Eric Goldman recently sent me the following inquiry:
A typical vendor’s contract will say something like “Customer shall pay invoiced amounts within 30 days of invoicing.” With some frequency, customers have been marking up this language to read: “Customer shall pay *UNDISPUTED* invoiced amounts within 30 days of invoicing.” From a vendor’s perspective, I think the added language is objectionable in at least three ways. First, there are no explicit standards for the legitimacy of disputes (other than any implied good faith obligation that a court might impose), so the concern is that customers may dispute invoices using weak or illegitimate bases. Second, read literally, disputed amounts *never* become due, at least not without another provision for dispute resolution. Third, and most importantly, we already know that unhappy customers withhold payment for disputed items anyway, but with this language they appear not to be in breach for having done so–in contrast to default rules, where the customer would breach the contract for withholding payments if the vendor actually performed. So it seems to me that the addition of the word “disputed” is something vendors should resist. What do you think? And if vendors should fight back, what are some good arguments to makes, and are there some useful “compromise” language options?
One reason for not adding the word “undisputed” is that the Customer wouldn’t need it. If I promise to perform and you promise to pay for performance, the two promises are simultaneously conditional, and neither of us can maintain suit without first tendering performance. See 8-33 Corbin on Contracts § 33.1. So if a vendor fails to perform, the customer may refuse to pay the invoice, even if the contract doesn’t explicitly say so.
Another reason for not adding the word “undisputed” would be that adding it would cause problems. But I don’t see as problems the three issues you raise. Regarding the first, I don’t think one could reasonably argue that adding “undisputed” would affect the standards for assessing the legitimacy of any dispute. Regarding the second, I don’t think that adding “undisputed” would affect when a disputed amount becomes due. And regarding the third, I don’t think adding “undisputed” would affect whether a customer would be entitled to dispute a given invoice. In sum, adding “undisputed” makes it explicit that a customer might dispute an invoice, but it should have no bearing on how any dispute would be handled.
The only problem I see is that adding “undisputed” leaves unaddressed what happens if an invoice is disputed. Of course, that issue would arise even in the absence of the word “undisputed.” But if adding “undisputed” serves no substantive purpose, in that the customer doesn’t need it, then it could only serve a procedural purpose. That purpose would be subverted if you don’t address what happens if an invoice is disputed.
So I suggest that either you leave out “undisputed” or you add “undisputed” and specify when, if at all, any disputed amount is to be paid—presumably no later than X number of days after the dispute has been resolved in accordance with the dispute resolutions specified in the contract.