Important Notice by wuyunyi


									Important Notice

The suggested terms contained here are for guidance only and are no substitute
for proper legal advice in relation to terms and conditions with specific reference to
each Credit Manager‟s industry sector.

Credit Managers should not rely on these suggested terms solely and they should
Consult a solicitor
Suggested Standard Terms and Conditions of Sale – Legal terms, which Credit
Managers should consider putting in place when entering into contracts for


The objective of these notes is to explain the rationale behind having a trade
contract with customers and to give some examples of standard clauses, which
can be found in contracts for Goods/Services. In some cases both Goods and
Services may be supplied, an example being the installation of a central
heating/air conditioning system..

The main reason behind having a set of terms and conditions of sale in place,
is to ensure that the party whom it is sought to bind (usually the customer)
knows that there is a set of standard terms which the other party (usually the
seller) intends to rely on as part of the contract between the parties. These
terms are normally contained in the Standard Terms and Conditions of Sale. In
effect, Standard terms and conditions of sale are used to amplify or qualify the
law as laid down in the Sales of Goods Act 1893 as amended by the Sale and
Supply of Goods and Supply of Services Act 1980.

It is good practice when extending credit to ensure that certain clauses are in
Place in the contract with your customer. If your customer enters into the
contract on this basis then s/he will be bound by the terms. Specialist legal
advice should be sought in relation to Consumer Protection Legislation.

Under the Sale of Goods Acts, a seller may have certain remedies against the
goods such as a Lien, Stoppage in transit and Power of resale. However a more

Reliable route for a Credit Manager to achieve payment is a well-drafted set of
terms and conditions of sale.

Where such terms are to be set out

Contractual terms and conditions are usually printed on the back of quotations,
Order forms, forms of acceptance and invoices. It is in the seller‟s best interest
to give these terms and conditions to the customer prior to confirming the
contract and to get the customer to acknowledge these in some way.

How you as a Credit Manager
can use these clauses

This note, covers some of the more common clauses found in trade contracts.
You should however note, that the list contained in this article is not
exhaustive and that in practice these clauses are often customised through a
series of company/customer negotiations. In many cases, industry specific
clauses are in place focusing on dealing for example with intellectual property,
Food processing, Healthcare etc.

The clauses referred to in this note are general clauses, often called “Boilerplate
Clauses” by Lawyers and are not necessarily industry specific.

The terms and conditions contained in this note should not be used without
taking legal advice as to their suitability for use in the particular type of
business/service carried out by you.

Standard Sample Trade Clauses

   1.      General terms and conditions of sale

The objective of these “General terms and conditions of sale clause” is that of
setting out the basic „nut and bolt‟ type provisions under which the trading
relationship will operate. If a creditor breaches the contract then the seller can
take steps to enforce the provision of the contract.

Examples of the types of clauses found in the general terms and conditions
section might include the following.

Basis of the sale

“The Seller shall sell and the Buyer shall purchase the Goods/Services in
accordance with any written quotation of the Seller, which is accepted by
the Buyer, or any written order of the Buyer which is accepted by the Seller,
and these conditions shall govern the Contract between the parties.

No variation of these Conditions shall be binding unless agreed in writing
between the authorised representatives of the Buyer and Seller”

Orders and specifications

“No order submitted by the Buyer shall be deemed to be accepted by the
seller unless and until it is confirmed in writing by the Seller’s authorized

The quantity, quality and description of and any specification for the
Goods/Services shall be those set out in the Seller’s quotation (if accepted
by the Buyer) or the Buyer’s order (if accepted by the Seller)”.

The following clause might protect a seller who inadvertently breaches the
Intellectual property rights, patent rights or other rights of a third party by
merely following the buyer‟s instructions.

“If the Goods are to be manufactured, or any process is to be applied to the
Goods by the Seller in accordance with a specification submitted by the
Buyer, the Buyer shall indemnify the Seller against all loss, damages, costs
and expenses awarded against or incurred by the Seller in connection with
or paid or agreed to be paid by the Seller in settlement of any claim for
Infringement of any patent, copyright, design, trade mark or other industrial
or intellectual property rights of any person which results from the
Seller’s use of the Buyer’s specification”.

Price of the Goods/Services

“The price of the Goods/Services shall be the Seller’s quoted price or, where no
price has been quoted (or a quoted price is no longer valid), the price listed in
the Seller’s published price list current at the date of acceptance of the order.
The Seller reserves the right, by giving notice to the Buyer at any time before
delivery to increase the price of the Goods/Services to reflect any reasonable
increase in the cost to the Seller which is due to any factor beyond the
reasonable control of the Seller”.

