Battle of the Forms: Which Terms Apply When Both Parties Have Their Own?
A buyer sends a purchase order referencing its own terms; the supplier confirms it referencing different terms of its own – and each side assumes its own version applies. The law has an answer to this situation, but almost nobody knows it, and the outcome is usually different from what either side expected. The lawyers of ARROWS advokátní kancelář set up the purchasing process so it is clear in advance whose terms actually govern.
Key takeaways
- If both parties refer to conflicting general terms and conditions, the contract is formed with the content determined to the extent that the terms do not conflict; conflicting provisions shall not apply to the extent of the inconsistency.
- For any matter not governed by any applicable provision following such a conflict, the supplementary statutory provisions shall apply.
- If either party excludes this consequence without undue delay after the exchange of declarations of intent, the contract is not concluded.
- A priority clause hidden within one's own general terms and conditions does not reliably resolve a conflict, as this rule applies even if the general terms and conditions exclude it.
- Relying on the assumption that one's own terms take precedence because they were sent last is a misconception – the law does not recognize such a rule.
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What happens when an order and confirmation have different terms and conditions
A typical conflict arises inconspicuously. The customer sends an order referencing their purchase terms, which, for example, exclude liability for delays caused by force majeure only to a limited extent. The supplier confirms the order using a form that references their delivery terms with a differently set liability, a different jurisdiction, and a different default interest rate.
At the same time, both parties feel that the transaction went completely standardly, and neither of them realizes that in reality, no contract was formed containing either of these terms in their entirety. A dispute usually only fully emerges when there is a real need to apply a specific disputed provision – a liability limit, the place of dispute resolution, or a penalty for late delivery – and it turns out that each party had been counting on a different wording the entire time.
This situation is extremely common and easily overlooked in business dealings with regular suppliers or customers, as orders and their confirmations are typically generated automatically from the system and business terms are attached to them as a standard appendix without anyone reading them again for every order. How to generally distinguish between an order and a separate business contract in such a relationship is described in the article on business contract versus order.
The problem is particularly exacerbated in international deliveries, where the business terms of both parties also refer to different choices of law or different arbitration and court agreements. In such a case, the conflict affects not only individual commercial provisions but also the question of which law will govern the dispute and where it will be litigated. This dual uncertainty makes international deliveries the riskiest category in which conflicts of business terms appear in practice.
Even in purely domestic deliveries, however, conflicts commonly affect financially significant points of the contract. A typical example is default interest: the customer stipulates a different rate in their terms than the supplier does in theirs. If the discrepancy cannot be bridged, the statutory default interest rate may apply, which may differ significantly from both contractual rates and which neither party factored into the project calculation.
The ruling rule: terms do not apply to the extent of the conflict
Part of the content of a contract can be determined by reference to business terms and conditions that the proposer attaches to the offer or that are known to the parties, with deviating provisions directly in the contract taking precedence over the wording of the business terms (Section 1751(1) of the Civil Code). This is the foundation on which the entire structure stands: business terms supplement the contract, but a specific agreement between the parties is stronger.
The key rule for conflicts comes right in the next paragraph. If the parties refer in both the offer and the acceptance of the offer to business terms that contradict each other, the contract is nevertheless concluded with the content determined to the extent to which the business terms are not in conflict; this applies even if the business terms exclude it (Section 1751(2) of the Civil Code). In practice, this is called the knock-out rule: provisions that contradict each other do not apply to the extent of the conflict, while the rest of both terms, which are not mutually exclusive, continue to apply.
At the same time, the law does not prescribe a mechanical deletion of both conflicting provisions. What matters is the extent to which they actually contradict each other. For provisions that only partially overlap, legal literature considers whether their common content should prevail; established case law of the Supreme Court on this issue is still lacking. Only if the common content cannot be determined does the subsidiary statutory regulation step in for the given issue – which is often precisely what both parties tried to avoid with their own terms under Czech legislation.
This rule applies regardless of whose terms were more extensive, detailed, or better formulated. The law does not evaluate the quality or scope of the business terms, only whether specific provisions contradict each other in content. A company with ten-page business terms can thus end up the same as a company with a one-page document if their key provisions are mutually exclusive.
