When a business makes a deal with another company, be they a supplier, a manufacturer, or an end user, the only terms most people think about are the type, quantity, and price of the good or service being bought and sold. The
remaining terms, often written in small print and located in dense paragraphs on the back of a purchase order, order acknowledgment or other types of prewritten agreements are often overlooked or dismissed as “boilerplate” language that really doesn’t matter.
When a dispute arises over the goods or service, however, the fine print often becomes the most important part of the agreement. Below are some helpful hints to avoid agreeing to terms that can come back to haunt you:
- Everything is Negotiable. The golden rule to remember in reviewing any prewritten agreement is that everything is negotiable. Indeed, courts will view your signature on an agreement as evidence that you have negotiated and agreed to each and every term. So, no matter how standard a pre written agreement, purchase order, or order acknowledgment may appear, read each paragraph closely and keep your pen handy. While you may find some agreements really are “take it or leave it,” do not assume this is the case. If you find something in the fine print that offends you, cross it out and place the burden on the other side to object to your changes.
- Warranties. The law provides that all products come with an implied warranty of merchantability-a guarantee that the product will perform as described. This implied warranty, however, as well as express promises about product performance made by a salesman, can be lawfully disclaimed by the seller. If you are selling goods, the disclaimer should be written in bold type and must include the phrase “WARRANTY OF MERCHANTABILITY” to be effective. If you are buying goods, read the fine print carefully for any such disclaimers and cross-out the same. In addition, if you are promised a warranty for a specific period of time, make sure it becomes part of the written agreement.
- Limitation on Damages. If something goes wrong with a good or service, the harmful consequences may extend well beyond the price of the good or service. Like warranties, however, a seller or service provider can limit the amount of recoverable damages to things like the “cost or repair or replacement” or the “total value of the contract.” If you are purchasing a product or service, make sure that you do not give up your right to recover any additional consequential damages your business may suffer as a result of a defective product or service. If you are a seller of a product or service, on the other hand, is wise to try to limit such damages to the cost to repair or replace the defective product or service so that you do not become saddled with every consequence that arises from a defect in your product or service.
- Attorney Fees. The decision to include an attorney fee provision in an agreement should be based on two factors: (a) the relative resources of each party; and (b) the nature of the potential dispute. For example, a landlord would generally want an attorney fee provision in a lease because, more often than not, a dispute between the landlord and tenant will involve the failure to pay rent, a cause of action on which the landlord is likely to succeed. If your business sells products on a cash basis, on the other hand, an attorney fee provision could encourage litigation by an unsatisfied customer that might not otherwise occur.
- Venue/Jurisdiction. The state and county in which litigation must occur is often the deciding factor in whether or not to pursue a claim against another party. Do not agree to a venue or jurisdiction provision that requires your business to file its claim in another state. The transactional costs associated with litigating on the west coast, on the east coast, or in a foreign country could make it difficult or impossible to justify filing an otherwise valid claim.
- Risk of Loss. If a product is being delivered by ground, air or sea, there is always a risk that the product could be damaged along the way. For the seller, it is important to shift the risk of loss to the buyer from the moment it leaves the warehouse. Obviously, a buyer should not agree to assume the risk of loss until the good arrives at your door.
- Dispute Resolution. Many pre-written agreements require that any dispute be resolved through private arbitration rather than through the court system. When deciding whether to include such a provision in an agreement, keep the following in mind. Arbitration is generally less formal and less expensive because it places the entire case into the hands of one person, the arbitrator. Trial is generally more formal and more expensive because it requires a judge, jury and, in most cases, a right to appeal.
- Give the Agreement to Your Attorney Before You Sign. The time, effort and cost of having your attorney review a contract before you sign is infinitely smaller than the time, effort and cost of having your attorney prosecute or defend a lawsuit that turns on the fine print.