Introduction
This guide provides practical steps to be followed by in-house counsel and private practice lawyers to ensure a business’s standard terms and conditions are effectively incorporated into its commercial agreements and transactions. It reviews the key considerations that should be addressed when drafting and negotiating the commercial agreement to ensure clarity, and includes tips and strategies for winning the ‘battle of the forms’, where another party wishes to incorporate its standard terms and conditions into the contract.
The validity and enforceability of particular contract clauses may vary between US jurisdictions. The discussion in this guide should be taken as a general statement of the laws applicable in most US jurisdictions. You are advised to consult local laws when reviewing a contract clause.
The guide covers:
- Governing law for standard terms and conditions;
- Purpose of standard terms and conditions;
- Incorporating standard terms and conditions into a contract;
- Reviewing and enforcing standard terms and conditions;
- Examples of standard terms and conditions; and
- Changes to terms and conditions.
This guide can be read in conjunction with Checklist: Assessing whether standard terms and conditions should be used for the supply of goods and services.
Section 1 - What is the law governing standard terms and conditions?
The term ‘standard terms and conditions’ is used to denote rights and responsibilities set forth for a particular type of transaction. Businesses often reference standalone ‘standard terms and conditions’ as an abbreviated method for incorporating non-negotiable terms integral to the agreement.
In US usage, the definition of ‘standard terms and conditions’ will vary from industry to industry and from state to state. In many instances, the ‘standard terms and conditions’ are not set out formally but rather may reflect practices commonly followed by participants in an industry in a given locale. Such ‘commonly understood’ terms and conditions are not easily enforced, so it has become an almost universal practice to write out a set of contractual terms and label them as a business’s ‘standard terms and conditions.’ Because these provisions are often one-sided, they are generally more readily enforceable in business-to-business agreements. They may also apply in consumer contracts but are subject to jurisdiction-by-jurisdiction scrutiny under applicable state laws. You are strongly encouraged to review the administrative rules and regulations, statutory code, and common law in the jurisdiction in question to determine whether the terms and conditions your client wishes to incorporate in an agreement are lawful, and if they are defined as your client intends. The Uniform Commercial Code (‘UCC’) serves as a good starting point for reviewing terms and conditions for meaning and legality in states where it has been adopted. Remember to consider any choice of law provision that may apply when determining which jurisdiction’s laws will apply.
Section 2 – Purposes of standard terms and conditions
The use of standardized terms and conditions promotes efficiency in forming and drafting a contract. They are commonly used in agreements for the sale of goods where the same contractual provisions are used for each transaction. There is no need to draft and redraft what would essentially be the same set of provisions for every contract for each new transaction. Having standardized terms in place will reduce costs and cut down on the need to negotiate and renegotiate each term.
Standardized terms - especially in business-to-consumer (B2C) transactions - can also ensure that terms favorable to the contract’s drafter are made a part of the transaction. This is especially important in transactions involving the sale of goods. Article 2 of the UCC will often supply ‘default’ terms for those not spelled out explicitly. Incorporating standard terms lets the contract drafter retain some control over the transaction.
Section 3 – Incorporation of terms
When standard terms and conditions are used, they must be properly incorporated into the contract. A properly incorporated clause will become a valid and enforceable contract provision.
3.1 General incorporation steps
When drafting or negotiating a set of standard terms and conditions, it is important to ensure that the other party has adequate notice of and access to the terms. Drafters should attempt to make an explicit and clear reference to the standard terms and conditions within the body of the main contract. It is also helpful to specify the version or date of the standard terms to avoid ambiguity. Some courts will decline to enforce terms of which a party was unaware before making the contract. Adequacy of notice constitutes a question of fact. Sunshine Children’s Learning Ctr, LLC v Waste Connections of Fla, Inc, No 21-cv-62123-BLOOM/Valle, 2022 BL 25001, 2022 Us Dist Lexis 13457 (S.D. Fla. Jan. 25, 2022).
At a minimum, a contract should clearly state that standard terms and conditions govern the agreement. Although it is not always necessary to explicitly state all of the terms and conditions, they should be explicitly incorporated into the agreement by reference. Simply stating that the agreement is subject to additional terms and conditions may not make it sufficiently clear that the parties intend to be bound by the standard language. However, by using a phrase like ‘by signing this agreement, contractor agrees to be bound by the standard terms and conditions available at …,’ a drafting party clearly invokes and applies the standard terms. The terms should be referenced in all communications surrounding the contract and negotiations.
