Contract terms could leave a hole in your pocket

If a faulty product causes damage who will be liable and carry the can?

Many businesses have standard contract terms to restrict or limit their liability for damages when something goes wrong. Who carries the can depends on which terms of business are deemed to take precedence.

This will usually be terms agreed and signed by both parties specifying where liability rests. If there is no specific agreement the latest standard terms in the chain of events will usually apply.

Summary of supply chain of events

Supplier asks for quote (standard terms)

Manufacturer gives quote (standard terms)

Supplier places order for goods to be made (standard terms)

Manufacturer confirms acceptance of order (standard terms)

Product supplied to Customer

Faulty product causes damage

In the example above the manufacturer’s terms are last in the chain and they will usually take precedence. If those terms limit liability to just the cost of replacing the faulty product, which can be quite common, the supplier will be left with the bill for any resultant damage or consequential loss.

The supplier should make sure they have the right insurance in place for products liability that does not exclude the results of onerous contract terms.

Any uncertainty should be checked with a solicitor or commercial legal expenses insurer.