Contracts: Are You Reading The Fine Print? – Corporate/Commercial Law

United States:

Contracts: Are You Reading the Fine Print?

November 16, 2021

Parsons Behle & Latimer

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The legendary rock band Van Halen required concert venues to sign a detailed contract before the band agreed to a performance. A now infamous regulation required the band’s host to deliver very specific snacks, especially M & M®s, strictly excluding any brown pieces. They even went so far as to claim that brown M & M®s spotted in the backstage area could lead to the concert being canceled. Lead singer David Lee Roth stated that the purpose of this clause is to determine whether a concert promoter has read the contract carefully.

How carefully do you read your contracts? Corporations regularly sign a wide variety of contracts – supply contracts, service contracts, rental contracts, and sales contracts, to name a few. While these contracts are unlikely to contain a “No Brown M & M®s” clause, they often contain unexpected provisions buried deep in the fine print that could prove problematic in the future and should be carefully monitored. The following is a non-exhaustive list to consider:

Automatic renewal

Has your company ever tried to cancel a contract only to find out that the contract would automatically renew for another year? Vendors often try to extend contracts for a longer term by specifying the language of the automatic renewal, unless the non-renewal is communicated in writing within a certain period (usually at least 30 days before the current term expires).

Exclusivity

Feel free to work with your supplier, but is your company really ready to be exclusive? Suppliers can offer discounted prices in exchange for an agreement to buy certain products only from them. If this is your situation, be careful. Products should be bought from a supplier because the supplier has won your trust, not because you are contractually excluded from purchasing from others.

Damage cap

Should a company agree to a limit on damages from breach of contract? The concept is relatively standardized, but watch out for two things: First, make sure that the size of the cap is enough to fully compensate your organization for damage resulting from a breach. Second, a damage cap should be subject to standard exemptions (e.g., the cap should not apply to a party’s indemnity obligations to a third party).

Contractual limitation

How quickly are you ready to initiate legal proceedings in the event of a dispute? All jurisdictions have statute of limitations that determine the time during which a party to a dispute must initiate legal proceedings. However, many contracts try to shorten this period. A contractual statute of limitations can lead to the rejection of an otherwise valid lawsuit.

Venue

How far are you willing to travel to sue for breach of contract? Many contracts contain an exclusive jurisdiction clause that requires that all lawsuits aimed at enforcing or interpreting the contract be brought in a specific jurisdiction. These provisions are usually designed to give the seller a home advantage.

termination

Can you terminate a contract conveniently or only when certain specific events occur? The right to terminate a contract for convenience, for example when you are no longer satisfied with the contract, can solve many potential problems. But even if a contract claims to grant this right, make sure there are no penalties for exercising it.

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.

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