Corporate Counsel

Operating under Indiana entrepreneurial law, I have seen a great number of contracts across my desk, and many for new business owners plunging into a world of negotiations.  Fresh out of the gate, it's important for savvy business owners to get up to speed quickly on essential provisions that should be included in their contracts.

For instance, for business owners who are retailers, wholesalers, or merchants who otherwise sell "property" (essentially, products that you can pick up and move), they are operating under the Uniform Commercial Code (UCC).  This is a uniform act passed by the Federal government to provide consistency between the states. 

Each state has adopted certain provisions of this act and incorporated into their state statutes, thus becoming state law.  In litigation, courts will abide by the state business law statutes and look to the UCC to fill any gaps that may be subject to interpretation.  Generally speaking, the UCC has been adopted fairly uniformly across the board with some discrepancies between the states, so it's important to understand how it may apply to your transactions while being aware of the local implications.

As an example, within the UCC, there is a definition for consequential damages, which are sometimes referred to as special damages that can open up a seller to a tremendous amount of liability if they don't negotiate this out of their contract with a disclaimer. 

While direct damages are exactly that, damages that are caused directly by a breach of a contract (such as the cost to repair or replace the item, loss of value to it, damages caused to the product), consequential damages are a step beyond.  Consequential damages are those that are:

1. reasonably foreseeable by the parties
2. at the time of contracting, and
3. caused by a breach of the contrac
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This is a factual determination that will be decided by the court, and could result in thousands of dollars in losses for a seller.  If a court decides that the buyer is awarded consequential damages, a seller could be forced to pay damages that would include loss of profits or revenue.  This could be exponentially higher than the cost of the product depending on the situation.

Don't get caught contracting without the proper terms in place to protect you, such as a disclaimer statement to consequential damages.  These disclaimers are often accepted by the courts as a reasonably negotiated term of an agreement and enforceable (depending on the jurisdiction). 

Business law firms like Alerding Castor Hewitt, LLP are here to help.  Give us a call.