Terms of payment

“The prices to be paid for the products by Buyer to Seller shall be the prices set
out in the Schedule to the Contract. The Seller shall be entitled from time to
time to vary the prices contained in the Schedule provided always that in the
event of any change, the Seller shall give Buyer sixty (60) days notice in

Writing thereof and such variation shall take effect immediately upon the
date specified in the said notice from Seller to Buyer but shall not apply to
orders placed prior to the date specified in the said notice”

All prices in the Schedule are exclusive of V.A.T. (valued added tax) and other
local taxes which shall be added to the price(s) by Seller at the time of

(The Seller may from time to time issue a recommended retail price in
relation to each of the Products for the sale of the Products. For the
avoidance of doubt, any such recommended retail price is by way of
recommendation only and is not binding upon Buyer who shall be free to set
its own re-sale prices).

Seller shall invoice Buyer for the Products in [ ] currency.

Payment for the Products by Buyer shall at all times be paid in full without
deduction of bank charges and shall become due and payable within sixty
(60) days from the date of the applicable invoice.

If the payment of any sum hereunder becomes overdue, interest shall accrue
on the unpaid principal amount of such delayed payment from the date upon
which it becomes due at a rate of [x%] whichever is the greater, and in relation
to the Buyer’s obligations under this Clause, time shall be of the essence.


“Where the Goods/Services are to be delivered in installments, each delivery
shall constitute a separate contract and failure by the Seller to deliver any
one or more of the installments in accordance with these Terms and
Conditions or any claim by the Buyer in respect of any one or more
Installments shall not entitle the Buyer to treat the Contract as a whole
as repudiated”


Warranties are statements of facts about the goods/services supplied. Any
untruth constitutes a breach of contract entitling the aggrieved party to
contractual remedies. An example of the kind of wording found in warranties
Might include:

“The Seller warrants and represents that

    (a) It has full authority (including all necessary licences and permissions) to
        enter into and perform this Contract;

    (b) This Contract is executed by a duly authorised representative provided that
        The signatory is a director of the Seller.


“The Buyer shall take out and at all times during the continuation of this
Contract maintain at its own cost, insurance that a prudent distributor
would maintain, including insurance in relation to product liability, public
liability and employers liability with a reputable insurance company against
liability for which Buyer may be responsible under this Contract and to a
level which a prudent distributor in the territory would maintain and upon
request shall produce to Seller the policy of such insurance and receipt for
the premium payable thereon.”


“Any claim by the Buyer which is based on any defect in the quality or
condition of the Goods/Service or their failure to correspond with
specification shall (whether or not delivery is refused by the Buyer) be
notified to the Seller within 7 days from the date of delivery or (where the
defect or failure was not apparent on reasonable inspection) within a
reasonable time after discovery of the defect or failure. If delivery is not

refused and the Buyer does not notify the Seller accordingly, the Buyer shall
not be entitled to reject the Goods and the Seller shall have no liability for
such defect or failure, and the Buyer shall be bound to pay the price as if the
Goods had been delivered in accordance with the Contract”.

Product Recall

“The Seller shall have the right, exercisable at its sole and absolute discretion,
to initiate and direct the content and scope of a recall, market withdrawal,
stock recovery, product correction and/or advisory safety warning (any one
or more referred to as a “Recall Action”) regarding the Products, or at the
Seller’s option, the Seller can direct the Buyer to, and upon such direction,
the Buyer shall conduct such a Recall Action; provided, however, that if the
Buyer fails to initiate and direct such Recall Action following the Seller’s
request the Seller may initiate a direct Recall Action. The Seller shall
determine, in its sole and absolute discretion, the manner, text and timing of
any publicity to be given in such matters.

In the event that the Seller fails to initiate a Recall Action, the Buyer shall
have the right, exercisable at its sole and absolute discretion to do so. In the
event that a Recall Action is initiated or directed by the Buyer the Seller
agrees to fully co-operate and take all such steps as are reasonably
requested to implement the Recall Action in a timely and complete manner.”

Product Withdrawal

“Seller shall be at liberty, on giving two months written notice to the effect to
Buyer, to withdraw any Product or Products from the scope of this Contract
by removing the same from the Schedule hereto.

If any Product is withdrawn from sale in the territory for any reason, Seller
Shall be entitled to withdraw such Product from the scope of this Contract by
giving immediate written notice”.

    2.     Arbitration Clause

In the event that there is a dispute between the parties to the trade contract
then it may be useful to have an arbitration clause so that both parties can
avail of arbitration before taking a more formal legal route. The traditional
advantages to arbitration were that it was quicker, cheaper and private. With
the recently streamlined Irish Courts System the advantages to arbitration are
no longer so pronounced.

