When you think of contracts, what images come to mind? Hefty documents on foolscap, sealed with wax and tied with ribbon?
Or maybe you envisage a tick in a box on a website (“Yes, I have read, understood and accepted your terms of business…honest!”).
In thousands of deals done every day, at least one party has no idea which contract terms apply, and what the contract looks like. These are the ‘invisible’ terms that govern your business without you even knowing what they say.
The “Battle of the Forms”
To make a legally binding contract in England there need to be three components:
- Offer – when you offer to sell your products or services to someone for a particular price, subject to specific terms (e.g. in a quotation).
- Acceptance – a client who says “Yes, please!” on receiving your quote would be considered to have accepted your offer.
- Consideration – this is English-specific, as it’s not a legal requirement in Scotland and other jurisdictions. Consideration is what you give up in order to get something of value from the other party. It could be cash, products or services, or even a commitment NOT to do something (e.g. not to compete with the other party).
In a simple world, we would make an offer, and the other party would accept it, for an agreed amount of consideration. We’d have a contract subject to our terms and conditions, to provide our products or services for the price set out in our quote.
In reality, many deals enter what lawyers call the “Battle of the Forms”. This happens when you send your quote to a prospective customer and they respond by sending you a purchase order.
Before you punch the air and do your “New Sale Victory Dance”, take a careful look at that purchase order. If it’s generated by the customer’s computer system there will probably be some small print at the bottom of the page, saying “This purchase order is subject to Company’s terms and conditions of purchase, available at www.example.com”. This is not an acceptance of your offer – it’s a counter-offer.
So what happens next?
You have a number of options, and the one you choose will determine who wins the Battle of the Forms.
- Deliver the goods or services requested in the PO
This would be considered as ‘acceptance’ of the customer’s counter-offer. Congratulations – you now have a contract to deliver products or services subject to the terms and conditions at www.example.com. But wait – the link’s broken, and you don’t know what the terms and conditions say! Or maybe you never actually clicked on the link, and have no idea what horrors are lurking there…
Sadly, you’re still bound by them. These ‘invisible’ terms will be binding on your business, and you will have entered into a contract so secret, you don’t even know what it says. What could you have signed up to without realising? Ninety day payment terms? Five year money-back guarantee? Unlimited indemnity for the customer? All sorts of nasties could be hiding in your secret contract, waiting to wreak havoc on your business.
Who wins the Battle of the Forms? Your customer.
- Send an Order Acknowledgement
But wait…you’re wise to the secret terms hidden in the customer’s PO. When you receive that purchase order, you respond by sending your Order Acknowledgement, stating that you are pleased to accept their order…subject to YOUR terms and conditions, attached/on your website/as supplied with your quote. THEN you start delivering your products or services.
Sorted? Not quite.
How do you know that the customer has received and accepted your Order Acknowledgement before you start delivering? Do you ask for an ‘Order Acknowledgement’ Acknowledgement?
You can see where the ‘battle’ comes in. We find ourselves doing battle with the other party, to see whose terms ‘trump’ whose, and determine the basis for the contract between us.
Who wins the Battle of the Forms? It’s anybody’s guess, depending on the precise details of who does what, when.
- Ask for the PO to be amended
The best thing to do at this stage is to pick up the telephone. Thank your customer for their order and explain that you need them to make a small amendment and re-issue it to you. Your quote (‘Offer’) was based on your terms and conditions, and if you have to accept someone else’s terms, you’ll have to revise your quote (i.e. “it’s going to be more expensive!”). So please could they re-send the PO, including the words:
“This Purchase Order is subject to the Supplier’s Terms and Conditions as attached to its Quotation ref.
NOW you’re sorted. By a bit of friendly discussion, you’ve brought the terms and conditions out of the dark and into the public domain. You and your customer know exactly what’s in your contract and the terms they’re doing business under.
Who wins the Battle of the Forms? You do!
The Not-So-Secret Contract
Contracts work best when both parties understand what they have agreed. If you know what your commitments are, and what you can expect from the other party, you’re in a good position to each deliver against your obligations. Of course, some contracts are so horrible they never deserve to see the light of day – if this describes your terms and conditions, Devant can help you create terms to be proud of. Give us a call.
Founder and Managing Director, Devant
First published on Hiscox Business Blog at https://www.hiscox.co.uk/business-blog/[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]