Presentation on theme: "Addendum Definition: A Contract Addendum is a separate document which modifies or adds provisions to a rental contract with respect to certain, usually."— Presentation transcript:
Addendum Definition: A Contract Addendum is a separate document which modifies or adds provisions to a rental contract with respect to certain, usually very specific, issues. It can be any number of pages, but limiting it to one or two pages is generally a good idea.
A Typical Addendum
Addendum Common Uses: Providing Use and Safety Instructions; Providing Specific Warnings; Adding Important Terms (e.g., Damage Waivers); Creating Environmental Indemnities; Proving Compliance with Applicable Laws; Supplementing use, care, cleaning or maintenance requirements; Proving Delivery and Condition of Equipment Upon Delivery; Authorizing Credit Card Charges; and/or Highlighting Other Issues Specific to your business.
Addendum Why Are They So Important Now? (It didnt seem like they were in the past): Rental Operators shoulder more liability than ever before; Products Liability Lawsuits have become commonplace; Courts now permit anyone who comes into contact with your equipment to sue everyone in the chain of distribution (and they can all sue each other as well); Huge class action lawsuits are being commenced against rental operators; Plaintiffs lawyers have become far more aggressive about soliciting lawsuits; Laws have Changed, and New Laws Have Been Enacted (e.g., Tier 4 / Stage IV, CERCLA, RCRA, TSCA, ERISA, EPA, OSHA, FCRA, FCBA, FTC Rules, Lien Laws, Miller Act and State Little Miller Acts, Consumer Leasing Acts, Consumer Protection Acts, CCard Act, Local restrictions and permitting requirements, and dozens of others); and The cost of defending lawsuits has skyrocketed. The average cost of fighting a large lawsuit rose by 72% between the year 2000 and 2008.
Objectives 1.Get Paid: Create leverage to ensure you receive payment. 2.Avoid Lawsuits: Make filing lawsuits against you as unappealing as possible. 3.Win: If you do get sued, make sure you win. 4.Get Out Early: Win as quickly as possible (save your time, your money, your effort, and your sanity) – fighting lawsuits is enormously expensive (legal fees, your time, manpower, etc.).
Getting Out Early Primary Alternatives: 1.Settlement : Reaching an agreement with the other party to settle the matter, usually for less than the plaintiff is demanding, but more than the defendant considers fair. 2.Summary Judgment : Get the court to dismiss the case because there is nothing for the court to decide – i.e., it has already been decided - based on your contract or addendum). 3.Dont Get Sued in the First Place: Make the prospect of suing you/your company so unappealing, based on your contract addendum, that plaintiffs lawyers advise their clients to look elsewhere for possible defendants.
Real-life Liability Claim: FACTS: Auction company rents several large tents for a classic auto auction; Severe Weather occurs, causing some of the tents to collapse, damaging a number of the classic cars parked underneath; 50 of the Car Owners join together and sue the rental company; The Judge rules the car owners cannot sue the Auction Company because they signed an Indemnity and Hold Harmless Agreement; The attorney for the car owners elects to continue the case only against the rental company (dropping all claims against the Auction Company).
Real-life Liability Claim: OUTCOME: The Auction Company was fortunate enough to have gotten an Indemnity and Hold Harmless agreement signed before the event. By doing so, the Auction Company made itself an unattractive target tactically for the attorney representing 50 of the car owners. The Auction Company saves itself from: -Tens of thousands in attorneys fees, -Hundreds of hours in management time, and -A potentially catastrophic judgment (Note: A single classic car can sell for over $200,000; sometimes much more). The Rental Company was not as fortunate, and remained embroiled in a large and potentially damaging lawsuit for more than two years thereafter.
Enforceability Issues Unconscionability The judicial view that, given the parties negotiating positions and circumstances, a given contract or contracts provision(s) is/are so unfair that it/they shock the conscience, and should not, therefore, be enforced. In fact, even the Uniform Commercial Code has specifically identified unconscionability as a valid reason for refusing to enforce provisions a court deems unfair (UCC § 2A-108).
