August 28, 2017

Terms and Condition Statements – An Opportunity and a Caution

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Every state has laws that control commercial transactions, most notably the Uniform Commercial Code.  Under these laws, many different aspects of the sale and its impact on both sides of the deal are defined as to warranty, revocation, rights of collection and numerous other aspects. These laws almost universally provide that they apply only if the parties have not otherwise agreed in their sale contract. This gives the parties the ability to define for themselves what terms and conditions will apply to the transaction. 

Frequently, these terms and conditions are set forth very clearly and are specifically understood by the parties, such as in a traditional contract arrangement where all of the terms are spelled out on a single document signed by both parties. Sometimes, however, what forms that contract is not as apparent.  A purchase order may not just specify the nature of the product ordered, along with the time and place for delivery, and so forth, but it may contain a large number of other terms. These terms may be printed on the reverse of the purchase order or other sales form and be only a few lines defining a narrow aspect of the transaction. Sometimes, however, these terms and conditions can contain column after column of fine print that will control the transaction unless somehow negated by other paperwork. Sometimes the purchase order only notes that the sale is made subject to the terms and conditions as set forth at a particular page on the company’s website. In that case, the effect of that reference to a website is that all of the terms and conditions set forth on that website are imported into the contract as fully as if they were set out in the paperwork. If this is the case, in signing a purchase order or accepting goods under a purchase order, a party may be agreeing to page after page of detailed terms when all that was offered was a link or reference to a website.

Another place in which terms and conditions can be imposed upon a transaction (often much to the surprise of a purchaser) is on or in conjunction with credit applications. When a purchasing entity sets up a trade account with a vendor, it is not uncommon for that vendor to have a credit agreement in which the new customer sets forth credit references, is advised of the payment requirements for the vendor, and the like. But what is also often provided and quickly glossed over by the purchasing agent, is a provision in that credit agreement that says that the company’s standard terms and conditions in effect at the time of any sale will control all transactions. 

These terms and conditions may require a party to pay attorney’s fees for any dispute, may impose an interest rate for late payments much higher than expected, may contain a complete disclaimer of warranties, and in other cases severe limitations on damages that may be recovered against the vendor in the case of a defective product or severely limit the time and circumstances within which returns can be made. As long as the business relationship is good, the parties may never resort to these fine print items, but be assured that at the first sign of trouble one side or the other will be pointing to its fine print items. 

Just as these terms and conditions can be a trap for the unwary, so they can be an opportunity. Building these terms into your transaction paperwork may save a lot of dispute down the road when some issue arises. When opposite sides of the transaction have different terms and conditions (such as when a purchaser issues a purchase order stating one set of conditions and the vendor issues a confirmation that contains other terms and conditions), paperwork battles can take place, and these can ultimately be resolved. But the time to resolve them is at the time of the transaction, not later when the dispute arises. 

Be sure to review your paperwork now to find out if you are missing an opportunity to define the terms and conditions of transactions you are a part of, and always read every credit application, purchase order, sale confirmation, and other document very carefully and do not allow any of your staff to just routinely sign anything that looks innocent. Fine print is serious business.