Have you Looked at Your Customer Contract Lately?

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Have you actually read the terms of your customer contract lately? If yours is like many businesses, the terms of your contract do not reflect your actual practice or business custom.

Frequently, busy COO’s of small businesses rely upon a form template or the boilerplate that the company has been using for years, or worse, borrowed from a predecessor or even a competitor.   A couple of hours spent reviewing your contract, and having an attorney review it will pay for itself in time and customer relations.


First, your new customers, and perhaps your old customers will appreciate that the contract reflects exactly what they can expect in doing business with you. The customer’s expectations and costs will be clearly and concisely set forth in the agreement. This will establish in your new customers confidence in your performance, and deliver a message of professionalism, resulting in repeat business.   The agreement can serve as an outline for your customer relationship and a guide for your customer’s expectations. The Contract can explain timelines, contact information and conflict resolution procedures.


Second, a lower rate of defaults and client complaints should result from a clearly drafted contract. If the customer knows there is a strong contract, in theory they should be less likely to challenge it.   In reviewing your contract confirm that it includes an attorney fee clause, stating that in the event of litigation the losing party will pay the attorney fees and costs of court. The “American Rule” generally applied by courts is that each party pays their own attorney fees unless a particular law or contract provision states otherwise. This clause alone can change the dynamic of any litigation that may arise between the parties. If the customer knows that they will have to pay your attorney fees, they will be less likely to engage in a dispute or pursue litigation. For companies with a broad geographical customer base, a venue clause stating that all suits shall be filed in your home jurisdiction may deter some suits.


Most importantly, the reason attorneys say “put it in writing” is that a clear written contract will trump any claims of a verbal side agreement. The “parol evidence rule”, in short, provides that, if there is a clear, comprehensive written agreement, then, generally speaking, no verbal statements will be admissible in court to change the terms of that contract. If the agreement is deemed by the Court to be ambiguous, however, then oral statements varying the terms of the contract can come into evidence.   If the terms of your agreement are different from your customary business course of conduct, then you need to amend your agreement.   Ambiguous contracts are the genesis of litigation.  


A number of clauses may help limit your liabilities in the event of a dispute. You may wish to include alternative dispute resolution provisions for mediation or arbitration.   A limitation of the types or amount of damages available may be enforceable. Describing the extent of any express warranties is important, because by doing so you may be limiting most implied warranties. Covenants can accomplish any number of business goals, such as protecting employees from being hired away, assigning risk and dividing insurance proceeds, and resolving disputes short of going to court.   Contracts can be tailored to fit your particular industry, whether that is a short plain English agreement, or a complex technical agreement.


Obviously, a strongly written contract that reflects the actual custom and practice of your industry and company will be much more enforceable, in the event the company finds itself in litigation. Make sure that your contract reflects your understanding of the agreement.   The contract can serve as a marketing tool, outlining the relationship, and highlighting the strengths of your business proposal. Therefore, it is important to your business that your customer agreement reflect your actual business practices.

Laird Hetlage, Gillespie, Hetlage & Coughlin, LLC


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Guest Wednesday, 17 January 2018