Legal To Do List 1.Be Simple and Direct. Use simple, direct language; 2.Be Clear. Use as large and dark a font as possible (emphasize important provisions); 3.Be Space-Conscious. Avoid cramming in provisions (use at least 10-pt. font, particularly where your rental contract is already printed in very small font); 4.Be Careful. Never cut and paste; 5.Be Fair. A late fee of $1 million usually wont be enforceable, even if the customer signs it; and 6.Be Smart. Use Addenda to cover important issues.
Where to Start Understand Your Exposure to Potential Liabilities (Sources of Claims) And Decide Which Issues are Most Important
Top 5 (+2) Most Valuable Addenda Number 5: Terms of Sale / Bill of Sale Purpose(s): 1.Identify (and limit) the items being sold to the customer; 2.Limit the Rental Companys liability for express and implied warranties, defects and malfunctions; 3.Obtain the buyers agreement to indemnify the Rental Company for post-transaction claims; 4.Minimize taxes; and 5.Require claims to be litigated in a nearby court.
Top 5 (+2) Most Valuable Addenda Number 5: Terms of Sale / Bill of Sale Some Important Provisions: 1.Lessor hereby sells, assigns, transfers and conveys to Buyer all of Lessors right, title and interest in and to the Item(s) identified in Exhibit A. 2.EXCEPT ONLY AS EXPRESSLY SET FORTH HEREIN, LESSOR MAKES NO WARRANTY, EXPRESS OR IMPLIED (INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF … 3.TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL SALES ARE FINAL. BUYER WILL INDEMNIFY AND HOLD HARMLESS LESSOR … 4.Buyer agrees to cooperate with Lessor to minimize sales taxes … 5.Proper venue for all legal actions commenced in connection herewith shall lie solely and exclusively in …
Number 4: Tier 4 / Stage IV Requirements EPA Tier 4 standards require that emissions of PM (Particulate Matter) and NOx (Nitrous Oxide) be reduced by 90%, requiring manufacturers to build expensive emission control systems into new engines (currently, Tier 4f (Final) is already effective for small diesel engines (0-74 hp), and commences in 2014 for large diesel engines [ hp]). At least three issues for Rental Operators: 1.How to make sure customers clean the PM filters (many engines require customers to commence a regeneration cycle). 2.How to make sure customers refill DEF (Diesel Exhaust Fluid or urea) tanks. 3.How to make certain customers are using only ULSD (Ultra Low Sulfur Diesel) fuel (becoming less an issue because ULSD is now easier to obtain). Virtually NO Rental Contracts Cover Tier 4. The issues are too numerous and too new to be covered in the average rental contract. Use a Tier 4 / Stage IV Addendum to advise customers of the issues and to obtain their agreement to comply with the new legal requirements. Top 5 (+2) Most Valuable Addenda
Number 3: Damage Waiver Purpose(s): 1.Clarify that Damage Waiver is OPTIONAL and may be declined (but if it is, the Lessee will be responsible for all damages); 2.Provide a specific list of Coverage Exceptions; 3.Set forth agreed deductibles and/or coverage limits (if any); and 4.Clarify that Damage Waiver does not constitute either Insurance or a Warranty;
Top 5 (+2) Most Valuable Addenda Number 3: Damage Waiver Some Important Provisions: 1.Damage Waiver is OPTIONAL, and may be declined. 2.If you decline the Damage Waiver, you will be responsible for all repair and replacement costs … 3.The foregoing notwithstanding, the following are not covered under the Damage Waiver, and you will remain 100% liable for each: … 4.If you accept the Damage Waiver, Lessor will waive its right to collect from you ___% of its applicable repair or replacement costs, (subject to a deductible of $______) up to $__________. 5.Damage Waiver IS NOT INSURANCE, NOR IS IT A WARRANTY.
Top 5 (+2) Most Valuable Addenda Number 2: Safety Rules (Vehicles, Trailers, Lifts, Tents, Inflatables, Portable Storage Containers, Boats, Cycles, Snowmobiles, ATVs and others) Purpose(s): 1.Notify the customer of specific requirements for safe use of particular types of equipment without creating additional exposure for the rental operator; 2.Provide proof (which may be introduced in court) that the Rental Company satisfied its duty to instruct. 3.Limit the Rental Companys liability by setting up the defense of misuse (which can be extremely valuable if someone is injured or someones property is damaged).
