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If an incorporation by reference of external terms is not clear and unmistakable, a court might hold that the external terms are not part of the contract. The Oklahoma supreme court ruled that a form contract for the sale of hardwood flooring, which referenced "Terms of Sale" but gave no indication where to find them, did not incorporate the external terms. The court held that:

[A] contract must make clear reference to the extrinsic document to be incorporated, describe it in such terms that its identity and location may be ascertained beyond doubt, and the parties to the agreement had knowledge of and assented to the incorporated provisions.

Walker v. BuildDirect.com Technologies, Inc., 2015 OK 30 (2015) (on certification from 10th Cir.).

In that case, a Canadian hardwood flooring company emailed a sales quotation form to an Oklahoma couple that had requested it. The problem, though, was this:

  • One of the bullet points in the sales quotation form stated, in its entirety, that “All orders are subject to BuildDirect's ‘Terms of Sale.'”
  • The sales quotation form didn't include the referenced terms of sale as an attachment, nor did it indicate where the terms of sale could be found.

The Oklahoma couple had, though, previously looked at the flooring company's Web site, where the bottom of every page included a link to the terms of sale.

The couple bought and installed $8,500 worth of hardwood flooring — and then later discovered that their house had been infested with wood-boring insects, which they believed had gotten into the house from the flooring. They sued the flooring company for damages.

The flooring company moved to compel arbitration, citing a clause in the referenced terms of sale. A federal appeals court certified the following question to the Supreme Court of Oklahoma; that court ruled that the sales quotation form did not adequately incorporate the external Terms of Sale by reference. The court said:

If BuildDirect intended to make the online "Terms of Sale" part of the parties' agreement, BuildDirect could easily have accomplished that purpose by drafting the Contract employing words of express incorporation or clearly referencing, identifying and directing the Walkers to the document to be incorporated. In this Court's view, BuildDirect's reliance upon incorporation by reference must, as a matter of law, fail.

Indeed, the Contract as presented gives every appearance of being a complete agreement-capturing the price, payment method, delivery and sales terms expressly enumerated in the Contract. No reasonable prudent person, under the particular facts of this case, would have notice to think otherwise.

Therefore, BuildDirect's attempt at incorporation was nothing more than a vague allusion.

Id. at ¶ 15.

Drafting tip: At the very least, provide a Web link — preferably a short, memorable one — where the additional incorporated terms can be found.

For the love of God, will everyone please STOP with the use of they as a gender-neutral singular pronoun. History shows us that there's a better way: Decades ago, feminists coined the term Ms.; that neologism has all but completely replaced the old-fashioned Miss and Mrs. Those concerned with gender neutrality should do likewise, instead of inflicting ambiguity on the rest of us by (mis)using they.

In an English case, a Hong Kong freight forwarder used its standard bill-of-lading form in accepting cargo for shipment from China to Venezuela. The form provided in part that "[t]his Bill of Lading and any claim or dispute arising hereunder shall be subject to English law and the jurisdiction of the English High Court of Justice in London." The UK Court of Appeal, after reviewing case law concerning similar language, held that the bill of lading's wording conferred exclusive jurisdiction on the English courts. Hin-Pro International Logistics Limited v Compania Sud Americana De Vapores S.A. [2015] EWCA Civ 401 ¶¶ 4, 61-78.

(Hat tip: Mark Anderson, who in his write-up makes additional observations about the case.)

In my contract-drafting class, we've been discussing employment agreements, studying (among others) those of Martha Stewart and Facebook's Sheryl Sandberg. I've long thought that "politically" it'd be advantageous for executives to sign their companies' standard employment-agreement forms,* along with an addendum to cover executive-specific issues such as severance and the like. That way, the HR department could legitimately tell employees, "everybody signs this — even the executives sign it, along with an addendum with a few extra provisions arising from their positions."

* This presupposes that all employees sign employment agreements. In the tech world that's a fairly-common practice, mainly to nail down the employer's ownership of IP rights, and secondarily to confirm employment-at-will.

You get what you inspect, not what you expect

In working on the Common Draft audit-rights clause, I found a citation for a saying I learned in the nuclear Navy: You get what you inspect, not what you expect.

The source of the citation is certainly authoritative: Admiral Jonathan Greenert, the current Chief of Naval Operations — that is, the top officer in the U.S. Navy* — who came up as a nuclear submariner.

* Unless the Chairman of the Joint Chiefs of Staff is also a Navy officer

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