“All disputes between the parties arising out of or in any way relating to this
Contract shall in the first instance be referred by either party to its chief
executive for the time being with a view to the dispute being resolved by
discussion between the respective chief executives.

If the procedure referred to in the paragraph above does not achieve a
resolution of the dispute, the same may be referred either party to
arbitration under the Rules of the International Chamber of Commerce, by
one Arbitrator appointed in accordance with the said rules. Neither party
hereto shall institute an arbitration proceeding hereunder unless, at least
sixty days prior thereto, such party shall have furnished to the other written
notice of its intention to do so.

The place of arbitration shall be Dublin, Ireland. The language of arbitration
shall be English.

The arbitrator shall be entitled to appoint one or more advisors or experts on
any matter (including law) to assist him/her in the arbitration.

Each party shall equally pay the fees and expenses of the arbitrator and all
other expenses as the arbitrator may decide. Judgment upon the arbitrator’s
award may be entered in any court having competent jurisdiction. The
parties agree that the decision of the arbitrator shall be final and binding on
the parties.”

   3.      Jurisdiction and Governing Law

The purpose of this clause is that both parties accept that the contract between
them falls into a particular legal jurisdiction. If there are any disputes about the
contract then the legal jurisdiction is clear.

“All disputes between the parties arising out of or in any way relating to this
Contract of any other disputes between the parties in any way connected
with the subject matter of this Contract shall be governed by the law of
Ireland. The parties hereby irrevocably submit to the exclusive jurisdiction of
the courts of Ireland.

Nothing contained in this clause or the arbitration clause shall limit the right
of the parties to seek provisional or protective relief from any court having
competent jurisdiction pending the outcome of arbitration in accordance
with this Contract”

     4.    General Liability clause

This clause has as its aim the reduction in the liability of both parties in respect
of losses which may be difficult to quantify.

“under Irish Law two types of loss are provided for;

“normal” or “direct” liability and “consequential” or “indirect” loss. Direct loss
includes the loss resulting from a direct consequence of a particular action,
for example, the market value of services that the Buyer should have
received under the Contract. By contrast, indirect or consequential loss
refers to losses put as a loss of profits and further hard suffered as a result
of breach of contract. For example, sale of a computer disc with a virus that
corrupts data or programmes of the Purchaser. However, what is direct,
indirect or consequential loss have given rise to some confusion and it is
accordingly appropriate to specify the type of damage to avoid difficulties. It
is general practice under Irish Law to limit the liability for normal loss and to
exclude any liability for consequential loss in commercial agreements.”

Limitation of Liability for Consequential Loss

“In no event shall Seller be liable for special, incidental, indirect punitive or
Consequential damages, (including but not limited to late delivery, lost
production, lost data) and including but not limited to whether occasioned
by the act, breach, omission, default or negligence of Seller, its employees,
contractors and subcontractors and shall include without limitation, loss of Business,
revenue or profits, loss of use of data, loss of saving or anticipated
savings, loss of investment, loss of reputation, economic loss, loss of goodwill
or cost of capital or of extra administrative costs whether or not foreseeable,
arising out or in connection with this Contract, whether in an action based
on contract, equity or tort including negligence or other legal theory”.

Indemnity for direct loss

“Buyer shall indemnify and keep indemnified the Seller (together with its
officers, servants and agents against any and all liability, claims, causes of
action, suits, damages and expenses (including legal fees and expenses),
which any of them suffers, whether direct loss as a result of any breach of
this Contract by the Buyer, its servants, agents or employees or, becomes
compelled to pay by reason of any acts whether of omission or commission
of Buyer or any of its servants, agents or employees in connection with
Buyer‟s performance of this Contract, in connection with the storage,
distribution promotion and sale of the Products by or on behalf of Buyer or
otherwise in connection with the Buyer‟s business, including without
limitation, any defect in the Products and any product liability claims related
to or arising from the Products.”

     5.    Force Majeure clause

Force Majeure covers situations occurring which are beyond the „reasonable
control‟ of the party. Force Majeure includes the inability to supply or procure
the goods or services contracted for due to events beyond the control of the
party, such as industrial action, fires, floods, or other events.

If either party is affected by Force Majeure it shall promptly notify the other
party of the nature and extent of the circumstances in question.

