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The Contract That You Didn't Know You Had

Jun 10

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6/10/2014 6:58 PM  RssIcon

THE CONTRACT THAT YOU DIDN’T KNOW YOU HAD

 

From time to time I give a presentation entitled “Don’t Try This at Home: How Do-It-Yourself Contracts Put You at Risk”.  In that presentation, I talk for a solid hour about the various ways in which you can get into trouble writing up your own contracts because you don’t know what you don’t know.  One of those ways is that you might not realize what contractual term the law will say is part of your contract, when you did not specify otherwise in your contract (and sometimes even when you did!).

This month, in recognition of my focus on working with manufacturing companies, Governor Deal’s proclamation that June is “Buy from Georgia Month”, and the holding of the second annual Georgia Manufacturing Expo at the Gwinnett Center June 13 and 14, I will use as an example a situation that comes up frequently in a manufacturing context – implied contract terms in a transaction involving the sale of goods.  In a sale of goods transaction, Article 2 of the Uniform Commercial Code will provide for many terms of a transaction when there is no contract providing otherwise, including certain warranties with respect to the goods.  Maybe not the sexiest topic, but I wanted to do something consistent with plugging the Georgia Manufacturing Expo and Buy from Georgia Month.

Let’s say you are the seller of goods and the fine print on the back of the buyer’s purchase order provides that by accepting the buyer’s order you warrant that the goods are merchantable, are fit for their intended purpose and do not infringe any patent, and that the order is conditional upon your agreement to those warranties.  However, you feel pretty secure because you had a lawyer prepare a form of order confirmation for you that provides in its fine print that acceptance of the buyer’s order is expressly conditional upon the buyer’s agreement to your warranty, which limits your liability and expressly disclaims any warranty of merchantability, fitness for a particular purpose or non-infringement.  You had the last word, right?

The Uniform Commercial Code does not go by who had the last word in this situation.  Under Section 2-207 of the Uniform Commercial Code, what has just happened is that there was no “meeting of the minds”, and the terms of the transaction are the default rules under the Uniform Commercial Code – which include the implied warranties and lack of limitations on liability that you very much did not want to give and you expressly disclaimed.

So what can a seller do to protect itself?  If the buyer is one with which you regularly do business, the best protection is a supply agreement that you both agree governs all of your transactions.  If a supply agreement is not feasible, then I have on occasion worked with clients to develop a protocol for how they are to handle the back-and-forth of the “battle of the forms”, but that only provides limited protection.

I hope to see you at the Georgia Manufacturing Expo June 13 and 14 at the Gwinnett Center, where you can become more aware of what products are manufactured in Georgia  - and therefore the purchase of which will contribute to the creation of Georgia jobs!

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