Contracts rule our world. Almost every relationship or transaction you have with another person is based on a contract. Your property, checking account, credit card and even your doctor’s appointment are all defined by contracts. It doesn’t take much to create a contract, and the agreement doesn’t always have to be in writing. It can be enforceable without your signature. All you need is an offer and an acceptance. The simple act of ordering or accepting will suffice.
For the most part, contracts that deal with basic matters will be short and simple. But when contracts deal with commercial matters, watch out. Commercial contracts are always drafted by vendors, and it should come as no surprise that they use the wording to their advantage and to your disadvantage.
That’s why commercial contracts are always complex and difficult to understand. Most people don’t read the words. They assume vendors will treat them right. And if not, the courts will. That assumption is wrong. If something goes terribly wrong, don’t expect the vendor to help you. And don’t look to the court. The court will assume you read the contract and will enforce it. The end result can be very costly.
Let me give you an example.
Say you purchased some equipment for your business for $5,000. You expect the equipment to last 15 years, but it proves defective and causes production to shut down. That failure costs you $15,000 in profits and $10,000 to buy and install new equipment. Under the law, you have a claim against the vendor for $25,000. However, under the vendor’s contract, your claim will be a whole lot less. How much less? Keep reading.
Here are some clauses that vendors use to stick it to you, and where to find those clauses:
Limitations on warranties
A vendor’s liability is measured by the warranty he gives. A warranty is the vendor’s promise of what his product or service will do. Vendors want to promise as little as possible. Look for clauses that reference “Disclaimer of Warranty” or “Limitation of Warranty.” Often these clauses will be in bold type. If a warranty doesn’t promise what you expect, walk away!
Exclusions of liability
Products and services do fail. When they fail, you may sustain a loss, and vendors want to limit their liability. Vendors like to exclude liability for specific losses, such as loss of profits and incidental and consequential damages. They may also limit their liability to
the price paid for the product or service. Look for clauses that reference “Limitation of Liability” or “Exclusion of Liability.” Frequently they are in bold type.
Limitations on remedy
Vendors also like to limit your remedy by setting up hurdles. You may have to file a written notice of your claim within a specified time. If you don’t, you forfeit your claim. You may also have to file your claim where the vendor is located or submit to arbitration.
Look for clauses that reference “Actions against Vendor” or “Event of Dispute.”
Costs and expenses
Vendors also want to avoid the costs of processing your claim. You may have to pay shipping costs or processing and restocking fees. Often you may have to pay the vendor’s attorney fees should your claim fail. Think about that. Look for clauses telling you how to return products or clauses that reference “Costs.” They are usually found near the end of the contract.
Printed in Four Rivers Business Journal (Paducah Sun), July 2008