Transaction disclosure terms are those provisions and terms that need to be disclosed in a contract between two or more parties. Most of the time, these types of terms have to do with important aspects of the products or services that are being exchanged (for example, the history or the quality of the particular product).
In addition, transaction disclosure terms can sometimes deal with the form of the contract itself, in order to make the agreement more readable for both parties. Also, a clearly written contract, with all the important information disclosed to all parties, can help prevent a breach of contract in the future. Various state and federal laws govern which terms need to be disclosed in a contract, and such laws can vary by region.
Generally speaking, parties are free to contract as needed, and can address various issues in a contract, so long as they stay within legal limits. On the other hand, both federal and state laws may sometimes require certain disclosures, so that one party doesn’t end up exercising an unfair advantage over the other.
Some transaction disclosure terms that should be included in a contract may involve:
- The Form of the Contract: The contract should be readable and clear for all parties. For example, most laws require that if a page of a contract has writing on both sides, the front side should contain a statement that says, “See other side for further information”, or a similar statement.
- The Nature of the Product or Services: Transaction disclosure terms are often required if a product has been altered from its original condition before the sale. A common example of this is where the odometer of a used car has been reset from the true mileage. For such contracts, the contract should contain a disclosure term regarding the odometer and the car’s actual mileage.
- Methods of Transaction: Some aspects of transactions need to be disclosed, especially those involving sales referrals. Many laws prohibit or limit “referral sales” (offering discounts or benefits for customers who make referrals to sellers). Thus, contracts should disclose a company’s policies on referrals.
In addition, general contract principles require parties to disclose information, if withholding such information might make the contract one-sided or unequal. For example, if the parties are mistaken as to a contract term, the party that has knowledge of the true meaning of the terms should generally make a disclosure regarding its meaning.
If a required transaction disclosure term isn’t included in a contract when it should be, it could lead to legal consequences. In most cases, the non-violating party may be entitled to a damages award to reimburse them for economic losses caused by the non-disclosure.
For example, under most state car sale laws, failure to disclose information regarding altered odometer readings is known as “odometer fraud”. Failure to mention changes to an odometer can result in the seller being required to reimburse the buyer for actual losses caused by the odometer fraud. This can amount to a damages award of up to three times the amount of actual losses suffered.
Contracts can often be complex legal instruments, even for simpler transactions. It’s to your advantage to work with a lawyer for guidance with contracts, especially when it comes to the disclosure of key terms. Having a business lawyer draft and review your contract can help make sure that your agreement follows all legal requirements. An attorney can also represent you during court if a lawsuit becomes necessary.