Terms and Conditions of Purchase
The buyer may seek to apply its own terms and conditions to the sale contract. A “battle of the forms” may result. Ultimately, it is a matter of contractual interpretation as to which terms and conditions form part of the agreement. No blending of conditions is undertaken by the court. The court analyses the entry into a contract, in terms of offer and acceptance.
There may be a series of proffering of a set of terms and conditions followed by a rejection and counteroffer. If there is any agreement at all, it is most likely to be on the last terms offered and accepted, either explicitly or by conduct.
One party may seek to confirm that its terms and conditions apply in preference to and supersede all other terms and conditions. Its terms and conditions may be stated to take precedence over all other terms, conditions and discussions which took place in the course of negotiations.
It might be specifically declared that the agreement cancels all previous agreements if any between the parties related to the subject matter of the agreement and also cancels and discharges any obligations, if any, already arising from such and thereupon substitutes the new agreement for those previous agreements.
Variations and Waivers
Provisions may be made in respect of a variation of the terms of an existing contract. It may be provided that no variation, waiver or amendment, is permitted except if authorised in writing at a certain level in the organisation and signed. The purpose is to ensure that alleged changes to the agreement do not happen without being formally approved at the relevant level in the organisation.
The clause seeks to remove the risk of an alleged oral variation. It is provided that it is effective only if undertaken by a person at a certain level in the party’s organisational structure in order to remove allegations or claims that a particular person who did not, in fact, have authority impliedly or appeared to have authority on behalf of the relevant party.
No Waiver Clasues
A buyer may provide that the failure to insist on its strict contractual rights on one occasion is not to be interpreted as a waiver of those rights in that case or in any future case and that the seller’s obligations continue, nonetheless. The purpose is to clarify that a single or several waivers do not constitute a complete waiver of that right for future purposes.
It seeks to prevent arguments that a single or repeated indulgence or failure to assert the strict terms in favour of one party, constitutes a waiver of the benefit of that term for all future purposes. If the position was otherwise, it would lead to the perverse result that a party might prejudice its future rights by showing leniency, on one occasion.
The existence of strict clauses is commonly a background or backstop which moderates that action of the party affected. They may not be intended to be enforced other than in circumstances of strict necessity.
No Waiver Clauses II
It is unlikely that the courts would interpret most one-off or even several waivers as a waiver of the benefit of the clause for all purposes. There may commonly be a series of repeated waivers or a practice, which is claimed to have permanent effects.
The court might hold that the party who has benefited from the waiver has been led to believe that the clause will not be enforced and has acted in reliance on this to his detriment. The party with the benefit of the clause may be thereby estopped from asserting it, until reasonable notice is given or in some cases, for all time.
The scope of estoppel is circumstance dependent, and there is scope for argument about it. This creates uncertainty. An estoppel by waiver may be readily claimed, but there may be considerable uncertainty as to the true position. This might only be resolved by a judge at considerable cost.
Therefore the “no waiver clause”, seeks to reduce this risk. It has limits and may not preclude a finding in some cases that the waiver clause has itself been waived.
Standards of Goods and Services
A buyer will wish to ensure at a minimum, that the seller does not vary the standard Sale of Goods Act conditions in relation to merchantability, fitness for purpose, compliance with descriptions etc. It might provide further that the seller warrants and guarantees that all the goods are free from defect, latent or patent, in material or workmanship.
Where there is a specification, the buyer will want the seller to warrant that the goods and services conform to the applicable specification. The specification may be very detailed, or it may be in broader terms. There may be drawings or other materials which define in whole or in part or expand on the definition of what is to be provided.
It may be provided that to the extent such drawings or other such materials are not provided by the buyer that they are free from design defects and are suitable for the purposes intended by the buyer. The buyer may require that the seller acknowledges this to be the case. The buyer may provide that its approval of any such material does not relieve the seller of its obligations.
