CONTRACTS: THE BACKBONE OF SUCCESSFUL BUSINESS

CONTRACTS: THE BACKBONE OF SUCCESSFUL BUSINESS
By: Peter J. Lamont, Esq.

Far too often kitchen and bath companies overlook the critical importance of utilizing comprehensive contracts as part of their routine sales practices. Many companies imprudently rely upon purchase orders, invoices as a contract, and verbal agreements. While using these agreements may initially free up time to allow you to develop leads and generate sales, it will undoubtedly cost you far more time and money when a customer decides to challenge your purchase order or worse, sue you.

A properly constructed contract can bind your customers to your terms, explain your procedures and protect you from litigation. The problem with purchase orders and the like is that they typically fail to address necessary issues such as indemnification, delays, curing a contract breach and basic information about the limits of the company’s responsibilities. Additionally, they will almost never address company specific issues such as shipping, storage and installation costs.

Proper sales and installation contracts are truly the backbone of any successful kitchen or bath company. Without a good contract, your company is exposed to a variety of claims including consumer fraud claims. While it is recommended that you obtain the advice of a competent contracts attorney, there are some software products and form contracts (ex. AIA) that can help you construct a legally enforceable contract aimed at preventing or limiting litigation. Keep in mind that form contracts will need some tweaking to make them specific to your business.

If you are preparing your own contracts you should, at the very least, include the following issues: (1) contract price; (2) payment schedule; (3) cancellation; (4) delivery; (5) warranty; (6) installation; (7) limitations of liability of seller; (8) storage; (9) remedies for breach and choice of law; and (10) duties and responsibilities of the seller.

Another critical factor in creating a legally enforceable contract is to express the terms and conditions in simple, everyday English as opposed to verbose legalese. Just because a contract contains mind-bending legal gibberish and archaic words such as heretofore, inasmuch as, and aforementioned, doesn’t make it a better contract. In fact, for most contracts, legalese is not essential or even helpful. It is a far better practice to use clear, concise and easily understood language in your contracts.

It is critical that you give your contracts the time and attention needed to provide adequate protection for your company. Any up front expenditures of time and/or money involving the formation and preparation of your contracts are dwarfed by the amount of resources that litigation consumes. Thus, if you are truly interested in maintaining a profitable business, make certain that your contracts are clear, complete and legally enforceable.

Remember, any consumer litigation filed against you will involve the Court’s analysis of your contract. A strong contract could result in the early dismissal of a frivolous lawsuit, and in some states allow you to recover your costs and fees associated with your defense. Conversely, the lack of a well written contract could result in protracted and costly litigation, which would ultimately be settled or submitted to a jury for trial.

Prepare thorough contracts, using clear and simple language and review them periodically. Doing so will ensure that your time and efforts are spent selling your products and services, instead of attending depositions and trials and coughing up thousands to settle claims.