Battle of forms: Whose terms apply?

The buyer refers in its purchase order to its conditions of purchase, the supplier in its order confirmation to its conditions of sale. Neither reads the other’s terms, the supplier delivers, the buyer pays. Two years later the machine fails. The supplier invokes the liability cap in its conditions of sale, the buyer its conditions of purchase, which contain no cap, and the statute. As long as there is no dispute, nobody notices the conflict. Once there is one, it is usually too late to agree the clause. Internationally this case is known as the battle of forms. Whose terms then apply is written in neither set. It depends on which doctrine the court that hears the case follows. There are several, and the three most important lead to three different outcomes.

The case presupposes that both sets of terms became part of the contract in the first place. Anyone who merely links to their terms in international business instead of transmitting them has no battle of forms but no terms at all. That is the subject of the article “How to incorporate standard terms internationally”. This article starts one stage later. Both parties got incorporation right, and that is exactly why the clauses now conflict. Where the question sits in the system of standard-terms law is shown by the entry article “Standard terms in B2B: freedom of contract is the exception”.

Three doctrines for the battle of forms

The last shot rule follows from the scheme of offer and acceptance. A party that answers an offer with its own terms rejects it and makes a counter-offer (Section 150(2) of the German Civil Code (Bürgerliches Gesetzbuch, BGB), Article 19(1) CISG). If the other party then accepts performance without objection, that counts as acceptance of the counter-offer, including the terms named last. The doctrine is simple, and it rewards whoever writes last before the contract is concluded. In practice that is often the seller with its order confirmation.¹ The U.S. federal courts read Article 19 CISG literally in this sense, as the mirror image rule. As long as the acceptance does not mirror the offer, there is no contract, and silence is no acceptance (Article 18(1), second sentence, CISG). A party that sends terms after the contract has been concluded makes a proposal to modify it, to which the other party must assent, by words or by conduct (more on that below).

The first shot rule governs under Dutch law. There, the party that refers to its terms first prevails, unless the other party expressly rejects those terms in its acceptance. A mere counter-reference to one’s own terms is not enough.²

The knock-out rule is the line of the German courts and of the international instruments. The contract is formed because both parties want it and perform it. The clauses apply as far as they match. Where they conflict, both fall away, and the statute takes their place.³ For the user, the outcome is the same as failed incorporation. Under the knock-out rule the winner is not the party that refers to its terms last. The winner is the statute.

German courts: The contract stands, the clauses fall

The leading case of the German Federal Court of Justice (Bundesgerichtshof, BGH) is a milk powder deal (BGH, judgment of 9 January 2002 – VIII ZR 304/00). Two Dutch traders bought milk powder from a German dairy; it went on to Algeria and tasted rancid there. The dairy’s delivery confirmations carried a defense clause in the footer under which the dairy sold exclusively on its own terms and did not recognize conflicting terms of the buyer. The buyers used the Dutch trade conditions, which limited the seller’s damages to the invoice amount. The contract was governed by the CISG.

Three statements in the judgment form the line to this day. The conflict between the two sets of terms does not prevent the contract from being formed if the parties perform it. By performing, they show that they do not regard the lack of agreement as material within the meaning of Article 19 CISG. Under the knock-out rule, which the BGH took as the probably prevailing view, the terms become part of the contract only as far as they do not conflict. For the rest, the statute applies. And whether they conflict is examined not clause by clause but in an overall assessment. The dairy wanted to rely on the favorable liability cap in the buyers’ terms, although it had rejected conflicting terms of the buyer in its own defense clause. The BGH did not allow that, and it added that nothing would change under the last shot rule; which doctrine it follows, it thus left open in the end. A party that refers to its terms last may not assume, in good faith, that the collision will be decided clause by clause in its favor (Article 7(1) CISG). In the end, the defense clause worked against the party that had imposed it.

The lower courts follow this line. In 2019 the Higher Regional Court of Hamm decided an Italian-German grape juice deal (OLG Hamm, judgment of 25 March 2019 – 2 U 132/18). It let the choice of law in the buyer’s conditions of purchase fail against the seller’s conditions of sale. That the buyer had promptly objected to the other party’s terms and referred to its own again changed nothing; the court expressly turned away from the last shot rule in doing so. Instead of the chosen German law, the CISG applied, the very law the buyer had wanted to exclude.

