If you’re a regular reader of this blog, you might recall that I’ve done two posts about what category of contract language to use to express issuance of invoices. There’s this January 2018 post and this July 2018 post. Well, thanks to my work as an advisor for LegalSifter, which leads me down all sorts of byways, I can add to the list of alternatives.
To spare you revisiting the earlier posts, here were the principal alternatives I was aware of before my recent research:
- Language of obligation: Widgetco shall invoice Acme the following month for Acme purchases under this agreement during a given month. [Drawback: Acme isn’t concerned whether Widgetco issues invoices at all. Instead, Acme just wants Widgetco to issue invoices regularly. Suing Widgetco for breach if Widgetco invoices Acme late or early seems less than ideal.]
- Language of discretion: Widgetco may invoice Acme the following month for Acme purchases under this agreement during a given month. [Drawback: This arguably suggests that Widgetco is also free to issue invoices at other times.]
- Language of limited discretion: Widgetco may invoice Acme only the following month for Acme purchases under this agreement during a given month. [Drawback: This addresses the drawback of language of discretion, but it offers no advantages over language of obligation. The only difference is that it would permit Widgetco not to issue invoices at all, which doesn’t make sense.]
- Language of declaration: Acme acknowledges that Widgetco issues invoices the following month for purchases during a given month. [Drawback: This doesn’t say what happens if Widgetco issues an invoice late.]
- Language of obligation used to express a condition: For a Widgetco invoice for Acme purchases under this agreement to be valid, Widgetco must issue it to Acme during the month after the month Acme made those purchases. [This appears to reflect Acme’s interests.]
Now here are two new entrants:
- Language of discretion: Acme will not be required to pay an invoice for Acme purchases under this agreement that Widgetco issues more than a month after Acme made those purchases.
- Language of policy: Widgetco’s failure to issue an invoice on time will not relieve Acme of its obligation to pay that invoice.
You can find on EDGAR plenty of provisions equivalent to these two.
The first one expresses the same thing as language of obligation used to express a condition (No. 5 in the first set), but more clearly, in that instead of asking the reader to deduce that Acme won’t have to pay an invalid invoice, it cuts to the chase. But presumably a seller wouldn’t be eager to have this in the contract.
The buyer would presumably not be eager to have the second one in the contract. And one wonders how a court would react to the notion that a seller is free to issue late invoices with impunity.
So here’s where I end up on this. A seller issuing late invoices isn’t enough of a problem that it’s worth waving a red flag over at the beginning of the relationship. Address issuance of invoices using language of obligation (No. 1 in the first set). If the seller issues a late invoice and the buyer feels sufficiently aggrieved, it can withhold payment and the parties can fight it out.
But there’s a broader lesson: If you’re not certain what category of contract language to use to address a given issue, consider expressing what the remedy is or isn’t.