Entrepreneurs must keep the following rule in mind: the general terms and conditions relied on by a party are only effective against the other if the latter has been made aware thereof and has accepted them.
Failing a formal contract entered into between the parties, all business corporations or traders wish their general terms and conditions of sale (GTCS) to govern their relationship with their trading partner. They are however seldom willing to have the continuation of said relationship conditional upon their application and do not necessarily clearly communicate on this issue, for fear of tarnishing said relationship.
It is thus not unusual that each of the parties believes that its general terms and conditions are applicable, which will prove problematic in case of dispute, for instance to determine the conditions for termination, the competent court or the applicable penalties. Hence, the delicate task consists in acting with a view to optimizing the chances of its own GTCS prevailing in case of dispute.
For that purpose, entrepreneurs will need to keep in mind the rule recently introduced into the Civil Code, whereby the general terms and conditions relied on by a party are only effective against the other if the latter has been made aware thereof and has accepted them. In some cases, this double condition is clearly met: for instance, when a quote or a purchase order mentioning the GTCS is sent to the trading partner and such partner signs and returns the document, which shows both its knowledge and acceptance of these conditions. But other cases are more complex, for instance in the absence of express acceptance of the GTCS if they are never signed and returned. One solution is to make sure that the general terms and conditions of sale are restated in other documents which are vital to the order process (pricing, purchase orders, order summary, quote) and to the payment (invoices). If in doubt, courts would tend to consider that a party which has received the GTCS prior to the performance of the service or prior to payment – and which has performed the service or paid the invoice without challenging their application -, has tacitly accepted the said conditions. This is especially true when there is a long-term relationship between the parties and the application of one party’s general terms and conditions of sale has never been challenged.
In any event, an informed professional, if unable to obtain an express acceptance of its general terms and conditions of sale, will need to multiply references to their application in its business documents. These documents will also need to be kept in a safe place, as they may prove useful evidence in case of dispute. In contrast, the party receiving its counterpart’s GTCS and refusing their application is advised to notify this clearly and in writing – again for evidentiary purposes – to its trading partner in order to avoid their tacit acceptance. It may in turn submit its own GTCS to the other party. It should be noted that, in case of discrepancy between the conditions relied on by one party and the other, the judge will consider that the inconsistent provisions are ineffective. In other words, for all subject matters covered by inconsistent provisions, the general terms and conditions of sale shall be void and ordinary law shall be applied.
One can only advise professionals to exercise extra caution when exchanging and signing the business documents in order to prevent any unwanted application of the other party’s GTCS and, especially, to manage to impose their own.
This column is proposed to you by Alexandre Bailly, partner, Xavier Haranger, partner and Laetitia de Pelet, associate, of the law firm Morgan, Lewis & Bockius UK.
Les Echos Executives, the supplement to the daily Les Echos, the most trusted newspaper of the French economic and financial press, made available online on 15 October 2018 this article drafted by Alexandre Bailly, Xavier Haranger and Laetitia de Pelet. The publisher allowed Morgan Lewis to post the entire English translation of the article and the link to the original piece.