Terms and Conditions
Standard terms and conditions of business are often given a low priority by companies and may only be given detailed consideration when a dispute arises, by which time it may be too late. In the meantime, the sales department may, without the knowledge of the legal department, be issuing quotations or processing orders using terms which are out of date, unsuited to the company's current business needs or simply copied from terms used by the company's competitors. If sales staff are not following proper contracting procedures, they may sometimes not even be contracting on the company's own terms, because better-trained purchasing departments have succeeded in substituting their own.
Standard terms and conditions of business may be used in order to achieve any one or more of the following commercial objectives:
- To set out a framework for how a company's transactions will be dealt with and brought to a conclusion without the additional time and expense involved in drawing up specific terms for each individual transaction.
- To enable a company to impose terms favourable to itself on others without negotiation and, in particular, to limit its liability (in the case of sale terms) or to extend the liability of the seller (in the case of purchase terms).
- To provide certainty in relation to transactions which form the main part of the trade of the company through the use of the same set of terms in all cases.
- To standardise a company's contracting procedures, so as to allow contracts to be handled and concluded by more junior staff.
Although the benefits of using standard terms and conditions are substantial, their use is subject to certain legal and practical limitations:
- There are legal restrictions on the extent to which a company is allowed to exclude or limit its liability where its standard terms will not have been individually negotiated or where the company is contracting with a consumer). Certain terms may be altogether unenforceable and others may be enforceable only if they satisfy special tests of reasonableness or fairness.
- The standard terms will not be binding on the other party and will therefore be useless if proper procedures are not followed to ensure that they are incorporated and prevail over any competing standard terms which the other party may be seeking to impose.
- There is a danger of staff using the standard terms without reference to the company's legal department for transactions for which they are not appropriate. As a safeguard against this, companies can, for example, establish procedures whereby proposed contracts over a certain value using the company's standard terms are seen by the legal department before they are issued.
- The use of standard terms cannot be relied on in place of commercial measures such as the maintenance of adequate credit or quality control procedures: they should be in addition to, rather than in substitution for, such measures.
Standard terms and conditions require regular review in order to ensure that they take account of legislative changes or new case law and reflect any changes in the business activities of the company. Issues include:
- Preliminary review of contract terms and procedures
- Incorporation and battle of the forms
- Pre-contract representation
- Excluding liability
- Warranties and indemnities
- Security for payment
- Retention of title; risk and insurance
- Export contracts
- Contract review