Failure to fulfill a contract is just that, and no more, ruled the U.S. Circuit Court of Appeals in California in January. Its decision in Robinson Helicopter Co. Inc. v. Dana Corp. prevented the helicopter manufacturer from raking in damages a lower court had awarded because Dana Corp. had sold Robinson Helicopter Co. Inc. faulty parts and then covered it up. Because other state courts have made similar decisions, the California decision fuels an emerging national precedent, say lawyers on both sides.
The decision is good news for entrepreneurs because it clearly defines the upside and the downside of a contract, says Edwin V. Wood-some Jr., the Los Angeles lawyer whose firm, Howrey Simon Arnold & White, represented Dana Corp.
It also means entrepreneurs need to check out their suppliers even more thoroughly, adds Edward J. Horowitz, the lawyer for Robinson Helicopter Co. Inc. "If your business is damaged due to a breach of contract, you may not be able to count on a court-ordered compensation to help you recover," he warns. "You can only recover the original amount covered by the contract."
Most entrepreneurs have a gut sense about which customers are demanding but profitable, and which ones are just a pain. Add a "complaints and returns" section to your customer database, advises retail consultant Jim Dion. That will let you see who's taking advantage of your desire to please.
In Dion's opinion, even the best customers can have a string of purchases that don't fit. But when you see someone coming in for the third time in a month with a just-purchased pair of shoes in one hand and the receipt in the other, it may be time to say "I'm sorry, but clearly there's something about our store that isn't right for you," says Dion. Then suggest another store that might be a better fit.
Dale Robbins, owner of Knoxville, Tennessee, golf shop Dale's Winning Edge and one of Dion's clients, says it's important not to give cranky customers ammunition to use against you with their equally demanding friends. After all, says Robbins, you never know when a demanding customer may suddenly come into some money and want to spend it with you. He almost brushed off one such customer, who ended up peeling off 26 $100 bills for a top-of-the-line set of golf clubs.
Joanne Cleaver has written for a variety of publications, including the Chicago Tribune and Executive Female.