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The battle of the forms: Will my standard terms of business prevail?

Apr 16, 2021

The term ‘battle of the forms’ refers to a common scenario where businesses seek to enter into a contractual agreement, with each respective business attempting to incorporate its own standard terms into the contract. The classic scenario is where one business makes an offer to the other regarding a fundamental part of the contract, but which also incorporates its own standard terms. The response of the other party might appear to accept that offer but providing with it their own document setting out their own standard terms. And so the battle of the forms commences while contract negotiations ensue! Usually this will happen because each party’s own standard terms will invariably be more advantageous to themselves than the other party should a dispute arise in the future.

It is important to note that standard terms can incorporate several key protective terms to a business and are often drafted on the instructions of what is commercial most important to that business. They may decide at what stage the title or ownership to goods passes to the other party – putting products out of reach of the original party, or including payment protection provisions or limitation on liability for matters such as delay or damage caused in the performance of a contract.

Therefore, should a dispute arise between two businesses in respect of that contract further down the line, one of the first questions will be whose terms and conditions were incorporated into the contract that the parties made. Whose standard terms are going to win the battle of the forms?

Typically for a contract for the sale or supply of goods and/or services, an unpaid seller who has sold goods on credit to a buyer company that is insolvent and has gone into administration or a form of insolvent liquidation, will be seeking to prove that the seller, rather than the buyers, terms and conditions were incorporated into the contract.

The reason why the seller may want to establish that its terms and conditions apply is because they reserve title or property in the goods sold on credit to the seller until the buyer has paid for those goods in full. These are known as retention of title or ROT clauses.

Following the case of Aluminium Industrie Vaassen BV v Romalpa Aluminium Limited [1976], where the English court recognised a valid ROT clause, manufacturers started to incorporate ROT clauses into their supply contracts.

In the absence of a ROT clause in the contract, the title to the goods will pass on delivery so inclusion of the ROT clause allows the unpaid seller to retain title in the goods sold until he has been paid.

If an insolvent buyer is in possession of the unpaid sellers goods and the goods were supplied under a contract containing a valid ROT clause, the unpaid seller has the right to recover the goods from the insolvent buyer who will be required to deliver up the unpaid for goods. If the liquidator or administrator refuses to do so and resells the goods, the unpaid seller will be entitled to make a personal claim against the office holder for interfering with the unpaid seller’s property.

How to ensure your terms of business are incorporated into the contract.

Generally the last document to cross between the parties before the contract is made that includes a party’s terms and conditions will be included in the contract.

When deciding whose standard terms are incorporated into a given contract, the courts will assess both businesses’ behaviour and communication at the time the contract was entered into to find which party’s offer to contract with the other has been unequivocally accepted. That is, whose offer to contract on their standard terms has been met with a clear acceptance by the other.

For example, a seller can take the following steps:

  1. Get his customers to sign a express agreement that sets out terms that the seller wants to include in the contract including a ROT clause;
  2. Get the customer to sign an order confirmation that includes the seller’s terms of business;
  3. Where there is an established course of dealings between the parties, the seller’s terms and conditions printed clearly on its invoices.

While every attempt can be made to seek to minimise the risk that ones standard terms will be accepted as incorporated into the contract, agreements can take place quickly and with a view to the fundamental terms being agreed, with standard terms often becoming overlooked in communications.

Where your business has found itself in an unexpected dispute and holds its own standards terms but these are in dispute, we are available to review all terms and contractual communication between both parties to advise you on the issue as well as advise you how you might seek to avoid such a dispute arising in the future.

If you are in dispute with regards to the incorporated terms of a contract between your business and another’s we will advise you fully and practically on whose terms prevail, and of every option available to you. Please contact our Dispute Resolution team for further advice on 01276 686 222 or at drteam@herrington-carmichael.com.

 

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.

Annabelle Randell

Annabelle Randell

Solicitor, Disputes and Claims

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