By Joshua D. Feil, Litigation & Creditors’ Rights & Bankruptcy Attorney
Through our industry and practice groups, Saalfeld Griggs is fortunate to serve many clients that are “producers.” Agricultural clients throughout the Pacific Northwest produce grass seed, berries, trees, hops, and many other crops. Other clients mill trees into lumber or transform fruit into numerous goods. Because of the trust clients place in Saalfeld Griggs, we understand the time, effort, and planning required to be a “producer” in a complex and evolving business world.
After production, however, an important and often overlooked step arises to ensure payment for the hard work and effort that goes into producing goods. The exchange of documents in the form of sales contracts, purchase orders, and delivery confirmation documents can be crucial to ensure payment is received. Included in every well-drafted sales contract and other documents are “Terms & Conditions”—often colloquially referred to as the “fine print.” Because they are included in every contract for the sale of goods, it can be easy to overlook or forget about the terms and conditions—at least, until something goes sideways. Based on our experience, there are several things to consider when thinking about your terms and conditions:
- Disclaimer of Warranties. “Warranty” is a legal term that describes the representations a seller makes about a product that may later be used against the seller if the product does not conform to the stated representation. Sellers will often disclaim certain warranties in the terms and conditions. Some types of warranties—specifically, express warranties—can’t be disclaimed. Generally, express warranties are created by an affirmation of a fact or a certain description and must be part of the reason the parties agree to the transaction. While you won’t be in trouble for calling your product “world famous” or “the world’s best,” if you’ve represented that a crop is “organic” or “HMO free,” you can’t disclaim that assertion in the terms and conditions. There are also implied warranties applicable to the sale of goods that can be disclaimed under certain conditions. However, these disclaimers must be conspicuous (think bold text, all caps, etc.) and in some cases must be specifically named.
- Remedies for breach. The terms and conditions can limit the buyer’s and seller’s remedies in the event of breach by the other party. If you want to have an “exclusive” remedy, the terms and conditions should provide that the remedy is exclusive.
- Indemnification. Indemnification refers to a legal arrangement in which one party agrees to pay for the other’s losses and/or liabilities, shifting the risk of loss from one party to the other. Terms and conditions will often contain an indemnity provision, requiring one party to indemnify the other under certain circumstances. The wording of these provisions is key, and requirements vary from state to state. For example, Oregon distinguishes between specific and “broad but non-specific” indemnity provisions. If an indemnity clause uses a catch-all “any and all claims” standard, Oregon courts will use a legal test to determine whether a specific type of claim is actually covered under “any and all claims.” In other words, it won’t be certain which claims are covered and which aren’t. In contrast, the parties can specifically designate the types of claims covered by the indemnity provision and avoid surprises from a court’s interpretation. Some types of claims, like indemnification for a party’s own negligence, must be clearly, expressly and specifically provided for.
- Risk of Loss. The buyer and seller will often allocate the risk of loss between them in the terms and conditions. The wording of these provisions can determine how long the seller bears the risk of lost, destroyed or damaged goods, and when that risk shifts to the buyer.
- Termination. While most sales transactions begin with optimism, sometimes things go wrong. The terms and conditions will often provide a mechanism to terminate the contract when a transaction goes south. You should be aware of when and how termination can occur, and how losses associated with termination are allocated.
- Ambiguities. The general default rule is that when a court interprets a contract, it will construe any ambiguity against the party who drafted the contract. This rule applies to the terms and conditions. If you or your attorney drafted the sales contract and it contains an ambiguity in a key provision, the court will interpret the ambiguity so as to benefit the other party if the contract ever ends up in court. However, this rule can be specifically waived by the parties in the contract.
- Which law applies. Terms and conditions frequently include a clause providing that the law of a certain state will apply to interpretation of the contract. While laws governing the sale of goods are relatively uniform across the United States, there are often key differences. For example, Oregon law is substantially different from Washington related to security in transactions with agricultural products. Additionally, treaties may apply in international sales transactions.
- Where and how disputes are resolved. Parties often include clauses in terms and conditions that require disputes be resolved through arbitration or that the parties must attempt mediation before filing a lawsuit. Terms and conditions can also provide that any lawsuit related to the contract must be filed in a certain court (i.e., the Circuit Court for Marion County, Oregon or the Superior Court for Clark County, Washington). Depending on where you (or your attorney) or the other party (and its attorney) is located, these clauses can greatly increase litigation costs for one party or the other if they must travel a long distance to the designated location.
These are just a few of the items to consider while reviewing the terms and conditions of your sales contract. Sometimes the terms and conditions can also be used to ensure payment by preserving lien or other security rights you might have in the produced goods until paid. The attorneys at Saalfeld Griggs understand the unique challenges facing numerous industries and can tailor terms and conditions to meet those challenges. As the saying goes: “beware the fine print”!
Joshua Feil is an associate in the Litigation and Creditors’ Rights & Bankruptcy practice groups. The information in this article is not intended to provide legal advice. For a professional consultation, please contact Erich Paetsch or Joshua Feil at Saalfeld Griggs PC. 503.399.1070. [email protected] © 2018 Saalfeld Griggs PC.