Legalese: Purchasing perils
By Deryk CowardFeatures Business Intelligence
Quite often rental companies come to me with problems they are encountering with their suppliers. Through my practice, some common themes have emerged as to how and when rental companies get into trouble with their suppliers. In this article I share some of them with you, in the hopes that you can avoid the problems before they develop.
The first problem is not knowing who you are legally dealing with. You may be dealing with someone who says they are able to bind a company or some other legal entity, only to find out later that the person you were dealing with had no authority. You lose the deal, and in some cases never receive the product you thought you were purchasing. To make matters worse, in some scenarios you can lose whatever money you paid to the person with whom you were dealing. Not being totally aware of the legal entity you are dealing with can also lead to your being unable to hold anyone accountable in the event of equipment failure. If, for example, you buy a piece of equipment from a person not authorized to represent a company, when the equipment breaks down and needs repair or replacement the company may refuse to assist you.
The next key thing to remember is to identify key contractual terms before paying any money. It never ceases to amaze me how many rental companies become involved with third parties and pay significant sums of money before the key contractual terms have been negotiated and agreed upon. Before making any serious commitment to a supplier (or any third party), you should identify and agree upon the key terms.
Interest on overdue accounts is frequently mishandled. At the time you are agreeing to a contract with your supplier, they will often include a provision in their contract that you agree to pay interest on overdue accounts. The rate of interest is usually very high. Although you may have every intention of paying your accounts on time, there is no reason why you should agree to pay credit card interest rates to your suppliers on overdue accounts. The time to negotiate a zero-interest agreement is at the very outset of your contractual relationship with your supplier.
Conflicting recollections as to the terms of agreement make trouble. I know that a number of you have done business on a “handshake” for many years, and that a large number of agreements are not reduced to writing. This is not good practice and will eventually cost you money, time, and/or aggravation. If your agreement is not in writing, your supplier might have a genuine difference of opinion as to what the terms of the agreement entail. You may have had a positive arrangement with a supplier for a decade with nothing in writing, but when something negative occurs you may find out that you and your supplier don’t actually see eye-to-eye. Putting everything into writing makes things simpler for everyone, and allows the parties to govern themselves by the terms of the agreement. It will save you much time down the road, when you have a problem with your supplier, as both parties will know exactly what should happen. The documentation does not need to be lengthy and it does not necessarily require lawyers. It just needs to be clear as to the rights and obligations of the parties, and it needs to be signed by the parties.
Not considering the duration of an agreement is another pitfall. You will want to consider whether it is in your best interests to have a short or long duration of the contract. I have observed situations where a rental company is bound to continue purchasing product from one of its suppliers despite the fact there are better, cheaper options available.
These are but a handful of the types of issues that arise in your dealings with suppliers. Each situation is different, and requires an assessment on its own set of facts. Remember, nothing here should be considered legal advice for a specific situation. If you get into a dispute with a supplier, consult a lawyer licenced to practice in your jurisdiction.
Deryk Coward is a partner at D’Arcy & Deacon, a Winnipeg law firm. He is legal counsel for the Canadian Rental Association.
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