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Hey everyone I hope you are ready for Thanksgiving (and for fowl talk, as I will be talking chickens today), and because I will be so stuffed with stuffing I will not be doing a Draw the Law this Friday. However, let’s get to some provisions that you see all the time, interpretive clauses.

What are They?

These clauses provide the reader some indication on how to read the agreement. The point of these is to pigeonhole the interpretation, and to insure that there is only one preferred method of enforcement. Why?

The Rule: Contra Proferentem

The goal, and it is usually the drafter, wants to avoid certain court rules. There is one in particular the drafter is trying to get out of, and that is ambiguity is construed against the drafter. When there is a dispute, a court will find a contract term ambiguous if it is interpreted as to have more than one meaning. In those situations, the ambiguity cuts against the drafter. The rationale is that the party preparing the agreement is deemed to have more knowledge of the intent of the parties.

For example, if you said “I want to get chickens from the country.” Most people would assume probably that would be out in agricultural lands where there are a lot of farms. However, a lot of people who have English as a second language would ask “Which country?” meaning another foreign state. If you are a parent, and your child says, “I want that one” while pointing to balloons, and you grab any balloon thinking that will satisfy their desire, but in actuality they wanted the red one, you have seen (and heard) what ambiguity does when they start crying.

Types of Interpretive Clauses

So what do you do if you are drafting the contract?  You turn to interpretive clauses. These clauses tells a reader, which may include a court if there is dispute, that there is only one way to read the terms in the agreement.  Here are some types of interpretative clauses:

  • Headings – whenever you get a long contract, drafters like to make it easy for you to read, so they include headings. However, the headings are merely reference guide and the drafter uses some language to say that the headings are not intended to affect the interpretation of the agreement.
  • Defined Terms – why do contracts read like an encyclopedia or dictionary? It might be because often times in the beginning the drafter has laid out the meaning of every word. In a lot of complex and abstract industries, drafters like to tell the other side what trade terms mean because it tries to clear the ambiguity. Therefore, in a marketing services contract it might be understandable to see that the term “social media” is defined, and it may be limited in a contract to mean only “Twitter, Facebook, and Linkedin.”
  • Person – this really belongs under “Defined Terms”, but I want to touch upon it specifically to get people in business to realize that if they have a LLC or corporation that is a separate entity, and that is because this clause usually state that the word “person” means persons in the singular and plural, is not gender specific and includes companies, unincorporated associations and partnerships. Therefore, in an agreement, where that is defined “person” may not be referring to a living, breathing human, but the corporate entity.
  • Gender-neutral – speaking of gender, many drafters would like to avoid sexist overtones or making it so that the agreement only applies to one gender, so if they use “he” or “she”, they may include a statement that says use of a specific gender, really means both.
  • Mutual Drafting – this provision is used to deal with the rule that ambiguities are construed against the drafter by making it seem that both parties had a hand in the contract. In those cases they will throw in a mutual drafting clause, like this one:

The parties are sophisticated and have been represented (or have had the opportunity to be represented) by their separate attorneys throughout the transactions contemplated by this Agreement in connection with the negotiation and drafting of this Agreement and any agreements and instruments executed in connection herewith. As a consequence, the parties do not intend that the presumptions of laws or rules relating to the interpretation of contracts against the drafter of any particular clause should be applied to this Agreement or any document or instrument executed in connection herewith, and therefore waive their effects.

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*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Following in the vein of making agreements with customers or clients, and then warranting or disclaiming your products and/or services we come upon one the most important parts to your business, how do I get paid?
Obviously, in a tight economy cash is king, and having cash today as opposed tomorrow is princely. However, nowadays in the world of plastic and convenience many businesses accept some sort of credit payment.

Today I am going to focus on just the idea of accepting credit, but before we get to that let’s set-up a general framework for thinking about credit.

What is it Credit?

Credit is a payment option other than cash upfront. It includes like I said credit cards, promissory notes, and checks.

Who would I Accept Credit Payment From?

This is really up to you, and you should consider some sort of internal payment policy that handles cash payments, credit payments, extension of credit and debt collection, etc . . . based on the trade or industry you are in. That being said there are two groups of people to think about in the credit situation, your consumers and then your commercial clients.

