If you’re involved in drawing up contracts but not an expert in Contract Law, our article below will assist you. We briefly set out the reasons why it’s important for you and anyone you contract with to have a clear understanding of exactly what are the terms of your agreement, and in fact, whose terms apply, so that you:
- get the terms you wanted
- get paid – or get what you paid for, and
- avoid expensive litigation.
The all-too-frequent Contract Law situation and why it’s to be avoided
This may seem familiar.
You are the supplier of goods or services, and you want to be clear about what terms you’ve agreed with the buyer of your product/service. (Bear in mind that the same principles apply if it’s the other way around i.e. where you’re the buyer.)
After an initial discussion, the documents typically unfold as follows:
- You send a Quote to the interested buyer, saying what price you will charge for what precise product/service. You attach your usual terms, or perhaps they appear in fine print incorporated in your Quote document.
- The buyer is essentially in agreement with you (and probably didn’t bother reading your terms), and issues a Purchase Order to you. Because it’s their standard document, it includes their terms.
- Or perhaps you get in first and issue a Sales Order to them, with not only the details of what you will supply at what price, but also your terms. Chances are, those terms are not entirely compatible with the ones that accompanied your Quote, so you’ve already added your own layer to a potential dispute.
- Now comes the point where you’ve provided your goods/services, so you send your invoice to the buyer. Again, you may have terms in your invoice document or attached to it.
- Along the way, additional emails are commonly exchanged, or telephone discussions take place, about particular aspects of what is being supplied and paid for – without either side bothering to amend the formal terms or clearly agree any changes. You and the buyer may not appreciate that your emails and discussions have effectively changed the terms of your contract.
Offers and Counter-Offers
When it comes to Contract Law, any legal agreement or contract (they mean the same thing) is typically made by an offer being made and the offer being accepted. But a difficulty arises when writing back and forth with terms: every response effectively amounts to a new offer (or, strictly speaking, a counter-offer).
Either side may stipulate requirements (terms) late in the piece, as in the example above where you sent your invoice. A classic example is where the invoice adds terms such as a provision that interest will be payable at a certain rate if payment isn’t made within a minimum period.
It is most likely that if you do that, and you didn’t mention such interest terms within your quote or Sales Order, you’re too late: you’ve already made a legally-binding agreement with your buyer customer, and you can’t now add your own term such as how much interest may be payable on top of the late payment.
So then the two questions are:
- What exactly are the terms of the agreement, and
- Were you successful in having your terms apply?
The importance of clear writing: confirmation by email
The value of confirming by email what you’ve just talked through lies in the old adage: a spoken agreement isn’t worth the paper it’s written on.
Be mindful when the tables turn
These issues apply equally whether you’re the buyer or the supplier. You’re likely to be wearing either hat at different points in your commercial dealings. So, the essence of your business may be to sell services to buyers, but time and again you’re going to be dealing with providers of goods or services that you need to run your business.
The boot’s on the other foot now:
You’ve got to be clear and confident about what terms apply to your transaction according to who issued what and when.
Avoid disputes and litigation (court proceedings)
Your chances of avoiding dispute, delays and costs are significantly increased if you get the terms of the agreement clear at the right time. That is why it may be better for you to get an experienced commercial lawyer to look over your terms and documentation before you negotiate a buy/sell agreement.
The lawyer can advise how to ensure that it’s your terms that apply in the agreement. You have to bear in mind this important principle: there’s not much point in having clear written terms if it becomes uncertain whether or not they were actually agreed to.
In need of Contract Law advice?
Since contracts can be complex at times, often requiring a level of legal experience to navigate, it is always wise to engage a team of legal professionals should you need guidance or support. Our experienced Contracts team at Solomon Brothers are always available to provide advice around agreement terms and the best methods of making them stick.
If you are in need of guidance around protecting your commercial dealings and avoiding incurring losses, or if you think you’re in a dispute (or on the verge of one), we welcome you to contact Solomon Brothers to speak with one of our Contracts team.