Binding nature of Additional Terms

ARE ADDITIONAL TERMS IN A SUPPLIER'S INVOICES
PART OF THE AGREEMENT?

By: Robert S. Tanner, Esq.

Your Construction Law FirmTM

Detailed agreements often are not reached in the sales of goods. Frequently, such sales consist only of submitting a purchase order, receiving the goods, receiving an invoice, and then payment. So, when a dispute concerning the goods arises, a question may also arise as to exactly what the terms of the parties' agreement were.

In Premix Marbletite Mfg. Corp. v. SKW Chemicals, Inc., 145 F. Supp. 2d 1348 (S.D. Fla. 2001), SKW Chemicals, Inc. ("Seller") sold a chemical compound to Premix Marbeletite Mfg. Corp. ("Buyer"). Buyer used the compound to make its Poolcote Marcite, an exterior coating for outdoor pools. Buyer would place an order by telephone. Buyer would issue a written invoice for the order. Buyer's invoices only stated the quantity and price. Seller typically shipped shortly after receiving the telephone order but before receiving Buyer's "invoice". Seller would then issue its own written invoice. Buyer would pay.

At the bottom of Seller's invoices in fine print was the statement that, "This contract is subject to all terms and conditions on the face and reverse side hereof." The reverse side contained a list of terms, among which was "WARRANTIES LIMITATION OF LIABILITY" which (a) expressly warranted that the products were free of defects in workmanship and material at the time of delivery, (b) limited Seller's liability for breach of warranty to replacing, repairing, or reconditioning any defective products, and (c) disclaimed all other warranties.

Buyer sued Seller, alleging that the compound was defective and caused discoloration of the Poolcote, as well as pools that were finished with the product. Buyer asserted a claim for breach of implied warranty and breach of express warranty, among others.

Seller requested summary judgment in its favor (that is, judgment without a trial), arguing that Buyer's warranty claims were clearly controlled by provisions in Seller's invoices, thus eliminating the need for a trial. More specifically, Seller argued that Buyer's warranty claims were either barred or limited by the disclaimer and limitation of liability language on the reverse side of the invoices.

For Seller to succeed on its argument, it had to show that the disclaimer and limitation of liability provisions were part of the parties' agreement.

Transactions in goods are governed by the Uniform Commercial Code ("UCC"). The UCC performs several functions, one of which is to provide a set of rules for determining whether parties have formed a contract and, if so, what its terms are. Where the writings between the parties do not establish a contract, the parties' conduct may demonstrate recognition of a contract. In those circumstances where the existence of a contract is demonstrated through conduct, the UCC states that the terms of the contract are those agreed upon by both parties, plus the "supplementary terms incorporated under any other provisions" of the UCC.

Without analyzing whether the writings between the parties established a contract, the Court determined that the parties' conduct of ordering, delivering, and paying for the goods established a contract. The question became, What were the terms of the contract?

The Court determined that, because Buyer's invoices were silent as to warranties, while Seller's invoices contained the disclaimer and limitation of liability provisions, the parties had not agreed on the Seller's terms. Accordingly, the disclaimer and limitation of liability provisions were not part of the agreement. As a result, the supplementary terms of the UCC concerning warranties became a part of the parties' contract. The UCC contains warranty provisions. Thus, Buyer was allowed to proceed with its warranty claims.

The law of transactions of goods is complex and provides the savvy party with significant opportunities to protect itself. Where a party insists that its terms must prevail, the UCC provides a means for accomplishing that. However, in the Premix case, Seller failed to adhere to the UCC's requirements for that, opting instead to attempt to unilaterally impose its terms upon Buyer. Had Seller complied with the UCC, it may have avoided Buyer's warranty claims.

Giving adequate attention to your procedures and contracts on the front end can reduce or even completely prevent big problems on the back end. For an example where the front-end work paid off, see my article here.