Clearly, the former has a variety of payment options and their transactions tend to be smaller and quicker with you whereas the latter, due to their involvement with you may require a more formal type of payment system. In the commercial case, consider the size of payment owed to you and frequency of good and/or services flowing from you to them. They may not have cash on hand to pay on receipt of the goods and/or services from you because they in turn need to finalize it to someone else further down stream.

What are the Types of Credit and Some Concerns Accepting Them?

  • Indirect Credit – is you will receive payment indirectly from the customer/client through a 3rd party, such as a bank with checks or an issuing credit card company through its cards.
    • Checks – you will have worry about fraud and insufficient funds situation, in addition be wary of “Paid in full” on the check, as that may be legally binding.
    • Credit Cards – you are playing on the terms of the credit card service, so always check what the fees and policies are, as you might have to past those cost onto your customers if they eat too into your profit. PayPal operates similarly, as it deducts fees when you take the money from your PayPal account and get a check or deposit into your tied in bank account.

  • Direct Credit – this is where you would extend credit directly from yourself to the customer, and is easily seen in the situation of appliance or electronic stores for big-ticket items. This can certainly increase sales, and the financing charges can become and additional source of revenue. However, realize you expose your business to several laws, namely the Truth in Lending Act, the Equal Credit Opportunity Act, FTC Credit Practices Rule, and the Fair Credit Reporting Act (as well as any other applicable state laws).
  • Other Credit Types – commercial credit (B2B situations), contracts, and promissory notes all provide more formal and long term arranges to accept payment. However, more formal means longer processing times, review processes, and even the help of legal counsel to negotiate and reduce the terms in writing. However, having a formally pay system in place probably means a sustainable cash flow and good business relations with the other business for the long term.

Policy and Planning

What does your financial plan call for? Do you want more sales? Then you might want to have a robust credit acceptance policy, but you should be aware you will not be able to get all that credit (and will need to go to debt collection), plus there are administrative costs and legal oversight to worry about.  While cash is the safest form of payment it sometimes is unlikely in this day and age to have it be your sole payment system for many types of businesses. The existence of many smartphone apps to accept credit cards and use of systems like Paypal may certainly provide ways for businesses to avoid the higher cost of merchant fees on traditional credit cards. The bottom line is that accepting credit does requiring some planning and foresight.

In the following weeks, I will take a look at some of the legal concerns with extending credit, contract law issues (also be covering Boilerplate Blurb), and debt collection.

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*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Hey contract junkies you are in luck this week’s Draw the Law and next week’s Boilerplate Blurb will give you a double shot of disclaimer information.
If you are a small business owner drafting your own agreements or have an attorney doing them for you, you definitely want to have an idea about what are the expectations a customer is supposed to have about your product. One way you manage those expectations is through disclaimers of the warranties I discussed last post.

Requirements of a Disclaimer

Recall that warranties of merchantability and fitness for a particular purpose means that the seller is saying that their product will do what it is supposed to do and it will serve a particular role. Many times salespeople or advertising may puff a product a little too much, and the maker or seller needs to dial that back. They will use a disclaimer to cut off those warranties. A for a disclaimer to be effective it MUST BE the following:

  • Clear;
  • Unambiguous;
  • And if written, conspicuous.

Therefore, when you read those encyclopedia agreements notice that the text and font changes to all CAPS (like so), that is definitely the drafters way to call your attention there. In many occasions one of those bolded, all caps provisions will be a disclaimer.

Specifics of Disclaiming Warranties

Here are some specifics when trying to disclaim the warranties I discussed last week:

  • In the case of a warranty of merchantability (either expressed or implied) it can be disclaimed through oral or written means.
  • However, for an implied warranty of fitness for a particular purpose the disclaimer MUST be in writing.
  • If you use Ebay or Craiglist for all your goods purchases you will probably see these phrases a lot “as is” or “with all faults.” Why? They are disclaimers that BOTH work against the implied warranties of merchantability and fitness for a particular purpose (in most cases).
  • You cannot disclaim a warranty after the buyer has purchased your product. Basically, that would defeat the purpose of consumer protection laws. Consider, how it feels after you get something, and then someone says “Oh yeah, by the way, I forgot to mention . . .” The law would like to avoid those kinds of deals.

