What is the Doctrine of Last Shot?
The Last Shot Rule, sometimes called the "knock out" rule, is a common law rule of contract law. Under it, when two parties negotiate the terms of a contract and their final documents contain contradictory terms, the last version will usually be the version adopted by the parties.
The Last Shot Rule has roots in the common law and the doctrine of the mirror image rule. The mirror image rule provides the basis for what most people would consider a valid acceptance: "I accept your offer," or "I agree to pay you $10". The mirror image rule, however, breaks down in the face of counter offers. If the mirror image rule were applied strictly, then all counter offers (however trivial) would destroy the original offer, and we would never be able to form a contract . The Last Shot Rule resolves this problem by treating the counter offer as a revocation of the original offer.
The Last Shot Rule was first recognized in 1868: "where an order and an invoice are exchanged, each containing apparently contradictory provisions, and there is no evidence of any treaty or negotiations which led to the terms of either, upon the true construction of each instrument it follows that the last will prevail."
The Last Shot Rule does not only apply to contradictory terms. When different documents are exchanged and each contains terms, the document last sent (regardless of whether it was the offer or acceptance) will control, unless the first party accused of breach expressly objected to the later claim; in which case the contract will be interpreted as if the second party knew that the first party was rejecting the revised terms.
How the Doctrine of Last Shot Works
The application of the last shot rule comes up frequently in the area of commercial contract negotiations – particularly when the terms of an agreement are determined after exchanges of standard forms. After the parties exchange back-and-forth drafts on a regular basis, with the last draft containing terms different than those of the prior draft, the issue arises: which terms control? A common dispute concerning the last shot rule involves sales of goods, generally governed by Article 2 of the Uniform Commercial Code ("UCC"), where parties frequently exchange different forms. The UCC has a default rule where the last offer governs. The official comment to UCC section 2-207 explains that this rule is appropriate "in the context of numerous and successive understandings reached in a commercial setting between merchants, where they deal in similar terms over long periods of time through writing." See Official Comment 3 to UCC ยง 2-207. Courts have agreed that, under these circumstances, it is appropriate to apply a last shot rule. For example, where "defendant had accepted purchase orders from plaintiffs covering the same product, and had uniformly filled those orders, and where defendant had submitted an invoice in all instances, it was fair to presume that the parties had intended the invoice conditions to bind them." Ben Tool Co. v. K-line, Inc., 357 F.Supp.2d 136, 141 (D.Mass 2005) (collecting cases). See also Joseph Martin, Jr., Delicatessan Inc. v. Cucinelli & Sons, Inc., 388 N.E.2d 954, 956 n.3, 46 N.Y.S.2d 508, 511 n.3 (N.Y. 1979) (finding "numerous occasions where a seller has delivered goods to a customer with terms on the back of the invoice, and a buyer then has paid the invoice without written objection, the courts have deemed the buyer assented to the terms on the invoice"). In addition, one recent Court held that, under the UCC, the last shot rule applied even in a case where one party did not send a written confirmation of terms. So long as the parties previously conducted business under the terms set forth in the first email, the last email will control. See Aeronautical Accessories, Inc. v. Oceania, Inc., 693 F.Supp.2d 776, 784 (W.D.Ky. 2010).
Limitations and Criticism of the Last Shot Rule
Although a rule firmly entrenched in U.S. contract law, the last shot rule has not escaped criticism. For example, some commentators argue that it is counter-intuitive that a party in breach should be able to take advantage of its breach by enforcing a contract that would have been more favorable had it not breached. Critics also assert that in many circumstances, the last shot rule will lead to unfair results. In particular, this is likely to occur where, due to the parties’ conduct (or the wants of one of the parties), the last shot is taken based upon one party’s unilateral and subjective assessment of the cost-benefit analysis. Fortunately, the last shot rule is not without some limitations and its application is not absolute.
For example, some courts question the validity of a last or final manifestly unreasonable attempt to alter the parties’ agreement following performance. In some instances, courts have refused to apply the last shot rule to a final offer that significantly restructured the previously agreed upon price. Similarly, the majority of jurisdictions will not allow a party to change contractual terms despite notice to the other party that such an action will occur because, in effect, the changing party attempts to "insurance" itself against performance. In addition, other policy-based exceptions exist, including: (i) the parties are recognized as having a long-standing commercial relationship characterized by an established repeated and sustained course of dealing involving both parties’ actual performance under previous and contemporaneous contract terms; (ii) the parties intended for the terms offered in the last shot to provide an all-encompassing agreement which implicitly negated or abrogated the previous agreement; (iii) parties knowingly, intentionally, and Capabley enter into a contract including a choice of law provision governing an agreement that is at issue and such choice of law provision can be void within a jurisdiction. A court applying an analysis of the last shot rule and on substantive choice of law principles may, for instance, avoid the application of the last shot rule if the choice of law selected would not have recognized the last shot rule as controlling.