In domestic business the same applies under different provisions. The disagreement over the terms leaves the contract intact if both parties want it (Sections 154 and 155 BGB), and the conflicting clauses are replaced by the default rules of the statute (Section 306(2) BGB).⁴ A generally worded defense clause excludes not only conflicting but also supplementary clauses of the other party, for instance a set-off prohibition that appears only in their terms.⁵ And a party that accepts delivery without objection does not thereby consent to the other party’s terms after the fact, if it has declared the opposite in a defense clause beforehand.⁶

What is left of the contract

The contract then consists of three layers. First the individually agreed terms, that is price, quantity, date, and everything else that was negotiated. Then the standard terms of both parties as far as they match in substance; the courts call this congruent validity.⁷ Last, the statute for everything on which the clauses conflict.

The difficult clauses are those on which the other party is silent, like the liability cap in the opening case. A limitation of liability is typically imposed only by the seller; the buyer does not address it in its conditions of purchase. Such a one-sided clause applies only if the other party agreed to it. The Higher Regional Court of Düsseldorf assumes that where the clause favors that party or is customary in the trade; the literature is divided on whether trade custom suffices.⁸ For the seller’s limitation of liability, such agreement is regularly missing. The buyer may rely on statutory liability, and the seller loses exactly the clause that is worth most to it.⁹ The simple retention of title is a different matter. It prevails if the buyer knew or had to know that the seller delivers only under retention of title. The extended and expanded forms of retention of title, by contrast, regularly fail against a defense clause of the buyer, unless the buyer’s conditions of purchase recognizably presuppose them or they are recognized as a trade usage in the industry.¹⁰

What losing the clauses costs

For the seller, the arithmetic is unpleasant. If its limitation of liability falls, it is liable under the CISG for the full foreseeable loss (Article 74 CISG), and under German law without a cap. If its shortened limitation period falls, the statutory periods apply. If the choice of law falls because both parties made a different one, as a rule neither applies. The CISG then applies directly, and outside its scope the law designated by private international law.¹¹ What the fallback to the statute costs in the case of liability is calculated in the article “Why your limitation of liability in B2B contracts fails”.

An English case shows how expensive that can get (Trebor Bassett Holdings Ltd v ADT Fire and Security plc [2011] EWHC 1936 (TCC)). A supplier had installed a fire suppression system in a confectionery factory for just over 9,000 pounds; its terms capped its liability at 13,781.60 pounds. After the factory burned down, the customer claimed around 110 million pounds. The judge called the dispute “a straightforward ‘battle of the forms’, albeit one that is worth rather more than usual” and decided it under the last shot rule that applies in England. The customer’s conditions of purchase applied, because its purchase order was the last document before the work was done. In the judge’s view the supplier’s cap would not have fit anyway, because it was written for a maintenance contract.¹² In the end the customer recovered only a quarter of its loss because of its own contributory negligence, but without a cap.

And yet companies knowingly allow the battle of forms to happen. The former general counsel of IBM Canada put the potential collision cases of his company at 18,000 contracts a year and the effort of negotiating all of them at four full-time employees. The company preferred to take a calculated risk.¹³ That is not carelessness but arithmetic. For small orders, negotiating costs more than the risk, and I do not advise anyone to negotiate every purchase order. With high values, long terms, and clauses on which the company’s existence depends, it is the other way around, and the risk then costs more than the negotiation. The rest of this article is about those contracts.

U.S. courts read Article 19 CISG literally

This sentence is the reason why the German solution is not self-evident outside Germany. Read literally, the CISG knows no knock-out but the mirror image rule. Every deviating reply is a counter-offer, and the contract is formed only when one party gives in. The German courts bridge that with the performance of the contract. The U.S. federal courts, for the most part, do not.