Finally, you should realize that there are some things you cannot disclaim. One of the primary things a manufacturer and retailer always want to think about with products is their safety when used by the public, in particular in the context of quality control. Why?Any personal (physical) injury that is caused by a product’s defect will result in damages for the injured customer. This is a responsibility that one cannot disclaim.

Hope you enjoyed today’s Draw the Law, and remember to check back on Monday for more on Disclaimers with Boilerplate Blurb. Some examples will be given.

Don’t forget to “Subscribe” to this blawg and enjoy your weekend!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

What is it?

The governing law or choice of law clause usually can be found combined with or near the jurisdiction provision (that I discussed last week). Why? Well, the choice of law provision allows the parties to the agreement that a particular state’s laws apply to the agreement when interpreting it.

Doesn’t that mean the same thing as the jurisdiction provision?

No. Jurisdiction is about where the lawsuit must be settled, but governing law is what state’s laws will be used to settle the dispute. Here is a local example to help you think about this concept. Let’s say you argue with your sibling. You have to go to your aunt’s house to be punished (jurisdiction), but your mom’s rules set the punishment (governing law).

Is it possible to have the choice of law state be different than the jurisdiction state?

Yes. Absolutely. It is possible to have the contract to force the parties to settle their suit in Hawaii, but be decided under California law. In fact, many of the large corporations set their contracts governing law clause to Delaware; the reasons are the state’s laws are favorable and the predictable.

Can I do that in my agreement?

As I tell people all the time, an attorney can put whatever you want in a document, but the real question is whether a court will enforce the terms of the contract if a dispute arises.

For example, if you are on Oahu and decided that North Dakota had some favorable laws if your business was there, but you do no business or have any connection to North Dakota, the court is unlikely to enforce the provision. In fact, there are industries that choice of law provisions are barred, such as insurance. However, most general laws are not so great in difference from state-to-state to make clause a negotiating point for most parties. However, you want to check with your attorney if that is the situation for your business.

Finally, here is a simple example of this clause may look like:

The laws of the state of Hawaii govern this agreement.

That’s your boilerplate blurb for this week. Next week I will cover disclaimers in conjunction with Draw the Law. Don’t forget to “Subscribe” to this blawg!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Hey everyone, made a mistake, I forgot there were some additional things that I wanted to cover this week on warranties.  So the discussion on disclaimers will follow next week. Anyway, let’s get to it.

Magnuson-Moss Act

The Magnuson-Moss Act is a federal law that covers written warranties in the situation of consumer goods (personal, household use items) that cost more than $10. It does NOT require you to produce a written warranty, it only requires certain things if you do decide to have one. It only applies to written and not oral warranties. Lastly, it does not apply to service warranties, unless you are providing the parts and workmanship in doing a repair, then it does.

The Basics

The Federal Trade Commission is responsible for administering this law. There are three basic requirements that you as a warrantor or seller must do in your written warranties:

  1. You must state whether the warranty is “full” or “limited” (to be explained later);
  2. As a warrantor, you must state specified information (listed later) about the warranty coverage and it must be in plain language (no legalese!);
  3. You must ensure that the warranty is available to read BEFORE purchase by the consumer.

 Full vs. Limited Warranties

A full warranty is a promise that the good will be repaired or replaced for free during a warranty period.  It functions like a Lemon Law. To have a full warranty you must do the following:

  • You do not limit the duration of implied warranties.
  • You provide warranty service to anyone who owns the product during the warranty period; that is, you do not limit coverage to first purchasers.
  • You provide warranty service free of charge, including such costs as returning the product or removing and reinstalling the product when necessary.
  • You provide, at the consumer’s choice, either a replacement or a full refund if, after a reasonable number of tries, you are unable to repair the product.
  • You do not require consumers to perform any duty as a precondition for receiving service, except notifying you that service is needed, unless you can demonstrate that the duty is reasonable.

Anything short of that, you will have a limited warranty.  Some retailers like to offer a full warranty of their own above what the manufacturer offers as a competitive edge.

A limited warranty is the one you see more often, and it is probably one that is favored by starting businesses, as it is less costly. As you would expect, it is limited in what it covers, which is usually only parts and rarely the cost of labor beyond the first month.  Some expensive items manufacturers may offer limited warranties for a longer period of time due to the relative cost of the item.

