Contract Hygiene: Five Healthy Contracting Habits (Part 2)

In this recent post I discussed some habits that businesses can adopt to increase their contract hygiene. These practices, which can improve a business’s health, are inexpensive and effective, yet often neglected.

To recap, the first three habits are:

  1. Negotiate before you sign.
  2. Give important contracts special attention.
  3. Don’t sign the other side’s boilerplate terms and conditions.

In this post, I’ll discuss the other two habits.

4. Send your own terms and conditions

Like habit number 3, this practice involves doing business via purchase and sale documents containing “small print” boilerplate rather than fully negotiating a contract. Typically, the purchaser submits a purchase order with unreasonably one-sided terms printed on the back (or the electronic equivalent) and the seller sends an acknowledgement containing its own one-sided terms. The small print terms are not agreed upon, and likely never even read.

If there is a dispute in a transaction involving the sale of goods, section 2-207 of the Uniform Commercial Code helps determine the actual contract provisions. Generally, the contract terms will be a combination of the seller’s boilerplate, the purchaser’s boilerplate, and “gap filler” provisions supplied by statute. If you fail to include your own boilerplate terms and conditions, however, you greatly increase the likelihood that the other side’s onerous small print terms will control.

5. Make sure the other side is aware of important “small print” terms

Some boilerplate terms seem to have a special legal status when it comes to enforceability, especially when a contract involves either a consumer or a large disparity in bargaining power. Some of the provisions that seem to be disfavored by courts are arbitration provisions, limitations of liability, and indemnification provisions.

Since notions of unconscionability and “unfair surprise” often come into play, you can increase the likelihood that your contract provisions will be enforced by ensuring that the contracting process is fair. Placing a prominent notice on the face of the purchase or sale document, verbally pointing out the provisions to the other side, and even having the other party initial key provisions have been effective.

In Category: Contract Law Basics and Tips

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