In 2023, a federal court in Indiana had to decide on plywood deliveries by a Canadian importer to an American manufacturer, Robert Weed Plywood Corp. v. Canusa Wood Products, Ltd., No. 3:23-CV-30 RLM-MGG (N.D. Ind. Apr. 24, 2023). In order acknowledgments and invoices, the importer had referred to its terms on its website, which provided for the courts of British Columbia. The court applied the CISG, because as federal law it supersedes the Uniform Commercial Code. It held that in the case of conflicting terms the CISG follows the mirror image rule. Terms sent only after the contract was formed are proposals to modify it, and silence is no consent. On the facts as they stood at that stage, the forum-selection clause had never become part of the contract, and the motion to dismiss the claim on that ground failed. Strictly speaking, this was no battle of forms, because only one party had put forward terms. But the court said how it would decide one, and the line of the U.S. appellate courts on which it relies is the same.¹⁴ That line is not closed, though. Individual U.S. courts have apparently also applied the knock-out rule, and a case in which both parties insisted on their own terms to the very end has not yet been decided by the U.S. courts under the CISG.¹⁵

For a German company, which doctrine decides its case therefore depends not on the contract but on the court that later hears it. A German court lets the conflicting clauses fall away. An American court, for the most part, lets the party prevail whose offer the other party last accepted, by words or by performance, and terms sent afterward do not count there at all. With the forum-selection clause, the parties thus also settle which doctrine will decide their dispute.

The knock-out rule is not undisputed in the literature either. Burghard Piltz regards the last shot rule as the solution written into the text of the CISG, and the knock-out rule as a German imprint that rather harms the uniform application of the Convention. Anyone who wants to deviate from Article 19 CISG needs a genuine agreement under Article 6 CISG to do so.¹⁶ The CISG Advisory Council sees the majority of the literature and the case law on the side of the knock-out rule and considers the results of the last shot rule arbitrary.¹⁷ I consider the knock-out rule the better solution, because it offers a reliable basis and matches what both parties want when they conclude the contract, namely the contract and not the other’s small print.¹⁸ Internationally, one cannot rely on it.

The defense clause: What it does and what it does not do

Almost every set of terms begins like this, and the courts apply the clause; the Federal Court of Justice has not let it fail the content review, at least where retention of title was at stake.¹⁹ It does three things. It documents the anticipated objection to the other party’s terms, so that the other party may not treat the acceptance of delivery as consent.⁶ It also excludes the other party’s supplementary clauses, not only the conflicting ones.⁵ And in conditions of purchase it keeps the supplier’s extended retention of title out.¹⁰

What it does not do is win. Under the knock-out rule, two defense clauses face each other, and neither makes its user’s terms prevail. In the milk powder case, the dairy’s single defense clause already worked against the dairy itself. A recent comparative study covering numerous legal systems concludes that defense clauses are largely irrelevant to the outcome.²⁰ And on the opposing view of the CISG, they do not change the mechanism of Article 19 CISG at all. A party that performs with knowledge of the other party’s terms must renew its earlier objection at the time of performance, otherwise its later conduct counts.²¹

An express, separate objection outside the standard terms has more effect. A party that answers the other party’s terms with a letter of its own, before it performs or accepts performance, takes away the argument that the other party was entitled to assume its consent. If that party then stays silent and performs the contract, the picture reverses, and once again the party with the last word prevails. It may also be, though, that the contract fails altogether on the open disagreement (Section 154(1) BGB).²²

The framework agreement resolves the collision, not the last word

A party that really needs a clause must agree it, not impose it. The safest form is a document signed by both parties in which they expressly make that party’s terms part of the contract. The literature that has the seller in mind advises the same.²³ In ongoing relationships that is the framework agreement. In it, the parties settle the legal terms once, exclude both sets of standard terms, and declare later references in orders, order confirmations, and invoices irrelevant. The individual contracts then contain only the commercial terms, that is quantity, price, and date. The German Civil Code recognizes the advance agreement that specific standard terms apply to future transactions (Section 305(3) BGB); the framework agreement goes further, because it settles the legal terms themselves.²⁴ The CISG expressly allows such an agreement (Article 6 CISG), and it is the safest way to keep the collision from arising in the first place.