The Specified Information

In plain language you must state the following in your written warranty:

  1. Name and address of the company making the warranty;
  2. The product or parts covered;
  3. Whether the warranty promises to replace, repair, or refund, and any expenses that the consumer has to pay associated with those actions;
  4. The length of the warranty;
  5. If the warranty does not cover certain legal damages beyond the cost of the product;
  6. What the consumer has to do if something goes wrong;
  7. If the company requires that the consumer waive certain rights in dispute or go through arbitration, then a statement on that must be included;
  8. Finally, a brief description of the consumers’ legal rights.

There are a lot more issues with warranties, that would probably require a discussion with an attorney or a more in-depth analysis than one post would take. So that will be it for this week on warranties.

Come back next week where I will discuss disclaimers, and I am sure many of you already know the big one from buying things on Craigslist and Ebay. So see you then and also don’t forget to “Subscribe” to this blawg!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Welcome to the first “Boilerplate Blurb” post! I know long contracts can be scary (more frightening then going out for Halloween on a school night), but there are these provisions or clauses you keep seeing over and over in various agreements you sign. Well, I am here to provide you a quick understanding why we attorneys use these same clauses and wording time and time again.

The Jurisdiction Provision

Today’s boilerplate is the jurisdiction provision (aka forum selection provision).  This type of provision looks something like this:

The Parties (a) consent to the exclusive jurisdiction and venue of the federal and state courts located in the state of Hawaii in any action arising out of or relating to this Agreement; (b) both Parties waive any objection they might have to jurisdiction or venue of such forums or that the forum is inconvenient; and (c) agree not to bring any such action in any other jurisdiction or venue to which either party might be entitled by domicile or otherwise.

What is Going On?

A family attorney once told me that a good lawyer looks at divorce before marriage. While, that might be a little pessimistic, an attorney would rather be thorough then blamed for the grief that a divorcing couple has to go through. The same is said for transactional attorneys: our question is what happens if the deal goes bad or the parties want to break the agreement and a lawsuit ensues?

When you bring a claim to court, in order for the court to hear the claim the court must have jurisdiction (the power over the subject) to even do anything about the claim.

Do you remember my discussion about the raising of Small Claims Court for claims to $5,000 in amount? Well, that is jurisdiction, Small Claims Court only has the power to hear claims/cases under $5,000. If your situation exceeds that amount you must have your case heard in Regular Claims Division, which has jurisdiction over claims that are over $5,000 and under $25,000.

Jurisdiction also includes location (usually, by state). Therefore, an attorney drafting an agreement for one party will often insert a forum selection provision to choose a jurisdiction favorable to one side. Favorable in the sense that: (1) the party already knows lawyers in the area; (2) does not need to travel and deal with travel costs; and (3) generally, has advantages of suing the other party in a state they are familiar with.

Clause in Action: Burgers in Michigan, Court Battles in Florida

A famous case, where a Michigan couple opened a Burger King franchise highlighted the importance of this clause. In the franchise agreement Burger King stated that any court fight would have to be done in Florida (where they are headquartered). When problems arose between the parties, the couple tried to say they did not understand the provision, but the court disagreed and they were forced to fight Burger King down in Florida from Michigan.

Final Word

I like to use this case because I think Hawaii business owners appreciate the gravity of such a clause. We do a lot of trading with the West Coast states, and any long-term agreement you are going to want to look at if we have a fight, where are we suing the other party? Is it in California? Washington? Oregon?

The spooky part is for a local, small business, to be forced to fly to California and fight a company there because of one sentence in an agreement you signed three years ago. Enjoy your Halloween and next Boilerplate Blurb I will discuss jurisdiction provision clause’s best friend “governing law” provision as the two of them are sometimes combined or near each other in an agreement.

Enjoy Halloween and be safe! Also don’t make me become a zombie and chase you down to “Subscribe” to my blawg by clicking the orange button in the top-right!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Last week, I discussed express warranties. Today’s discussion follows that up with implied warranties. To bring some perspective to this topic I am focused on warranties as they tend to come up in the context of selling goods and breach of warranty claims when the product does not live up to the customer’s expectations.

What are Implied Warranties?

Implied warranties are ones that are not spoken or written. In fact, they are simply imputed as a warranty from the seller to the buyer because it is based on reasonable customer expectations.

As for implied warranties, there are two that a seller of goods should always been keenly aware about. They are the implied warranty of merchantability and the implied warranty of fitness for a particular purpose.

