It’s normally best for an incorporation by reference of external terms to be clear and unmistakable — something along the lines of, “Document X is incorporated by reference into this Agreement as though fully set forth,” leaving no doubt about what Document X is, and ideally, where the reader can find it.
But that doesn’t always happen — and when it doesn’t, it can lead to problems. Here’s an example:
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:
Does a written consumer contract for the sale of goods incorporate by reference a separate document entitled “Terms of Sale” available on the seller’s website, when the contract states that it is “subject to” the seller’s “`Terms of Sale'” but does not specifically reference the website?
Walker v. BuildDirect.com Technologies, Inc., No. 12-6261 (10th Cir. Aug. 15, 2013). At this writing the Oklahama supreme court has not yet ruled on the question. Update: The Oklahoma supreme court ruled that the purported incorporation by reference was ineffective.
Lessons: If your sales quotation form incorporates other terms by reference:
- It’s best for the form to say explicitly that the other terms “are incorporated by reference into this document”; and
- it should be a no-brainer for the reader to find the other terms, for example by including a link to your Web site. (Consider using a URL shortener such as https://bitly.com/ or Google’s http://goo.gl/. For example, this page’s shortened URL is http://goo.gl/WOFrcn — try it!)
I’m going to be mentioning this case in the contract-drafting book that I’m working on.