What is the Difference Between a Commercial Contract and a Consumer Contract?
Contracts are categorised in a number of ways. However, there are two overall alternative categories into which any contract will fall: it will be either a “commercial contract” or a “consumer contract”.
To explain this in brief terms, a consumer contract is in essence one where a commercial entity (e.g. a retail seller of goods or services) is dealing with an individual who is not buying in the course or for the purpose of any business. For example, a self-employed decorator might accept a request from a home owner to paint the latter’s house – in this case the home owner is a consumer.
If that home owner had instead been a person who owned a shop and they had arranged for the decorator to paint that shop, the shop owner would not be a consumer because the arrangement to paint their shop would have been made in the course of their business. The contract would in that case therefore be a “commercial contract”.
Why is this distinction made in law, and what is the impact of the distinction?
The policy of the law in relation to parties to commercial contracts is essentially to regard those parties as experienced enough to be able to look out for their own interests, and the law allows them to a large extent to have freedom to agree to whatever terms of contract they wish, without the courts seeking to limit that freedom unnecessarily. Whilst the law in certain cases does render void certain types of commercial agreements or provisions in them, in general it avoids such an interference with an agreement made between business people.
In contrast to this, where a business deals with a consumer, the policy of the law is to seek to protect that consumer in various ways. In practical terms, it means that the law does not allow a business to include any and all terms in a contract as it wishes where it is dealing with a consumer. It is required by consumer legislation to omit certain types of term, and, if it does not do so, those terms will be void and of no effect in law. An example would be a clause extensively excluding liability of the business where the liability arises from breach of contract or negligence of the business. In some cases it might actually also be unlawful to include in a consumer contract certain provisions even though the same provisions would be void if included anyway.
In some cases, the law provides particular remedies (e.g. cancellation rights) for a consumer customer which it does not provide for a commercial entity that is the customer, and it makes void any attempt by a business to include anything in the contract that would exclude those remedies. In relation to some cases, the law requires the business to include certain terms in a consumer contract and to provide certain information to the consumer about their consumer rights, and there are adverse legal consequences for the business if it fails to do so.
It is therefore essential for any business to ensure that the contents of their standard terms and conditions for consumers, and any other contracts with consumers, comply with all applicable consumer laws.
Where a business deals with commercial and consumer customers, it needs to use separate forms of contract/standard Terms and Conditions for each of these two categories of customer. There are numerous templates available on the Simply Docs website which exist in two forms, one for dealing with consumers (“B2C”), and one for commercial customers (“B2B”), for example, sets of terms for printing on the reverse of a Quotation which you can see here in both B2C and B2B form, and sets of terms for supply of services by tradesmen which you can see here in both B2C and B2B form.