February 9th, 2017
Understand Contract Language to Avoid Legal Woes
You would never enter into a contract without knowing all of its terms, right? Surprisingly, it happens a lot, even to savvy business people. How many people want their sales grinding to a halt while lawyers argue over archaic and lengthy terms? Very few. As a result, many agreements involve less formal documents such as purchase orders and sales orders.
Much of the language is “boilerplate.” Each party’s terms likely conflict with the other party’s boilerplate language in their forms. This makes terms of the agreement, such as warranty or remedy provisions, unclear. If a dispute arises between the buyer and seller, determining whose terms govern the agreement triggers a “battle of the forms.” Let me explain by example.
Harsh Terms and Conditions
I recently received a call from a small window manufacturing company that we’ll call Casemaker Windows. The CEO, “Mr. Nervous,” frantically exclaimed, “I need your help!” After listening to several minutes of his stressful venting, I figured out that a buyer, “Mr. Sneaky,” was trying to assert harsh buyer’s terms and conditions against Casemaker that were included in the initial purchase order. The conflicting terms, provided last in the order of documents, required warranty terms far more burdensome than Casemaker’s standard warranty.
“You may have a problem here,” I said. “Did you read all of the buyer’s purchase order, including the boilerplate language at the end or on the back, before accepting payment and sending the windows?”
“Well, no, but I always include our boilerplate language, which has far more advantageous seller’s warranty terms in our sales orders. I thought my boilerplate language would ensure that Casemaker would be protected from ridiculous terms like this from buyers. I wouldn’t have gone through with the deal if I knew about the ridiculous seller’s warranty terms included in the buyer’s purchase order.”
Not exactly the answer I was hoping for. If Casemaker and Mr. Sneaky can’t agree on the governing terms on the seller’s warranty on their own, this issue will likely need to be litigated and determined by a judge.
I explained that once you’ve contracted with another party, even informally through purchase orders, where contradicting terms exist in boilerplate language, it’s impossible to determine whose terms will win and govern the agreement. This is because the situation requires the court’s intervention, so Casemaker may ultimately be ordered by the court to comply with the damaging terms.
Afterwards, I attempted to calm Mr. Nervous by explaining how to avoid this problem in the future. “It’s important to always read and understand all of the language included in purchase orders and other forms from other parties, and to draft your terms very carefully.”
I added, “If you’ve decided certain terms are essential to your agreement with the other party, it would be smart to negotiate the terms with them explicitly and then have them clearly consent to the negotiated terms in writing, all before executing the deal.”
Specifically, I provided advice on the Uniform Commercial Code protections, and how to maximize Casemaker’s contract rights and best protect its interests by avoiding, as much as possible, the battle of the forms.
Mr. Nervous said, “It makes a lot of sense to negotiate terms beforehand instead of hoping my boilerplate terms win out in the end. Thank you.”
“Anytime,” I said. “Now you can get back to focusing on growing your business while keeping your customers happy. Taking the right kind of precautions before executing a deal will allow you to avoid further battles of forms.”
And with that, Mr. Nervous was off to set a meeting with his sales department.
Chip Gentry is a founding member of Call & Gentry Law Group in Jefferson City, Mo. He can be reached at firstname.lastname@example.org.
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