The Battle of the Forms in Texas: UCC Section 2.207, Purchase Orders, and Why Supply Agreements Matter
Updated: 6 minutes ago
By Trenton Roberts and Spencer Kendrick
A buyer sends a purchase order with its terms and conditions on the back. The seller replies with an order acknowledgment carrying its own terms, ships the goods, and sends an invoice with a third set of terms printed at the bottom. Nobody reads any of it, the goods arrive, and the buyer pays. Months later the goods fail, and both sides pull out their forms. That fight is the battle of the forms, and in Texas it is decided by Section 2.207 of the Business and Commerce Code.
The rules are old and settled in their text. What makes them dangerous is how often companies selling or buying goods rely on forms without understanding what the forms actually accomplish. This piece walks through how Section 2.207 works, a worked example of what happens when forms conflict, and sample language for sellers, buyers, and a master supply agreement.
When Article 2 applies
Chapter 2 of the Texas Business and Commerce Code is Texas's version of Article 2 of the Uniform Commercial Code. It governs transactions in goods. A contract for services, a software subscription, or a real estate lease falls outside it, though mixed contracts for goods and services can be pulled in depending on which part predominates.
Two Article 2 rules frame everything else. Under Section 2.201, a contract for the sale of goods for a price of $500 or more is generally not enforceable unless there is a writing sufficient to show a contract was made, signed by the party against whom enforcement is sought. Between merchants, a written confirmation that is not objected to within 10 days of receipt can satisfy that requirement against the recipient. And under Section 2.204, a contract can be formed in any manner sufficient to show agreement, including conduct. Those rules mean that a deal can exist long before anyone agrees on the fine print.
How Section 2.207 works
Section 2.207 rejects the common law rule that an acceptance must mirror the offer exactly. It has three parts.
Subsection (a) says that a definite and seasonable expression of acceptance, or a written confirmation sent within a reasonable time, operates as an acceptance even though it states terms additional to or different from those offered, unless the acceptance is expressly made conditional on assent to the additional or different terms. So a seller's acknowledgment with new terms usually still forms a contract on the buyer's offer.
Subsection (b) addresses the additional terms. They are treated as proposals for addition to the contract. Between merchants, they become part of the contract unless one of three things is true: the offer expressly limited acceptance to its own terms, the new terms materially alter the contract, or the offeror objects to them, either in advance or within a reasonable time after receiving notice of them.
Subsection (c) covers the case where the writings do not form a contract but the parties act as though one exists, such as by shipping and paying. The contract then consists of the terms on which the writings agree, plus the supplementary terms supplied by the Code itself.
The practical result is that in most form exchanges, the party that sent the first form has an advantage, and terms that materially alter the deal do not come in through a later form without real agreement.
Section 2.207 also has limits. An offer can prescribe how it must be accepted, and when it does, a reply that does not follow that method may not be an acceptance at all. In Automated Ingredient Systems, L.L.C. v. Hiller Carbon, LLC, No. 09-23-00028-CV (Tex. App. Beaumont Feb. 15, 2024), the court held that Section 2.207 did not apply because the seller's proposal required acceptance by strict performance of its terms, and the summary judgment evidence did not show the buyer accepted that way. A seller that wants its proposal to govern can say that it may be accepted only by signing and returning it, and then hold to that.
What counts as a material alteration
The Code does not list material alterations in Section 2.207 itself. The official comments to the UCC give examples of clauses that would normally materially alter a contract, such as a clause negating standard warranties of merchantability or fitness, or one requiring a guaranty of 90 percent or 100 percent deliveries where trade usage allows more leeway. They also give examples of clauses that ordinarily do not, such as a reasonable time for complaints or reasonable interest on overdue invoices.
Courts generally ask whether the term would result in surprise or hardship if incorporated without express awareness by the other party. Arbitration clauses, limitations of remedy, consequential damages waivers, and shortened limitations periods are frequent sources of argument, and the answer can depend on the parties' course of dealing and the customs of the industry. If a business depends on one of those terms, it should not count on Section 2.207(b) to deliver it.