“The Seller shall not be liable to the Buyer or be deemed to be in breach of the
Contract by reason of any delay in performing, or any failure to perform, any
of the Seller’s obligations in relation to the Goods/Services, if the delay or
failure was due to any cause beyond the Seller’s reasonable control. Without
prejudice to the generality of the foregoing, the following shall be regarded
as causes beyond the Seller’s reasonable control:

     -     Act of God, explosion, flood, tempest, fire or accident, machinery
     -     (Add to list as appropriate)”

   6.      Retention of title
           (sometimes called Reservation of title)

This clause permits the seller to delay the passing of title under the contract
even though delivery has taken place. The delay/cessation of the passage of
title applies until a specific condition (i.e. payment for the goods has been
fulfilled). These clauses are most useful where you can easily identify the
property of a seller such as unique capital/equipment/software, which might
bear a unique reference number. When the property is mixed with other goods,
for example in manufacturing process, it is more difficult to enforce a
retention of title clause.

The inclusion of a retention of title clause in a contract provides the seller of
Goods with a means of protecting their interest where the Goods/Services have
not been paid for. Alternately, it can be used where the seller wishes to recoup
their debt, or the proceeds of a resale of the goods or in the event of a buyer
becoming insolvent.

        “Title to [can be any Goods/Services – in this example we refer to equipment]
        shall not pass to the Buyer but shall be retained by the Seller until the
        contract price has been paid to the seller in full by the Buyer. Until such time
        as title in equipment has passed to the Buyer then:

   1.      The seller shall have absolute authority to retake, sell or otherwise deal with
           or dispose of all any part of the equipment in which the title remains vested
           in the seller.

   2.      For the purpose specified in (1) above the seller or any of its agents or
           Authorised representatives shall be entitled any time and without notice
           To enter upon the premises in which the equipment or any part thereof is
           Installed or kept or is reasonably believed to be.

   3       The seller shall be entitled to seek a court injunction to prevent the Buyer
           From selling, transferring or otherwise disposing of the equipment

     4   The buyer shall store or otherwise denote the equipment in respect of which
         property remains the title of the seller in such a way that the same can be
         recognised as the property of the seller.

          Notwithstanding the clauses outlined above, risk in the equipment shall pass
          on delivery to the Buyer and until such time as title in equipment has passed
          to the Buyer, the Buyer shall insure the equipment to its replacement value
          [naming the Seller as the loss payee][noting the sellers name in the relevant
         insurance policy] and the Buyer shall on request, provide the Seller with a
         certificate or other evidence of such insurance.”

   7.      Penalty clauses and liquidated damages

Some terms of trade contain a clause, which may be a genuine pre-estimate of
the loss that will be caused to one party if the other party breaks the contract.
In this case the clause is regarded as providing for liquidated damages. The vital
element here is that the amount set out in the clause must constitute the
amount, no more and no less, which the party suing the other side is entitled
to recover in the event of a breach. Clauses providing for such liquidated
damages are lawful and binding on the parties provided they are a genuine pre-
estimate of loss.

        “If the Buyer/Seller shall fail to [insert the reason as to why the penalty
        clause is applicable] then the Seller/Buyer shall pay by way of liquidated
        damages the sum of € [ ] subject to a maximum of € [ ].”

Caution must be exercised where a clause may be interpreted as a deterrent or
a threat against one party from breaking the contract. In these circumstances
the clause will provide that a breach will result in the payment of a fixed
amount that exceeds the actual amount of the damage that results from the
breach. A clause of this type may be deemed a penalty clause and will not be
enforceable in the courts.

8      Excluding Implied conditions

It is recognised that there are certain implied terms in respect of the sale of
goods and services. The Sale of Goods and Supply of Services Act 1980 implies
a warranty into every contract of the sale of goods that they will be fit for the
purpose for which they are supplied and will be of merchantable quality.

Merchantable quality means they should be “as fit for the purpose or purposes
which goods of that kind are commonly bought and as durable as it is
reasonable to expect having regard to any description applied to them, the
price (if relevant) and all other relevant circumstances”. Therefore even where
the contract appears to exclude the implied warranties of merchantable
fitness for purpose, such exclusion may no be upheld by court.