What you should do

1. Secure incorporation before you think about the collision. Terms that were never transmitted do not collide, they are missing.
2. Keep a defense clause, but do not rely on it. With it you document your objection; you do not win the collision with it.
3. Object separately to the other party’s terms, in writing and before you deliver or accept delivery. Procurement and sales must know that they have to do this, because the battle of forms arises in day-to-day business.
4. Keep the last word. Under the knock-out rule that alone decides nothing; before courts that follow the last shot rule, it can decide the case.
5. Agree the important clauses, do not impose them. Liability cap, retention of title, choice of law, and forum belong in a document that both parties sign.
6. In ongoing relationships, conclude a framework agreement that excludes both sets of standard terms and declares later references irrelevant.
7. Think about the forum. It determines which doctrine decides your case.

Conclusion

The battle of forms is not a contest that diligence wins. In the view of the German courts the contested clauses fall away, in the view of others the order of the letters decides, and which doctrine applies is known only once it is known where the claim will be brought. The only safe clause is the one both parties have signed.

Frequently asked questions

Whose terms apply when both sets collide?

In the view of the German courts, neither, as far as they conflict. Under the knock-out rule the contract is formed, the matching clauses apply, the conflicting ones fall away, and the statute takes their place. The German Federal Court of Justice reached this result under the CISG. Merely referring to your own terms last gains you nothing.

Is a contract formed despite conflicting standard terms?

Yes, as soon as both parties perform. By delivering and paying they show that they do not regard the conflict between their terms as material. Under German law this follows from Sections 154 and 155 of the German Civil Code, under the CISG from Article 19. Only a party that makes clear in advance, or objects without undue delay, that it will not contract without its own terms prevents the contract.

Does a defense clause protect against the other party’s terms?

It prevents the acceptance of delivery from counting as consent to the other party’s terms, and it also excludes their supplementary clauses. It does not make your own terms prevail. Where two defense clauses face each other, the knock-out rule applies as if they did not exist. An express, separate objection before performance does more.

What applies in place of the clauses that fall away?

The law that would apply without the clause. In domestic German business that is the German Civil Code, in international sales the CISG, and outside its scope the law designated by private international law. For the seller that regularly means liability without a cap and the statutory limitation periods; for the buyer, the loss of its compliance requirements.

Notes

1. Piltz, IWRZ 2017, 195 (196–197); Ostendorf, International Sales Terms, 4th ed. 2022, marginal no. 181. ↩

2. Article 6:225(3) of the Dutch Civil Code (Burgerlijk Wetboek); Piltz, IWRZ 2017, 195 (196); Ostendorf, International Sales Terms, 4th ed. 2022, marginal no. 180 fn. 3. ↩

3. BGH, judgment of 9 January 2002 – VIII ZR 304/00; MüKoBGB/Fornasier, 10th ed. 2025, Section 305 marginal nos. 120–121; CISG Advisory Council, Opinion No. 13, Rule 10; Article 2.1.22 of the UNIDROIT Principles of International Commercial Contracts 2016; for the comparative picture Ostendorf, International Sales Terms, 4th ed. 2022, marginal no. 183, and Piltz, IWRZ 2017, 195 (196). ↩

4. MüKoBGB/Fornasier, 10th ed. 2025, Section 305 marginal nos. 119–120; Graf von Westphalen, in: Graf von Westphalen/Thüsing/Pamp, Vertragsrecht und AGB-Klauselwerke, Vertragsabschlussklauseln – Einbeziehung, marginal nos. 51 and 54 (53rd supplement 2026); OLG Düsseldorf, judgment of 14 April 2015 – I-21 U 178/14. ↩

5. BGH, judgment of 24 October 2000 – X ZR 42/99; OLG Düsseldorf, judgment of 14 April 2015 – I-21 U 178/14; MüKoBGB/Fornasier, 10th ed. 2025, Section 305 marginal no. 115. ↩^{1 2}

6. OLG Düsseldorf, judgment of 14 April 2015 – I-21 U 178/14; BGH, judgment of 24 October 2000 – X ZR 42/99; MüKoBGB/Fornasier, 10th ed. 2025, Section 305 marginal no. 116. ↩^{1 2}

7. OLG Hamm, judgment of 25 March 2019 – 2 U 132/18; Graf von Westphalen, in: Graf von Westphalen/Thüsing/Pamp, Vertragsrecht und AGB-Klauselwerke, Vertragsabschlussklauseln – Einbeziehung, marginal no. 55 (53rd supplement 2026). ↩

