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Business Law

Contract Analysis

U-haul: A subsidiary of AMERCO Holdings

U-haul is a brand under the parentage of AMERCO Holdings Company. AMERCO has five operating segments including Moving and Storage, Property and Casualty Insurance, Life Insurance and SAC Holdings (AMERCO.com). The U-Haul division consists of several product offerings. They offer self-storage rentals, self-storage related products and moving services. This research will limit itself to Moving and Storage operations. This division comprised 89% of net revenue in fiscal year, 2005 (AMERCO.com).

Every contract must contain certain elements to be considered valid. They are mutual assent, lawful objective, capacity of the parties to perform, consideration and appropriate form. The omission of any of these elements can render the contract invalid. AMERCO engages in numerous types of contracts with a number of different entities. They have contracts with realtors, suppliers, vendors, and repair persons to name a few. The nature and exact structure of each of these types of contracts will differ to reflect the nature of the agreement. Actual contracts between parties are not public information and the specifics are not often available to the public.

Most of the contracts that U-haul uses are standardized forms. Let us examine U-haul's standard Purchase Contract. Mutual assent is met by the "Recitals" section of the contract. This contract is a blanket purchase contract specifically for the purchase of part or components used by U-Haul. One of the key criticisms of this section is that it is too general. It refers to previous drawings, specifications and terms, but does not refer to those documents by name. It refers to "Exhibit a" which sets forth the parts to be supplies. However, it does not refer to the documents containing specific information regarding the previously agreed terms. This section could render the contract invalid, if terms that are more specific are not set forth. The supporting documents referred to in this section should be properly referenced and attached as exhibits as well.

The contract does have a lawful objective. Therefore, it meets this requirement. According to the referenced documents, the vendor and U-Haul have met to discuss the specifics of the contract. Therefore, it is reasonable that both parties have the capacity to perform. Otherwise, they would not have been offered a formal contract. An analysis of this particular contract presents a certain degree of difficulty due to the absence of the specific terms of the contract.

There are many assumptions that must be accepted in an analysis of the consideration portion of the contract. The terms of the contract are general; once again, the difficulty arises from failure to provide the supporting documentation. Under "Description of Work," we find the fact that this will be an ongoing contract is alluded to with the use of purchase orders to specify future parts orders. However, the exact terms of the contract are never set forth. This section would have been stronger with a specific time laid out.

The Indemnity Agreement appears to resolve the time issue. It declares that the duration of the agreement shall be 5 years from the date of execution. However, this is a part of the Indemnity Agreement, not the Purchasing Contract. This could be a major sticking point in the administration of this contract. It is assumed that the supporting documents mentioned in throughout the contract are more specific. However, if they are not, then this contract could be a source of litigation between the parties.

It is difficult to determine if the terms of the contract are fair due to the lack of specific information. It mentions items such as "non-conforming" parts, but does not specifically set forth what "non-conforming" means. For instance, what if a part has some minor defect, such as a bubble in the paint that does not affect its functionality? Would that part be considered non-conforming, or would it be considered usable, and therefore acceptable under the terms of the contract? Several such terms need to be more clearly defined in order to avoid conflict at a future date.

This contract lacks appropriate form in several circumstances. In section 6.1, it states, ii) all work under this Contract shall be free from faults and defects, (iii) the Parts shall conform with the Specifications, (iv) timely performance of its obligations hereunder, and (v) the Parts shall be fit for the particular purpose for which they are intended." (Purchase Contract, Section 6.1).

This paragraph brings up a case of the example previously stated. The level of performance perfection is not clearly defined. The first clause states that the part should be "free from faults and defects." Does this include blemishes or scratches? The last clause states that it shall be suitable for the purpose intended. It is possible for a defective part to be usable. This is only one example of the ambiguity found throughout the contract.

Another example of ambiguity is in section 5.1. The contract states, "Vendor shall immediately notify UHI of any problems that may arise from the Specifications." The term "immediately" could give rise to problems in this case. Immediately may mean within 24 hours. It may mean within 48 hours. It may mean as soon as is reasonable. The person who drafted this contract probably knew exactly what they meant, but language that is more concrete would make it a much more enforceable contract.

It is apparent that this contract was meant to be in a number of circumstances for various products. It is possible to do this; however, in this case the document fails to lack the strength to render it easily enforceable. The first major flaw is that it references specifications that apparently lay out the terms of the project. However, it does not attempt to reference them specifically or attach them in any way. They should be included in the Exhibits. When they are referenced, it should sound something like, " the parts referenced in section a-1 of Exhibit B." This may be redundant and wordy, but it clarifies any ambiguities that may be a source of conflict.

Terms such as "timely" or "immediately" are easily laid out in a document such as this. Although every purchase and time for delivery may be specified in the attached documentation, general policies can be specified in a general contract such as this, especially if they reflect corporate policies and procedures. A specific time, such as "within 24 hours" is more concrete and easily measurable.

If one examines this document from the court's point-of-view, it would be difficult to determine if a breech of contract had occurred or not. It is difficult to determine if an obligation was met in a "timely" manner, but it is easy to determine if it were met "within 24 hours." Concrete terminology is the key to writing a contract that is both binding and enforceable. Including clause regarding defective parts might read, "Defects shall include, but not be limited to the following..." This would set certain criteria for determining if the part is flawed or not.