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Reading the Fine Print: Standardized contracts ease purchase agreements By Robert J. Kerwin, Esq. and John D. Finnegan, Esq.

Thursday, December 16, 2004

Using standardized contracts in business is not a new concept. Although this notion is not a particularly innovative one, contract standardization has proved an invaluable resource in streamlining transactions while maximizing the legal protection for all parties involved. In drafting a standardized contract, one should consider the nature of the industry and the subject matter of the contract, as well as existing statutory and common law restrictions imposed upon contractual relations within the industry. Although the industry utilizes many forms of contracts, one such contract that is a prime candidate for standardization is the purchase agreement.

A standard short-form purchase agreement should consist of six distinct parts:

  • Identification of the parties to the transaction, including identification of the transaction that is agreed to
  • A description of the subject matter of the contract. Within the radiology equipment remarketing industry the description would normally consist of a summary of the exact equipment to be sold
  • A description of the terms and conditions of the contract, including price or other consideration and payment terms, date and time for shipment and if the payment is expressly contingent upon the buyer being paid by the ultimate purchaser
  • A clause detailing remedies for late payment and non-payment, which specifies when payment is considered late, the remedies for such late or non-payment and a specification for liquidated damages, if appropriate
  • An acknowledgement of acceptance of the terms and conditions of the contract and
  • Signature lines for each of the parties identifying, which party is represented, the position held by the signatory and the date it was signed

If a long-form purchase agreement is desired, the following items should be included in addition to the parts outlined above:

Integration of Agreement, Non-Cancellation. Contains an integration clause specifying that the agreement is a complete and final expression of the agreement, which is non-cancelable and supersedes any prior agreement between the parties. This clause also provides that changes to the agreement must be signed by both parties, that the agreement will not be binding until signed by both parties and may be withdrawn by either party at any time prior to its execution.

Terms of Payment, Delivery, Late or Non-Payment and Default. Provides for the designation of the currency used in the agreement, as well as providing for price or other consideration and payment terms, including date and time for shipment or delivery. Provisions for refund of monies paid, in the event of a default on the part of the seller, may also be provided.

Deinstallation and Transportation. Designates where responsibility and liability lie for deinstallation, transportation and related costs, including liability for any damage to the equipment or the premises or any personal injuries that may arise in connection with the deinstallation.

Risk of Loss. Designates where the risk of loss from damage to the equipment lies, both prior to and after delivery of the equipment. In addition, this clause specifies at what point title to the equipment will change hands. (Note: Under Article 2 of the Uniform Commercial Code, if shipment by carrier is not authorized, if the seller is a merchant, the risk of loss passes to the buyer upon receipt of the goods.)

Limitation or Disclaimer of Warranties and Liability, Hold Harmless. Contains specific language limiting the liability of the seller to the damage terms set forth within the cause and limiting the warranties associated with the equipment to the provisions, if any, expressed within this clause. This clause may also be used to waive all warranties, such as merchantability or fitness.

Applicable Law, Arbitration, Litigation, Jurisdiction and Venue. Provides for the choice of law under which the terms of the agreement are to be governed and interpreted. This clause also provides for the submission to binding arbitration any controversy or claim arising out of the agreement or breach thereof. The terms of the arbitration are also set forth by this clause, including which association's rules will apply, the process by which the arbitrator(s) will be chosen, the payment of fees associated with the arbitration and the enforceability of any judgment or award of the arbitrators.

Also contained within this clause is a consent to jurisdiction and venue.

Confidential Information. Provides for the disclosure of such confidential information as is necessary to complete the transaction described therein, provided that such information will be maintained in strict confidence.

Liquidated Damages. This clause provides for liquidated damages (including legal or collection fees or costs) to be paid if this information is disclosed to or used to purchase goods from a third party. Liquidated damages are damages that a party agrees to pay in the event of a breach of contract. When the liquidated damage provisions are genuine and reasonable estimates by the parties of actual damages, they will be enforced. However, when the liquidated damage provisions are in the nature of penalties designed to ensure performance of a contract, because of public policy reasons, courts have historically deemed such clauses unenforceable.

Miscellaneous Provisions. Generally, this clause contains provisions for the definition of the legal effect, if any of extraneous language contained within the document, the effect, if any, of a determination that a provision within the agreement is invalid, illegal or unenforceable upon the remainder of the agreement and/or the effect, if any, of the forbearance of either party from enforcing the terms of the agreement.

Some deals are not always "cookie cutter." Hence, you should discuss the sale or purchase with a lawyer, even when proceeding with a standard contract.

- Robert J. Kerwin, Esq., is a shareholder in the law firm of Tarlow, Breed, Hart & Rodgers, PC, Boston. Kerwin has served as general counsel to the International Association of Medical Equipment Remarketers and Servicers (IAMERS) since 1995. John D. Finnegan is a senior associate in the law firm of Tarlow, Breed, Hart & Rodgers, PC, Boston. The thoughts expressed are the authors' own and do not necessarily reflect the views of IAMERS. Readers are encouraged to consult legal counsel when undertaking a sale or purchase. Comments or suggestions may be forwarded to or