Small businesses need legal advice, this free article is for entrepreneurs who want to learn legal principles to create better business plans as well as basic policies and systems. Business law often requires professional help, but leaders and managers who know understand the basic concepts can make better use of their legal team.

Sales Contracts

Look Before you Leap

By Susan E. Foran

Congratulations! You’ve made your sale – but on what terms?

Regardless of how the sale was completed, it’s necessary to make sure that both you and your customer agree on what, exactly, the terms of sale are. Try to keep the terms basic, but thorough. Albert Einstein said, “Everything should be made as simple as possible, but not simpler.”

A verbal, legally binding agreement can be made for most sales (a notable exception is if the sale involves land or buildings). The problem is that, if the only contract that exists is a verbal agreement, then there is no concrete guidance as to what was agreed to if a dispute or a problem arises. Avoid being manipulated into relying only on a handshake. The words “Trust me” seldom carry you through difficult times.

Modify the handshake deal by confirming that there will be a follow-up e-mail or a note outlining the deal to corroborate the terms. Alternatively, if you have a standard form of purchase order, confirm that it will be forwarded to generate the terms of sale.

Requests for Proposal (RFP) or Requests for Quote (RFQ) inevitably impose terms of sale that need to be reviewed thoroughly – including any document or policy referenced in the RFP/RFQ. This is so both parties will understand the terms of sale that will apply if the business is won. In particular, when dealing with the government or a government agency, there are a number of “rules of engagement” that will dictate a significant part of the terms of the arrangement.

Be aware of sale-of-goods and consumer protection legislation when selling a product or a service. Most Canadian provinces have legislation with similar impact. These laws impose terms and conditions on sales transactions that generally favour the purchaser, and can have an impact on how one markets products and services.

Most of the important laws are practical, common sense ones, but knowing the details can save you some major hassles. For example, acts like Ontario’s Sale of Goods Act, (R.S.O. 1990) may require that, if a buyer tells a seller they want to use the “item” for something specific, and the seller doesn’t tell the buyer that the “item” can’t accomplish that, then in certain circumstances the sale can be cancelled (unless the item can accomplish close to what the buyer wants it for).

For information on local laws go directly to the applicable provincial government website, or access it through the federal government website, www.canada.gc.ca. Click on the option “Provinces and Territories.” Local better business bureaus are often another source of information on these laws.

Where someone is selling goods or services for personal or household (i.e., as a consumer), but not business use, consumer protection legislation such as Ontario’s Consumer Protection Act, 2002 (S.O. 2002) dictates much of how that sale should proceed. Again, this legislation is quite extensive, but a few examples will illustrate some of the effects it can have on a sale.

One example from that act states that, if an estimate has been given, then the supplier cannot exceed the estimate by more than 10 per cent unless there are additional goods or services, and the consumer agrees to the increase in writing. Another example: a consumer can cancel a time-share agreement or personal development services agreement (e.g., health/fitness memberships, diet clinics, sports lessons, dance lessons, etc.) any time up to 10 days after they receive a written copy of the agreement. If they do not receive a written copy of the agreement that by-and-large meets the requirements of the regulations, they can cancel any time up to a year after the date of entering into the agreement. Such cancellations can really hurt your bottom line, so be informed before you get burned.

A seller should also know how the consumer protection laws characterize the type of goods and services they selling. Many of these laws set out what details have to be included in agreements/terms of sale for the sale of specific goods and services. If you don’t get the details right you could end up in front of a judge on the losing end of the court battle, which is a very costly lesson for you! Again, it’s a good idea to seek out the specific laws that apply in your province, as explained earlier.

As a general practice, marketing materials should be accurate and exaggeration kept to a minimum. Avoid creating a situation where the customer can come back and say, “But I agreed to buy this because your brochure/proposal said such-and-such, and I want my money back.” Notice that even late-night infomercials, selling products with slogans like money-back guarantee, guaranteed to…, and world’s greatest …, have a legend scrolling at the bottom of the screen. Softly repeated aloud at warp speed from time to time, the legend warns, Additional terms and conditions apply.

When selling someone else’s products, read and fully understand the agreement between you and the manufacturer and/or distributor of the product before entering into any arrangement. Ensure that your sales of the product are completed with the same restrictions that have been imposed in the manufacturer/distributor agreements.

In particular, do not change any of the manufacturer’s warranty and liability terms. This can void them and leave the customer looking to you for any repairs and damages!

You don’t have to become a legal expert, but make sure that the terms of sale are clearly set out. Failing to do so can be costly. As Henry Ford said “Paying attention to simple little things that most men neglect makes a few men rich.”