For business done on the final leg in the chain of commerce – that is, directly to the customer – the sales or service agreement needs to be especially well thought-out. Customers often lack knowledge of your industry and yet exercise the highest scrutiny of the goods or services they receive. For this reason, your customer contract must work hard to set reasonable expectations and plan for every contingency.
The Terms
Detailed Description of the Goods or Services. A thorough description of what you will be providing can avoid much of the dissatisfaction that a customer may come to experience. Be sure to include specifications for your goods and the goal and scope of the services you’re providing; you may also want to provide an exclusions list which is sets forth limitations on what you or your product will not do. Where appropriate, you should also include a completion or delivery timetable.
Pricing Details. Total owed, discounts offered, taxes, penalties, the amount and date of each payment if there’s a payment schedule in place, and additional charges for things such as installation or delivery – these items should be standard in every customer contract. For agreements encompassing a long-term relationship between buyer and seller, you will also want to consider price adjustments to account for market conditions or, conversely, fixed rates as in the case of some output and requirements contracts.
Warranties. As the seller, you’ll be on the hook for the majority of the warranty recitals in a contract. At a minimum, a contract for goods should include the following warranties:
- Freedom from defects
- Merchantability
- Fitness for a particular purpose
Taken together, these baseline warranties promise a functional product that works as intended. If you plan on including a repair or return warranty, you should consider what is normal in the industry. Every warranty section should actually end with a disclaimer against further warranties; this will prevent you from being bound to any number of implied warranties that exist in law.
Limited Liability Statement. Beyond those warranties that you’re required to and comfortable making, you want to limit your liability to the customer as much as possible. The best start in this regard is to limit the buyer’s maximum recoverable money damages to the purchase price of the goods or service. You can further 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 doesn’t hurt to include strong language as long as you also include a separability clause (which prevents an unenforceable clause from making the rest of the provision – or contract – unenforceable as well).
Intellectual Property Statement. If you’re providing a good or service that incorporates your patent, trademark, copyright, or trade secret, it’s of the utmost importance to assert your ownership in the underlying intellectual property. After all, the customer is purchasing a good or service from you, not the underlying blueprint, branding, etc. There should be no confusion on this point.
Alternative Dispute Resolution. If a dispute does arise, it’s a good idea to require mediation before litigation, and arbitration instead of litigation, especially if the controversy involves a large sum of money. Mediation allows for early negotiations outside the court system and can save you substantial legal fees; arbitration is a streamlined and cost-efficient litigation alternative.
Thank you for your continuing interest in DR&A’s legal blog. We hope you gleaned some useful information for drafting your customer contracts. As always, we’d love for you to continue the conversation in the comments, or by contacting us directly.