Conquering Contracts – A Plain English Explanation of Common Contract ‘Gotchas’

On August 15, 2013, Fried & Bonder hosted a webinar for its clients titled “Conquering Contracts – A Plain English Explanation of Common Contract ‘Gotchas.’” For those who missed it, below is a summary of the content.

We get it. Contracts are boring. But they’re also extremely important. Contracts pervade nearly every aspect of modern life: employment contracts, consumer contracts, housing contracts (leases and mortgages), insurance contracts, and so on. Georgia law is unforgiving to those who fail to read and understand the contracts they sign. Expect no relief from a Georgia court if you sign a contract that you didn’t fully understand or come to later regret.

In our experience, the typical consumer pays careful attention to those terms on the first page of the contract – the ones that explain, for example, how much their employer will pay them, or the amount of their monthly rent or mortgage payment, or how much their monthly insurance premium will cost. Often ignored are the legal-sounding terms at the end of the contract that too often profoundly impact the outcome of contractual disputes. Below is a plain English explanation of several such “end of the contract” terms that you should understand.

  • Arbitration Provision: An arbitration provision requires you to submit contractual disputes to binding arbitration. By agreeing to an arbitration provision, you forfeit your right to file a lawsuit for breach of contract and you also forfeit your right to trial by a jury of your peers. Filing fees to initiate arbitration are frequently higher than court filing fees, and may dissuade consumers from seeking relief.
  • “Attorneys’ Fees” Provision: In Georgia, as in most states, parties generally bear their own legal expenses when a contractual dispute arises. A typical “attorneys’ fees provision” alters the general rule by giving the prevailing party the contractual right to recover his or her attorneys’ fees from the losing party. Such provisions sometimes deter consumers from pursuing claims for fear of getting stuck paying the other party’s legal bill.
  • “Choice of Law” Provision: A “choice of law” provision identifies the state law that will govern resolution of the parties’ contractual dispute. A Georgia consumer who does not carefully review his or her contract may be surprised to learn that any contractual disputes will be resolved according to California, Florida or New York law. Such a provision becomes problematic when it comes time to hire a lawyer. Even though the consumer lives in Georgia, he or she may need to hire a lawyer from another state to pursue a claim.
  • Entire Agreement” Provision: An “entire agreement” provision renders meaningless any agreements or side deals that are not spelled out in the contract itself. Typical language reads “this contract constitutes the entire agreement between the parties and there are no other terms or agreements between the parties outside of those contained in the contract.” This prohibits a consumer from relying on representations (like a salespersons’ promises about the quality or performance of a product) that are not contained in the contract itself.
  • “Limitation of Liability” Provision : A “limitation of liability” provision typically limits the type of, and the amount of, monetary damages a victim may recover for breach of contract. Imagine you own a factory. Your equipment breaks down and you order replacement equipment which you need to operate your business. The equipment arrives two weeks later than promised, requiring you to close your factory—and lose substantial profits—while you wait on the shipment. Despite this, a “limitation of liability” provision might limit your damages to the price of the replacement equipment or it might specifically prohibit you from recovering your lost profits.
  • “Statute of Limitations” Provision : Georgia law establishes “limitations periods” for pursuing different types of claims. For breach of contract claims, a victim must file a lawsuit within six years of the date the breach occurred. But Georgia courts sometimes allow contracting parties to shorten the limitations period by agreement. Unless you carefully read your agreement, you may be surprised to learn that you only have one or two years to file a breach of contract lawsuit.
  • “Choice of Venue” Provision: A “choice of venue” provision identifies the state, city, county or court in which a lawsuit must be filed. Many consumers assume that because they bought a product in Georgia or signed a contract in Georgia, they can sue to enforce the contract in Georgia. A “choice of venue” provision may, however, require them to file their lawsuit in another state, such as the state where the other contracting party resides or is headquartered. Obviously, having to file a lawsuit in another state often makes litigation less convenient and more expensive.

We hope this overview has been helpful. Remember to carefully read any contracts before you sign them (no matter how boring), and never hesitate to contact a lawyer if you need advice interpreting the contract.

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