Contract on ristricted supplier

[Rdcanada]

What is the name of your state : indiana

I'm in the process of purchasing a large amount of equipment from a supplier, but they require me to also sign a contract that states that I will only buy supplies from them even after the warranty period, otherwise I would be subject to stiff penalties. I love their product (they are the only ones that make this specific model) but I know I can purchase the supplies from a local supplier for a lot less money. Is this type of contract legal? I worry if I don't sign they will tell me they won't sell me this product,which i really want.

Rd

 

[tranquility]

You'll have to explain more. Perhaps put in the clause you're speaking of. In general, liquidated damages (aka "stiff penalties) must be reasonably related to the harm of the breach and are used when actually calculating damages is difficult. It does not seem the case the way you are describing it.

 

[swalsh411]

I don't think a contract that limits you to one supplier for all eternity would be upheld by any Court.

 

[OHRoadwarrior]

This type of contract is not uncommon in businesses which offer a particular service or product. Part of the privilege for using their franchise is an exclusivity contract.

 

[tranquility]

This type of contract is not uncommon in businesses which offer a particular service or product. Part of the privilege for using their franchise is an exclusivity contract.

But, the penalty will usually be excommunication, not fines.

 

[OHRoadwarrior]

Actually, in the case of large franchises, like health food stores or restaurants, the penalty clauses can be very significant. In the case of small ones, such as a coffee supplier or such, the penalty small.

 

[tranquility]

Actually, in the case of large franchises, like health food stores or restaurants, the penalty clauses can be very significant. In the case of small ones, such as a coffee supplier or such, the penalty small.

Not if it is not reasonably related to the harm and would be difficult to calculate the damage in a breach. "Penalties" are disfavored in contract law.

Do you have an example of one of these clauses?

 

[swalsh411]

You need to explain your situation in a little more detail. Are you a franchisee?

 

[HomeGuru]

What is the name of your state : indiana

I'm in the process of purchasing a large amount of equipment from a supplier, but they require me to also sign a contract that states that I will only buy supplies from them even after the warranty period, otherwise I would be subject to stiff penalties. I love their product (they are the only ones that make this specific model) but I know I can purchase the supplies from a local supplier for a lot less money. Is this type of contract legal? I worry if I don't sign they will tell me they won't sell me this product,which i really want.

Rd

**A: we need more info to be able to help you.

 

[OHRoadwarrior]

Not if it is not reasonably related to the harm and would be difficult to calculate the damage in a breach. "Penalties" are disfavored in contract law.

Do you have an example of one of these clauses?

Sure, I carry around franchise contracts for all the major franchising companies in my back pocket. I have worked for major companies that franchise.

 

[Rdcanada]

Thank you all for your advice/suggestions. The supplies that I will need to buy can be purchases on the open market for about 35cent/piece whereas the company is going to sell them to me for about $1 a piece. I estimate that I will need to purchase about 30,000/year. As you can see, it can get very expensive very quickly.

The language in the contract says that "customer shall be obligated to pay" $10,000 per lot (a lot has about 1,000 units) if found not to be using their supplies.

This isn't a franchise or anything, I'm just buying hardware with some specific software to run the hardware.

Hopefully that gives a bit more background

RD

What is the name of your state : indiana

I'm in the process of purchasing a large amount of equipment from a supplier, but they require me to also sign a contract that states that I will only buy supplies from them even after the warranty period, otherwise I would be subject to stiff penalties. I love their product (they are the only ones that make this specific model) but I know I can purchase the supplies from a local supplier for a lot less money. Is this type of contract legal? I worry if I don't sign they will tell me they won't sell me this product,which i really want.

Rd

 

[OHRoadwarrior]

This sounds like you are buying testing equipment. Depending on the software, it may keep and report a reference quantity to enforce the contract. They may also have issues with excess wear and tear, due to non approved sample containers. Have you looked into outsourcing the testing? It may be cost effective as might purchasing used equipment without the contract binder. You can find secondary repair sources for most equipment. A third option is subsequent generations of equipment can frequently run prior models, which may be a way to circumvent your contract.

 

[tranquility]

Sure, I carry around franchise contracts for all the major franchising companies in my back pocket. I have worked for major companies that franchise.

You're the one to make the claim that for franchises, well settled law on damage clauses is inapplicable. I can't prove a negative.
See also:
Priebe & Sons v. United States, 332 U.S. 407 (1947)
United States v. Bethlehem Steel Co., 205 U.S. 105 (1907)
Staten Island Rapid Transit Ry. Co. v. S.T.G. Constr. Co., 421 F.2d 53 (2d Cir.), cert. denied, 398 U.S. 951 (1970)
Harbours Condominium Ass’n, Inc. v. Hudson, 852 N.E.2d 985 (Ind. Ct. App. 2006).

 

[Rdcanada]

Yes, I'm buying something similar to testing equipement, its a monitonng system that will determine the volocity of a fast moving object (car), between two points, using a series of photo sensors. I'm not sure of the details of the software, but I agree there might be a database of sensors S/N that could be sent to the company when I do firmware upgrades.

I was thinking of having say my brother buy the equipement, and then sell it to me at a later point (after the warranty period). Now the contract would only be between him and company and not between me and company. There is no language in the contract that says that I can't re-sell the equipement. But of course I would need to vet that through a lawyer before to make sure its all good

Thanx for the advice, its has given me a bit more direction.

This sounds like you are buying testing equipment. Depending on the software, it may keep and report a reference quantity to enforce the contract. They may also have issues with excess wear and tear, due to non approved sample containers. Have you looked into outsourcing the testing? It may be cost effective as might purchasing used equipment without the contract binder. You can find secondary repair sources for most equipment. A third option is subsequent generations of equipment can frequently run prior models, which may be a way to circumvent your contract.