Oct 2018

Is Your Fine Print the Right Fine Print?

I’m a trial attorney who specializes in contract disputes and other business litigation. In my work, much of my time is spent reviewing the “fine print” of contractual documents, and determining what evidence will prove our client’s position with respect to that contractual relationship. Typically, the contract documents contains “standard terms and conditions” which a buyer or seller uses with their purchase orders, invoices, or proposals. Many buyers and sellers are unaware of how important these “standard terms and conditions” are in defining the precise contractual relationship between the parties, and would be well-served by having their attorney review them before one of these commercial disputes arises.

In a sales transaction in the United States, the contract terms may consist of the terms of a specific contract if signed by both parties, or the terms proposed by the buyer, or the terms proposed by the seller, or some amalgam of what the buyer and seller have proposed in their terms, or what a court finds to be “reasonable” with respect to an omitted or contradictory term, or the default terms imposed by the Uniform Commercial Code relating to Sales transactions.

Clients frequently only realize the importance of the contractual terms of their relationship when it is too late — when the transaction has fallen apart and the relationship has proceeded into litigation. Case in point – a recent client (we’ll call this client the Buyer) who engaged our firm to represent them in a matter involving products (we’ll call them widgets) which they had purchased from a manufacturer (who we’ll identify as the Seller).

The Buyer had initiated the transactions by sending their Purchase Orders to the Seller. Each of the Purchase Orders contained a list of terms and conditions on a second page, which were incorporated into the Purchase Orders. After receiving the Purchase Orders, the Sellers had, in each case, confirmed the Orders with an invoice to the Buyer, and had shipped the goods to the Buyer. Each of those confirmation invoices contained a page of terms and conditions regarding the sale of the Seller’s widgets (printed on the back of each of the invoices).

When a dispute arose between Buyer and Seller concerning the sale of the widgets, the Buyer approached us to represent them. At the first meeting, the Buyer brought with them their documentation, including their standard terms and conditions, as well as the Seller’s invoice confirmations, which included Seller’s standard terms and conditions. Case closed, thought the Buyer.

Unfortunately, it’s not quite that simple. If the buyer proposes terms and conditions with their Purchase Order, those terms and conditions become part of the contract, if they are not contradicted by the seller’s terms upon confirmation. (If the seller transmits its terms first, with a proposal to sell, its terms and conditions become part of the contract if they are not contradicted by the buyer’s terms upon confirmation.) But what about when, as in our client’s situation, the terms and conditions of the fine print on each party’s documents contradict the other in some fashion? What then? Whose fine print applies?

Alas, when the goods have been shipped and accepted, and the terms and conditions in the purchase order and the order confirmation contain contradictory terms, a contract has generally been formed, and the parties must leave it up to the court to eventually determine the specific terms of that contract. The court’s decision will be dependent upon proof submitted at trial, which may take the form of evidence regarding the intent of the parties in entering into the transaction, evidence of the customary practice in the industry, or evidence of the course of dealing between the two parties. Our client was disappointed to learn that what they presumed to be an open-and-shut case would instead require litigation to determine the binding contractual terms of the widget sales between the parties.

Buyers and sellers of goods are thus well-advised to talk to their counsel about their standard terms and conditions before getting into these disputes — indeed, preferably before entering into the contractual relationship. The value of careful contract document preparation (particularly when it is a standard form which is used in transactions totaling millions of dollars in sales) sometimes only becomes apparent once a company, years later, has spent many thousands of dollars in legal fees fighting about the contract terms and conditions. It is also important that a company’s contract managers become adept at spotting potentially contradictory terms or conditions which might cloud the contracting process. Advance consultation with an attorney can lead to fewer such disputes, and, in the long run, spending less rather than more on legal fees.