Ohio Consumer Law Blog
Information on Ohio's Consumer Laws from Attorney Daniel Myers, Myers Law, LLC, not legal advice
Three “Legal-ese” Contract Phrases that Every Consumer Should Know
By Daniel Myers
A contract is just a deal. You enter contracts every time you buy something, whether you buy a home, a car, construction services, or a lemon. If you work for a business, you may end up making contracts without even realizing it through talking over the phone with people who buy or sell things from or to your business. Because we all frequently deal with contracts, it’s important to understand some common and commonly misunderstood technical legal words that are associated with contract law. If you read the fine print in a lot of consumer contracts, chances are you’ll see at least one and maybe all of these big three words.
Arbitration
Arbitration clauses are very common today. If you agree to “binding arbitration” or “final arbitration” in your contract, then you are generally agreeing to resolve legal problems that come up without going to Court, seeing a judge, or having a jury trial. The arbitration process involves you and the other party to your contract sitting in front of an arbitrator, a person who decides your case, who may or may not be a lawyer or trained in the law. The arbitrator could be another business owner. The process is quick and costly for consumers, with very little rights or protections you would normally find in court.
Arbitration has some pros and cons. The good aspects generally help businesses, the bad aspects generally hurt consumers. On the plus side, arbitration is faster and almost always cheaper than going to court, at least for the business. It is usually more expensive for a consumer. A construction arbitration under the rules of the American Arbitration Association could cost a consumer as much as $6,000 to file, even though filing a lawsuit costs only $250 or $300. Arbitration limits some remedies the law might otherwise give you. You cannot appeal to a court or another arbitration panel simply because you do not like the decision, meaning the result is quick, but many times not painless. Arbitration also eliminates discovery that happens in court cases, where each sides exchanges relevant documents in their possession, that could help make or break your case.
As a consumer, you should always read the contract, and if you see an arbitration clause, stop and ask questions, see if they will negotiate it away, or cross it out entirely before you sign it. Don’t sign it and then ask about it—that may be too late.
Disclaimer of Warranties
Many contracts for the purchase of property, such as cars, homes, and boats, include a term disclaiming all warranties. Sometimes you will see this in ALL CAPS in the agreement. Otherwise you will see the words “as-is” or something similar. A Disclaimer of warranty eliminates protections you otherwise would have, including legal guarantees that the product will be useful for your intended use, that it will be free of defects, or that it can be resold. This can really cause you problems in a contract.
If you agree to buy a car because the seller orally told you “the car is in excellent condition, no mechanical problems, never been in an accident, never been flooded,” and later on you are handed a purchase agreement that says the car is “as is” and no prior warranties were made, watch out! Do not sign that document unless you note on it the oral warranties that were made to you, and the seller agrees to include them. Otherwise, you could run into a problem later when you find out the car has been in multiple accidents and is a lemon.
Liquidated Damages
When someone fails to comply with a contract, that contract might include “liquidated damages” which state how much the party breaching the contract has to pay the other party. A liquidated damages clause is supposed to reasonably predict the amount of damages that would occur. For example, a liquidated damages clause might say “if you fail to pick up the vehicle on ____ day, you are charged $50 per day in storage fees.” Or it might state that if you try to get out of a home improvement contract, you forfeit your down payment or agree to pay money to the contractor. Sometimes, these liquidated damage clauses are penalties and are not enforceable and not valid under Ohio law. Other times, they are perfectly reasonable and enforceable.
Courts will usually find liquidated damages clauses fair and enforce them. However, if the amount seems to be outrageous under the circumstances, such as a $1,000 liquidated damage for not paying your $450 payment on time, an attorney can argue that the court should not enforce the clause because it was too one-sided and really acts like a penalty, which courts will not enforce. You should be in the lookout for these clauses in all types of contracts, like car financing agreements, construction contracts, rental agreements, and even employment contracts.
Before you enter into any contract, depending on the money and risk involved, it’s usually a smart idea to have an attorney look things over. If you’re already a party to a contract and the other side claims it is protected by an arbitration, disclaimer, or liquidated damages clause, you should contact an attorney before it is too late.
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