Contract basics – are you ready for battle?

Chances are the quote and purchase order have a description of the goods, price and delivery date, and no doubt each party will state its terms and conditions apply.

But which terms and conditions do apply, and how do you make sure yours form part of the contract?

Last shot rule

The terms that apply to a contract are generally those last circulated before the contract is concluded. This process is known as “battle of the forms.”

In the simple scenario above, the company’s terms would apply. This is because the Scottish courts have tended to apply the traditional offer and acceptance or counter offer analysis in these situations.

This means the buyer receives a quote from a supplier and either accepts the quote or qualifies it in some way. By issuing a purchase order incorporating buyer’s terms, the buyer has proposed a counter offer. If the supplier does nothing but deliver the goods, they have by implication accepted the buyer’s terms.

And of course, incorporating terms and conditions in invoices or delivery notes does not usually have the effect of changing which terms apply: these documents generally come too late in the process.

Exceptions to the last shot rule

The courts have held it is not always possible to lay down a general rule that will apply in all cases in these situations.

It will always depend on an assessment of what the parties must objectively be understood to have meant.

Therefore, the courts have dis-applied the rule where the “last shot” is a document which —

• Did not reconcile all of its terms with the purchase order

• Was required to be signed by the parties, and was not

• Had the other party’s terms incorporated into the quotation, making it clear that any terms inconsistent with its own were to be agreed in writing

Do your terms and conditions even apply?

It’s worth bearing in mind that if you have terms and conditions printed on the back of your purchase orders, or say they apply and are available on request, that they may not even be incorporated into the contract.

For example, in the case Transformers & Rectifiers Ltd v Needs Ltd, Justice Edwards-Stuart determined neither of the parties’ terms applied.

And while this is an English case and not binding in the Scottish courts, it may prove persuasive.

The situation was that Transformers’ did not always send its terms and conditions to Needs.

These were printed on the reverse of the purchase order, but there was no reference to the terms on the face of it. Plus, when Transformers placed an order by fax or emailed it, it did not always transmit a copy of these terms on the back of the order.

On the other hand, Needs sent order acknowledgements to Transformers. On the face of its order, it stated that “the quoted prices and deliveries are subject to our normal terms and conditions of sale (copies available on request)” but the company took no steps to provide a copy of those terms, and Transformers’ did not ask.

Justice Edwards-Stuart considered Needs was entitled to assume Transformers was not relying on its terms and determined if Transformers wished to incorporate these then reasonable notice should have been given, along with clarification that the company intended to rely on them.

An easy answer would have been for Transformers to have faxed or emailed its terms separately.

With respect to Needs, Justice Edwards-Stuart considered its terms did not apply because they were not standard trade or industry terms, and the company did not give reasonable notice either by printing them on the reverse of the order acknowledgment, or by sending a copy of them making it clear they intended to rely on them.

What does this mean?

A party wanting its terms to apply must be vigilant during the document exchange process. As a belts and braces approach this includes ensuring —

• The company’s terms are incorporated into all documents, if you intend to rely on them

• Your document is the last shot fired before the substance of the contract commences

• The terms relate to the work carried out and that they are signed by the other party, if that’s a requirement of your terms

• You are consistent with you approach and give reasonable notice of your terms