Module 1 - Negotiating the Trade and Forming the Contract


By: Robert M. Parson

Where terms are not expressly set out in writing

What if no document containing the standard terms is sent at all? In that case, a party can be held bound by the other standard terms if those terms have habitually been used or referred to in the course of dealing between the parties. There are numerous decisions of the English court upholding thatprinciple. For a party to prove the incorporation of standard terms through a course of dealing, they will, however, have to show something more substantial than mere sporadic contractual relations with the other party on which the same terms were used.

"Battle of the form" - competing terms

Of course a party can attempt to avoid any inference that his own terms can be displaced by the other party sending his standard terms, by including an express stipulation that his own set of contract terms should be paramount. In reality, however, everyone is wise to these tricks and at the end of the day the court will look at the communications between the parties following receipt of a set of standard terms and conditions or at the conduct of the parties following receipt of a set of standard terms and if they indicate that the terms have been accepted the court might very well conclude at the end of the day that neither set of standard terms are incorporated. If the bare necessities of the contract are there to enable the court to find a binding and workable commercial bargain without either set of standard terms applying then it will do so in the same way that the lack of an arbitration agreement will not affect enforceability.

Negotiating points and pitfalls

You must have in mind when negotiating and fixing the terms of the contract that this may just be the one and only time during the transaction that you have the opportunity to get the points that are important to you included as part of the deal. How many times has a trader looked at an award of arbitration or a court judgment in disbelief when the court or arbitrators have ruled that a point on the commodity spec which he personally regarded as being of fundamental importance to the way the contract was physically performed has been treated as a mere warranty which entitles him to claim damages instead rejecting the goods altogether. The solution, of course, is quite simple. If something is so important to you that, no matter how unlikely you think it is that the seller is likely to fail to meet the standard you set out in the contract, then you must make it clear that breach of that term is something which will lead inevitably to your right to reject the goods. The law reports are littered with cases where buyers, in particular, have sought to persuade the arbitrators and the courts that something was of fundamental importance to them in the contract when they simply did not bother to make that clear at the time the contract was concluded.

Take the standard lay out of a contract for the purchase of virtually any commodity and typically you will find a box marked "description" or simply "commodity" with often the barest of descriptions of the goods to be supplied.

This will be followed by a section marked "quality" containing a host of items some of which are of relatively low importance and where deviations from the contractual standard could quite adequatelybe covered by a system of allowances and indeed often are. There were others where breach of the standard set out of the contract even to a small degree can mean that the buyer is receiving something quite different from what he had expected and which may be commercially useless to him. The importance which he attaches to those factors might be undermined either (1) because he has contracted on a basis which allows the seller to produce as a binding determination a quality certificate from a surveyor at the other end of the earth which against all the evidence at discharge shows that the goods were perfect or (2) because the way in which the specification is set out, even if the buyer has made it clear that the figure stated in the contract is a maximum or minimum figure, is such that it is not unreasonable for the arbitrators to come to the conclusion that a buyer should be prepared to accept only damages and should not be able to reject the goods.

If that part of the specification is important to you, make sure that it is expressly agreed that that item will be deemed a "condition" of the contract. A condition is a term the breach of which by the other party entitles you to rescind the contract and not just to claim damages which may or may not prove a worthwhile alternative. Think carefully about why your seller wants to include a range of percentage figures for a particular quality item when he normally delivers something to you at the top end of that range. Think about how you are going to feel if he exercises everyone of those options to the limit. There is no rule of law which entitles you to insist on the goods being in the middle of the percentage range. Minimum performance is all that is required.