Contracts and Sales Multistate Bar Practice Exam

What does the 'knockout rule' entail in the context of the battle of the forms?

1. Conflicting terms cancel each other out

2. All terms are retained if one party objects

3. New terms always override existing terms

4. Any disagreement requires renegotiation

The correct answer is: Conflicting terms cancel each other out

The knockout rule is a concept applied during the battle of the forms, which arises when two parties exchange standard forms with differing terms. Under the knockout rule, when there are conflicting terms between the two forms, those conflicting terms are essentially "knocked out" or canceled out. Instead, the contract will be enforced using the terms that are consistent across both forms and any applicable terms from the Uniform Commercial Code (UCC) or common law that fill in the gaps. In this framework, if one party offers a contract that includes certain terms and the other party counters with its own form that has conflicting terms, neither term will prevail. Instead, the court or arbitrator will look to the consistent provisions in both documents, along with established legal principles or UCC provisions, to determine the terms of the contract. This principle encourages negotiation and cooperation rather than rigid adherence to one party's terms, fostering a more equitable resolution to disputes over conflicting terms. It stands in distinction to other theories regarding the acceptance of terms, where discrepancies might lead to one set of terms completely overriding another, which is not the case with the knockout rule.