Top 5 (+2) Most Valuable Addenda Number 2: Safety Rules (Vehicles, Trailers, Lifts, Tents, Inflatables, Portable Storage Containers, Boats, Cycles, Snowmobiles, ATVs and others) Some Important Provisions: 1.The following rules are included for informational purposes only, and are NOT intended to: (a) serve as a comprehensive list of safety measures; (b) supplant the Code of Safe Practices, OSHA Guidelines, or other applicable safety precautions; or (c) supersede any manufacturers safety instructions, warnings, or guidelines, … 2.The undersigned agrees to carefully review and post in a conspicuous place all applicable OSHA Guidelines (including those contained in 29 CFR Parts …)
Top 5 (+2) Most Valuable Addenda Number 1: Fall Restraint/PFP Warning/Declination (Lifts and Scaffolds) Purpose(s): 1.Notify the customer of legal requirements, including OSHA (29 C.F.R., Parts , 67 and ); 2.Warn the customer that Lifts and Scaffolds are Inherently Dangerous; 3.Provide instructions for safe use of equipment; 4.Clarify that the Rental Company has made PFP available on reasonable terms; 5.Obtain an indemnity agreement from the customer.
Top 5 (+2) Most Valuable Addenda Number 1: Fall Restraint/PFP Warning/Declination (Lifts and Scaffolds) Some Important Provisions: 1.I am aware that under Title 29 of the Code of Federal Regulations, Parts , and , all operators of such Rented Item(s) are required by OSHA to use or wear a personal fall protection system (PFP) when operating such Rented Item(s) … 2.WARNING: THE RENTED ITEM(S) IS/ARE INHERENTLY DANGEROUS, AND SHOULD BE USED WITH GREAT CARE … 3.Following is a summary of some common sense rules designed to promote safety in the use of Lifts and Scaffolds … 4.I agree to indemnify, defend and hold harmless the Lessor from and against any and all liabilities, claims, …
A Few Simple Questions 1.Dangerous Items: Does my rental fleet include dangerous items? (a)Number: How Many of These Dangerous Items Does My Fleet Include? (b)Frequency: How Often Do I Rent These Items? (c)Severity: How Great is the Potential Harm? (Does the harm typically include only property damage, or also the risk of personal injuries and/or death?) (d)Likelihood: How Likely is the Harm to Occur? (Are my customers well-trained professionals, unfamiliar beginners, or somewhere in between?) 2. Common/Known Misuses: Do customers often misuse or overuse items? 3.Instructions and Warnings: Would providing Instructions and/or Warnings in an Addendum reduce the danger and/or help me avoid/win a lawsuit? 4. Other Issues : Do I need to cover any other issues? For example: (a)Damage Waivers (b)Maintenance Requirements (c)Rental Term Extensions (d)Services Provided by the Rental Company (e)Equipment Sales / Purchase Options (f)Return Requirements / Return Condition Reports (g)Credit Card Authorizations
Summary Steps to Take 1.Identify Potential Sources of Liability and Additional Cost (particularly, inherently dangerous equipment); 2.Identify Other Important Issues (e.g., Tier 4, Damage Waivers, Sale Terms, Extensions, Maintenance, Purchase Options, etc.); 3.Write them Down; 4.Decide How Best to Deal With Them (assumption of risk, hold harmless, indemnity, etc.); 5.Decide Whether They Commonly Apply to All or Most of your rentals, or only in some (but not all) cases; 6.If the Latter, Create an Addendum that Covers Them; 7.Use simple, direct, clear, concise and fair language; 8.Get it Signed whenever possible.
Top 5 (+2) Most Valuable Addenda Top 5 (as of 1/1/2013): 1.Fall Restraint/PFPE Warning/Declination (Lifts and Scaffolds) 2.Safety Rules (Vehicles, Trailers, Lifts, Tents, Inflatables, Portable Storage Containers, Boats, Cycles, Snowmobiles, ATVs and others) 3.Damage Waiver 4.Tier 4 / Stage IV 5.Purchase Option (RTO) / Terms of Sale Honorable Mention: 6.Receipt/Acceptance Certificate 7.Return Requirements / Return Condition Certificate
Top 5 (+2) Most Valuable Addenda Number 6: Receipt and Acceptance Certificate (Upon Delivery/Installation) Purpose(s): Obtain the customers acknowledgment that the customer inspected the equipment upon delivery and: 1.That all items were delivered; 2.Each was in good condition and repair when delivered; 3.Each was performing satisfactorily; 4.The customer received all instructions and warnings; and 5.The customer does not claim any breach has occurred.
