Beware: Your Business Forms May Not Offer the Protection You Need

By Anthony C. Valiulis

The Illinois Supreme Court reminded us recently that, when it comes to disclaimers and other provisions, what is written is not always what's most important. More crucial, especially when dealing with business forms, is often where the words appear and when the language is made available to the other party.

In Razor v. Hyundai Motor America, the Illinois Supreme Court refused to enforce a clearly written warranty disclaimer designed to prevent an automobile buyer from recovering certain kinds of damages. Why? Not because it was etched in very small print or buried in the middle of a lengthy contract. Instead, the court held that the damage disclaimer was unenforceable ("unconscionable" in the court's words) because the auto dealer had placed the warranty disclaimer in the car’s glove compartment and failed to point it out before the sale had been completed. As a result, the buyer did not have access to the language until after the sale had been made and he had driven the car home.

Lesson Learned

The lesson this case teaches is far broader than its applicability to consumer warranties. Indeed, most businesses confront similar situations every day. How often, for example, do you send invoices after a sale has been made? These documents probably contain numerous disclaimers and other provisions, including a requirement for interest payments if the balance is not remitted on time. Like the warranty disclaimer in the Razor case, an invoice is usually made available after the sale has taken place. Depending on the circumstances, this practice can leave you vulnerable, raising serious questions about whether the provisions on your invoices are actually binding on the purchaser.

If a longstanding relationship exists, that course of conduct may establish the validity of a disclaimer. Or it may not. In addition, there's the age-old question of whose boilerplate provisions actually apply, the seller's or the buyer's. Illinois law calls this the "battle of the forms." It arises when a purchase order, for example, contains certain standard terms and conditions that may be different from the terms and conditions on the back of the seller's order acknowledgment form, which in turn may be different from the terms and conditions on the back of the invoice. If your forms don't incorporate the right language, you very well could lose this “battle” and your terms and conditions might not apply.

What Does This Mean for Me?

You may be asking yourself, "How do my company's forms stack up?" In our experience, most businesses have not reviewed their forms in years. Many of the provisions on the back (and front) of invoices, purchase orders, purchase acknowledgement forms and other so-called “standard” contracts are woefully out of date, along with the procedures and policies regarding them. Remember: Your forms are valuable business assets that should be evaluated on a periodic basis and updated, if necessary. When is the last time you reviewed yours? If you have to think before answering, it has probably been too long.

So let the Razor case be your wake-up call. If you want a particular provision to be part of your transactions, it may not be enough to simply include it on an invoice that is delivered after the sale has been made. At the very least, you should add the appropriate language to your purchase orders or purchase acknowledgment forms. The best approach really depends on your particular business, but all companies should heed the recent warning of the Illinois Supreme Court. Merely including the words within a written document may not be enough.

Anthony C. Valiulis is an accomplished litigator with 32 years of experience in a broad range of state and federal civil trial and appellate matters. A principal of the firm since 1979, Tony served as Chair of the Litigation Practice Group for more than 20 years. His practice encompasses complex business and financial litigation, concentrating in three major areas: business disputes, non-compete agreements and insurance coverage. He represents both plaintiffs and defendants, including individuals, privately held companies and publicly traded corporations, in the areas of business fraud, unfair competition, labor-related litigation, employment discrimination, trademarks, trade dress matters, business torts, toxic torts, technology litigation, securities litigation and RICO fraud. Tony can be reached at 312.521.2691 or javascript:ConfirmMail('tvaliulis@muchshelist.com');.

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