When does a sale start? When you first visit your customer on a noisy factory floor? During a conversation with a purchasing agent on the golf course? Or as you exchange a string of e-mails with the vice president of purchasing? Are any of the statements your salesperson made on the back nine or on the back of an envelope part of the sales contract? Can an e-mail or a text message later be considered a "warranty" or a contract term? The numerous ways people can communicate now – including through shorthand text and e-mail messages – means that it is more important than ever to really lock down the terms of your sale in your sales documents.

Whether you are selling a million dollar press or a ten-dollar widget, it is up to you, as the seller, to take charge of the sale process by documenting the sales transaction in a way that protects your rights, limits your liability, and ensures you get paid in full for your product. Although it sometimes seems that taking control of the sale and documenting the sales transaction is a time-consuming process, the opposite is generally true. For every ten or twenty transactions where the sale goes as intended and you wonder why you had to go to all of the trouble of documenting the deal, there will be that one sale which "crashes," and in the wreckage will be an uncollectible account receivable or a costly, time-consuming lawsuit.

Once you develop a practice of managing the sales transaction as part of your regular sales routine, not only will all of your sales go smoother – you are more likely to get paid in full on each sale. And if a claim is asserted against your company, you will be in a better position to resolve the claim faster while incurring fewer legal expenses.

I. What Does Taking Charge of the Sale Involve?

Taking charge of the sales process starts with developing standard Terms and Conditions of Sale, which areclearand legally effective. From there, you have to take the steps necessary to ensure that those standard terms become an indisputable part of the sale transaction. Ideally, all obligations of the sale should be confirmed in a single agreement – signed by both the seller and buyer – which contain the seller's Terms and Conditions of Sale. But preparing a single, comprehensive contract that is signed by both the seller and the buyer (which the lawyers call an "integrated contract") is not common in the U.S., except in instances where the product is specially designed and manufactured for the customer, or the sale is for a multi-million dollar machine or processing system. Generally speaking, most commercial transactions in the U.S. are documented by an imperfect exchange of forms and e-mails. Often the "standard terms" exchanged by the buyer and seller are inconsistent or directly contradict each other. So, whose documents control? Unless a dispute arises, companies have no way of "testing" their sales process to really know if their terms and conditions really control the sale. Of course, that all changes if the parties find themselves in court.

A contract dispute often begins with the two sides arguing over whose terms and conditions control the sale – in many instances, this fight is the first time the senior management of the companies have given much thought to the "legal form" of their sale. Working with their lawyer, they piece together the documents that form the legal basis of the sale – this might include catalogs, brochures, e-mails, blueprints, photos, samples, notes and the forms and documents exchanged by the companies. Courts and lawyers call the exchange of the written forms the "battle of the forms." Deciding whose forms will control the sale may also determine whether any of the communications and meetings leading up to the sale will be considered in determining the actual terms and conditions of sale.

Often, nobody – not even the judge – knows who will win the "battle of the forms" until a large amount of money has been spent by the buyer and seller in investigating the history of the transaction. Such court fights are to be avoided if at all possible, and taking charge of the sale is the key to avoiding them. So, if you want to take charge of your sale, you have to know in advance that you will win a possible "battle of the forms."

II. Winning the Battle of the Forms Starts with your Standard Terms and Conditions

Winning the battle of the forms starts with having a solid statement of "Seller's Standard Terms and Conditions of Sale" contained on a single-page document that is included in the earliest documents exchanged in the sales transaction (such as a Sales Quote or the "Sales Acknowledgment" form). At a minimum, the seller's standard terms and conditions of sale should include:

  • language that effectively excludes the "terms and conditions" of the buyer's purchase order that the seller finds objectionable;
  • acceptance and cancellation terms;
  • delivery terms;
  • the buyer's inspection obligations;
  • invoice, payment and return obligations;
  • language that grants the seller a security interest in the goods, if appropriate;
  • confidentiality obligations, if appropriate;
  • product safety information and product use notices;
  • governing law, jurisdiction, venue and waiver terms that protect the seller;
  • dispute resolution terms, such as arbitration and mediation terms;
  • a "force majeure" term, and;
  • Perhaps most importantly, your company's Standard Terms and Conditions of Sale, including a "Limited Warranty" and a limitation of damages.

