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Buyer Beware, Seller Beware

teeter totter

Jim Carr, president and CEO, of Blue Book Services, Inc. taught a course in business ethics at Wheaton College for many years. So, when one day he told me he could teach me everything I needed to know about business ethics in less than thirty seconds, I figured this sounded like a pretty good deal.

What he said was, “Sometimes I have you up on the teeter-totter, where I could slide off and let you fall to ground. And then other times you have me up on the teeter-totter, where you could do the same to me.”

He paused to let this soak in, then said, “That’s it—that’s all you need to know about business ethics.”

Frankly, at the time, I wasn’t sure I’d gotten a whole lot from this course. But this was years ago, and the visual image of two children trusting one another in turns, each dependent on the other to enjoy the teeter-totter, and each having repeated opportunities to drop the other crashing to the ground, has stuck with me.

An Ordinary Sales Confirmation
This image came to mind recently when a claim that depended on fine print inserted into the sales confirmation was filed with Blue Book. In nearly every respect, the sales confirmation was what you would expect: it identified the buyer and seller, it described the commodity (broccoli), the quantity, and the price.

It indicated the date ordered, the date to be shipped, and the delivery term: FOB. It also included, in small print, common boilerplate language about providing timely trouble notices, obtaining government inspections in support of price adjustments, and buyer responsibility for any collection fees incurred by the seller.

In our view, none of this is improper. These terms are commonly found in small print at the bottom of sales confirmation and invoices. A buyer shouldn’t be surprised by any of this language.

Not So Ordinary Fine Print
But sandwiched between these terms, without any highlighting or special formatting whatsoever, was the following language: “Good delivery standards apply excluding hollow stem and damage by hollow stem, bruising and or discoloration and enlarged and open bud clusters on broccoli.”

Now, similar wording excluding bruising and discoloration from bruising, has been added to sales of iceberg lettuce for as long as anybody can remember, and surely a buyer of iceberg lettuce should anticipate the seller including this exclusion in the sales confirmation or elsewhere. But no such expectation has been formed with respect to broccoli.

Trouble at Destination
So what happens when, as happened here, a timely inspection certificate at destination shows the broccoli was affected with 27 percent bruising? Can the seller depend on this language and insist the buyer pay the full invoice price?

The seller did not suggest (let alone support) that the buyer was otherwise informed of this exclusion (e.g., verbally or as a result of prior dealings).

We turn first to Section (1.4) of Blue Book’s Trading Guidelines which provide—
(1.4) As used in these Guidelines, and consistent with UCC Sec. 1-304, “good faith” means honest intentions, fair dealing, and avoidance of practices that may mislead or deceive. Failure to perform a specific act or duty in good faith may be deemed a breach of contract and/or make unavailable a remedial right or power.

Note(s) to Section (1.4):
(i) For example, a purported accord and satisfaction which relies on pre-printed or inconspicuous language on a check made out for less than the full invoice price, may be deemed unenforceable against the payee. Properly done “paid in full” language on a check may settle a disputed (or unliquidated) transaction when deposited. (See UCC Sec. 3-311 for details).

(ii) Similarly, under UCC Sec. 2-302, contract terms deemed “unconscionable” at the time the agreement was entered into may be unenforceable. Unconscionable terms are those that are so “one-sided” as to be “oppressive” and lead to “unfair surprise.” For example, a contract term that allows arbitrary deductions from the seller’s invoice may be deemed unconscionable and therefore unenforceable.

This section of our Guidelines, including the citations to the Uniform Commercial Code, as applied to the facts presented here, suggests that nonstandard material terms communicated with inconspicuous language may be invalid.

In other words, although each case must be considered separately, this type of “gotcha” language in sales agreements, or other documentation that may take on contractual significance, is not necessarily enforceable, even if, arguably, the other party should have read the documentation more closely.

The popular treatise, Uniform Commercial Code by White and Summers (sixth edition) states—
For at least two hundred years equity courts have refused to grant specific enforcement of, or have rescinded, contracts so unconscionable “as no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other.”

And while there are certainly times when agreeing to exclude a specific defect from the good arrival determination is sensible and fair, using inconspicuous language to claim an exclusion without clear agreement is another matter entirely.

White and Summers explain “when a business person is…the victim of fine print, a court may invalidate a clause that otherwise would stand up between ordinary business persons.”

Of course, whether the language in question should be considered “fine print” is a rather subjective determination. The claimant here states it had no intention to deceive, and its paperwork as a whole did seem more sloppy than contrived.

However, as we reviewed the sales confirmation, it appeared to us that, if enforced, the buyer would indeed be victimized by inconspicuous language. And while the claimant could certainly “have its day in court” if it wanted to see the matter adjudicated, for our purposes we did not feel the documentation provided by the claimant supported its position.

Back to the Teeter-Totter
Returning to the teeter-totter, unethical practices set trading partners up and let them fall to the ground with a thud. Here the buyer is likely protected by law in its favor, but sooner or later everyone is vulnerable and dependent on the business ethics of trading partners.

Buyers and sellers beware.


Doug Nelson is Vice President of Trading Assistance for Blue Book Services Inc.