Any business that regularly enters into terms (for example for the sale or purchase of goods) that are often the same or similar can benefit from creating its own standard terms of business. Standard terms are a set of terms that a business can use to govern its relationship with all of its clients.
The Benefits of Standard Terms
The benefits of having a standard set of terms are:
- Lower costs of entering into agreements (reduced negotiation and drafting time);
- Predictability of terms;
- Sophisticated transactions can be dealt with at a lower authorization level within the business;
- Heightened familiarity with terms;
- Speedy negotiation process with new and existing clients;
- Reduced risk of dispute.
If your business has standard terms drafted, it is crucial to ensure that such terms are properly incorporated into the agreement with another party. Incorporation of terms has given rise to a large number of commercial disputes and must be carefully considered, giving particular attention to: the timing of entering into the standard terms; whether standard terms are signed; and the manner in which the standard terms have been introduced and brought to the attention of the other party.
Battle of the Forms
Where two businesses each have their own standard terms, problems may occur in determining whose standard terms will prevail, this is known as the “battle of the forms”. A business can take steps in order to avoid losing the so-called battle by:
- Inserting a clause in its terms of business to the effect that their terms will prevail;
- Taking care when returning any written documentation to any potential contracting party in order to avoid unwitting acceptance of their terms;
- Avoiding responding to the terms of another business without referring to and sending a copy of its own terms back again in reply.
Types of Standard Terms
The standard terms required by each business will vary according to the type of operations that the business undertakes. Different businesses will have different requirements:
- Some businesses may need different standard terms for supply and for receipt of goods or services;
- Different terms may also be used according to whether the contracting party is a consumer or a non consumer;
- Different standard terms may also be used to govern each of the different types of contractual relationships with different types of party that the business enters into.
Requirements for Standard Terms
In order to comply with consumer protection regulations, standard terms must be drafted reasonably with care taken regarding the manner in which they are drawn to the attention of the other party. Terms should be clear and unambiguous and will usually (in the least) address all of the common matters covered in a commercial trading contract such as: obligations of the parties; non performance; risk; payment; delivery; quality of service and goods, security; limitation of liability and dispute resolution mechanisms.
When drafted and incorporated properly into the business relationship between two parties, standard terms and conditions of business can prove a highly effective way to cut costs and to ensure familiarity with and consistency between contracts entered into by a business. Great care should be taken to ensure any such terms are fair and reasonable and that (in a battle of the forms situation) every opportunity is given for your businesses terms to prevail.
Michael Chambers & Co. LLC’s team of commercial contracts lawyers is able to assist business clients in drafting standard terms of business in order to streamline operations. Advice and support can be given in terms of the contents of such terms, negotiation process with clients and ensuring that your terms prevail in a battle of the forms situation. If you wish to speak to one of our commercial contracts lawyers, please contact us.