A buyer might seek to provide that it is a condition of the contract that the goods supplied conform in all respect to the specifications and requirements communicated by the buyer to the seller, including samples. It may provide that it is a condition of the contract that the goods conform with the description given by the buyer.
Specific Remedies / Guarantees
It may be provided that the buyer is to have specified remedies for all or certain breaches of its obligations. A warranty may provide that defective goods may at the option of the buyer be repaired or replaced. It may be further confirmed that those repaired or replaced goods are themselves the subject of the warranty.
The clause may provide that the seller’s obligation extends to any defect or non-conformity which arises or becomes evident within a certain period. This is in the nature of a product guarantee as commonly understood. There are statutory requirements for consumer guarantees, whether by the seller or another, commonly the manufacturer.
The guarantee may provide that the seller’s obligations thereby undertaken are without prejudice to its general obligations in relation to defects and nonconformity arising within a specified period. The buyer may be entitled without waiving his rights or remedies under law, to require the supplier to make good or replace the item at its risk or to refund the price or part of the price. In consumer sales, guarantees cannot reduce consumer statutory rights.
The Sale of Goods Act guarantee of title (which cannot usually be excluded, even in commercial contracts) may be repeated and elaborated in the buyer’s terms of the agreement. It may be provided in addition to the condition as to title in the Sale of Goods Act that the supplier holds full, clear and unencumbered title, that it will pass such title to the buyer and that it will continue to have the relevant power and authority to sell and deal in the goods for the requisite term, so that the buyer acquires an unencumbered, unrestricted title.
The Price and Payment I
The buyer may seek to provide and confirm that the contract price is inclusive of all taxes and cannot be varied other than by consent given in writing by a person at a designated level of authority.
This confirms the default position that the price is fixed. If VAT is to be charged on the price, there must be a specific VAT charging clause. The default position is that the price is VAT inclusive because in almost all cases, it is the seller’s duty to account for VAT.
The buyer may wish to provide for a credit period so that, for example, the purchase price is paid at the end of the month or quarter. For example, the price may be payable at the end of the month following that in which the goods are received or invoiced whichever is later.
The buyer may wish to confirm that the due date for payment is not time of the essence, such that breach may entitle the seller to terminate the entire contract.
The Price and Payment II
The buyer may wish to provide that if goods are not delivered within the time specified, it is entitled to terminate the contract. It may specify that the buyer is entitled to buy similar other goods and recover the excess cost and expenses from the seller. Combined with the provision making time as the essence, it gives the buyer the right to reject the goods if they are one day late.
The buyer may wish to have the right to approve invoices. The seller will wish to ensure that the right to dispute or not to approve an invoice is not abused. There should be a requirement to pay the undisputed amount. There must be some speedy mechanism which ensures that any bona fide disputes are promptly resolved or determined so that the obligation to pay for work done is not unreasonably postponed
The statutory rate of interest under the interests on commercial debts legislation applies by law. The legislation may be contracted out, only if there is a sufficient alternative remedy. A buyer may wish to confirm that the maximum interest rate payable is that provided by the law under the late payment of commercial debts legislation. The buyer may wish to provide that it shall pay only the interest that shall compensate the seller for actual loss, being not more than the statutory rate of interest.
The buyer may require that delivery is to be made at a location specified by the buyer, carriage paid. The buyer may wish to specify that the date of delivery is time of the essence. Accordingly, late delivery would allow the buyer to terminate its obligations and sue for damages.
The buyer may provide and confirm that the delivery may not be made in installments. If the contract does provide for delivery in instalments, the buyer may wish to provide that any breach entitles him to terminate the entire supply contract and claim damages.
The buyer may wish to make specific provision in relation to shortfalls or excesses in the quantities delivered. It may be provided that if the seller delivers less than the relevant quantity, the buyer may at its choice terminate the contract or accept a lesser quantity and make a lesser payment. This broadly reflects the Sale of Goods Act. There may be provision for compensation for the inconvenience caused. The price may be at the contract rate subject to a deduction of a specified percentage to compensate for the inconvenience.
