Contract Templates: False Sense Of Security

PurchTips - Edition #82 August 23, 2005

By Charles Dominick, C.P.M., SPSM

Are Your Template-Based Contracts Enforceable?

If a supplier signs your contract, that supplier is legally bound to the obligations within that contract, right? Before you answer, let's talk about adhesion contracts.

An adhesion contract, defined in Jones v. Dressel, 623 P.2d 370, 374 (Colo. 1981), is a contract "drafted unilaterally by a business enterprise and enforced upon an unwilling and often unknowing public for services that cannot readily be obtained elsewhere. An adhesion contract is generally not bargained for but is imposed...on a take-it-or-leave it basis."

So adhesion contracts are like those you accept when you park your car and receive the claim check which purports to waive your rights. Pre-printed forms. Small print. You’ve undoubtedly seen many of them.

According to ReevesJournal.com: "The courts have interpreted and enforced adhesion contracts differently from ordinary contracts - the provisions buried in the contract have been found to unexpectedly and often unconscionably limit the obligations and liability of the party drafting the contract." Contracts and clauses within a contract found to be unconscionable are not enforceable. Contracts that are very one-sided are often considered unconscionable.

Today's supply chain managers regularly use contract templates with their suppliers. And the templates of larger companies, who are financially stronger than their suppliers, often share the characteristics of one-sided adhesion contracts common to those used between large companies and consumers.

So, could your contract template be unenforceable?

"Forms and templates should always be used cautiously" said Ernest Gabbard, Director of Corporate Strategic Sourcing for Allegheny Technologies and also an attorney. "It is always best to negotiate and reach agreement on the controversial clauses, to ensure that all elements of the contract are enforceable."

This article is not intended to be legal advice. Laws differ between states and countries. Always consult an attorney when dealing with contractual matters.

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