There are numerous ways to incorporate terms and conditions into an agreement:
- Attach a separate document. The wording on this document should be conspicuous and unambiguous. Ideally, such a contract would provide for separate execution of the terms and conditions.
- Alternatively, include a space where the terms are explicitly acknowledged and accepted in the physical document. The acknowledgment of the terms should include a confirmation that a copy of the terms and conditions has been received. While neither provision is explicitly required for enforceability, either option will reduce the risk of a party claiming a lack of notice of the terms.
- Incorporate by reference by including a hyperlink to a web page where the terms can be found. This is an increasingly popular method of incorporation. A drafter may consider including the entire URL or web address that goes directly to the relevant language. While this may not be expressly required, it provides additional notice to the parties of the terms of the contract. However, be wary of including a URL that you do not own or control. The information on URLs changes and entire webpages may be taken offline. At minimum, be as specific as possible in the contract by including the title of the webpage, the author, the date of creation, or version number, if given. If you are citing to a specific statute, be sure to include the effective date as well.
- Incorporate by reference crucial industry-specific contract provisions. As with standard terms, it is not necessary to copy and paste the full text of the codes into the contract. Instead, it is possible to incorporate the terms by formal name and publisher, such as ‘National Fire Protection Association 70B, Recommended Practice for Electrical Equipment Maintenance (2019 ed.).’ Again, such codes or standards should be readily accessible to the contracting parties, to ensure that each has the opportunity to understand the additional conditions.
It is important to check local law relating to the scope of incorporation of provisions into contracts.
Regardless of how they are referenced, the incorporated standard terms and conditions should be referred to in the same way that they are included in the contract. If the contract incorporates ‘disclaimers of warranties, available on our website,’ the link provided should lead to a page labeled ‘Disclaimers of warranties.’ There should be no need for the user to decide if the page headed ‘About our warranties’ is the same as ‘Disclaimers.’ Again, this provides further evidence of clarity of the terms encompassed by the contract.
There is a clear trend of courts enforcing terms incorporated by reference from other sources, provided a party can be found to have had notice of the provisions and to have expressed assent to the agreement. See, eg, Kauders v Uber Techs, 486 Mass 557, 159 N E 3d 1033 (2021). The terms cannot be hidden or concealed. For example, including the terms and conditions in the ‘shrinkwrap’ of the product with a 30-day limit to reject the terms was held unenforceable. See DeFontes v Dell, Inc, 984 A 2d 1061, 2009 ILRC 3253 (R.I. 2009)(‘We are not persuaded that a reasonably prudent offeree would understand that by keeping the Dell computer he or she was agreeing to be bound by the terms and conditions agreement and retained, for a specified time, the power to reject the terms by returning the product.’).
A party could be asked to acknowledge that there are additional terms and conditions available online as a condition of conducting a transaction online (eg, ‘By clicking here, you agree to be bound by XYZ LLC’s standard terms and conditions, which may be found here.’). Of course, the website containing the additional terms and conditions should be monitored regularly for technical problems, changed addresses, or other issues that could affect accessibility. Even using this method, it remains good practice to maintain hard copies of the terms and conditions that can be made available upon request.
3.2 Advantages and disadvantages of standard terms and conditions
It is important not to fall into the trap of incorporating standard terms and conditions just because they are standard.
Contract drafters use standard terms and conditions because they are convenient and it is easier to rely on them than to have to redraft the same or similar terms for each agreement. This is especially true when the standard terms are used for some of the more peripheral contract provisions, such as the choice of law to be used when the contract is for the sale of industrial machinery.
Standard terms and conditions also promote certainty within an organization. A seller of consumer goods will often have a standard sales contract that limits warranties. Knowing that the potential liability for breach of warranty has been circumscribed allows the manufacturer to plan its risk management accordingly.
On the other hand, such terms are, by definition, standardized and thus are not adapted to transactions or market conditions. Furthermore, because of the general rule of contract interpretation that ambiguities are construed against the drafter, over-reliance on standard terms and conditions—especially those that may not have been updated for some years—can lead to unintended and unfortunate results. For example, in the construction context, local building codes change frequently. A reference to ‘North American standard outlets’ may mean duplex receptacles in one jurisdiction, but may refer to GFI/GFCI outlets, which are considerably more expensive, in another.
Section 4 – Enforcement and review of standard terms and conditions
Standard terms and conditions are subject to enforcement and should be reviewed just like any other contract provision.
