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Business Law

Language to Watch Out for When Entering into Contracts

In your day to day activities, you frequently enter into contracts for a variety of goods and services, such as product purchases, landscape work, maintenance and repairs and trash removal, among others. When entering into such contracts, it is important for you to carefully examine the fine print, not just the dollar amount listed on the front page. The fine print or backside of many contracts frequently contains the most important language. Some of these provisions can be detrimental to you if not carefully understood. Similarly, some of these provisions can be negotiated and modified if you make such a request.

Many contracts have provisions that limit the warranty or provide limitations on liability. For example, you may be paying $200 for a roof inspection of your building. However, the fine print in the contract may provide that if the roof inspector fails to identify all of the problems (i.e. is incompetent or negligent), your remedy is limited to the return of the $200 fee you paid, even if the inspector failed to identify an obvious condition that will now cost you $50,000 to remedy! These provisions can often be eliminated or negotiated. Some contracts provide that if there is a dispute over payment, services rendered, the goods provided, etc., the dispute must be resolved in a distant location, such as New York, and applying the laws of that State. I always recommend that if goods or services are being provided in the State of Arizona, the jurisdiction and venue for resolving any dispute should be in Arizona, and in particular, in the County where you are located. The contract should also provide that it is governed by the laws of the State of Arizona.

Most contracts contain a provision that states that all of the terms and conditions of the contract are contained in the written portion of the contract and that there are no other agreements or promises that are applicable. Thus, even though a salesperson may make numerous verbal representations and promises to you, those representations and promises may not necessarily be binding and may not be part of your contract. Verbal representations by salespeople frequently occur and can become a problem when you seek to enforce the verbal promises at a later time.

Many contracts contain a provision stating that all disputes shall be resolved through arbitration, as opposed to through the court system. Depending on the circumstances, arbitration may indeed be a more cost effective and efficient way for resolving disputes. However, that is not always the case and there are pros and cons of arbitrating disputes. You need to discuss this concept with an attorney if it is contained in an important contract.

Many contracts also have a provision that allows the party supplying the goods or services to recover their attorneys’ fees and costs against you in the event of a breach or dispute, but the contract does not give you the same right to recover your attorneys’ fees and costs against the other party should they breach the contract. Out of fairness, any such rights should be made mutual. If the supplier or contractor breaches their obligations and you are victimized, you should likewise be able to recover your attorney's fees and costs.

No matter how simple the task or the contract, entering into a contract is serious and sometimes deceptively tricky business. In addition to the written language in the contract, it is often equally important to note what is lacking in a contract. For example, many contracts do not prohibit the provider of the goods or services from assigning the contract to another party. Thus, you may have contracted for waste removal service with Joe Smith’s Waste Removal Company, with whom you are familiar and who has a good reputation for providing quality services. A few months later, to your surprise, you observe that the garbage trucks coming to your business are now from Bob Brown’s Waste Removal Company, which may not have a good reputation and or perform quality work. You then learn that Joe Smith assigned your contract to Bob Brown. If the contract does not prohibit such assignments, such conduct might be legal. I therefore highly recommend that all contracts contain a provision that precludes the provider from transferring or assigning the contract or obligations to any other party without your written consent.

Another example of language that is often missing is the applicable standard or quality level to be followed. In a contract for providing services, the standard to which the work is to be performed should be specified. Depending on the type of service being rendered, there are varying levels of performance which could apply. Without specifying the applicable standard for performance, you may be expecting the work to be performed to the highest standard which might be applicable, while the contractor or provider may be performing to the lowest standard.

If a supplier of goods or services is reputable, they will typically be agreeable to a fair contract with you, even if it requires making some modifications to the boiler plate language printed on their forms. You therefore should not hesitate to ask questions about the content of the contract terms and to request modifications if appropriate. If a contract is of importance, you would also be well advised to have it reviewed by an attorney who can promptly spot such issues and bring them to your attention.

This article was originally published in 2008.

 
          

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