A clean knock-out of the battle of the forms

28 December 2021 | Contracts, IT-law

When you make a deal as an entrepreneur, all your attention goes to the “business” elements. These will find their way into the quotation. But not all the other relevant conditions will be written out nicely. After all, a contract is often not drawn up. At (the) most, you try to settle some additional issues by invoking general terms and conditions.

What happens if both parties want to enforce/impose their (deviating) general terms and conditions on the other party? Which general terms and conditions apply then? This tricky situation is also called the “battle of the forms”.

What is this “battle” about?

General terms and conditions are standard rules drawn up in advance by one party for common and repeated use. These conditions are therefore normally not (or only to a limited extent) negotiated with the other party.

In some circumstances, however, both parties will use general terms and conditions and try to impose them on the other party. If you are a seller, then you will be happy to refer to your terms and conditions of sale. But if you as an entrepreneur do business with a supplier, then you may have conditions of purchase up your sleeve.

If these terms and conditions are similar in substance, no problems arise. If there are contradictory provisions in these standard terms and conditions, things become a little more complicated.

A situation of legal uncertainty

What should we do then, when both parties have conflicting general terms and conditions? Today, there is no absolute certainty in ruling on this! This is because there are different legal theories about it, each leading to a different result. The most important theories in this context are the “first shot theory“, the “last shot theory” and the “knock out theory“.

Different theories

  • The “first shot theory” implies that only the general terms and conditions of the party that has first submitted them to his or her opposing party are valid. In concrete terms, this means that the party that initiates the contract will be able to impose its/his general terms and conditions on the other party.
  • • The “last shot theory” implies that only the general terms and conditions of the party who last submitted them to his or her opponent are valid. This is therefore the opposite of the “first shot theory“. The general terms and conditions of the party who responds to the offer will therefore be able to determine the contract.
  • • Finally, the “knock-out theory” advocates that the general terms and conditions of both parties are part of the contract, but only insofar as they are not contradictory. Conflicting terms will not be enforced in this context and their content will be replaced by the applicable common law.

What in reality?

In practice, it is obvious that there are supporters of all three theories. Unfortunately, this is also the situation in the courts. . Even though we have noticed in recent years that the case law generally prefers the “knock-out theory, this is certainly not a certainty!

What will the future bring?

Theory becomes law

If you have lost your courage now, or no longer feel like trying to make good arrangements, do not worry! The legislator plans to put an end to this uncertainty. In an upcoming reform of the contract law, the card of the “knock-out theory” is drawn full force.

As we have mentioned before, the contradictory provisions in the general terms and conditions of both parties will then be eliminated, and thus not be enforced.

Knock-out: is there still a deal?

The implementation of the knock-out rule does not need to be problematic as far as it concerns clauses or agreements which do not constitute a “core clause“. After all, the contract will then be concluded, with the exception of the contradictory provisions.

It becomes more difficult when there are contradictions in the core clauses…

After all, core clauses contain the essence of a contract: for example, the object (“what is being sold?“) and the price (“how much is to be paid for it?“). Application of the knock-out rule may therefore compromise the validity of the contract if there is no agreement between the parties in relation to these elements. The contract will then not be concluded.

In normal circumstances, clauses relating to the price or the object of the contract do not appear in the general terms and conditions. Nevertheless, there are some situations in which this could be the case.

One can think, for example, of contracts in which the price of a product is not explicitly determined because of a (rapidly) fluctuating market value. The parties might then stipulate in their general terms and conditions another moment to determine the price of the product. If they fail to do so in the same way, this will lead to an incompatible core clause, because the price is not (and cannot be) fixed.

Such an hypothesis is also possible in the case of clauses linking the price of a product to an exchange rate. For example, the buyer could state in his general terms and conditions that it is about a fixed price, while the seller stipulates in his general terms and conditions a link to the exchange rate of a certain currency.

Consequences of the knock-out?

If a core clause is eliminated, the effect is that the contract falls apart and comes to an end. The elimination of the other clauses, however, does not lead to the end of the contract.

When eliminating a clause that is not a core clause, it is necessary to fall back on the common law. The common law is the generally applicable law as found, for example, in the Civil Code. They are general rules laid down by the legislator and not by the parties. However, the fact of resorting to the common law must not undermine the will of the parties with regard to the contract in question.

Deviation from the principle

Despite the fact that the legislator wants to enshrine the “knock-out theory” in law, it would still be possible to deviate from this principle. For example, it would be possible for the parties,prior to the conclusion of the contract, to expressly express their will not to conclude the contract in the event of incompatible general terms and conditions (even if they are not core clauses).

Since the legislator does not impose any further formalities for this, it should be possible to agree explicitly on this during the communication preceding the contract. However, the inclusion of this explicit statement in the general terms and conditions themselves is insufficient!

What about the exclusion clause?

Today we often come across an exclusion clause in general terms and conditions. The purpose of this clause is to exclude the general terms and conditions of the other party and to draw attention to the their own general terms and conditions:

“Our general terms and conditions of sale apply to all contracts concluded, to the exclusion of the terms and conditions of the co-contractor.”

Because of the legislator’s explicit choice for the knock-out theory, this type of clause will of course no longer make sense under the new contract law. Therefore, one can only make use of the deviation possibility as discussed above.

Conclusion

The effective date of entry into force of the new contract law is not yet known, but there is no doubt that these new rules will arrive within a considerable period of time.

The legislator has decided the “battle of the forms” in favour of the “knock out theory“. It therefore seems to us to be the ideal moment to re-examine your general terms and conditions in the light of these (and other) forthcoming changes. If you would like some help from one of our experts or if you have any questions, please contact us at hallo@dejuristen.be.

Written by Bjarne Dooms, summer Trainee deJuristen, and Kris Seyen, Partner deJuristen

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