4.1 How do you enforce standard terms and conditions?
‘Standard terms and conditions’ are enforced in accordance with standard contract law rules. A failure to read the terms does not render the provisions any less enforceable. Citibank v Dalessio, 756 F Supp 2d 1361, 1367-68 (M.D. Fla. 2010) (‘As a general matter, [a] party cannot avoid his obligations … by alleging that he did not read the contract, or that the terms were not explained to him, or that he did not understand the provisions …’). However, parties must have notice of the terms of the agreement and demonstrate an intent to be bound. Miller v Flegenheimer, 2016 VT 125, 161 A 3d 524 (2016) (in order to enforce a contract, there must be sufficient certainty of terms and an intent to be bound.).
4.2 Process for reviewing standard terms and conditions
Each standard term should be reviewed with an eye toward utility. Terms that do not advance the overarching purpose of the contract should be revised or omitted.
The relative importance of the terms should also be considered. Often, a terms and conditions form will include provisions fundamental to the agreement. They may touch upon topics that are standard within the relevant industry. Such provisions need to be included to provide the appropriate balance of compliance and operational risk for the drafting party. Further, the inclusion of the standard terms makes it more challenging for contracting parties to revise or remove such terms.
It is also worth considering whether a specific provision has been the subject of prior disputes. Where courts have previously interpreted and applied a provision in a set of standard terms and conditions, the drafting party should consider the prior treatment when deciding whether that provision should be maintained, modified or removed.
Section 5 - Examples of standard terms and conditions
5.1 Express warranty
The existence and scope of express and implied warranties are often defined by state law. Generally speaking, an ‘express warranty’ means ‘a representation, statement of alleged fact or promise about a product or its nature, material or workmanship that represents, affirms or promises that the product or its nature, material or workmanship possesses specified characteristics or qualities or will meet a specified level of performance …’ Caboni v General Motors Corp, 278 F 3d 448 (5th Cir. 2002). An incorporation clause limits the scope of such warranties to those in the written contract only; absent that, oral representations may also constitute part of an express warranty.
5.2 Implied warranties
Even when not explicitly included in a contract, the law often ‘implies’ certain warranties, some of which may be specific to a given type of contract or industry. The most notable implied warranties include those for merchantability and fitness for a particular purpose.
Under Article 2 of the UCC (which has been adopted, with minor variations, in every US jurisdiction except Louisiana, Puerto Rico and American Samoa), products are merchantable if they can ‘pass without objection in the trade under the contract description’; ‘are of fair average quality within the description’; ‘are fit for the ordinary purposes for which such goods are used’; ‘are adequately contained, packaged and labelled’; and ‘conform to the promises or affirmations of fact made on the container or label, if any.’ UCC, section 2-314.
In other words, goods may be considered merchantable if a commercial party in a situation similar to that of your client would consider them reasonable. For example, if your client, a roofing company, contracts with a manufacturer for the purchase of steel roofing panels, it may consider the use of 32-guage (thinner) steel, rather than 22-guage (thicker) steel, in the construction of panels to be unacceptable. If not specified by the terms and conditions of the contract, you must look at what another roofing company in a similar position as your client would consider commercially reasonable. If another roofing company would find 32-guage steel to be of an unreasonably low quality and not adequate for installation, then your client may be in a position to claim the steel manufacturer violated the implied warranty of merchantability.
The UCC also describes ‘fitness for a particular purpose’ as circumstances where ‘the seller at the time of contracting has reason to know any particular purpose for which the goods are required, and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods.’ UCC, section 2-315. The implied warranty of fitness for a particular purpose is dependent upon the understanding of the parties at the time of contracting and any later modifications thereto. In order to sustain a claim for a violation of this implied warranty, it must be established that the party supplying the goods was aware that they were intended for a particular purpose and that the goods provided were not adequate to meet that purpose.
5.3 Disclaimers
The provisions of an express warranty can be limited or removed entirely via the use of standard terms and conditions. Goods or services are often defined as being provided ‘as is’ and standard terms and conditions routinely disclaim ‘any and all’ implied warranties, ‘including but not limited to implied warranties of merchantability and fitness for a particular purpose.’ This language allows a seller to effectively manage the representations and promises made to a contracting party and the risk resulting from the same.
