Having trading terms and conditions is essential. But using them correctly is also vital...
...otherwise, you risk being in a position where there's definitely a contractual relationship between you and another business, but you're working on their terms, not yours. And those terms may not be as favourable to you.
This conflict between trading terms is not unusual. It arises rather too easily, where trading parties are not paying close attention to the manner in which they agree to do business with each other.
Battle of the forms
What happens, is one business believes that they are concluding business on the basis of their terms and conditions, while the other believes that the deal has been struck according to it’s own trading terms.
It’s often called ‘the battle of the forms’, because two sets of terms and conditions end up in conflict with each other and it becomes necessary to ‘unpick’ the original trading discussions to work out whose terms actually ‘trumped’ the other’s.
The battle is typically won by the party who had the last ‘shot’ in the negotiating process.
Battle of the forms explained
Let’s look at how it works, so you know what to look out for and what to avoid.
Step 1. The invitation to offer
The first stage in any contract process is what’s called the ‘invitation to treat’ – a rather old-fashioned way of describing, for example, what a retailer or wholesaler does when they display goods for you to buy on their shelves, in their online marketplace, or in a catalogue.
Contrary to what you might expect, the shopkeeper is not legally treated as making an offer to you.
Instead, by placing the goods on the shelf, website or in the catalogue, it's considered a simple invite, designed to entice its target consumer to make an offer to buy the shopkeeper’s goods.
The shopkeeper should have their own terms and conditions of sale to govern any purchase of the goods by a customer. These terms might be displayed on premises, on a webpage or at the back of a catalogue.
Often, as consumers, we don’t pay much attention to these terms – but for business transactions especially, it’s really important to know where these are and what they say before you buy anything.
Terms can include obligations like what, how and when customers must pay, what the supplier can do with that customer’s data, whether it can charge interest on any overdue payments, who bears responsibility for goods if they’re to be delivered and they arrive damaged, or use of them results in an injury or harm, etc.
And just because the customer wants to buy the goods, it doesn't mean the shopkeeper is legally obliged to sell them to the customer.
Step 2. The customer makes the offer… or is it a counteroffer?
Let’s stick with our wholesaler. The business is approached by a retailer who wants to buy goods from the wholesaler. The wholesaler has an online site and a catalogue, both of which have near identical terms and conditions covering what the wholesaler would agree to. These terms are published on the wholesaler’s site and in the catalogue.
The retail customer places an order and tells the wholesaler how much they want to buy and on what basis they’d be willing to strike the bargain.
Some of these conditions are not the same as the wholesaler’s standard terms and conditions – and when it places the order, while it is making an offer to buy the goods, the retailer does not use the wholesaler’s standard purchase order form (which also attaches the wholesaler’s terms to it).
In fact, the retailer refers to its own normal purchase terms in its communication to the wholesaler.
So, this is not a standard offer in response to an invitation to offer by the wholesaler.
Instead, it’s a counteroffer by the retail customer.
And it disrupts the earlier discussions, altering the course of the contractual provisions…
Step 3. The supplier says OK to the counteroffer
Usually, in a simple sales transaction, by processing the customer through a checkout process, the supplier is formally accepting the customer’s offer and the bargain is struck (on the supplier’s terms).
It is concluded when payment is made and confirmed as completed. A contract has been struck.
With consumer transactions, this process generally takes place without the consumer making an attempt to negotiate and alter the purchase terms – and in an online or physical environment, the entire transaction can be completed in a matter of minutes, or even less.
In our example above, however, the customer has done just that.
The retailer wants particular conditions to be met as part of the order discussions. It’s a very favourable deal and so the wholesaler agrees to the deal (or counteroffer) proposed by the customer and agrees to provide the customer with an invoice for the goods right away.
At this point, the wholesaler is getting into risky territory because it looks as though the deal is going to be governed by the retail customer’s terms or by a blend of both businesses’ terms. No contract has as yet been struck.
But if it were to be struck at this point, then, if the parties later fall out because something doesn’t go completely to plan, it’s going to be potentially confusing working out whose terms and conditions apply.
Both parties will want to argue that their own do, because, of course, their own terms are likely to favour them better.
Step 4. The supplier provides the retail customer with an invoice for the goods
The wholesale supplier provides the retail customer with an invoice for the goods and requests that payment is made before the goods are handed over. The supplier’s terms are printed on the back of the invoice and there’s a reference to these terms on the front of the invoice, right at the bottom of it, as well.
The customer pays the invoiced amount to the wholesaler, referencing the invoice number and without reading the small print on the invoice.
At this stage, both parties have further confused whose terms apply. Is it now back to the wholesaler’s terms, because the invoice wording ‘trumps’ the earlier agreed deal at step 3 above?
In truth, more detail around the facts and specific wording or correspondence created might well be needed before a clear answer can be reached.
It’s not a very satisfactory turn of events, and the courts have often determined that nobody’s terms apply in situations like these, so that the Sale of Goods legislation should instead be applied. And the rules within this legislation may also please neither party.
How can battle of the forms be avoided?
Whether you’re the supplier or customer in a business-to-business transaction, these tips will help to ensure that you’re striking a deal on terms that are acceptable and fully transparent to you:
Put good terms and conditions in place that are suitable for your business and cover the types of trading scenario relevant to the majority of your customers.
Display those terms and conditions visibly.
Make it clear on your contractual documentation, purchase order forms, invoices, website, etc., that you only contract on your terms and these terms cannot be varied without your express consent, in writing, in advance of any transaction (and that these instances of variation are rare).
Be consistent in your sales or purchase transactions and in applying your terms and conditions.
Pay attention to details when negotiating deals with others. Check the small print of any purchase orders and invoices.
Don’t agree to other terms unless you’ve considered the impact that these alternatives might have. Where you do agree variations, make it clear in writing how these impact the remainder of your terms and conditions.
While it's not a legally bullet-proof solution, you could also include a statement in your terms and conditions that these terms will prevail over any other terms unless and until expressly varied with your consent in writing.
Always strive to keep the last ‘shot’ (contractual negotiation – whether oral or written) under your control.
Creating your terms and conditions
There are numerous types of terms and conditions you could need depending on the type of business set up you have – so to help you create yours accurately, safely and simply, use our Ts & Cs template selector tool and start drafting whenever you're ready!
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