Top 5 (+2) Most Valuable Addenda Number 6: Receipt and Acceptance Certificate (Upon Delivery/Installation) Some Important Provisions: 1.I have received and accepted all Rented Items, and I am satisfied that they are properly described in the Rental Contract. 2.I have inspected and tested each Rented Item and found it to be clean and in good working order and condition, … 3.Each Rented Item has been installed properly, functions safely and properly for my intended use, and … 4.I have received, read and understood all warnings, instructions, user manuals and training required under applicable OSHA, ANSI, … 5.The Lessor is not, to my knowledge, in breach of the Rental Contract.
Top 5 (+2) Most Valuable Addenda Number 7: Return Requirements / Return Condition Certificate Purpose(s): 1.Notify/Remind the customer of the required return condition; 2.Provide a reminder in bullet-point format for yard personnel checking in equipment; and 3.Document damage, defects and shortfalls.
Top 5 (+2) Most Valuable Addenda Number 7: Return Requirements / Return Condition Certificate Some Important Provisions: 1.You agree to return the Rented Item(s) in good order, condition and repair, rental ready, and … 2.Fuel / Fluids: ___ Full / Unfilled: __________ 3.Hours: __________ / Mileage: ___________ 4.Condition Upon Return: ___ Good ___ Fair ___ Poor 5.Damage(s), Defects, Deficiency(ies) / Required Repairs: ___________________________________
Why is it so Important Now? The Growth of Litigation, particularly in the United States 1.Sources of Liability 2.Damages 3.Efforts to Protect Customers 4.Efforts to Protect Bystanders 5.Enforceability Issues (Contracts)
Sources of Liability Products Liability A defect existed that rendered a product unreasonably dangerous and resulted in harm to a customer or some third party. Negligence Failure to exercise the care a reasonably prudent person would exercise. Breach of Contract Failure to comply with any of the material terms of a contract. Note: There are many more, but these are the most common in my view.
Damages Personal Injuries Injuries to a persons physical being, as distinguished from his/her property, feelings or reputation Property Damage Loss, Injury or damage to real or personal property Breach-Related Damages Losses arising from or in connection with a contract breach Other Reasonably Foreseeable Damages All other damages that were reasonably foreseeable
Potential Liabilities Implied Warranties (These Exist Even if You Never Say Them) Lessors are charged with responsibility for implied warranties under the Uniform Commercial Code (UCC §§2A-211 through 213). Implied warranties include: (a) Warranty of Merchantability; (b) Warranty of Fitness for a Particular Purpose; (c) Warranty of Suitability; and (d) Warranty of Non-Infringement (with I.P. rights).
Potential Liabilities Implied Duties Equipment Lessors are also charged with a number of other legal duties to their customers (and to anyone else who might come into contact with the equipment), including: (a)The Duty to Inspect the equipment (b)The Duty to Instruct the Equipment Lessors customers in how to properly and safely use it (c)The Duty to Warn them of foreseeable hazards associated with its use A breach can give rise to claims against the rental operator for Negligence or even Strict Products Liability.