The law also gives each party an escape route. If either party excludes the consequence described in Section 1751(2) at the latest without undue delay after the exchange of expressions of will, the contract is not concluded. It is therefore not a case of the contract being formed and later terminating; the law directly states that it was not concluded. If the parties have started performing in the meantime, it will also be assessed whether they have reached a new consensus through their behavior.
When a deviation only modifies an offer and when it cancels it completely
If the conflict is contained directly in an individual acceptance of an offer, it is assessed according to the general rules on the acceptance of an offer. An expression of will that contains additions, reservations, limitations, or other changes is a rejection of the offer and is considered a new offer; however, a response that defines the content of the proposed contract in other words is an acceptance (Section 1740(2) of the Civil Code).
However, the law provides for a milder exception: a response with an addition or deviation that does not substantially alter the terms of the offer is an acceptance of the offer, unless the proposer rejects such acceptance without undue delay (Section 1740(3) of the Civil Code). This rule is not limited only to relations between entrepreneurs. Furthermore, the proposer can exclude acceptance with an addition or deviation in advance, either in the offer itself or in another manner that leaves no room for doubt.
When it comes to references by both parties to mutually conflicting business terms, Section 1751(2) contains a special rule precisely for their conflict. And this rule explicitly applies even if the business terms exclude it. Therefore, the sentence "our business terms take precedence over the terms of the counterparty" within one's own terms will not reliably resolve the conflict, even against a counterparty that has no comparable reservation.
Companies often insert this clause into their terms in good faith that it will resolve the problem once and for all, only to be surprised during an actual dispute. If a party wants to exclude the effects of Section 1751(2), it is safer to make an unambiguous reservation directly in the offer, in the acceptance, or in a subsequent individual expression, rather than hiding it in the text of the business terms.
How conflicts of terms are resolved in purchasing and sales practice
The first step in an actual dispute is to find in which specific points the business terms of both parties actually contradict each other – a conflict arises only where the provisions are mutually exclusive, not everywhere the terms differ in formulation. For example, two different clauses on exclusive local jurisdiction of a court, one for Prague and the other for Brno, will mutually exclude each other, and jurisdiction will be determined according to procedural regulations. Two provisions that merely express the same obligation in different wording do not necessarily conflict.
The second step is to find out what applies instead of the provisions that do not apply. First, it is necessary to assess whether both provisions overlap in their common content, and only then look for subsidiary statutory regulations. For a warranty period, liability limit, or place of court jurisdiction, this may be the general regulation of the Civil Code or procedural regulations, and the result may be less favorable for both parties than what they had in their terms.
It is worth taking this step even before a dispute arises, because knowing the statutory default state also changes the negotiating position. A company that knows that a lower statutory default interest rate would apply without its terms has a clearer motivation to insist on an explicit agreement directly in the contract than a company that relies only on a general feeling that its terms somehow apply.
But the check does not end there. A provision of business terms that the other party could not reasonably expect is ineffective unless that party has expressly accepted it (Section 1753 of the Civil Code). Thus, even a provision that survived the conflict may not be effective against the other party if it is surprising to them. Both the content and the manner of expression are assessed.
The third step, which belongs to the purchasing process before a dispute even occurs, is to set up an internal procedure for situations where a supplier confirms an order with reference to their own differing terms. A purchasing department that automatically accepts every order confirmation without comparing it with its own terms risks that, in key points, neither version will ultimately apply.
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What to do to ensure your terms take precedence
The most reliable way to avoid a conflict is to have a direct agreement on key points in the contract or framework agreement, rather than relying on business terms for individual orders. An agreement made directly in the contract takes precedence over business terms under Section 1751(1), so it is worth explicitly agreeing on the liability limit, warranty period, or place of dispute resolution in a framework agreement signed by both parties, leaving the business terms only for the rest.
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What such a framework agreement should contain under Czech legislation and how it differs from individual partial orders subsequently concluded on its basis is described in the article on framework agreements and the new Civil Code.