If an excess is delivered, it might be provided in accordance with the Sale of Goods Act that the buyer may accept the goods and pay at the contract rate, accept and pay for the excess at the contract rate or reject the whole amount.
There may be provision for a minimum tolerance in terms of quantity, which is not deemed material for the purpose of the contract.
The buyer may wish to reserve the right to vary the time and place of delivery, provided that reasonable notice is given to the seller. The buyer may seek to provide that the expenses associated with the delivery or the varied delivery are at the seller’s cost. It may be provided that the buyer is not obliged to accept delivery by instalments.
Title and Risk
The buyer will wish to secure that title to the goods passes to it at the earliest point so that it has a direct claim to them. The Sale of Goods Act provides that the property (title) in the goods passes when intended, which is presumptively (subject to other default possibilities which apply in many cases) on the making of the contract. The buyer may wish to confirm that the property passes on the making of the contract, or at the latest when the goods are unconditionally appropriated to the contract.
It is usually in the buyer’s interest to ensure that the risk remains with the seller until the goods are actually delivered to the buyer and found to be in conformity with and in accordance with the contract. The buyer may wish to ensure that the seller maintains insurance for the loss of the goods in appropriate cases and provides for its assignment to the buyer.
The presumed position under the Sale of Goods Act is that the risk passes with the property. The buyer may seek to reverse this position by having the property pass at an early point and the risk pass at the point of delivery and acceptance only.
The default position is that the buyer takes the risk of loss by way of the deterioration of the goods in transit, where it is a normal incident of the carriage. The buyer may wish to reverse this position under the Sale of Goods Act, which applies unless the contrary is provided. At common law, the presumption still applies even where the seller agrees to deliver at his own risk, where the risk of deterioration is a necessary incident to the course of transit.
The buyer will wish to provide that he has not accepted the goods until such time as he specifies to the seller that he has accepted them as being in apparent compliance with the requirements of the contract.
The buyer may confirm that notwithstanding such acceptance, it remains entitled to reject the goods and claim damages. This may apply generally, or it may be specified to be so if, within a certain period, notice is given that the goods are not in conformity with the contract. This varies the default Sale of Goods Act position by which an acceptance of goods removes the right to reject them leaving only the right to claim damages.
The buyer’s clause may go further to provide that an acceptance of the goods by the buyer is without prejudice to the buyer’s right to return any rejected goods, with carriage paid by and at the risk of the supplier.
Right to Reject
The buyer may seek to extend its rights to reject for a period after delivery and acceptance, for any breach of a condition that later becomes apparent. The buyer may be enabled to reject goods and terminate the contract if they are found not to be in conformity with the contract within that period.
It may have the option to demand the repair or replacement of goods instead. It may be provided in either case that the seller is liable for losses, expenses and liabilities incurred as the result of the breach. It may be provided that the seller must indemnify the buyer against all claims or liabilities to customers arising out of breach of the contract.
The buyer may wish to provide that it is not liable for failures of performance due to act of war, force majeure, circumstances outside its control etc. The buyer may provide that it may cancel the contract by notice without liability (subject to the unfair contract terms legislation in consumer cases).
The contract may provide that if payment is not made by the relevant date that liquidated damages at a certain rate per week shall be payable.
It might be provided that the price is inclusive of all taxes, duties, VAT etc.
The mode of payment may be provided for. There may be a provision for a discount if commercially agreed.
The buyer may confirm that it may set off any sums due from the seller to the buyer whether under the contract or otherwise. This would extend the common law right of set off.
Damages and Compensation for Breach
The buyer may wish to make the seller liable for indirect and direct consequential loss following from the breach of contract, howsoever caused. It might be declared that the seller is deemed aware of circumstances as might affect any loss suffered by the buyer as a result of the breach.
This clause seeks to circumvent the common law rule in respect of recovery of damages, which limits an award to damages to loss arising in the normal course of events. It must be shown at common law that the seller had specific knowledge of additional circumstances or risk which might produce other more extensive losses than such ordinary losses.
