Does my company need to have Terms and Conditions?

Generally speaking, the parties to a contract can agree between themselves as to how various issues will be handled under the contract. However, if the parties do not expressly address an issue in a contract, the law will "fill in" the unaddressed terms between the parties.

For the sale of goods, these contractual “gap fillers” are provided in the Uniform Commercial Code (“UCC”). The UCC, however, is very favorable to the buyer. For example, the UCC: (1) does not limit a seller’s liability or a buyer’s remedies; (2) creates several implied warranties in favor of the buyer; (3) allows a buyer to collect consequential damages (typically lost profits); and (4) has buyer-friendly risk of loss and insurance provisions. Therefore, unless a seller makes certain that the contract contains express provisions protecting the seller, such as limitations of warranties and limitations of liability, the seller will be forced to perform under very buyer-friendly terms.

To illustrate, in the absence of an express limitation of liability, if a widget costing ten cents were to fail and cause the buyer to lose one million dollars in profits arising from a loss of production due to the defective widget, the seller would be liable to the buyer for one million dollars in damages. This is so even though the claim for damages is completely out of proportion to the underlying value of the contract for the sale of the widget. Therefore, as a matter of risk management, it is essential that sellers make certain that appropriate limitations of liability are included in the contract terms, as well as other seller protections.

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