Potential Liabilities Products Liability Suits Additionally (and posing the greatest threat), Products Liability lawsuits expose all parties in the chain of distribution to lawsuits for defects in the design, manufacture, advertising and distribution of equipment: (a)Negligence; (b)Breach of Warranty; (c)Misrepresentation; (d)Strict Liability (without proving anyone was at fault) when a product is rendered unreasonably dangerous as a result of: (a)Design Defects: (Reasonable Alternative Design) (b)Manufacturing Defects: (Departure from Design) (c)Warning Defects (Failure to provide Instructions or Warnings)
Potential Liabilities Strict Products Liability Suits The array of potential plaintiffs has been dramatically expanded. Since the late 1960s, any and all other parties (even bystanders) who might foreseeably be impacted are now permitted to maintain strict products liability lawsuits. 1 Thus, liability that was once limited to the providers immediate customer now reaches everyone else who comes into contact with, or might otherwise be affected by, a piece of leased equipment (enabling all of them to file products liability suits against equipment sellers and equipment lessors). 1. See, e.g., Elmore v. American Motors Corp., 70 Cal. 2d 578, Cal. 2d 578
Liability / Lawsuits Equipment Lessor Customer/ Lessee Equipment Operator Property Owner Service Providers Injured Visitors Other Contractors Bystanders General Contractor Potential Lawsuits Foreseeable Claims Direct Claims Indirect Claims
A Few Simple Questions: 1.Dangerous Items: Does my rental fleet include dangerous items? (a)Number: How Many of These Dangerous Items Does My Fleet Include (e.g., lifts, scaffolds, cranes, excavators, demolition equipment, cutting tools, chippers, farm equipment, heavy hydraulic equipment, etc.... ALSO, tents and inflatables)? (b)Frequency: How Often Do I Rent These Items? (c)Severity: How Great is the Potential Harm? (Does the harm typically include only property damage, or also the risk of personal injuries and/or death?) (d)Likelihood : How Likely is the Harm to Occur? (Are my customers well-trained professionals, unfamiliar beginners, or somewhere in between?; Have I received reports of problems or defects in the particular make(s) and model(s) in my fleet?)
A Few Simple Questions 1.Dangerous Items: Does my rental fleet include dangerous items? (a)Number : How Many of These Dangerous Items Does My Fleet Include? (b)Frequency : How Often Do I Rent These Items? (c)Severity : How Great is the Potential Harm? (Does the harm typically include only property damage, or also the risk of personal injuries and/or death?) (d)Likelihood : How Likely is the Harm to Occur? (Are my customers well-trained professionals, unfamiliar beginners, or somewhere in between?) 2. Common/Known Misuses: Do customers often misuse or overuse items? Important:Rental operators have an affirmative legal duty to warn customers against foreseeable misuses. Also, misuse is a valid defense to most types of customer claims, but not if that misuse was foreseeable and you failed to warn them against it.
A Few Simple Questions 1.Dangerous Items: Does my rental fleet include dangerous items? (a)Number: How Many of These Dangerous Items Does My Fleet Include? (b)Frequency: How Often Do I Rent These Items? (c)Severity: How Great is the Potential Harm? (Does the harm typically include only property damage, or also the risk of personal injuries and/or death?) (d)Likelihood: How Likely is the Harm to Occur? (Are my customers well-trained professionals, unfamiliar beginners, or somewhere in between?) 2. Common/Known Misuses: Do customers often misuse or overuse items? 3. Instructions and Warnings : Would providing Instructions and/or Warnings in an Addendum reduce the danger and/or help me avoid/win a lawsuit?
Real-life Liability Claim: FACTS: An inflatable slide collapses on a 54-year- old married father of two, severely injuring his back; Nine days after the incident, he collapses and dies as a result of a pulmonary embolism brought on by his back injuries and the ensuing surgery; His family sues the Cleveland Indians, the manufacturer, the equipment owner and two other parties for wrongful death.
Real-life Liability Claim: OUTCOME: -Equipment Owners insurer denies coverage -Equipment Owner fails to appear for trial -Judge awards Plaintiff a $3.5 million judgment against the Equipment Owner/Lessor -The other defendants, including the Cleveland Indians, quickly settle for undisclosed amounts.