Alternatives to the Last Shot Rule
For all of its complexity, the last shot rule is a single tool designed to provide a single solution to a recurring problem in contract law. In other contexts, other rules and doctrines may be more effective at resolving the disputes between litigants.
As discussed at length above, the last shot rule is designed to resolve a conflict between writings of two or more parties (and only the writings, not an oral agreement) that allegedly constitute a single contract. Sometimes, there are no such conflicts, and the agreements can be properly construed without need for resort to the last shot rule. When there are no such conflicts, the problem may be properly resolved by reference to other doctrines.
The mirror image rule provides a basic, default standard for judging the sufficiency of a writing that is alleged to constitute an offer (and therefore, a contract). Under the rule, a proffered offer will not be valid if it does not exactly match the terms of the acceptance offered by the other party . The rule thus resolves a conflict between parties as to whether a prospective contract has ever come into existence at all. Initially drafted in the context of the common law, Code section 2-207 now codifies this rule in the limited context of contracts for the sale of goods. Even at the time of its adoption in California, this was one of the primary justifications for the enactment of the Uniform Commercial Code.
When it comes to contracts, however, determining the legal significance of a conflict cannot be accomplished simply by using the mirror image rule, or indeed, any rule, to determine who made the last offer. Functionally, the last shot rule, as stated above, simply recognizes that there are structural similarities between the final offer, as it were, of both parties and that, therefore, it would be unwise to impose a rigid set of doctrines upon contractual disputes, given the variety of events that lead parties to engage in contract disputes in the first place.
How the Last Shot Rule Applies to Business Agreements
The impact of the last shot rule on business contracts is that it recognizes that a contract is not formed until both parties have read and accepted all of its terms. Businesses commonly enter into contracts with one another. Whether these are long term, such as a franchise agreement, or short term, such as a supply order, the two businesses need to agree to the terms and conditions in order for the contract to be valid and enforceable. This means that the terms and conditions that the second party receives from the first should be read, understood and accepted. If they propose terms that change some of the conditions of the first business, the first can either choose to accept the changes or reply with another list of altered terms and conditions. However, as it has become common for businesses to use standard contracts with basic terms and conditions, many rely upon this to be binding, and do not take the time to read and understand the contract, or respond with any alterations. This can lead to the Last Shot Rule being applied. The Last Shot Rule means that the very last set of terms and conditions transmitted between the parties and the one that is the most recent, will be the one that is upheld. For example, when a price quote is submitted and an acceptance is sent, if any amendments or alterations are proposed to the acceptance, then the quote will now be void, unless the acceptance without any changes or amendments is returned. Therefore, to avoid disputes, businesses need to read the contracts and stipulations given by the other party to ensure that they are suitable. This means that more time is spent creating contracts that are acceptable to both parties. However, it also means that sufficient safeguards are in place to avoid future problems.
Guidance on the Last Shot Rule
As a legal practitioner, education is your greatest asset in all efforts relating to contracts and agreements with a last shot interchange. You will want to know the following:
Contract drafts((in some jurisdictions, such as Illinois, parties may agree to a "battle of forms" provision where each party to a contract agrees that their standard terms and conditions govern all interaction until a contract is formed whereupon whichever one the first document indicates is controlling is controlling)) are important because they expressly state the parties’ intent. Negotiating a contract allows you to ensure that terms include all the key terms necessary for your client’s industry. For a business client, this means that your client gets the benefit of its bargain, including not accepting unfavorable terms often used in boilerplate contracts even if the other side is unwilling to negotiate . This is particularly true when dealing with internet-based contracts where terms and conditions are often unilaterally imposed by one party with power disadvantages the other party. If your client is a business client, then your client should not accept boilerplate or form agreements with terms that your client would never agree to have if it were in a negotiated setting. In the case of a consumer client, you should take the time to understand all the terms in any contract, especially terms that may appear in fine print, may be generally unenforceable due to state law, or may otherwise be problematic. A consumer client should consider the extent to which those terms would actually disadvantage your consumer client. For anyone, consumer and business clients, the best solution is to not agree to any last shot terms unless and until all the terms are clearly understood and otherwise favorable to your client.
The litigation can be expensive.