- 11 Jul 2024
- •
- 3 min read
Contract Focus On: Terms and Conditions of Sale
Who this article is intended for?
This article series is aimed at new or junior lawyers and can also be shared by in-house legal teams with their commercial colleagues who deal with contracts. The aim of the series is to provide a foundational understanding of common contracts businesses will enter into, offering insights into why they are important and what key legal aspects need to be considered. Whether you are just starting in the legal field or need to ensure that your business colleagues are well-informed about contract essentials, this guide will help with navigating the complexities of commercial agreements effectively.
What are Terms and Conditions of Sale and why are they important?
Typically, a customer issues a supplier with a purchase order and the supplier responds with a confirmation of order. These documents detail the goods and/or services to be supplied, together with their price and expected delivery date. Combined with the supplier’s terms and conditions of sale (terms of sale), these documents should then form the contract under which the supplier sells its goods and/or services to the customer. These terms of sale are important for the supplier for several reasons:
- Obligations: Terms of sale clearly set out the supplier’s obligations therefore managing customer expectations, particularly regarding delivery, returns and refunds.
- Ownership and retention of title: For goods, terms of sale specify when ownership / title passes to the customer. Typically, suppliers wish to retain ownership until payment is received, and retention of title provisions are included allowing suppliers to reclaim unpaid goods still in the customer’s possession.
- Warranties: Suppliers detail in their terms of sale the warranties / guarantees given for the goods and/or services supplied and clarify what they are not responsible for. For example, if a supplier uses customer-provided raw materials and designs to manufacture goods for the customer, the supplier should not be liable for issues arising from those raw materials or designs.
- Liability: Limitation of liability clauses are essential for suppliers. Key provisions include (a) excluding the customer’s ability to claim for certain types of loss (for example indirect and consequential losses and loss of profits) and (b) capping the supplier’s liability to a specific amount (for example if there is a breach of contract the cap may be equal to the contract price for the goods).
Issues and Risks involved with Terms and Conditions of Sale
Key issues and risks associated with terms of sale include:
- Unsuitable terms of sale: Many suppliers use a one size fits all approach, but the terms of sale must be flexible and comprehensive enough to cover the different aspects of the goods and services supplied.
- Contract terms not incorporated into customer contracts: If customers do not see the supplier’s terms of sale before, or at the time, they agree to buy then those contract terms will not apply. Additionally, if the customer provides their own terms of purchase and the supplier does not reject those terms, they may override the supplier’s terms of sale, offering less protection to the supplier. This ‘battle of the forms’ concept is a crucial issue for everyone involved in sales to understand, not just lawyers and in-house legal teams.
- Consumers: Suppliers need to be very careful when dealing with consumers, as terms which are acceptable in a contract between two businesses may not be valid in a consumer contract (for example, indemnities in favour of the supplier and certain limitations on liability).
A Litigator’s Perspective
When entering into a contract, parties often focus on the benefits, such as making a lucrative sale or securing desired goods or services. Disputes often only arise years later, which can prompt analysis of which party’s terms apply, at which time it becomes apparent that both parties thought their own terms applied. Ensuring both parties are clear on the terms of the contract at the outset can lead to swift and favourable dispute resolution if needed.
By understanding and carefully managing terms and conditions of sale, suppliers can protect their interests, manage risks, and ensure smooth business transactions.
