To most small businesses, contracts are like indoor plumbing: you know what they are for and you know you need them, but you don’t really understand the mechanics and you don’t care to. And while that is certainly understandable for the busy business owner who just wants to sell services or buy product or construct buildings, courts in Ohio continue to remind us that businesses are fully expected to understand, and will be bound to, all terms of their contracts.
In Jacco & Assocs. Inc. v. HVAC, Inc., an HVAC contractor submitted a bid for a construction project, and included in the bid package was a proposal from a supplier of HVAC equipment to furnish equipment as part of the facility’s design. The contractor won the bid, and communicated its intent to the equipment supplier that it would proceed with an order for the equipment. After a few months, because it believed the order could not meet a particular delivery date, the contractor cancelled the order. The proposal’s terms and conditions had provided that the supplier was entitled to its costs in processing the order in the event of cancellation, which amounted to more than $20,000, which the contractor refused to pay. After trial, the supplier obtained a judgment against the contractor for its cancellation costs, plus 18% interest and more than $10,000 in attorney’s fees. The court specifically held that there was nothing unfair about how the contractor became bound to these terms. It was an agreement between corporations, and “[a] party to a contract is responsible for reading what he signs.”
Understanding the full scope of what you are signing, or what you are agreeing to by ordering or selling anything, is paramount. And realize that a party need not actually sign a contract to be bound to its terms. So every business must fully comprehend the written agreements that it receives from its customers or vendors, as well as its own agreement forms. As part of that, your business must have a procedure in place to review and understand each contract that comes in the door or leaves the office, before it gets signed or the order is made. We routinely assist businesses every day in developing such procedures, reviewing agreement forms, and assisting in negotiating contracts.