5.4 Limitation of liability
A limitation of liability clause is a provision in a larger agreement that caps the potential liability of one or both parties to a certain amount, or to a certain category of damages. It is not an exculpatory clause nor a release from liability. Rather, it is a risk management tool that limits a party’s maximum exposure for damages.
There are three essential types of limitation of liability clauses: a waiver of damages; a cap on damages; and a hybrid of a waiver and a cap.
A waiver of damages clause provides that either or both parties waive the right to pursue certain types of damages from the other party. The most common types of damages waived are consequential or incidental damages. Claims for damages due to certain types of acts may also be waived. A damages waiver may specify that it is not applicable to certain risks inherent in certain types of contracts.
Another common type of limitation of liability clause provides a cap on the damages that may be recovered. The cap may set the limit of recoverable damages to the price paid under the contract, to an amount calculable at the time of a breach, to the available insurance coverage, some combination of these limits, or some other amount. Generally, a cap on damages clause will include language such as ‘the amount of damages recoverable against the liable party may not exceed five thousand dollars ($5,000)’.
Courts will generally, but not always, enforce limitation of liability clauses. To be enforceable, such a clause must be clear and unambiguous and must clearly reflect an intent to limit liability. It should be clear to a reader of the clause that liability for certain acts is limited. Be aware, however, that limitation of liability clauses that violate public policy will not be enforced and those contained in contracts between businesses and consumers are much more heavily scrutinized for indicators that the contract was one of adhesion.
5.5 Limitation of remedies
Within the terms and conditions, the contract provisions may limit the ability of the parties to take certain remedial actions. Depending on the circumstances, the contract may require a party to be given a chance to ‘repair or replace’ a defective product. Alternatively, repair/replacement may be deemed a sole and exclusive remedy. Such provisions should be considered when a party that may be found in breach of an agreement wants to maintain a measure of control over the subsequent resolution of any concerns. This control is especially useful when a party enters into a series of identical or substantially identical transactions, such as for the sale of consumer products.
A limitation of remedies clause, like a limitation of liability clause, must be clear and unambiguous. This is especially important in business-to-consumer (B2C) contracts, where an unclear clause—or one that is not obvious to the consumer—could be held unenforceable as unconscionable. Draw attention to the limitation of remedies clause by setting it apart from other text or using bold-faced type or a larger font size.
5.6 Forum/venue selection
The US’s fragmented court system, comprising individual state courts and a federal judiciary, necessitates frequent application of laws from different jurisdictions. This occurs both within the US and in international disputes. For instance, a contract dispute between companies from New York and New Jersey could be litigated in either state, but the court's location doesn't automatically dictate the applicable law. The court must decide whether to apply its own state's laws or those of the other state. Similarly, in international cases, a US court might need to determine whether to apply domestic or foreign contract law, such as that of Canada, which itself varies by province.
Often, parties agree, either explicitly or implicitly, on the governing law, or find that the choice doesn't significantly alter the outcome. In such instances, the court typically applies the contract law of its own state. However, when parties disagree, and the contract lacks a choice-of-law provision, the court uses its own choice-of-law rules, which differ by state, to determine the applicable substantive law. Federal courts, in these cases, apply the choice-of-law rules of the state where they are situated. This process can lead to unpredictable outcomes.
US courts routinely apply laws from other jurisdictions. Applying the laws of another US state is relatively straightforward, involving the review of statutes and case law presented by the parties' attorneys. Similarly, applying the contract law of common law jurisdictions like England and Wales is typically manageable due to the shared language and legal principles. However, challenges arise when dealing with non-English-speaking, non-common law jurisdictions. In these cases, courts rely on treatises, translations, and expert witness testimony to interpret foreign laws. For example, in Wultz v Bank of China Ltd, 979 F Supp 479 (S.D.N.Y. 2013), a New York federal court determined the scope of attorney-client privilege under Chinese law by analyzing affidavits from legal experts and referencing prior US court decisions.
To enhance predictability and reduce costs in potential disputes, commercial contracts should explicitly specify the governing law. This practice minimizes uncertainty and streamlines the legal process, ensuring that all parties are clear on the legal framework that will apply to their agreement.
5.7 Choice of law
Similarly, in circumstances where a transaction may implicate the laws of various jurisdictions, a party can elect the desired applicable law in the terms of the agreement. In the event of a dispute, even if the litigation occurs elsewhere, the reviewing court will be required to apply the law of the party’s preferred jurisdiction.
