The battle of the forms! - Takdata v.Amphenol - You be the Judge (Part B)

by Peter F.M. Jones (Paterson MacDougall LLP)

The terms of a contract are determined by the presumed common intention of the parties. Even if this common intention may be hard to find in the confusion of numerous communications, courts generally weigh all factors to reach a result. But what if there is no common intention? Such as in the case of Takdata v. Amphenol?

Takdata and Amphenol had a long history of doing business together. Each party used commercial documents that had contractual terms in fine print on the reverse side. Their practices set the stage for the battle of the forms!

The fine print on the reverse side of Takdata’s purchase order stated that if the recipient of the purchase order chose to supply the goods, it had agreed to be bound by Takdata’s conditions of sale. Amphenol, presumably on the advice of its legal counsel, adopted a routine of acknowledging purchase orders received from customers. The fine print on the reverse side of this acknowledgement said that Amphenol’s willingness to supply the product was subject to the customer accepting that Amphenol’s fine print conditions applied.

How could any court find a common intention as to whose terms applied in the face of such a blatant contradiction between the two documents?

Nonetheless the trial judge attempted to do this, based upon his analysis of the facts. In this exercise he touched on several circumstances that made it reasonable to apply Takdata’s conditions. The Court of Appeal declined to follow the course, as, in their minds, the facts ought to be interpreted as essentially neutral.

Take, as one example of the trial judge’s factual findings, his treatment of Amphenol’s failure to rely on its fine print as a defence to the claim until afterTakdata had commenced the action. The Court of Appeal judges decided that a party should not be prejudiced in discussions once a dispute had arisen by failing to deploy legal “heavy artillery”*. Otherwise, both sides would be well advised to bring in their legal advisors at the first sign of disagreement, perhaps losing the best opportunity to reach an amicable, business-like settlement of the dispute.

Take another example. The trial judge observed that Amphenol had supplied a certificate of quality, which was a vendor’s obligation under Takdata’s conditions. The Court of Appeal judges considered that when a business relationship is proceeding smoothly, a party is not going to refuse a reasonable request just because it is not also a legal obligation. So this circumstance was also neutral.

The Appeal Court judges declined to resolve the law suit by finding facts favourable to Takdata. But this did not mean that the trial judge was wrong. That had to be decided according to basic legal principles of offer and acceptance.

Applying these well settled principles, the Court of Appeal considered that Amphenol had rejected the offer of Takdata to buy goods on the terms stated in its purchase order. By delivering its acknowledgement Amphenol had made a counter offer: an offer to supply the goods on its terms. By taking possession of the goods when tendered by Amphenol, Takdata had by its silence accepted the counter offer. Accordingly Amphenol’s terms and conditions applied. The appeal was allowed, and Amphenol was exonerated.

So if you voted for Amphenol you were legally correct. If you voted for Takdata you were probably influenced, as the trial judge was, by circumstances the Court of Appeal decided did not displace the legal principles of offer and acceptance.

Forwarders take note! Sometimes a forwarder will agree to extend a line of credit if its customer signs a credit application that includes the conditions that protect the forwarder against the customer’s default. A customer, especially if it is one of the Fortune 500 companies, may reply accepting the line of credit, but stating that it is against company policy to sign any credit agreement. There are ways out of this impasse, but the forwarder has to be careful that in deploying its legal resources to protect its credit risk it does not lose the customer.

*A popular saying of a decade ago: “Lawyers are like nuclear missiles in an underground silo. They are expensive to have and use. They should only be employed as a last resort, when they can be let loose for the damage they can do. “

February 4, 2010