The importance of proper Terms of Trade for your business
DOES YOUR BUSINESS EVEN HAVE ANY TERMS OF TRADE? IF SO, ARE THEY ADEQUATE (AND UP TO DATE)?
We all sell goods and services, but do we ever really stop and think about what it takes to have a valid contract? There are 4 essentials at law, namely:
- Offer – what is being sold
- Consideration – the price
- Intention to legal consequences – this is presumed at law
- Acceptance – agreement to purchase
Even buying a bottle of water for $1 is entering into a contract. We know what is on offer, we know the cost, we know that once we pay the price, ownership changes hands and it is accepted by paying the price.
Certain things cannot be sold without a written and signed contract in a very specific format that contains certain prescribed documents and words – such as a contract for the sale of land. Most things however don’t need that sort of detailed documentation to form a legally effective and binding contract
Most T&Cs are terribly inadequate. Often they are just copied and pasted from other documents and not tailored, leaving businesses thinking they are adequately protected when they really are not.
Most businesses that have Terms of Trade have terribly inadequate ones and often, the terms don’t form part of the deal at all as they are notified too late – for example where they are printed on the back of a receipt after the deal is concluded. The Terms need to be agreed before the deal is done.
WHAT SHOULD BE IN YOUR TERMS OF TRADE?
Here is a some of the things that should at least be considered for Terms:
- Parties names and details – Use proper names (a business name is not a legal entity). Who is the buyer/seller?
- Quotes/estimates – Is it fixed price or based on hourly rates or quantities?
- How is the offer accepted – Payment, signature, purchase order, ticking a box to acknowledge the terms and then clicking ‘submit’ for online businesses
- Exclusivity – Is there any obligation not to deal with or sell to others?
- Term – Is there a fixed term for the arrangement or is it ongoing?
- Renewal – How can it be renewed and for what term?
- Obligations – What other obligations (if any) do the parties have to each other?
- Title – When does ownership to the goods actually pass?
- Risk – Who is responsible for the goods whilst in transit?
- Insurance – Who is to take it out? For what amount? To cover what risks?
- Payment – How much? When is it due? How is it to be paid?
- Interest – What is the consequence for paying late? What about liquidated damages?
- Security – What security (if any) is provided to secure late/non-payment? Charge, Mortgage, PPSR Security Interest? Is a director to guarantee a company’s obligations?
- Termination – On what basis? On what notice?
- Notices – How are they given and what period of notice is required?
- Obligations on termination – Return of goods, payment in full of all amounts due etc
- Limitation of liability – To what extent is it limited? What liability can’t be excluded?
- Releases and indemnities – What things may be covered by a release and what events is one party entirely responsible for?
- Privacy – How is private information to be dealt with? Can you use their details to market other goods to them?
- Warranties – What promises have been made about the product?
- Entire agreement – is this agreement intended to cover the field regarding the parties’ dealings? Or are there numerous contracts that operate on other terms?
- Force majeure – What happens if the parties can’t comply through no fault of their own, like a strike, accident or inclement weather?
- Dispute resolution – What do the parties need to do to resolve a dispute? Mediate? Get an expert? Can they go to court without doing this?
- Jurisdiction and governing law – which law applies and which court will hear any dispute? Really important for online trading!
- Delegation – Can a party delegate their role to a third party? How? Do they need approval?
- Assignment – Can a party assign the benefit of the contract to someone else?
- Confidentiality – Are the terms of the deal to be kept secret? Are staff also to be restrained?
- Intellectual property – Who owns the IP? How is it to be used/returned?
If you buy, hire, sell or on-sell goods or services, whether through a shopfront or on-line (or you have a client that does so), please consider whether they actually even have any Terms and Conditions of Trade or if they do, whether they are adequate.
If they do have T&Cs, it may be that they simply copied and pasted various parts from other documents and websites they had seen. This can often lead to them mistakenly thinking they are adequately protected when they actually are not.
They may need to be updated to reflect recent changes in the law such as the Australian Consumer Law and the Personal Property Securities Act (or if they refer to legislation that doesn’t even exist anymore! (Such as the old Corporations Law and the Trade Practices Act).
Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to starting or buying a business, drafting business documents or any other commercial law matter, contact Craig Pryor on (02) 9521 2455 or email firstname.lastname@example.org.