The buyer may require that the seller indemnifies it for all losses, costs and expenses incurred directly or indirectly arising from a breach of the contract. This clause seeks to extend the seller’s liability for losses and expenses incurred arising from breach of contract. An indemnity is a more thoroughgoing obligation than a contractual obligation. The buyer is not obliged to mitigate its loss, and the indemnifier must make could the relevant loss or cost in full.
Assignment / Subcontracting
The buyer may wish to ensure that the seller does not subcontract the performance of any element of the contract without its prior written consent. This may be an important consideration where the buyer proceeds on the basis of the seller’s characteristics, capacity and ability. The general rule is that the contract obligations may be subcontracted unless circumstances showed that the seller was chosen for its unique qualities. The clause confirms that this is so.
In some instances, subcontracting will be a necessary part of the process of fulfilment of the supplier’s contractual obligations. In this event, it might be provided that the buyer’s consent is not required, where, for example subcontracting is reasonably necessary for the due performance of the contract by the supplier.
The buyer may provide that it is not liable for obligations where its failure to perform and fulfil them is due to circumstances beyond its control. This clause seeks to temper the general unconditional nature of contractual obligations. Frustration is narrow in scope. It does not apply merely because performance has become very uneconomic or onerous. It applies to a narrow category of unexpected supervening events that are not attributable to the fault of either party. It does not apply when one or other party expressly or impliedly takes the risk in relation to the matter concerned.
A broad clause may allow the contract to be discharged by reason of circumstances beyond the party’s reasonable control. This is favourable to that party but may be unacceptable to the other party. A narrower version may specify causes which potentially disrupt the performance of the contract. They may include industrial disputes, fire, flood, governmental regulations etc. Specific instances may be set out which are stated to be without prejudice to the generality of a more general exonerating clause so that they are illustrative in nature only.
It might be provided that where circumstances such as those above arise, there is an extension of time for performance for a reasonable period, rather than a complete discharge of the contract. The buyer may wish to specify that the measure of the reasonable period is at its option and not that of the seller.
It may be difficult to justify a liberal exoneration clause for one party, which is not afforded to the other. However, market strength may allow one party to dictate the position. The clause may favour the seller because the buyer’s obligation to pay is unlikely to be modified in any way with reference to its financial position.
The buyer may wish to specify that the laws of its place of business apply to the contract and all matters arising out of it and that courts of its place of business have exclusive jurisdiction. It may be specified that some other law or jurisdiction may apply. A choice of law and choice of jurisdiction clause in business to business contracts will almost always be upheld.
An arbitration clause may be provided. It may be in one or both party’s interests. Provision for the appointment of the arbitrator must be made. Rules of procedure should be expressly or impliedly referred to. The rules of a trade association or other body may be incorporated in this regard.
Further Buyer Requirements
The buyer may have requirements in relation to packaging for the purpose of transportation, handling, and warehousing. The buyer may have other requirements which may be specified in the contract. It may require further information, assistance and after-sales service. It may require provision for servicing spare parts and after sale service.
The buyer may provide that the seller is to do or use its best endeavours to do, all further things necessary to perform the contract. This may include the performance of further acts, the delivery of additional instruments, approvals, permits and licenses as are necessary for the proper performance of the contract.
The buyer may require the seller to ensure that the benefit of third-party warranties is extended where applicable.
In the case of complex goods (e.g. High-value plant or equipment), there may be a requirement for instruction manuals. There may be a requirement for support and advice. There may be a requirement for training and commissioning the goods.
Where the item is complex or is designed, the buyer is likely to require acceptance tests to ensure that the item meets the relevant standards and performance criteria. Provision may be made for the carrying out of tests and the consequences of the failure to conform. There may be a provision for the reference of disputes to an independent expert.
References and Sources
Encyclopaedia of Forms and Precedents (5th Edition) Vol 7(2)
Drafting and Negotiating Commercial Contracts (2016) 5th Ed Mark Anderson, Victor Warner