CONTRACT FORMATION: WHOSE TERMS APPLY?
CONTRACT FORMATION: WHOSE TERMS APPLY?

18 February 2021

When you have established you have got a contract, whose terms will apply to that contract?

Here is a common scenario:

  • Party A makes an offer subject to its own terms for its goods or services.
  • Party B accepts the offer for Party A’s goods and services, but on its own standard terms.
  • Party A performs the contract. Both parties believe they have carried out the contract on their terms – but which terms would apply?

This scenario is commonly known as the Battle of the Forms.

Who wins the battle?

Generally, the party who fires the last shot wins the battle. In the scenario above, therefore, Party B’s terms and conditions would apply to the contract as they were the last terms circulated before the contract was performed.

In very brief, legal terms, Party B did not accept Party A’s offer. What actually happened was Party B made a counteroffer which Party A accepted by performing the contract (i.e. by delivering the goods or services).

Make sure that your terms prevail

Taking the steps when it comes to entering into a contract with another party and ensuring that the contract in question is governed by your terms and conditions is really important.

It means working with your sales team to ensure that they do not inadvertently sign you up to a different contract which could have different payment terms or increase your exposure in terms of liability.

We would recommend that you take the following steps as a minimum:

1. Quotation

Send a quotation which includes wording that makes it clear that any order will be subject to your terms and conditions. Whilst this does not  protect you completely, it is a useful tool to have in your armoury in the event that you get into a dispute.

Include a hyperlink to your terms and conditions so that the other party has access to a copy and reduces the chances of a team member inadvertently forgetting to attach them.

Ensure that the terms and conditions have a date or version number so as to avoid any doubt as to which terms and conditions you are referring.

2. Be Wary of the Order

Be vigilant for customers trying to impose their own terms and conditions when sending their purchase order.

If a customer provides their own terms and conditions or states their order is subject to their terms and conditions, you must reject the order.

If you do not and you provide the services or goods, there is a risk that you have agreed to provide the goods or services on the basis of the other party’s terms and conditions.

3. Acceptance of an Order with no terms and conditions attached

If a customer responds and accepts the quotation without referring to or providing a copy of their terms and conditions, you can accept the order by sending an order acknowledgment, as a contract will have been formed on your terms.

We would recommend that you provide another copy of your terms and conditions at this stage, preferably by a hyperlink so that there is no argument that you have not provided them with a copy of your terms and conditions.

4. Refusing an Order with terms and conditions attached

If a customer responds with a purchase order which includes their terms and conditions, you should not accept this order with an acknowledgment.

This is because there is a risk that you could be deemed to have accepted those terms and conditions.

You need to explicitly reject the offer. You then counter-offer to provide the services or goods based on your terms and conditions. If they accept, you can provide the services or goods.

They may not explicitly accept the offer by responding, but just send over the money. If this happens, you should send an order acknowledgement as per 3 above.

5. The Negotiation

If you do not agree and go back and forth over terms and conditions, at some stage you will need to make the decision as to whether you:

(i) accept their terms and conditions in full;

(ii) negotiate on the relevant part of their or your terms and conditions which are not acceptable to the relevant side; or

(iii) not carry out the work.

These are ultimately commercial decisions when you balance up the level of risk you are taking on and your negotiating power with that particular customer.

6. Your website

If you keep a copy of your terms and conditions of business on your website, you may have an additional argument that the customer had the opportunity to access these and would have known that these apply when viewing the services or goods you provide.

If you have any questions or would like advice about contracts, please contact Jack Gardener, by calling 01256 854665 or by emailing [email protected]

Alternatively, click here to go to our contact page.

 

Disclaimer

This article is current at the date of publication set out above and is for reference purposes only. It does not constitute legal advice and should not be relied on as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.

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