Conversations About Customer Contracts Contract Basics
When was the last time your customer contracts were updated ? Whether you have in-house counsel or hire an attorney , be involved in the process . There is no substitute for industry experience . Lawyers know the law , but you know your business and what is trending in the industry .
To begin with , consider the following :
• Do you want to call the document an “ agreement ” or a “ contract ?” The terms basically mean the same thing if there is a written document . The term “ agreement ” carries a softer , less formal tone . There was , and perhaps there still is , an industry perception that “ agreement ” applies most appropriately to a service agreement while “ contract ” should be used for a fuel pricing contract .
• Use plain English in customer contracts and drop the “ legalese ” ( e . g . therewith , whensoever , witnesseth ). Many states require this by statute . Also , states may require a certain font size and limit the length of each sentence or paragraph within customer contracts .
• A contract must have the following four basic requirements to be valid : ( 1 ) agreement , ( 2 ) consideration , ( 3 ) capacity , and ( 4 ) legality .
AGREEMENT : An agreement involves an offer and an acceptance . Here are a few suggestions :
• The parties need to be clearly identified . I recently read an agreement that interchangeably used the terms “ buyer ,” “ applicant ,” “ customer ,” and “ you ” for the accepting party . Use the same identifying words the same way throughout your document and introduce the party ’ s identifying words in the introductory paragraph ( preamble ).
• If the customer is more than one person , state whether these persons may act jointly or severally .
• The customer ’ s address may change during the term of the contract . Do you want to allow the contract to remain valid with a change of the customer ’ s address if the new address is within your market and the customer will use the same type of fuel ? Do you want to allow an assignment to a third party ? The answer may depend upon the type of contract . Keep in mind that a third , outside party cannot be contractually bound .
CONSIDERATION : Consideration requires that something of legally sufficient value be given in exchange for goods or services . The concept is straightforward , but it is important to think about “ end game ” provisions at this stage . Fuel pricing contracts come to mind . How is it best to handle a contract in which the customer defaults by not taking a certain percentage of the gallons specified in the contract ?
• More likely than not , an attorney will recommend that any remedy be called a “ liquidated damage ” instead of a “ penalty .”
• Does it make sense to extend the term of the contract , perhaps at your discretion , to allow for delivery of the remaining fuel ?
• Is the customer subject to liquidated damages or an extension of the term if the customer receives LIHEAP assistance , thereby reducing the number of contract gallons that can be delivered during the heating season ?
CAPACITY : Contractual capacity is the legal ability to enter into a contractual relationship .
• Minors are not usually bound by contracts . In most states , the age of majority for contractual purposes is 18 , according to Miller and Hollowell in Business Law , a legal textbook . However , a minor “ who enters into a contract for necessaries may disaffirm the contract but remains liable for the reasonable value of the good .” Heat is a necessity in cold climates .
• Contracts signed by an intoxicated person can be either voidable or valid at the option of the intoxicated person . I ’ ll say that in my 36-plus years in the industry , I have not experienced a challenge to contract validity based upon a person being intoxicated .
• If a customer is mentally incompetent , a contract can be deemed void , voidable at the option of the mentally incompetent person , or valid .
LEGALITY : A contract must be written for a legal purpose , and it cannot be contrary to statute ( including licensing statutes and usury laws ) or contrary to public policy ( including exculpatory clauses ).
There is a lot to consider when writing a contract . I find it to be something of an art form . Hopefully , these basics were helpful to get you started or they provided a good refresher . As always , seek the advice of an attorney in this and all legal matters . Happy contract writing ! l FON
Leslie Cernak
BIO :
Leslie Cernak has been involved in the fuel oil industry for more than 36 years , running operations for her own company , and later working in compliance for an energy company . She recently earned a master ’ s degree in legal studies for energy law from the University of Oklahoma , College of Law .
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