A Limited Warranty is a written, express representation by the seller that the products being sold will perform as promised, and if they don't, offer the buyer some genuine relief. By offering this "Limited Warranty," the seller can usually contractually limit its legal obligations to the buyer in the event the product, for whatever reason, does not perform as promised. If no Limited Warranty is given by the seller and the recoverable damages are not contractually limited, then the warranties imposed by the Uniform Commercial Code (the "UCC") will apply to your sale. Keep in mind, the UCC warranties often provide greater rights and remedies to a buyer than your limited warranty will. Since the UCC is the law in all fifty states of the United States, a seller must expect that its sales will be controlled by the UCC. In order to exclude the warranties granted by the UCC and limit the damages the UCC allows a successful plaintiff-buyer to recover, the seller's Limited Warranty and the limitation on damagesmust be in writing, and must be printed in a conspicuous manner on the documents that are provided to the buyer in connection with the sale. The manner in which your Limited Warranty is worded, printed and distributed is so critical to its effectiveness that sellers are strongly urged to consult an attorney regarding the publication of their Limited Warranty in all forms (including catalogs, brochures, and website postings) to make sure it complies with the requirements of the UCC.

III. How Can A Seller Make Sure His Standard Terms and Conditions Are An Enforceable Part of Every Sale?

Okay, so you've created a solid Standard Terms and Conditions of Sale, which contains an effective Limited Warranty and an effective limitation on damages. Unfortunately, your company does not typically use a single, integrated contract to document your sales. What's the best way to make sure you win any battle of the forms which might someday arise? The most effective way to win the battle of the forms is to create a Standard Set of Documents that, when timely transmitted to the buyer, binds the buyer to your Standard Terms and Conditions of Sale.

Sellers often use the following documents to make sure their Terms and Conditions are a controlling part of the agreement:

  1. The Quotation;
  2. The Sales Acknowledgment; and
  3. The Invoice.

Each of these documents relates to a specific step in the transaction.

  1. The Quotation – The Quotation is proposal for sale by the seller to the buyer that expresses certain terms and conditions (i.e. quantity, price, delivery, specifications, etc.) and product warranties. The Quotation generally invites the buyer to issue a Purchase Order to the seller. The Quotation is an ideal place to include your Standard Terms and Conditions since buyers often make specific reference to the Quotation Number in their purchase order and by making reference to the quote, may make its contents part of the Purchase Order.
  2. The Sales Acknowledgment (Acceptance)-- The Sales Acknowledgment operates as the seller's acceptance of the purchase order, and sets forth additional terms, as necessary, to ensure all of the seller's terms of sale are communicated to the buyer. It is recommended that you develop a practice of having the buyer sign the Sales Acknowledgment as a condition to shipping product, so that the last form signed by the buyer contains your Standard Terms. If this can't be done, then the Seller should make certain, as a matter of standard practice, that the Sales-Acknowledgment is transmitted to the buyer before the goods are delivered.
  3. The Invoice - The Invoice is the bill issued to the buyer for the product. The Terms and Conditions of Sale should be referenced on the Invoice, with an instruction as to where they can be found. Generally, including the Terms and Conditions of Sale only on the invoice will not be sufficient to make them part of the sale. But there are other reasons to include the terms on the invoice, which your attorney can explain in greater depth.

In the past, a seller's standard terms and conditions of sale were typically found on the reverse side of the seller's documents. With the advent of e-mail, the reverse side of forms has disappeared. Instead, a seller must make an affirmative step to ensure their buyers are put on notice that they have Standard Terms and Conditions of Sale, and they are restricting their sale to those terms – that any other terms are expressly excluded by the seller. To accomplish this, sellers must look for every opportunity to "publish" their terms and conditions, by including them in catalogs and websites, and making reference to them in brochures. Moreover, we recommend stating on the front page of each of the seller's forms (i.e. the Quotation, the Sales Acknowledgment, the Invoice, etc.), that all sales are "Subject to the Seller's Standard Terms and Conditions and Limited Warranty, which Can be Found at Seller's Website and are Available Upon Request. Said Terms and Conditions are Specifically Incorporated Herein and Seller expressly excludes and disclaims any proposed terms that Contradict or make ambiguous the Seller's Terms."

IV. Conclusion

If your company wants to be profitable in the 21st century, you will have to take charge of each sale, and this means controlling the sales agreement. You begin with the creation of effective Standard Terms and Conditions of Sale, includinga standard Limited Warranty, and limitation on damages. To insure your Standard Terms and Conditions of Sale governthetransaction, "best practices" dictates you must have the buyer sign a document which acknowledges that your standard terms (and no other) control the sale. Ideally, your terms will be contained in a single, complete sales agreement signed by both the seller and the buyer. If this can't be done, you should have your buyer sign a document which contains your Standard Terms and Conditions of Sale (such as a signed Sales Acknowledgment). If even this can't be accomplished, then you will have to anticipate a battle of the forms in the event a legal dispute arises. At a minimum, win the battle of the forms by having your Standard Terms and Conditions of Sale referenced (and included) in all the promotional materials you distribute to customers, in all your forms, and don't forget to publish them on a link to your website.