Did you know that a failure to exercise your contractual rights could result in you losing them?
Your big danger is a little known legal doctrine called Estoppel. A party to a contract can invoke the doctrine of a estoppel to justify why it failed to perform -- and if you are the other party to that contract, this could cost you dearly. Estoppel is triggered when the action or inaction of one party to a contract induces the other party to rely on it to their detriment or harm.
Let’s set the big legal words aside and give you a real life example of Estoppel that resulted in a freight forwarding company suffering financial costs and losing a significant portion of its business because it failed to enforce its contractual rights.
The freight forwarding company entered into an agreement to provide transportation and consolidation services to a Chicago shipper association. Because railroads charged a flat fee for each 80,000-pound shipment, the forwarding company would combine freight from its various customers to hit the maximum volume and then apportion the total shipping price across the multiple shippers. In its contract with the freight forwarder, the shipper association promised to hit certain shipping volumes.
In practice, the shipper association allegedly breached the contract with the freight forwarder by diverting some of its freight to other service providers. However, the association still sent some of its freight to the forwarding company and took advantage of the low rates in the contract. The court found that the freight forwarder “failed to enforce his rights under the contract and allowed defendants to continue to ship freight in lesser volumes than in the past.”
As a result of the decreased volume from the shipper association, the freight forwarder struggled to assemble as many combined shipments to hit the 80,000-pound limit of the railroads. This rippled through to poor business performance: unable to match competitors’ rates, the freight forwarder had to stop its services to several cities. Then labor costs rose because the railway, which was also losing money, refused to provide labor for the company’s consolidating activities.
Despite its financial losses, the freight forwarding company lost the case. The court found that the freight forwarder knew about the shipper association not hitting the volume requirements - yet the freight forwarder failed to act. Seeing this inaction from the freight forwarder, the shipper association was deemed to be no longer in violation of the contract when the shipper association shipped lower volumes. In legal speak, the court declared: “We find that defendants presented sufficient proof to show that they relied to their detriment on the inaction of plaintiffs to enforce their alleged rights under the contract so as to constitute estoppel.”
So what does this mean to you? It means you need to know what’s in your contracts at all times if you want to be able to enforce them. You need to have a copy of your contract on hand with reminders of key terms so that you can refer to at the right time.
Of course, staying on top of your key contract provisions is easy and automatic with Contract Wrangler. We would be happy to tell you more.