Different terms and the knockout question
Subsection (b) speaks of additional terms. Subsection (a) mentions both additional and different terms. When the buyer's form and the seller's form contain conflicting terms on the same subject, such as two different warranty periods or two different forum clauses, courts around the country have reached different answers. Many follow what is called the knockout rule, under which the conflicting terms cancel each other and the Code's default rules fill the gap. Others treat the different term as simply not becoming part of the contract, leaving the offeror's term in place.
Texas appellate courts have not clearly settled which approach applies under the Texas statute. We do not rely on either rule when advising a client. The safer course is to assume that conflicting terms on important subjects will fall out and that the Code's defaults will apply. For a seller, the Code's defaults include implied warranties of merchantability and, in the right circumstances, fitness for a particular purpose, and the four year limitations period under Section 2.725. For a buyer, the defaults may include fewer protections than its own form promised.
A worked example
A Texas manufacturer orders $40,000 of control valves. Its purchase order says the seller warrants the goods for 36 months and is liable for all damages caused by defects. The seller's acknowledgment says the warranty is 12 months, the sole remedy is repair or replacement, consequential damages are excluded, and any claim must be brought within one year. The seller ships, the buyer pays, and 20 months later a valve fails, shutting down a line and causing $1,200,000 of lost production.
The acknowledgment was not expressly conditional, so a contract formed on the buyer's purchase order under Section 2.207(a).
The warranty period, remedy, and damages terms conflict with the purchase order. Under the knockout approach, both sides' terms on those subjects drop out. Under the other approach, the buyer's terms stay. Either way, the seller's 12-month warranty and consequential damages exclusion are not in the contract.
The one-year limitations clause is an additional term. Between merchants, it comes in only if it does not materially alter the contract, and shortened limitations periods are a common subject of argument on that point. The seller should expect the four-year default under Section 2.725 to apply.
If the knockout approach applies, the gap is filled by the implied warranty of merchantability under Section 2.314 and by the Code's damages rules, which allow consequential damages that the seller had reason to know of and that the buyer could not reasonably prevent, under Section 2.715.
The seller thought it had sold $40,000 of valves with a one-year repair obligation. It may instead face a claim for $1,200,000 that is not time-barred. The buyer is not entitled to that recovery automatically, because it still has to prove breach, causation, and foreseeability, but the seller's forms did not do the work it expected.
The defaults are usually worse than either form
That last point is the reason the battle of the forms matters. When terms fall out, the Code fills in. For a seller, the defaults can be painful.
Warranty disclaimers, for example, have to meet specific requirements. Under Section 2.316, a disclaimer of the implied warranty of merchantability must mention merchantability and, if written, must be conspicuous, and a disclaimer of the implied warranty of fitness must be in writing and conspicuous. A disclaimer on the back of an invoice that the buyer never agreed to may never become part of the contract at all.
Remedy limits carry similar risk. Section 2.719 allows parties to limit remedies, for example to repair or replacement, and to exclude consequential damages unless the exclusion is unconscionable. But if the exclusive remedy fails of its essential purpose, for example because the seller cannot actually repair the goods, the buyer may pursue the remedies the Code otherwise provides. A seller that wants its remedy limits to hold needs them in the contract, and needs a fallback if repair does not work.
Limitations periods follow the same logic. Section 2.725 sets four years from accrual for breach of a contract for sale, and lets the parties reduce the period to not less than one year by the original agreement. A shortened period printed on an acknowledgment may not be part of the original agreement.
For more on how indemnities, liability caps, and consequential damages waivers are drafted and enforced in Texas, see our post on Texas indemnity and limitation of liability clauses.
Practical moves for sellers
Make acceptance expressly conditional. Section 2.207(a) lets a seller state that its acceptance is expressly conditional on the buyer's assent to the seller's terms. Courts read that language strictly. In Dorton v. Collins & Aikman Corp., 453 F.2d 1161 (6th Cir. 1972), an acknowledgment stating that acceptance was "subject to" the seller's terms was not enough, because it did not show that the seller was unwilling to proceed without the buyer's assent. Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3d Cir. 1991), applied a similar test. Language that tracks the statute is the safer course:
"Seller's acceptance of Buyer's order is expressly conditional on Buyer's assent to the terms and conditions in this acknowledgment, and Seller will not proceed with the order unless Buyer assents. Buyer's acceptance of delivery constitutes assent. If Buyer does not assent, Buyer must notify Seller in writing within five business days and before shipment."
