11/27/2018 2018 Fall Corporate Counsel Seminar KEY ISSUES IN COMMERCIAL CONTRACTS Presented by Douglas C. Waddoups Disclaimer The information provided in this presentation has been prepared on a summary basis. This presentation is not intended to be, nor should it be, relied upon as legal advise nor does it address all of the factors or considerations that may be applicable. 3 39 1
11/27/2018 Table of Contents • What is the Contract • Allocating Risk • Dispute Escalation • Insurance Considerations • Practical Approach 4 What is the Contract Scenario One 7 What is the Contract—Battle of the Forms • What were the terms of the contract? – A contract is formed when there is an offer and acceptance • Common law…any different or additional terms in the acceptance = rejection • UCC (governing goods)…acceptance with different term is acceptable unless the offer made conditional on the stated offered terms • Some missing terms will not negate a contract – Will missing term of price negate a contract? – Will missing term of delivery date negate a contract? – Will missing term of quantity negate a contract? 8 2
11/27/2018 What is the Contract— Incorporation by Reference • Contracts may incorporate quotes, schedules, plans and specifications into the contract by reference if the intent to do so is clearly stated. – This can be a very useful tool • Even terms and documents contained on websites referenced in the contract may be incorporated by reference. • Care must be given to avoid incorporating into the contract unwanted or contradictory terms. 9 What is the Contract— Incorporation by Reference 10 What is the Contract— Incorporation by Reference 11 3
11/27/2018 What is the Contract—Parol Evidence • The word parol derives from “oral” or “word of mouth” in Anglo-Norman French • The parol evidence rule prevents the introduction of evidence of prior or contemporaneous negotiations and agreements that contradict, modify, or vary the contractual terms of a written contract when the written contract is intended to be a complete and final expression of the parties’ agreement. 12 What is the Contract—Parol Evidence • Some exceptions to parol evidence: − Terms not addressed − Terms that are ambiguous • Everything that is important needs to get into the contract (including by cross reference) 13 Allocating Risk Scenario Two 14 4
11/27/2018 Allocating Risk—Warranties (standard exceptions) Seller shall not be liable for a breach of warranty if: (i) Buyer makes any further use of such Products after giving such notice of defect; (ii) the defect arises because Buyer failed to follow Seller's written instructions as to the storage, installation, commissioning, use or maintenance of the Products; or (iii) Buyer alters or repairs such Products without the prior written consent of Seller. Seller’s warranties are further conditioned on: (a) Buyer keeping proper records of operation and maintenance during the applicable Warranty Period and providing Seller upon written request, access to those records; and (b) modification or repair of the Products only as authorized by Seller in writing. Seller does not warrant products or any repaired or replacement parts against normal wear and tear or damage caused by misuse, accident or use against the advice of Seller. Any modification or repair of Products not authorized by Seller shall render the warranty null and void. • Another standard exception from the warranty is for the cost of field work and/or the cost of disassembly or removal of equipment to get to the warrantied good. 16 Allocating Risk—Warranties (IP standard exceptions) No Products will be considered infringing under this Section 5 or elsewhere in this Purchaser Order to the extent that the claim of infringement is based, in whole or in part, on (i) Buyer's marketing, advertising, promotion or sale or any product containing the Products; (ii) use of the Products in combination with any products, materials or equipment supplied to Buyer by a person other than Seller or its authorized representatives, if the infringement would have been avoided by the use of the Products not so combined; (iii) any modifications or changes made to the Products by or on behalf of any person other than Seller or its representatives, if the infringement would have been avoided without such modification or change; or (iv) Seller’s adherence to Buyer’s specifications. 18 Allocating Risk—Warranties (disclaimer) EXCEPT FOR THE WARRANTIES SET FORTH IN THE CONTRACT DOCUMENTS, SELLER MAKES NO WARRANTY WHATSOEVER WITH RESPECT TO THE PRODUCTS OR SERVICES, INCLUDING ANY (a) WARRANTY OF MERCHANTABILITY; (b) WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE; OR (c) WARRANTY AGAINST INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS OF A THIRD PARTY, WHETHER EXPRESS OR IMPLIED BY LAW, COURSE OF DEALING, COURSE OF PERFORMANCE, USAGE OF TRADE OR OTHERWISE . 17 5
11/27/2018 Allocating Risk—Damages • Types of Damages: – Direct Damages • What a reasonable, ordinary person would expect the non-breaching party to suffer from a breach – Consequential Damages • What a reasonable, ordinary person would NOT expect the non-breaching party to suffer from a breach because to expect such damage would requires an intimate knowledge of what the non-breaching party has at stake – Punitive Damages • Awarded by a court to punish a party – Liquidated Damages • A reasonable forecast by the parties of damages (not a penalty) 19 Allocating Risk—Waiver of Consequential Damages Consequential Damages . NOTWITHSTANDING ANYTHING IN THE CONTRACT DOCUMENTS TO THE CONTRARY, AND CLAIMS RESULTING FROM GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY CONSEQUENTIAL, INDIRECT, SPECIAL OR PUNITIVE LOSSES OR DAMAGES OR ANY LOSS OF PROFITS OR LOSS OF OPPORTUNITY. 20 Allocating Risk—Liquidated Damages • Damages designated by the parties during the formation of the contract. • Must be a reasonable estimate of what the parties reasonably believe the damages will be. • Must not be a “penalty”…in other words, a contract could include a penalty for a breach and the breaching party could, in addition, be liable for damages. 21 6
11/27/2018 Allocating Risk—Liquidated Damages (i) The parties also recognize the delays, expense and difficulties involved in pursuing legal proceedings to prove the actual loss sustained by Owner if the Work is not completed on time…Contractor agrees to pay to Owner on request the sum of ten thousand dollars ($10,000) per day for every day beyond the Completion Date that the Contractor fails to achieve Completion of the Project… parties agree these are liquidated damages and not a penalty, and represent reasonable and good faith attempts by Owner and Contractor to ascertain the minimum damages that would be suffered by Owner in the event Completion is not timely achieved. 22 Allocating Risk—Limitation of Liability 1. Limitation of Liability . NOTWITHSTANDING ANY OTHER TERM OF THIS AGREEMENT TO THE CONTRARY, AND EXCLUDING ANY CLAIMS RESULTING FROM SELLER’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, OR SELLER’S INDEMNIFICATION OBLIGATIONS FOR THIRD-PARTY CLAIMS FOR WHICH SELLER HAS INSURANCE, SELLER’S MAXIMUM AGGREGATE LIABILITY, ON A PER OCCURRENCE BASIS, SHALL NOT EXCEED THE GREATER OF (I) $750,000.00 USD OR (II) 150% OF THE COMPENSATION PAID AND/OR PAYABLE UNDER THE PURCHASE ORDER GIVING RISE TO THE CLAIM. 23 Allocating Risk—Indemnification 24 7
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