other than those that he presented. (29) It is assumed that each part of a contract, not just the primary elements of price, quantity and character of the item exchanged, has a value to the offeror that is incorporated into his original offer. (30) While the common law rule does not assume that any change to the offer is necessarily a deal-breaker, it contemplates that the offeror will want to weigh any changes to determine the value of the contract. (31) The mirror-image rule asserts that additions or modifications to the offer render that offer void, and those changes become a counter-offer, or a "last shot." (32)

      The last shot doctrine has been the subject of much criticism as being...