The first sentence tracks the words of Section 2.207(a) and states unwillingness to proceed, which is what Dorton found missing. The second and third sentences try to convert silence and acceptance of goods into assent. Courts do not always enforce that conversion, which is why the strongest version of this clause is paired with a signed agreement.
Object to the buyer's terms in writing. Under subsection (b)(3), notice of objection can keep the buyer's additional terms out. A short statement on the acknowledgment that the seller objects to any terms in the buyer's purchase order that differ from or add to the seller's terms is a reasonable baseline.
Get the terms in front of the customer before the first order. A website click-through, a signed credit application that incorporates the terms, or a signed customer agreement all give the seller a better position than an invoice that arrives after delivery.
Put critical terms in a signed agreement. If a warranty disclaimer, a remedy limit, or a forum clause matters to the business, it belongs in a document both sides sign.
Practical moves for buyers
Limit acceptance to your own terms. Under subsection (b)(1), a purchase order that expressly limits acceptance to its terms keeps the seller's additional terms out. A workable version:
"This purchase order is an offer limited to its terms. Buyer objects to any additional or different terms in any quotation, acknowledgment, invoice, or other document from Seller, and those terms will not become part of the contract unless Buyer agrees to them in a writing signed by an authorized officer. Seller's shipment of any goods or performance of any services constitutes acceptance of this purchase order on its terms."
The first sentence invokes subsection (b)(1). The second gives advance notice of objection under (b)(3) and covers different terms as well as additional ones. The third makes performance an acceptance on the buyer's terms, which is the point the seller's acknowledgment will contest.
Do not let the paper flow on autopilot. If a supplier's acknowledgment contains a term you would never accept, object to it in writing within a reasonable time.
Watch the course of dealing. Repeatedly accepting goods under forms carrying the same terms can strengthen a later argument that those terms were part of the deal.
Negotiate a master supply agreement for strategic suppliers. Include an order of precedence clause stating that the master agreement controls over any purchase order, acknowledgment, or invoice terms.
Ending the battle of the forms with a master supply agreement
For any relationship that matters, the cleanest way out of the battle of the forms is not to fight it. A master supply or distribution agreement sets the terms once. Individual purchase orders then only fill in quantity, price, and delivery. The master agreement should address:
Order of precedence, stating that the master agreement controls over pre-printed terms on any order, acknowledgment, or invoice. For example: "This Agreement governs each purchase order. Any term in a purchase order, acknowledgment, invoice, or similar document that adds to or conflicts with this Agreement is void, other than the description, quantity, price, and delivery date of the goods, unless the document expressly identifies the Section of this Agreement it modifies and is signed by authorized representatives of both parties." The requirement to name the Section being modified stops a pre-printed form from overriding the master agreement by accident.
Forecasts, minimums, and whether the buyer is committed to a quantity or only to orders it actually places.
Price changes, including how the seller may pass through raw material or tariff increases and on what notice.
Warranty, remedy, and the fallback if repair or replacement fails.
Termination, including notice periods. Under Section 2.309, termination of a contract by one party, except on an agreed event, requires reasonable notification, and an agreement dispensing with notification is invalid if its operation would be unconscionable.
Modification. Under Section 2.209, an agreement modifying a contract for the sale of goods needs no consideration to be binding, and a signed agreement excluding modification except by a signed writing cannot be otherwise modified. That is a useful protection against claims that a phone call or an email changed the deal.
The same discipline applies to the customer side of the business, and our contract review checklist for MSAs covers the services counterpart.
How we can help
We draft and negotiate supply, distribution, and purchasing agreements, and we review a company's standard purchase order and acknowledgment terms so they do what the business expects when a dispute arrives.
If your terms and conditions have not been reviewed in a while, email info@robertsandwillie.com or call (469) 910-4017. Sending a message does not create an attorney-client relationship.
This article is for general information and is not legal advice. Cases and statutes are summarized for general discussion, and their application depends on the facts, the documents exchanged, and governing law. Attorney Advertising. Roberts & Willie, PLLC, Dallas, Texas; Trenton Roberts, responsible attorney.
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