Legally Speaking: What is ‘Fair’

Question: I recently received this question from a customer, and I’m wondering how to respond: “How is it fair for a rental company to include a clause in its rental contract requiring me to “hold them harmless” even for a manufacturing defect?”

Answer by Attorney, James Waite:

This is one of those great questions I get from clients every now and then.

Short Answer for Rental Operators:

“Not wanting to seem glib, I didn’t manufacture it, and with all the “law tigers” and “sharks” and “bulldogs” and other metaphorical forms of wildlife out there waiting to sue me, I have no choice but to protect myself as much as I can in my rental contract.”

More Detailed Answer for Rental Operators:

“It’s just a risk limitation.  A ‘hold harmless’ provision says you agree not to sue me for everything and anything that might go wrong, even if it isn’t my fault.  The law (primarily the Uniform Commercial Code) is already tremendously slanted in favor of customers, which places almost all of the risk on me, the rental operator.  This is true, even though I have little or no control over what you do with my equipment once it leaves my rental yard.  So, it’s necessary to include a ‘hold harmless’ provision in order to limit at least some of my risk and keep the plaintiffs’ lawyers from destroying my business.

We could try to make the clause ‘fairer’ by describing every situation in which you should or shouldn’t hold me harmless, but that would require a 10-page rental contract (and who wants to read that?).  More importantly, limiting my risk enables me to charge a lower rent because the ‘risk premium’ I have to factor into my rental rate is reduced as a result of including a hold harmless provision in my rental contract.”

The Truth, the Whole Truth, and Nothing But the Truth:

… And for those seeking the truth for the sake of knowing what the truth about rental contracts (and virtually all other contracts for that matter) really is, I offer the following: Oxford Dictionary defines “fairness” as “impartial and just treatment or behavior without favoritism or discrimination.”

Unfortunately, as applied to real world situations, this definition often proves of little help.  “Fairness,” more often than not (and particularly with respect to disputes), becomes a matter of which side you’re on.  To a defendant, an injury award of $10,000 for a plaintiff’s broken bone might seem completely “fair” (or perhaps a bit over the top) while to the plaintiff in the same case, an award of $1,000,000 may seem barely adequate.  Which is fair?  Don’t ask the owner of the defendant-company, … or the plaintiff’s mother for that matter. It is this very difference of opinion that so often requires the input of judges and juries whose job it is to make these decisions within the boundaries of the law.

So, is “Fairness” Even Relevant?

Consequently, at the risk of sounding a bit “Lombardy-ish” (“Winning isn’t everything; it’s the only thing”), at least initially (when you prepare a contract), it really isn’t a question of fairness. It’s a question of creating negotiating leverage, or if you prefer, “winning.”  The focus of your rental contract should be at least as much on prevailing at trial (or before that if possible) as on documenting the terms of the rental.  It is almost never (nor should it be) on identifying and capturing some universal (and elusive) concept of fairness. In fact, that is at least ostensibly, the purpose of “negotiating.”

Not wanting to seem undiplomatic, this can make the “fairness” discussion seem a little like a deer trying to “negotiate” fairness with a bear.  In practice, it’s quite a bit more nuanced than that, as both sides usually have at least some negotiating leverage (larger and more sophisticated customers typically have more, but other factors, such as the proposed size, term and/or potential profitability of a given rental may also come into play).  Whether they realize it or not, the parties are engaged in a complex balancing act involving many moving parts.

So What, Then, ARE Your Objectives?

To be clear, your objectives as a rental operator in preparing a rental contract should be focused primarily on making certain the rental company:

  • collects all of the rent and other amounts due from the customer on time;
  • gets its equipment back in good condition (or collects additional rent, damages, interest and attorneys’ fees if it doesn’t);
  • doesn’t get sued in the process (or wins if it does);
  • can enforce the rental contract (e., the contract’s terms aren’t so one-sided that a judge or jury would refuse to enforce them based on their own “fairness” or “unconscionability” analysis); and critically,
  • doesn’t alienate its customers (at least not so much that they refuse to rent from the rental company now or in the future).

Can’t We All Just Get Along?

If we assume that concepts (a) through (d) above will be included in almost any rental contract worth printing, then only concept (e) (alienating your customers), and the possibility that a customer might insist on modifying your rental contract, retain any real meaning in terms of your day-to-day business success.

To sum it up, the real question is simply: “Will the customer still speak to you after reading your rental contract?”  If the answer is “yes” (as it will be in the vast majority of cases), then you can negotiate it as you please.  As most rental operators know, customers rarely bother to object in the first place, but if a customer does, you are always free to modify your rental contract; the analysis at that point being simply: “Do you want to spend the time and incur the increased risk associated with making the customer’s proposed changes, or just forego the rental altogether?”  This, of course, inevitably raises the question: “Which changes should you agree to, and which changes should you not agree to?”  For a discussion, see my Legally Speaking article published in the August, 2016 edition of Rental Management Magazine.

Conclusion:

Ultimately, “fairness” does, in fact, play a role in the contracting process; just not the role most people think it plays. All parties (rental company, customer, judge and jury) have a say, to some extent, when it comes to determining what a contract says and whether, or to what extent, it will be enforced.  But don’t be upset if “Boy, this contract sure is fair” isn’t the first thing that leaps to mind when you read a contract provided by another party.