8. OLG Düsseldorf, judgment of 14 April 2015 – I-21 U 178/14; Graf von Westphalen, in: Graf von Westphalen/Thüsing/Pamp, Vertragsrecht und AGB-Klauselwerke, Vertragsabschlussklauseln – Einbeziehung, marginal nos. 59–60 (53rd supplement 2026). ↩

9. Graf von Westphalen, in: Graf von Westphalen/Thüsing/Pamp, Vertragsrecht und AGB-Klauselwerke, Vertragsabschlussklauseln – Einbeziehung, marginal nos. 59 and 62 (53rd supplement 2026); Ostendorf, International Sales Terms, 4th ed. 2022, marginal no. 183. ↩

10. BGH, judgment of 5 March 1986 – VIII ZR 97/85; Graf von Westphalen, in: Graf von Westphalen/Thüsing/Pamp, Vertragsrecht und AGB-Klauselwerke, Vertragsabschlussklauseln – Einbeziehung, marginal nos. 48 and 61 (53rd supplement 2026); MüKoBGB/Fornasier, 10th ed. 2025, Section 305 marginal no. 122. ↩^{1 2}

11. Feldhusen/Niebling/Poleacov, AGB-Kommentar, 5th edition 2026 (forthcoming), UN-Kaufrecht (CISG); on conflicting choice-of-law clauses Article 6(1)(b) of the Hague Principles on Choice of Law in International Commercial Contracts of 2015 and Aden, Battle of Forms, 2021, pp. 285 et seq. ↩

12. [2011] EWHC 1936 (TCC), [148], [172] et seq., [198] et seq. and [203]; the reduction by three quarters for contributory negligence at [608]. The appeal, [2012] EWCA Civ 1158, concerned the contractual duties and contributory negligence, not the terms of the contract. ↩

13. Aden, Battle of Forms, 2021, pp. 12 et seq. ↩

14. References to the case law of the Seventh Circuit in Piltz, IWRZ 2017, 195 (197), and in Feldhusen/Niebling/Poleacov, AGB-Kommentar, 5th edition 2026 (forthcoming), UN-Kaufrecht (CISG). ↩

15. Ostendorf, International Sales Terms, 4th ed. 2022, marginal no. 184; Van Alstine, The Unified Field Solution to the Battle of the Forms Under the UN Sales Convention, University of Maryland Legal Studies Research Paper No. 2020-07, p. 76. ↩

16. Piltz, IWRZ 2017, 195 (197 et seq.). ↩

17. CISG Advisory Council, Opinion No. 13, Comment 10.6; likewise Magnus, in: Cranston/Ramberg/Ziegel (eds.), Commercial Law Challenges in the 21st Century, 2007, p. 185 (192 et seq.). ↩

18. Feldhusen/Niebling/Poleacov, AGB-Kommentar, 5th edition 2026 (forthcoming), UN-Kaufrecht (CISG). ↩

19. BGH, judgment of 24 October 2000 – X ZR 42/99; Graf von Westphalen, in: Graf von Westphalen/Thüsing/Pamp, Vertragsrecht und AGB-Klauselwerke, Vertragsabschlussklauseln – Einbeziehung, marginal no. 65 (53rd supplement 2026); a function of the defense clause beyond the incorporation clause, one that shapes the contract, is denied by Graf von Westphalen, ibid., marginal nos. 52 and 65. ↩

20. Aden, Battle of Forms, 2021, pp. 338 et seq. ↩

21. Piltz, IWRZ 2017, 195 (198). ↩

22. Graf von Westphalen, in: Graf von Westphalen/Thüsing/Pamp, Vertragsrecht und AGB-Klauselwerke, Vertragsabschlussklauseln – Einbeziehung, marginal no. 64 (53rd supplement 2026). ↩

23. Ostendorf, International Sales Terms, 4th ed. 2022, marginal no. 185. ↩

24. MüKoBGB/Fornasier, 10th ed. 2025, Section 305 marginal nos. 102–103. ↩

Reference: Poleacov, P. (2026). Battle of forms: Whose terms apply?. INN.LAW. https://inn.law/en/perspectives/battle-of-forms/

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