Many businesses rely on a credit application for the terms and conditions of its sales to its customers. Often the credit application is the only document that the customer actually signs. Relying on invoices, purchase orders, bills of lading, delivery tickets and the like that are not signed by the customer in the ordinary course of business will not support an award of attorneys fees in the event of a collection action and judgment. This is true even though these documents may contain a prevailing party attorneys fees clause.  Because the credit application is usually signed by the customer, however, the creditor/seller often successfully relies on the prevailing party attorneys fees clause in the signed credit application for an award of attorneys fees in the event of collection litigation and judgment.

Credit Application Terms Superceded by Dealer Agreement Terms

However, in  R.W.L. Enterprises v. Oldcastle, Inc. , the California 4th District Court of Appeals reversed the Superior Court’s award of attorneys fees that was based on a prevailing party attorneys fees clause in a signed credit application because the dispute between the parties was relating to the terms of a dealer agreement signed 9 years earlier, and the dealer agreement did not contain a prevailing party attorneys fees clause. While the Superior Court cited Civil Code Section 1642 to read the 2010 credit application and the 2001 dealer agreement together because they constituted two contracts “relating to the same matters, between the same parties, and made as parts of substantially one transaction”, the Appellate Court reversed. The Appellate Court noted that whether a document is incorporated into a contract depends on the parties intent as it existed at the time of contract. In signing the credit application in 2010, the customer intended that the attorneys fee provision would become part of the purchase order contract between the buyer and seller, whereas the dealer agreement signed in 2001 was not a “purchase order contract”.

Formalize Commercial Transaction Agreements With Their Own Document Signatures

This case is a reminder and warning for dealers, distributors and other businesses  that grant open account credit terms and rely on a signed credit application as the only document to set forth the terms and conditions of the parties’ business relationship. If there are transactions between the parties that may not be considered purchases on open account credit terms falling under the credit application, then make sure separate documentation is prepared and signed that includes all of the relevant terms and conditions of the transaction at issue to protect your interests, including a prevailing party attorneys fees clause.    

Bay Area Lawyers specializing in commercial and business law

Poniatowski Leding Parikh Law Corporation in the San Francisco Bay Area is one of the leading firms for handling all matters related to business contracts and dispute ligitation. With over 58 years of combined experience in business law, you can trust the lawyers at PLP to leave no stone unturned in representing you and your new business. For further information contact one of our offices below or contact us online.