Merchantability

For goods to be merchantable they must meet at least this level of standard:

    (a)   Pass without objection in the trade under the contract description; and

(b)   In the case of fungible goods, are of fair average quality within the description; and

(c)   Are fit for the ordinary purposes for which such goods are used; and

(d)   Run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and

(e)   Are adequately contained, packaged, and labeled as the agreement may require; and

(f)   Conform to the promises or affirmations of fact made on the container or label if any.

See HRS §490:2-314

Basically, a merchant warrants that the goods sold by them are fit to be sold for what they are going to used for. Another key thing about merchantability is that you (as the seller) have to be a merchant.  I realize that it may seem obvious, but people get caught up in the legalese.  So if you like to use Craigslist or Ebay to sell your stuff (not as a merchant) there is no warranty of merchantability. So how does this work?

Example 1: This is the most common example, Uncle buys a used car from Duke. Duke is a merchant. As soon as Uncle drives the car off the lot the engine falls out. Duke has breached the implied warranty of merchantability, as the car clearly was not fit for the ordinary purpose of a car, which is driving.

Example 2: If someone buys pork or chicken from the local neighborhood butcher, that customer does not cook the meat item thoroughly and gets sick. So long as the butcher did not do anything else to the product, and he sells the meat as it is supposed to be, he has NOT breached his warranty of merchantability. He sold the meat in the common condition that requires thorough cooking my the customer.

Fitness for a Particular Purpose

Fitness for a particular purpose on the other hand IS applied to both merchants and non-merchants. This is how it is defined:

Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.

See HRS  §490:2-315

What does that mean? Basically, something you sell ought to do what is supposed to for a particular reason. The best way to think about this is how the problem usually arises. This warranty is problematic for a seller is when the customer or person asks, “Can item X do this?” or “Or I am looking for a particular widget that does A, B, and C things, can you recommend one?” The salesperson then recommends something to the customer, they buy it, and then it does not do as expected to what was warranted. I’ll use a ridiculous example first, and then show how it becomes nuanced with a second one.

First example: A customer comes in to a toilet store. He asks, “Do you have a bidet that plays techno music when I turn it on?” The store clerk says, “Sure. This is the model you want,” giving the customer a bidet that does not in fact play techno music, but classical thinking that the customer is crazy to want a techno-playing bidet. The problem comes when the customer installs the product, uses it, and discovers that it does not do the particular purpose he asked about.

Second example: A customer comes into a shoe store. She states to the sales clerk, “I do a lot of walking and hiking. I’m thinking of walking to Manoa Falls for a hike this weekend. I need hiking boots.” The clerk responds by presenting a pair of shoes he thinks are perfectly suited for hiking, but are made for walking. He is warranting the fact that the shoes he selected would meet her purposes. The problem comes when she attempts to hike with those shoes, then slips and falls. She would claim he warranted that they would be good enough for hiking. Then the legal fight would ensue, and now you can see the problem of implicitly warranting that you did not intend.

Breach of Warranty and Other Claims

In general, when your products fail to live up to expectations and your salespeople have overstated or overpromised what can be delivered you will probably see a breach of warranty claim. In addition, depending on their injury your now upset customer will likely also claim negligence, misrepresentation, and strict liability. The way to deal with the problem of overhyping is to train sales force to know what they are selling and to watch how they phrase things. Finally, you want to do internal testing and research to make sure your product does what supposed to do.

Next week, I will be discussing the Magnuson-Moss Act, which is a federal law covering written warranties for consumer goods and the difference between full and limited warranties! Also don’t forget to “Subscribe” to this blawg!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Last week I talked about the basics of the CAN-SPAM Act (or advertising through e-mails) and I provided this silly, fake e-mail to show you what NOT to do in your e-mail advertisements.

Anyway, moving to today’s topic about warranties, which will also continue onto next week as well . . . .

What is the Purpose of a Warranty?

Warranty law’s goal is “to determine what it is that the seller has in essence agreed to sell.” Some warranties apply to all transaction of goods (and is not just between merchants as some believe).  Basically, when a seller makes a sale of something they guarantee certain aspects and qualities that should be in the product so that the customer is getting what they bargained for.

Types of Warranties

There are two types of warranties, express and implied.  I will cover express this week and follow-up next week with implied.