The second option is to set an explicit rule directly in the framework agreement that only the terms of one of the parties will apply to all partial orders, and to have this choice signed by the counterparty separately, not just as an item in the general terms. Such an agreement is no longer a conflict of two references to business terms, but a specific agreement of the parties that takes precedence.
For long-term supplier relationships with regular orders of the same kind, the law offers another useful construction. If a party, in the ordinary course of business with a larger number of persons, concludes contracts binding long-term to repeated performances of the same kind with reference to business terms, it can be agreed that it may later change the business terms to a reasonable extent (Section 1752 of the Civil Code). At the same time, already during negotiations on the conclusion of the contract, a reasonable need to change the business terms in the future must arise from the nature of the obligation.
A condition for the validity of such a clause is that it is agreed in advance how the change will be notified to the other party, and that they will have the right to reject the change and terminate the obligation for this reason within a notice period sufficient to obtain similar performance from another supplier. This construction solves a slightly different problem than the conflict itself: it allows setting in advance that the business terms can change in the future without a new agreement for each order.
The third option, usable where a framework agreement cannot be pushed through, is a control mechanism on the purchasing side: every order confirmation with differing terms is evaluated and either explicitly rejected without undue delay, or the deviation is recorded as a conscious concession. For a smaller volume of orders, a simple control question in the purchasing form is sufficient; for a higher volume, it is worth automating the comparison of key points, typically warranties, liabilities, and penalties.
How exactly to set up a framework agreement and the purchasing process for a specific supplier relationship depends on the volume of orders and how much money is at stake in a single disputed point – which is why the Czech legal team at ARROWS always addresses this in connection with a comprehensive review of contract documentation, not as an isolated modification of a single sentence in the terms.
The fourth option, which companies underestimate most often, is to simply shorten the list of issues resolved by reference to business terms and leave the rest to an agreement directly in the contract. The fewer provisions there are solely in the business terms, the less room there is for conflict, as it only arises where both parties decide on the same issue, each using their own document.
Risks of conflicts of business terms in the purchasing process
Risk in the company | How ARROWS secures it contractually |
|---|---|
Purchasing automatically accepts order confirmations with differing terms. In key points, neither your own nor the supplier's terms apply. | We will set up an internal process for checking and timely rejecting conflicting terms. We will prepare and review the business terms as well as the ordering process. |
The company relies on the clause "our terms take precedence". The law will apply the conflict rule even if the business terms exclude it. | We will replace reliance on the clause with a specific agreement in the framework contract. We will provide an expert legal opinion on setting up the relationship. |
Key points (liability, warranty, penalties) are only in the business terms, not in the contract. In the event of a conflict, they will not apply first. | We will move key agreements directly into the text of the framework contract. We will negotiate the terms directly with the counterparty. |
The company does not know what applies instead of the conflicting provisions. The common content or statutory regulation applies, which may be less favorable. | We will verify what content and statutory standard would apply. We will also assess the risk of surprising provisions. |
Final Summary
A conflict of business terms is not a theoretical problem, but a consequence of common practice where a customer and a supplier exchange orders and confirmations with their own, mutually contradicting terms. The result is not an automatic win for one of the parties: conflicting provisions do not apply to the extent of the conflict, and if no usable agreement remains, statutory regulation steps in, which both parties wanted to bypass with their terms.
For both purchasing and sales departments, there is a clear lesson: key provisions belong in a signed framework agreement, not in general terms attached to individual orders. An agreement directly in the contract takes precedence over business terms, and this precedence is the most reliable defense against a conflict that otherwise nobody wins.
Prevention in this case is clearly cheaper than resolving a conflict only at the moment of a dispute, when each party is already relying on its own version of the terms. The same issues belong to a standard review of the entire contract documentation, as described in the article on checking a contract before signing. Only during such a comprehensive review is it visible which terms conflict with each other.
The Prague-based ARROWS law firm will set up framework agreements and business terms to prevent conflicts with the terms of suppliers or customers, and assess what content would apply if a conflict has already occurred. Write to us at consultation@arws.cz or review our contracts and negotiations practice.