Customers can be critical of the goods or services they receive, and in some circumstances this can lead to disputes or potential litigation. For this reason, the terms and conditions in your customer contracts should set reasonable expectations and account for every contingency.
Terms & Conditions
A company’s terms and conditions typically outline the rules and regulations that govern the use of its products or services. These rules and regulations are essential for protecting the company and its customers, with 91 percent of consumers stating that they read at least some of the terms and conditions before making a purchase. These terms and conditions become contractual with your customers. And while there is flexibility in crafting such provisions, businesses should exercise considerable caution in their drafting.
The following items should be clearly stated in any standard Terms and Conditions.
1. Detailed Description of the Goods or Services
A thorough description of the goods or services to be provided under the contract may help you avoid protracted disputes with disgruntled customers down the road. Be sure to include specifications for your goods and/or define the goal and scope of the services you will provide; you may also want to provide a list of exclusions that describes what you or your products will not do. Where appropriate, include a completion or delivery timetable, although you might consider qualifying the timetable so that completion or delivery dates are “estimated.”
2. Pricing Terms
Total amounts owed, discounts offered, taxes and penalties assessed, amounts and dates of each payment (assuming the contract has a payment schedule), installation or delivery fees—these items should be standard in every customer contract. For agreements between buyers and sellers with long-term relationships , you might consider including price adjustments to account for market conditions. Conversely, fixed rates may be more appropriate for some output and requirements contracts.
3. Warranties
Sellers of goods and service providers sometimes find themselves on the hook for fulfilling warranties. Warranties can be either expressly spelled out in the contract’s language, or they can be implied under the law. A baseline express warranty can be the promise to provide a functional product, in which case it would constitute the “basis of the bargain.” Such warranties cannot be disclaimed. Even so, contracts for the sale of goods should limit express warranty recitals as much as possible, and they should carefully disclaim implied warranties such as:
- Freedom from defects (by stating that the item is sold “as is” or “with all faults”);
- Merchantability (by specifically referencing “merchantability”); and
- Fitness for a particular purpose.
Importantly, disclaimers of implied warranties must be CONSPICUOUSLY WRITTEN into the contract. If you plan on including a repair or return warranty, you should consider what is normal in your industry.
4. Limitations on Liability
Beyond the warranties you’re required, and comfortable making, you want to limit your liability to the customer as much as possible. A good start would be capping the buyer’s maximum recoverable money damages at the purchase price of the goods or service. You can (and probably should) also exclude consequential, punitive, and speculative damages. Depending on the breadth of the limited liability statement, some elements of the provision may not be enforceable; however, it does not hurt to include strong language as long as you also include a severability or separability clause. Severability clauses prevent unenforceable clauses from rendering surrounding language (as well as the entire contract) unenforceable.
5. Intellectual Property Ownership.
If you utilize your patents, trademarks, copyrights, or trade secrets to provide your goods or services, it is extremely important to assert your ownership of the underlying intellectual property. After all, the customer is purchasing a good or service from you—not the underlying blueprints, branding, etc.
6. Dispute Resolution Procedures
Requiring the parties to adhere to a contractual dispute resolution procedure can help avoid escalating disputes with customers to costly litigation. If a dispute does arise, it may be a good idea to require mediation before litigation or arbitration instead of litigation, especially if the controversy involves a large sum of money. Mediation allows for early negotiations outside of the court system, and it can save you substantial legal fees; whereas arbitration is a cheaper, more streamlined alternative to litigation.
Developing agreements that are clear, complete, and conscientious is a sophisticated task for sophisticated legal counsel. Contact the Gertsburg Licata Business Transaction practice group today to talk about how you can improve your customer relationships, streamline your business, and shield your organization from unnecessary litigation risk.
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Max Julian is a partner at Gertsburg Licata in the litigation practice group. He may be reached at (216) 573-6000 or at [email protected].
Gertsburg Licata is a full-service, strategic growth advisory firm focusing on business transactions and litigation, M&A and executive talent solutions for start-up and middle-market enterprises. It is also the home of CoverMySix®, a unique, anti-litigation audit developed specifically for growing and middle-market companies.
This article is for informational purposes only. It is merely intended to provide a very general overview of a certain area of the law. Nothing in this article is intended to create an attorney-client relationship or provide legal advice. You should not rely on anything in this article without first consulting with an attorney licensed to practice in your jurisdiction. If you have specific questions about your matter, please contact an attorney licensed to practice in your jurisdiction.
