Credit Controllers: your terms and conditions of business can send you in ever decreasing circles…

by Stephen Cowan 12. June 2013 20:37

How many times have credit controllers been told what a great idea it is to ensure they have terms and conditions of business?  How many times have credit controllers followed this advice only to discover later that it’s not their ‘T’s + C’s’ which govern the contract but the purchaser’s?

 

The Scottish case of Grafton Merchanting GB Ltd v Sundial Properties (Gilmerton) Ltd is a great example of what is known as ‘the battle of the forms’.

 

The Facts: 

Sundial completed Grafton’s application for a trade credit account.  This contained Grafton’s terms and conditions.  Condition 1 of this stated that orders accepted by Grafton were solely to be on their terms and conditions.  To reinforce the point the condition also stated that its terms and conditions overrode any others and were incorporated into the contract unless variations or additions were agreed in writing.

 

Enter centre stage Sundial.  After having completed Grafton’s application for trade credit they submitted their purchase order which contained their own terms and conditions.  One of Sundial’s conditions was that they had the right to require goods to be delivered to them according to their schedule.  Grafton retained the right to defer deliveries. 

 

So far so bad.  Following Sundial’s purchase order in April 2009 Grafton agreed to store the goods as well as agreeing to Sundial paying for them as and when Sundial needed them.  And, indeed, Sundial had taken delivery and paid for some of the goods.

 

Fast forward to September 2011 when Grafton asked Sundial to pay for the remainder of the goods.

 

The Argument:

Grafton argued that their T’s + C’s required Sundial to pay for the goods.  However, Sundial said that condition 15 of their T’s + C’s, which they argued Grafton had accepted, meant that because they had not requested delivery of the remainder then they were under no obligation to pay for them.  Grafton then said that Sundial’s T’s + C’s did not govern the contract.  This was because the parties had not agreed to Sundial’s conditions in writing and that this was the only way in which Sundial’s condition 15 would be operable.  Sundial countered this by saying that Grafton’s offer to sell had been met by their purchase order which stated that they were buying on their terms and conditions and that when Grafton had supplied the goods to them they had implicitly accepted Sundial’s conditions.

 

Sundial also argued that the parties could vary the contract if they wished to do so even although Grafton’s conditions only permitted written variations.

 

The Decision:

The judge held that Grafton’s conditions would only apply once they had been accepted by Sundial.  Only at that point was there a contract.  Accordingly it was not possible for Grafton to invoke their condition that any changes had to be in writing for Sundial to make a counter offer.

 

Looking at the matter the judge said the contractual relationship was constituted as follows:

 

Ø      Grafton submitted their offer to contract to Sundial on their (Grafton’s) conditions.

 

Ø      Grafton’s offer was then met by Sundial’s counter offer to contract on their (Sundial’s) conditions.

 

Ø      Grafton then processed the order and by doing so they would have been regarded as accepting Sundial’s conditions.

 

Ø      Grafton’s condition that only written amendments would be permissible could be varied by strong evidence of facts and circumstances to the contrary.

 

This could be on the basis that there had been an express or implied variation even though not in writing.  The judge said that it may be difficult to establish that the parties’ actions did have the effect of variation without Grafton’s written agreement.  Accordingly evidence would need to be led to establish precisely what had happened.

 

The Moral:

Credit controllers will be forgiven for feeling a little confused.  Many will be of the opinion that there was no doubt that Grafton’s conditions would have governed the contract.  However, to understand the decision, we have to look at the basic law of ‘offer and acceptance’.  This is entirely logical.  What this boils down to is that if you want your terms of business to govern the contract then you will have to ensure that they have actually been accepted by the other party.  Simply sending them out with a prohibition that they cannot be varied, unless in writing, will not suffice if they are met with the purchaser’s counter offer.  If this happens then certainty will be substituted with confusion as well as the possibility of an expensive litigation.

 

Questions?

If you have any questions or comments on the above then please do contact me using the details below.  As always a selection of articles relating to debt recovery and credit control can be found at www.debtscotland.com/news.cfm.

 

Best regards,

Stephen Cowan

Managing Partner
Yuill + Kyle
Debt recovery + Credit control Lawyers, Scotland
scowan@yuill-kyle.co.uk

W: http://www.debtscotland.com/
T: 0141 331 2332
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