Contract Terms: Beware Incorporation By Reference

Parties to a commercial transaction will often take great trouble to draft their own standard terms and conditions which suit their own business, and their own attitude to, and acceptance of, risk. However, care is not always taken by those making the contracts, for example sales people, to ensure that the terms and conditions are properly communicated to the other party and are properly incorporated into the contract.

There is often what is commonly referred to as a 'battle of the forms', whereby both parties seek to contract on their own terms and conditions by attempting to ensure that they send them to the other party last in time, in the belief that this will mean that they will apply.

This is not necessarily the case and it will depend on exactly when the contract was formed and assessed using the usual criteria of offer and acceptance. This is a topic in itself, and is not the subject of this article.

Where a party sends a contractual document, such as a quotation or purchase order, which refers to, and attaches, a copy of that party's terms and conditions, the matter is relatively straightforward. The other party will be aware of those terms and conditions, can readily see them, and has the opportunity to object to them, negotiate the terms, and/or seek to ensure that its own terms and conditions apply to the contract instead.

However, very often it will be the case that one of the parties will send a contractual document which simply contains a reference to its terms and conditions. A common scenario is where company A sends company B a quotation with a copy of company A's terms and conditions. A purchase order is then faxed through from company B to company A, which refers somewhere on the document (often in small print) to company B's terms and conditions 'on the reverse', but because the document has been faxed the terms and conditions on the reverse are never in fact sent by company B, and never received by company A. Company A might understandably have not seen the reference to company's B terms and conditions and in any event might well assume that because the terms and conditions were not attached they cannot apply to the contract; so company A might be confident that its own terms and conditions apply. After all, in this scenario company A has never actually seen company B's terms and conditions.

In fact, in such a scenario it is likely that company B's terms and conditions will apply (although of course each case will turn...