Regarding services, the 1980 Act provides that in every contract for the supply
of services it is implied that:

(a) The supplier has the necessary skills to render the service;

(b) That he will supply the service with due skill, care and diligence

(c) That where materials are used that they will be sound and reasonably fit for
    the purpose for which they are required; and

(c) Where goods are supplied, they will be of merchantable quality

It should be noted in relation to consumer purchasers that a radical form of
protection has been introduced by the EC Directive on unfair terms in consumer
contracts. The directive has two main principles:

1) Unfair terms in contracts for the supply of goods or services, which have
   not been individually negotiated with the consumer, will not be binding on
   the consumer

2) Written terms of contracts with consumers must be drafted in plain,
   intelligible language

A clause seeking to exclude these implied conditions contained in the
legislation might read as follows:

   “Save as otherwise expressly set out in this Contract, all other warranties,
   terms and conditions, statutory or otherwise, and in particular the
   contractual rights set out in Sections 12, 13, 14 and 15 of the Sale of Goods
   Act, 1893 as amended by the Sales of Good and Supply of Services Act, 1980 are
   hereby expressly waived by both parties to the fullest extent permitted by

9      Intellectual property rights

It is often the case that a customer in the course of doing business will need
to have access to intellectual property such as computer software, project
management methods etc. In order to protect the value of such intellectual
Property it is prudent to put in place an Intellectual Property clause to protect
the owner of this intellectual property.

Intellectual Property (IP) Indemnity:

Seller hereby warrants that the IP is the property of Seller and that the sale
of IP does not, to the knowledge of Seller at the time of entering into this
Contract, infringe any trade marks, brand names, copyright, trade secrets,
patents, designs, devices, logos and other intellectual property rights of any
third party.

The Buyer recognizes and acknowledges that the IP shall at all times vest in
Seller and the Buyer shall take all steps as is necessary to ensure that they
shall so vest in and remain vested in the Seller.

The Buyer shall immediately notify the Seller of any suspected, potential,
actual or threatened infringements or passing off or unfair competition or
other unauthorised use of the IP or any words or marks similar thereto which
come to its attention or any attempts to challenge the Buyer’s right to
distribute the Products in the Territory or to use the Seller’s trade marks so
long as this Contract shall exist.

The Seller shall upon receiving such notice take such action as, following.
consultation with the Buyer, it considers appropriate. Buyer agrees to
provide such co-operation in the prosecution of any such action as is
required by the Seller including the provision of evidence and being named
as a party to any legal proceedings.

The Buyer shall not alter or remove or interfere with any IP or other markings
or other indications of the source of origin of the Products which may be
placed on the Products by the Seller and will not use any name or mark or
get-up similar to or capable of being confused with any trade mark or name
or IP of the Seller except with the prior written approval of the Seller.

Nothing in this Contract shall give the Buyer any rights in respect of any IP
used by the Buyer in relation to the Products or of any goodwill associated
therewith and, the Buyer hereby acknowledges that it shall not acquire any
rights in respect thereof and that all such rights and goodwill are, and shall
remain, vested in the Seller.

10. Termination

The following clause aims to allow the parties to terminate the contract where
it has been materially breached or where one of the parties becomes insolvent.

“Either party (the “terminating party”) may immediately by notice in writing
to (the “defaulting party”), but without prejudice to any other rights or
remedies of the terminating party in respect of any matter or event which
shall have arisen or taken place prior to such notice, terminate this Contract.

If any material representation or warranty made by the defaulting party
herein or in any report, statement, certificate or other instrument delivered
under or pursuant to this Contract or any of the Contracts or in connection
with any provision of any such, shall prove to have been false or breached
in any material respect on the date as of which made.

By reason of a material breach, default, non-performance or non-
observance by the defaulting party of any other provisions, terms or
obligations herein and on the defaulting party’s part to be performed and
observed, which the terminating party has required the defaulting party by
notice in writing to remedy (such notice specifying the relevant terms,
provision, or obligations and stating the intention of the terminating party
to terminate this Contract pursuant to this clause) and the defaulting party
has not within thirty (30) days of such notice remedied (whether such breach
is capable of remedy or not).

If the defaulting party becomes insolvent, unable to pay its debts as they fall
due within the meaning of section 214 of the Companies Act, 1963 or makes
any arrangement or composition with its creditors or passes a resolution or
if any Court shall make an Order that the defaulting party shall be wound up
(save and excepting only a member’s winding up for the purposes of
reconstruction or amalgamation which the other party has approved in

writing prior to such) or if an Examiner, Receiver or a Manager is appointed
over the whole or any part of its assets, or if circumstances shall arise which
entitle a Court or a creditor to appoint a Receiver or Manager or to make a
winding up Order or the defaulting party suffers or undergoes any analogous
process to the above.

It is expressly agreed that either party will not be liable to pay any
compensation to the other party for loss of profits or loss of goodwill or
otherwise arising out of termination of the Contract in accordance with the
terms of this termination clause”.


Obviously, the above clauses are merely illustrative examples and should not be
included in any contract without taking prior legal advice. Every contract is
different and each clause of each contract should reflect the understanding of
the parties. These notes merely aim to highlight and explain some of the more
common clauses one sees in commercial contracts.


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