Sometimes being responsible for every aspect of a business means that some things have to fall through the cracks.
Here’s a common scenario:
In order for owner’s business to function smoothly owner needs “gadget” – so owner signs a long term contract for service provider to provide “gadget” without reading the fine print. Oops. Everything works out fine…until it doesn’t. Inevitably business owner discovers that “gadget” doesn’t work out the way he expected. He wants out. What is a business owner’s recourse?
I. Business Owner’s Options Might be Extremely Limited By the Contract He Unwittingly Signed.
Well, if he entered into a long term contract, his options might be extremely limited.
Business owner could have signed a document that included pages of “terms and conditions” that could include:
1. limitation of warranties
This could limit warranties to very narrow time frames and for very specific problems. It also could disclaim other warranties provided by law.
2. limitation of damages
This typically would look like a limitation of any damages to the contract price.
3. specific procedures to follow in order to recover your “limited damages”
This could include giving specific written notice to the service provider and giving them a time period to attempt to cure any problems before you can take any other action. Worse, this could also include penalties if you do not comply with the specific notice procedure, including paying their attorneys fees if they sue.
4. limited dispute resolution
This could come in the form of an “arbitration clause” mandating that any claim be brought to arbitration as opposed to filing a lawsuit. This could also include a “jurisdiction and venue” clause, only permitting you to bring your grievance in a foreign state.
5. limitation on when you can bring a claim
This could be a shortened statute of limitations period- for example, in Michigan you generally have 6 years to bring a claim for breach of contract, however, this could be limited to “one year” in the contract.
II. Best Course of Action: Review Contracts Thoroughly Before Signing.
The clear lesson in all of this is that you should review contracts carefully before signing. There certainly is value in having an attorney review an agreement that your business is presented with before you sign away your legal counsel. And they can make recommendations to revise certain extremely burdensome provisions, like the ones listed above, to make the agreement more even-handed.
However, what if you find yourself in the scenario identified above – you already signed and now there is a problem and your contract is extremely tight? This would be a situation where you would definitely look to legal counsel.
III. Legal Counsel Can Look For “Enforce-ability Problems” In the Contract.
Typical things that I would look at are “enforce-ability” issues – is there some reason in fact, or in the language of the contract, that would prohibit the service provider from being able to hold you to it?
These would include:
- certain provisions that are void by law. (illegal provisions are void and unenforceable)
- is a provision “unconscionable”? Is it so unfair that it shocks your conscience?
- was the service provider’s actions or damages “grossly negligent” or “reckless’ (as opposed to merely negligent)? If so, then any limitation of damage provision in the contract could be found unenforceable.
In business, contractual relationships usually work out. However, the longer you are in business, chances are a dispute will arise. Business owners are extremely busy, but carefully reviewing a contract ahead of time is well worth the headache and cost of trying to fight a “one-sided” contract that you unknowingly signed.