Provisions That Might Have Saved $3.5 Million Use and Safety Instructions Inspection and Acceptance WARNING OF RISK OF MOVEMENT OR COLLAPSE WARNING NOT TO OVERUSE/OVEROCCUPY Assumption of Risk (by the Customer) Hold Harmless, Indemnity and Defense Provision
Real-life Liability Claim: FACTS: Customer (contractor) rents a lift from an Equipment Lessor. Customers employee fails to use PFP He falls out and breaks his leg Customer does not have workers compensation insurance Customers employee sues Customer, and Customer impleads and cross- claims against the Lessor
Real Life Liability Claim Worker sues the Equipment Lessor OUTCOME: Equipment Lessor Produces a set of Safety Instructions (an Addendum) signed by the customer; Produces an indemnity and hold harmless agreement signed by the customer; Hires an attorney, who files a Motion for Summary Judgment, which is granted
Critical Liability Issues PFPE (Personal Fall Protection Equipment) Notice Use and Safety Instructions / Safety Rules WARNING OF INHERENT DANGER Assumption of Risk (by the Customer) Hold Harmless, Indemnity and Defense Provision
Optional Provisions (assuming these already appear in the rental contract) Liability Disclaimer Acknowledgement that the Rental Operator is not the Manufacturer As-Is Provision / Warranty Waiver Limitation on Claims and Damages Proper Use Clause Inspection Acknowledgement Insurance Requirement Attorneys Fees Clause Personal Guaranty
We will not be responsible to you or to any third party for any liabilities, claims, injuries, losses, costs or damages arising from or associated with... Liability Disclaimer
The equipment is provided as-is and with all faults. We make no warranty, express or implied (including any and all implied warranties of merchantability, fitness, freedom from defects... As-Is Provision Warranty Waiver
Important: An As-Is provision (the Lessee accepts the property As-Is) accomplishes several important objectives: 1.Eliminates certain implied warranties; 2.Makes the buyer/lessee responsible for inspecting and testing the equipment; 3.Helps eliminate causation (claims that a defect caused the complained of injuries or damages). Limitations: An As-Is provision still does not eliminate: (a)The implied warranty of merchantability; (b)Claims of fraud by the seller/lessor; or (c)Claims that the seller/lessor impaired the buyers / lessees right to inspect the equipment. As-Is Provision Warranty Waiver
Anything to the contrary contained herein notwithstanding, the Lessors maximum liability to you for any and all claims arising hereunder or in connection herewith is hereby limited to the Rent actually paid by you... Limitation on Claims and Damages
The Equipment is authorized for use only by you and your agents and employees (each of whom must be skilled, experienced, trained and authorized in its operation), at the location given as the Ship To site (the Site) identified on the face of your Rental Contract. The Equipment is authorized for use only for... Proper Use Clause
The undersigned individual hereby personally guarantees the prompt payment and performance of all of the obligations of the above named Customer / Lessee arising hereunder... Note: A Personal Guaranty can be valuable when used as a separate Addendum as well. Personal Guaranty of Individual Business Owner
Real-life Liability Claim: FACTS: Subcontractor rents dewatering equipment and uses it to remove water from a construction site; Adjacent landowner sues, claiming his property was damaged; General Contractors payment is reduced by the adjoining landowners damage claim; General Contractor sues the dewatering subcontractor and the rental company.
Real-life Liability Claim: OUTCOME: The Rental company proves its customer was provided the proper use and safety instructions and warnings, and importantly, took responsibility for proper operation of the rented equipment, and that the rental company had no control over its use or operation. The Rental Company showed that the customer had signed an agreement obligating the customer to indemnify and hold harmless the rental company. The court granted summary judgment and dismissed the case against the rental company.
Consider The Value of Your Time Managements Time devoted to: 1.Investigating Claims; 2.Reviewing Pleadings and Other Documents; 3.Meeting with Attorneys; 4.Testifying in Depositions; 5.Responding to Interrogatories; 6.Responding to Requests for Production; 7.Testifying in Court; and 8.Thinking About the Case. Management Time may comprise the largest single cost item (and may never even be recognized as part of the cost of litigation). This makes Avoiding Litigation among the most important reasons for using a proper rental contract. So, WIN QUICKLY.
Summary Steps to Take 1.Identify Potential Sources of Liability and Additional Cost (particularly, inherently dangerous equipment); 2.Identify Other Important Issues (e.g., Damage Waivers, Extensions, Maintenance, Purchase Options, Tier 4, etc.); 3.Write them Down; 4.Decide How Best to Deal With Them (assumption of risk, hold harmless, indemnity, etc.); 5.Decide Whether They Commonly Apply to All or Most of your rentals, or only in some (but not all) cases; 6.If the Latter, Create an Addendum that Covers Them; 7.Use simple, direct, clear, concise and fair language; 8.Get it Signed whenever possible.
James R. Waite, Esq Indiana Ave., Suite 250, Wichita Falls, TX Glenarm, Suite 1300, Denver, CO 80202