The choice of law must have some relationship to the parties and their contract. A bank headquartered in Delaware, for example, may insert a clause stating that Delaware law will govern and a court is likely to uphold that choice. Including a choice of law provision allows the parties to consider the legal meaning of the terms and conditions within a particular jurisdiction prior to contracting and may help avoid costly miscommunications. Note that the jurisdiction where the litigation occurs may be different from the jurisdiction of the choice of law. So, for example, the choice of law jurisdiction may be Delaware but the litigation may occur in Illinois where the client may be headquartered.
A choice of law clause should be specific as to its applicability, as demonstrated in NetRoadshow Inc v Carrandi. In that case, the court held that a clause that stated that "this Agreement and the rights of Company and Employee hereunder shall be governed by and construed in accordance with the laws of the State of Georgia" applied only to contract claims, not to tort claims or to claims based on a statute. NetRoadshow, Inc v Carrandi, No 25-10388 Non-Argument Calendar, 2025 BL 299964 (11th Cir. Aug. 25, 2025).
5.8 Dispute resolution provisions
Depending on the transaction in question, it may not be advantageous to litigate at all. Considering the expense of attorneys and the adverse publicity that a lawsuit can bring, many organizations elect to utilize alternative dispute resolution (ADR) provisions requiring arbitration or mediation instead of litigation. These provisions can also limit the scope of the proceedings and can even stipulate the specific processes to be used.
Alternative proceedings will not be required unless they are in the agreement; so if ADR is preferred, be sure that it is included in the contract. Consider the implications of ADR before including such provisions as they can also bind the entities to alternative resolution methods even when they are not cost effective. For example, consumer financing industries, such as those that offer vehicle retail installment loans or personal lines of credit, may find themselves in front of an arbitrator to resolve a relatively small unpaid consumer debt. In such an instance, state court proceedings may have proven a cheaper and faster method of collecting on an unpaid account.
5.9 Attorneys’ fees and costs
Responsibility for the payment of attorney’s fees arising from the occurrence of specified events, or from litigation relating to the contract, can be addressed by using standardized language. While such provisions can be mutual and provide a remedy to the prevailing party, when crafted for standard terms and conditions, the party that controls the drafting process will generally want to reserve the right to obtain attorney’s fees to itself.
Under the American Rule, attorney’s fees and costs will not be awarded if they are not agreed to in a contract or required by statute.
Section 6 - Changes to terms and conditions
Terms and conditions can change over time. The incorporation materials should clearly reflect whether the provisions incorporate terms and conditions as they exist at a given date and time, or whether they will be updated from time to time. It may be difficult to bind a party to post-contract changes to standard terms, even when the party has agreed to be bound.
Courts will enforce such terms against a party only if it is clear the party was aware of the possibility of such changes. Continued acceptance of standard terms by action—such as a click of an electronic notice of updated terms—can provide evidence to support such changes. In any event, notice and acceptance of changes are questions of fact, addressed by courts on a case-by-case basis. See, eg, Citizens Telecomms Co of W Va v Sheridan, 239 W Va 67, 799 S E 2d 144, 2017 ILRC 1627 (2017) (The company was entitled to rely on its customers to read information circulated to them, particularly when a paper copy of the terms and conditions was included in their billing statement, and the company provided access to the modified terms and conditions online.)
In order to ensure the enforceability of the agreement, the contracting party should maintain records regarding any changes to the terms and conditions, as well as when such changes occurred in order to determine the effective date. Older versions should also be maintained in a secure location in case any dispute should arise.
Additional resources
Related Lexology Pro Content
How-to guides:
How to draft and negotiate limitation of liability clauses
How to manage the risk of contracting with a company in financial difficulty
Maximizing the use of boilerplate clauses to limit the risk of unforeseen events
How to draft a confidentiality agreement and confidentiality clauses
Checklists:
International supply of goods contracts
Reviewing a confidentiality agreement (receiving party)
What to consider when terminating a contract
What to consider to ensure a contract is valid
Clauses:
Reliance on information posted:
While we use reasonable endeavours to provide up to date and relevant materials, the materials posted on our site are not intended to amount to advice on which reliance should be placed. They may not reflect recent changes in the law and are not intended to constitute a definitive or complete statement of the law. You may use them to stay up to date with legal developments but you should not use them for transactions or legal advice and you should carry out your own research. We therefore disclaim all liability and responsibility arising from any reliance placed on such materials by any visitor to our site, or by anyone who may be informed of any of its contents.