Throw Away Those Old Business Forms

By Edward H. Trompke

Many businesses use preprinted forms with terms and conditions printed in hard to read tiny print on the back side. The courts are taking a much more aggressive posture to throw out terms that are inconspicuous and not bargained for.

On September 11, 2002, the Oregon Court of Appeals refused to enforce an indemnification clause in a commercial lease agreement for a construction crane. This wasn't a case of a little old lady unwittingly signing away her life savings. This was a mechanical contractor renting a crane and operator for use on a job.

While the operator was lifting a box girder with the crane, the girder fell and was damaged. The company renting the crane and operator sued the owner/employer for negligence. The crane's owner tried to avoid liability by pointing to a clause on the back of the contract that required the lessee to indemnify the lessor for negligence. The court stated that such terms are enforceable only if one of three conditions is satisfied: (1) it must be conspicuous, (2) it must have been bargained for or, (3) it must have otherwise been brought to the lessee's attention.

The court found that the term "conspicuous" means that it must be in larger type, in a contrasting color, or in capital letters. In this case, the indemnity clause was in faint lettering against a pink background, not in capital letters, and not bold. It was hard to read and not conspicuous. The indemnity clause was not bargained for by the parties, and was not brought to the attention of the lessee.

As a result, the court did not enforce the indemnity provision. The lessor was liable.

Businesses need to stay abreast of changes in the law and be aware of trends in how courts interpret contracts. How could the lessor in this case have avoided the problem? For starters, it could have thrown away its old forms. The type face and color made them look like they were designed to be misleading, or at least very hard to understand. They must be conspicuous.

Then, each key section could be made to stand out from the others. They could be printed in capital letters in a contrasting color or, in bold face type. Obviously, the whole agreement should not be in that kind of type face because nothing would stand out. But, limitations on warranties, limitations on damages, and indemnity provisions should be conspicuous.

In addition, each key section should be on the front side of the form, if possible.

Finally, each key section should require separate initials to bring it to the signer's attention.

So, toss out those old business forms and print new ones! Failure to do so will render many terms ineffective.

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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