The Importance of a Strong Terms & Conditions Agreement to Protect Against Liability


A strong terms and conditions agreement is one of the few shields a company has to prevent costly litigation. It allows the business to clearly understand its obligations to its customers while it places customers on notice about their rights when using a product or service. A well-written terms and conditions agreement is the foundation of any good business.

Creating a Terms and Conditions Agreement

Drafting and executing a terms and conditions agreement is more straightforward than it appears. However, businesses must work with their legal counsel to ensure a properly prepared agreement suits their best interests.

When drafting an agreement, it is essential to consider every aspect of the business, including the product being sold to consumers, the industry of the company, the business etiquette of the industry, competitors, vendor relationships, the sophistication of the consumer base, and the laws and regulatory bodies overseeing the industry.

The Outline of Any Good Terms and Conditions

Each industry, company, and product adopts a terms and conditions agreement for its unique needs, which means every agreement differs. Nonetheless, every agreement needs four essential components, including:

  1. An identification of the company and the product
  2. A description of the product’s purpose and its use
  3. The rules encompassing product use, including the company and the consumer’s conduct when operating or utilizing the product
  4. Acknowledgment of the product, its use, and the rules governing its use

Standard Terms and Conditions Clauses

Below is a breakdown of the most common terms and conditions agreement clauses. Although these are some of the most common clauses, a typical terms and conditions agreement reflects the goods and services provided by the company. Thus, more complicated products require much more in-depth agreements. Together, these clauses help to create the backbone of a terms and conditions agreement’s four vital components.


The introduction outlines the purpose of the agreement. It is likely to include an identification of the product, the legal name of the company, and basic information describing the agreement. Introduction clauses are generally the simplest.

Effective Date of the Agreement

Companies that have existing products or agreements need to ensure, whenever they adopt a brand new or updated agreement, to include the agreement’s date. First, the effective date notifies the parties that the most recent agreement governs any use or further use of the product. That way, consumers can not accuse the company of wrongdoing under an old or outdated agreement that does not reflect the current state of the product or new laws.

User Guidelines and User Rights and Responsibilities

Terms and conditions should always outline how a user may use the product or service, the rights awarded to the consumers, and the consumer’s responsibilities. Many products and services can be used in a way that deviates from the creator’s initial intent. Thus, the user guidelines clause establishes the parameters under which the product can be used.

Further, rights and responsibilities clauses allow consumers to understand their rights when engaging with the product and their responsibility to the product’s creator and other users and consumers. For example, user guidelines or user responsibility clauses may prevent consumers from utilizing an e-commerce website to refrain from selling counterfeit merchandise on the website.

Governing Law Clause

A governing law clause typically states the governing law and jurisdiction of the agreement. This allows the company producing the product to pick where legal disputes must be litigated. Although governing law clauses are nearly always enforceable, some procedural issues can dictate alternative jurisdictions of the parties based on several factors, including the user’s residency.

Because many companies are incorporated in Delaware because of the state’s robust corporation law or have a principal place of business in New York, it is not surprising that many agreements assign the governing law and jurisdiction in either state.

Regulatory Compliance Clause

Identifying and acknowledging the statutes that provide guidance and regulatory oversight for a product often ensures compliance with that particular law or set of rules. Most businesses must comply with at least one or more laws and regulations to ensure lawful and ethical conduct.

A cookie acknowledgment clause is one of the most common regulatory compliance clauses used by websites. Cookies are bits of data transferred from a website to a web browser so entities can track a user’s use of both. Recently laws, including the California Consumer Privacy Act (CCPA), the General Data Protection Regulation (GDPR), and the European Union’s ePrivacy Regulation, all require cookie acknowledgment agreements on websites.

Financial Clauses, including Payment, Returns, and Shipping

Many agreements outline financial topics like payments, returns, and shipping. Many companies prefer a particular way of charging for goods and services, so they can outline precisely how any financial transactions associated with the product should be conducted. Further, some industries have a preferred way of shipping certain goods, including the minimum and maximum shipping capacity, preferred shipment methods, and restrictions on shipping to specific locations.

Warranties and Disclaimers

Warranties and disclaimers provide clear expectations for consumers of the good or service. A warranty details the representations the company is making about its product. If a product fails to adhere to the company’s representation, the company promises to replace the product or refund the customer’s money. For example, a video game manufacturer may provide customers a warranty that the battery on the game console should last for 1,000 hours of playtime.

On the other hand, a disclaimer is intended to warn consumers of inherently dangerous aspects of the product, including regular use or misuse. Toy companies often place a warning label or disclaimer stating small pieces in the toy can be a choking hazard to children.

Acknowledgment Requirement

All agreements should have a field or line that requires users to acknowledge the terms and conditions agreement. Failure to require acknowledgment of the agreement can create ambiguity between the consumer and the producer of the product, especially surrounding misuse of the product and unlawful activity by consumers.

Contact Information

All agreements should include the contact information of the company. This allows consumers to quickly contact the company with questions or issues related to the product but also serves as a way to ensure proper notice can be provided to the company in case of legal disputes.

Texas Product Liability Defense Lawyers

Every company should adopt a strong terms and conditions agreement, or review an existing agreement, to ensure they are protecting themselves against costly and burdensome liability. Contact MehaffyWeber for more information on how our experienced product liability defense lawyers can guide you through developing strategies to protect your company against liability and support you through any related litigation.