Express Warranty

An express warranty is exactly as it sounds. It is all of the following:

(a)   Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.

(b)   Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.

(c)   Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.

See HRS §490:2-313

So based on those definitions these are the typical ways an express warranty can be formed:

  1. oral representations
  2. written representations
  3. description of goods
  4. samples
  5. plans
  6. tech specs
  7. reference to a some sort of standard
  8. the past same goods a seller sends to the buyer
  9. advertisements

For the creation of an express warranty there are no magic formal words. You need not say “I warrant this car gets 30 miles to the gallon in downtown Honolulu.” It can be more casual and conversational, so long as you make a affirmative statement that someone takes is a part of the deal and that the good will conform to what you said, you have an express warranty. In fact, sometimes words do not need be exchanged about the good. Showing a customer a sample or floor model can suffice and saying “this is exactly what you will get” while gesturing to that model can create an express warranty.

Bottom line: While, this looks troublesome for sellers there are ways to disclaim warranties and avoid some liability, especially with overzealous salespeople.  However, let me close out this post with these general thoughts:

  1. When selling stuff to your customers do not make promises you cannot keep.
  2. The line sometimes between “puffing” and over-promising is very fine.
  3. You always want to practice your pitches and sales lines, and go over the script with your sales force.
  4. Finally, any paper (including e-mails and social media stuff) related to the selling of the good you want to make sure you have not inadvertently created express warranties that you cannot keep.

Next week will be a further discussion of warranties, specifically the implied ones of merchantability and fitness for a particular purpose. Also don’t forget to “Subscribe” to this blawg!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

As a transactions attorney that drafts agreements for businesses I have found that explaining what certain clauses do is beneficial to the client and organization.  Therefore, today’s Law in the Brief covers Act 139.   Also lookout in the future I will be doing little posts on boilerplate language to help you understand what is going into an agreement.

General Overview

This new law aims to help consumers by regulating the language used for contracts with automatic renewal clauses.  Act 139: Relating to Contracts, requires the following:

  • use of clear and conspicuous disclosure of automatic renewal clauses and cancellation procedures for all consumer contracts and offers with an automatic renewal provision and additional disclosure for contracts with a specified term of twelve months or more.

This new law will be assigned a number under Chapter 481 of the Hawaii Revised Statutes, which is the Fair Trade Regulations chapter.  Specifically, it will be under Part I, the Unfair Practices Act.  Currently, there are about eleven states that have enacted similar disclosure requirements at the inception and immediately prior to the renewal of the contract type of laws.

The Rationale

The lawmakers hope is that with the use of “clear and conspicuous” language (as defined by the Federal Trade Commission’s standard) that this gives consumers a change to be fully apprised of the situation.  Namely, that there is an automatic renewal clause and what steps they have to take in order to stop the contract from renewal.
Basically, this is an attempt to shift the burden back to the entity issuing the contract so that consumers may not be bound to a contract for a period longer than they anticipated or finding themselves stuck with something they do not want.

Exemptions

Act 139 applies to almost everyone selling things to people under a consumer contract that is for a specific term of more than one month and contains n automatic renewal clause for a term of more than one month.  However, there are some exemptions made to certain entities:
  1. Financial Institutions, for the activities regulated under under Chapter 412);
  2. Insurers, for the activities regulated under their respective chapters, as follows:
  3. Insurance companies(Chapters 431);
  4. Mutual benefit societies (Chapter 432);
  5. HMOs (Chapter 432).

Last Word

If you are an organization that does not fall under the exemption you will need to take a look at your agreements and your processes of notification. While, the law is in effect, the substantive portion does not go into effect until next year, July 1, 2012.  Therefore, it gives you some time to review.  So consider the following questions
  1. Do you let the consumer know what the terms of automatic renewal are?
  2. Is it clear and conspicuous in the agreement?
  3. Do you have a system that monitors contracts and sends out notices when their term is almost up?
These are some of the things to think about and have an attorney conduct a legal audit and review of all your contracts so you can update them.  By the way, if you don’t know what “clear and conspicious” means in terms of written agreements this is the definition:
  1. means in larger type than the surrounding text;
  2. in contrasting type, font, or color to the surrounding text of the same size; or
  3. set off from the surrounding text of the same size by symbols or other marks in a manner that clearly calls attention to the language.

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*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.