A focus on terms of sale

Julian Milan is a Senior Associate in the mfg’s Corporate Division

Well-drafted and appropriate terms of sale can protect and benefit a business in many ways, but this is dependent on the terms being enforceable.

The terms will only be enforceable if they have been successfully incorporated into a contract.

As a minimum, this means that the terms must have been brought to the customer’s attention before the contract was made.

Placing the terms on the business’s website and referring to them in quotations and order acknowledgements can help to achieve this.

If the customer has terms of purchase, there is a risk that the customer’s terms might be found to apply to the contract instead of the terms of sale.

This can result in a “battle of the forms” where winning the battle depends on the sale terms including appropriate wording which is consistent with and reflects the order processing procedures and other contractual documentation used in the business. 

If they do not, the terms might not be incorporated or have any effect.

Some businesses sell to other businesses, some sell to consumers and some sell to businesses and consumers. The law applying to sales to businesses and sales to consumers is very different.

There is more freedom regarding what can be included in terms of sales to businesses than in terms of sales to consumers which are more heavily regulated.

If sales are being made to consumers through a website, there are additional requirements in relation, for example, to cancellation rights.

If terms do not include provisions which are required to comply with the law or include terms which do not comply with the law, the terms are likely to be unenforceable or illegal.

Some of the most important provisions in a seller’s terms of sale are those which seek to limit the seller’s liability to the customer if something goes wrong.

Again, the law gives more protection to consumers than to businesses, but even in the case of sales to businesses, the ability to exclude or limit liability is significantly restricted.

The law in this area is complex and there are many factors which can affect the position. Terms which claim to limit liability for certain types of damage, for example, injury or death caused by negligence are completely ineffective.

Terms seeking to restrict liability for other types of damage might be enforceable only if and to the extent they are reasonable. What is reasonable in this context will depend on the circumstances and may differ from one business to another or even from one order to another.

A term which states that a business has little or no liability to a customer might appear to be beneficial but, if the term is found to be unreasonable, might be unenforceable and provide no protection at all to the business.

The law applies not only to terms which obviously claim to limit liability but also to terms which indirectly have this effect, for example, time limits for notifying complaints.

The above comments provide a summary only of some matters relevant to the enforceability of trading terms.

There are many other issues that may be relevant to a review of a business’s terms:

Do the terms adequately describe what it is that the business agrees to supply?

Do they protect against the risk that the customer does not pay? 

If the business delivers any services in connection with its sales of products, do the terms also cover this and set out what is required from the customer?

Do the terms deal with all the issues relevant to pricing, payment, availability, delivery or collection of products and any data protection or intellectual property issues arising?

Fundamentally, do the terms reflect the current needs and practices of the business and any changes to these or to the law since the terms were put in place?

In summary, terms of sale are a key source of protection for a business. It is important to ensure that they include provisions which are appropriate for the business and enforceable.

This article is provided to give general information only. It is not intended to provide, and should not be relied upon as providing legal advice.