7 Pitfalls of not Reading Commercial Contracts Properly

You’ve just won a new contract or order and your customer has sent through their terms of business.

It’s all too easy to simply agree to these terms without properly reading or considering them. You will probably be keen to just sign on the dotted line and secure the business.

If you have your own terms of business, you may well have already sent them to your customer. However, if the customer then sends you a purchase order referencing their terms, you will need to be careful that you don’t lose the “battle of the forms”, meaning that their terms will prevail.

It’s likely that you or your sales team will have already negotiated key terms with the customer such as price, quantity, specification and delivery times. However, you also need to consider what is contained within the “small print” of their terms of business - they may well contain some very onerous legal obligations, which could provide you with big problems further down the line. Here are 7 examples:

“Time of the essence”
This could mean that even a small delay in delivery could entitle the customer to terminate the contract and sue you for damages

Fitness for a particular purpose
You could be agreeing that the goods you are supplying are fit for a particular purpose, which you have not fully considered

Warranties
You may be providing “warranties” (promises) in relation to all manner of things, including performance. If breached, these warranties could entitle the customer to sue you for damages and/or terminate the contract

Assignment of intellectual property rights
The customer’s terms may state that any intellectual property rights in the goods or services that you are providing are assigned to them, thus depriving you of the opportunity of exploiting them elsewhere

Indemnities
Terms of business often include indemnities which can allow the indemnified party to short cut legal proceedings, effectively handing them a “blank cheque”

Limitation of liability
You will no doubt wish to limit your liability to your customer, particularly in relation to “consequential losses” e.g. loss of profits. However, their terms may seek to make such limitations one sided, thus limiting their liability but leaving you exposed

Governing law and jurisdiction
The customer’s terms may incorporate a foreign law jurisdiction clause, meaning that any dispute will have to be dealt with in a foreign court, subject to local laws. This could put you at a distinct disadvantage should a dispute arise

These 7 examples highlight the importance of checking and taking advice on your customer’s terms of business. Taking advice from an experienced legal professional in this area could save you a great deal of cost, time and stress.