The BUSKLAW August Newsletter: Ethical Contracting and "Gotchas"

It's August - the dog days of summer. The time when the heat is to some of us a bother rather than a comfort. So as we enjoy our favorite adult beverage around a sprinkler, pool, or larger body of water, let's talk about a vital purpose of any contract: the promotion of trust and transparency between the parties. Or to put it another way: a contract should express the parties' honest business purpose in a clear and comprehensive way, with no sneaky surprises ("gotchas") that could someday surface to cause unforeseen problems. 

A short amendment to a contract between my client and a major vendor once crossed my desk. The purpose was to adjust the pricing formula of a commodity that my client purchased from the vendor. The parties had been doing business together for the last seven years without any problem requiring a lawyer's involvement. 

I was reading the amendment and was about to approve it when a section captioned Release caught my eye. There, sticking out like a Baby Ruth in the Bushwood Country Club swimming pool, was the provision that my client would unilaterally release the vendor from any and all causes of action, liability, claims, etc., “known or unknown, suspected or unsuspected… accruing at any time before the effective date of this Amendment.”

Whew! A unilateral blanket release favoring the vendor in a routine pricing amendment. Really? 

When I crossed out this section and returned it to my client (who then sent it on to the vendor), he was told that if we didn’t sign the amendment without the deletion within the next 48 hours, the new (and more favorable pricing formula) would not go into effect. I immediately emailed the vendor representative to ask if I could speak to his lawyer right away. And I told him in blunt but professional terms what I thought about including this section given the issue-free history of the parties' relationship. The release provision soon came back revised to how it should have read originally i.e., limiting it to only pricing discrepancies for the commodity that might have existed before the effective date of the amendment. (Even so, I received a sign-off from my client's merchandising and vendor finance departments that this language was acceptable given the fact that the goods were commodities with short payment terms and no promotional allowances.)

Including a unilateral blanket release without explanation is not ethical contracting. By this action, the vendor was not treating its customers with "dignity and respect" (a favorite phrase of the late, great Fred Meijer). I will never trust this vendor again (and neither will my client) and why should I?  If they tried to get away with this, what other “gotcha” do they have in their quiver to foist on unsuspecting customers?

A close cousin to a "gotcha" is deliberate contractual ambiguity. We'll examine this topic in an upcoming BUSKLAW newsletter addendum.