By Christopher J. Lawhorn, Principal
Never before have businesses and consumers been bombarded with more things to buy, sign up for or join; and with each purchase comes a contractual agreement that includes the terms and conditions of the sale. The “fine print” of any contract, known to attorneys as “general provisions” and also known as boilerplate language, isn’t any fun to read. Usually found at the very bottom of a contract and generally filled with what many people deem abstruse “legalese,” the fine print is often overlooked and disregarded as standard miscellaneous provisions and clauses that have little significance. Nothing could be farther from the truth! The fine print is not only important; it’s a must-read before entering into any contract for goods or services.
WHAT’S THE BIG DEAL?
Neglecting to read the fine print could potentially do irreparable harm to a business and cost a lot of money down the road because every single word of a contract is binding, even the small ones. Do the provisions in the contract help you achieve your business goals? Are you sure no mistakes were made when drafting the contract? Does the wording reflect what was orally agreed upon? Are you fully aware of all your rights as stated in the provisions? That boring boilerplate language contains the answers to all of these questions and more and could also determine how a judge interprets your contract if you end up in court.
FINESSING THE FINE PRINT
Becoming a savvy surveyor of a contract’s fine print means knowing what to look for and understanding some of the most common provisions that a contract includes. Here are just a few of the terms that you’ll often see in the “terms and conditions” of many purchase and sales orders. Being informed about the “real deal” terms and conditions in a contract will keep you from becoming the victim of unnecessary and often costly surprises.
KEY PROVISIONS
- Warranty (the length and scope of a seller’s obligation to repair or replace)
- Assignment/Non-Assignment and Change of Control (limits on rights to sell a business)
- Indemnification (a buyer’s risk to cover a seller’s losses)
- Cure Periods and Notice Requirements (the ability and procedures to terminate if a contract is breached)
- Auto-renewal or Termination Notices (states that if a buyer accidentally fails to end an agreement, the contract will be automatically renewed)
- Limitation on Damages (the maximum amount recoverable as consequential, incidental or punitive damages if either party is in breach of the contract)
STANDARD PROVISIONS/BOILERPLATE
- Attorneys’ Fees (defines which party pays for lawyers’ fees and other costs arising out of a dispute)
- Interest Rate and Late Penalties (additional costs for late payments)
- Venue and Choice of Law (in case of a dispute between parties residing in different states, this clause determines which state’s law applies and in which state the dispute will be settled)
- Arbitration/Mediation (mandatory binding arbitration and procedures)
- Jury Trial Waiver (provides that both parties in a contract automatically waive their Seventh Amendment right to a trial by jury in case of a dispute)
- Others specific to your industry (i.e., insurance requirements, equipment returns)
HOW TO AVOID BEING A FINE PRINT FATALITY
When entering into any contract for goods or services, it is definitely prudent to remember the Latin teaching of caveat emptor, “let the buyer beware.” Unfortunately, according to a new Deloitte survey, more than 90 percent of consumers accept legal terms and conditions without reading them.
Here are 3 simple steps to becoming a member of the informed minority:
- Take time to read the entire contract. Often the most important aspects of an agreement are included in the fine print. Before you click or sign “I agree,” make sure you understand exactly what you are agreeing to do or not do.
- Educate yourself on the terms commonly found in the “terms and conditions” of purchase and sales orders. A little study upfront will avoid a lot of headaches in the end.
- Consult an attorney. Just because you should read the fine print, doesn’t make it easy or enjoyable. Attorneys are trained to sift through the minutiae, look for legal implications and help you mitigate any potential risks involved with a contract you are considering signing. From a distance, all the “boilerplate” provisions look the same, but what appear to be minor word changes are what ultimately tilt the leverage to one party and become the most litigated provisions. Because of the commonality of litigating the same issues, “boilerplate” provisions have become standard in most agreements.
A contract is the keystone of a business agreement and is meant to protect both the buyer and the seller. Don’t leave your business vulnerable by ignoring the contract’s fine print. Read it, understand it, and only then “sign on the dotted line.”
Christopher J. Lawhorn concentrates his practice in complex litigation. In addition to trial and litigation experience before federal and state courts, he has represented clients in bankruptcy courts and administrative tribunals across the United States. Chris counsels a wide range of businesses from multinational corporations to family-owned businesses, as well as financial institutions, manufacturing, professional medical organizations, retail, hospitality, automotive, and other industries.
This column is for informational purposes only. Nothing herein should be treated as legal advice or as creating an attorney-client relationship. The choice of a lawyer is an important decision and should not be based solely upon advertisements.
