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comment on alarm co failure to sign contract: should you have a home office signature requirement May 29, 2017

KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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comment on alarm co failure to sign contract: should you have a home office signature requirement 
May 29, 2017
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Comment on alarm co failing to sign contracts and First Mercury
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Ken,
    You blew it big time with your comment that you don’t believe the contract should have a provision in it stating that in order to be valid it must be countersigned by an officer at the home office (or other authorized representative)  
    Think about what can happen if you just allow your sales reps to sign and then you are stuck with what is agreed to.  Remember, the sales reps job is to get that contract signed and bring it back for a commission.  If the potential subscriber will only sign for a price that is too low, or no or watered down protective provisions like the limited liability clause, they will (and should) do it.  Do we really want the sales rep making that ultimate call? NO.  But under your scenario, the sales rep can bring back unacceptable contracts that you will bound by and also have to pay a commission for!  Sales reps can be given some guidelines about what alterations to the contract might be acceptable, but we find most of the requested changes require us to consider legal ramifications and/or whether a reduced price is even worth it.  These are be business decisions to made by the owner(s) of the alarm company…the ones who set policy and are taking the risks.
    Oh, one other thing.  I noticed in your continuing crusade against First Mercury (which I agree with) you mention how you “…cared about the alarm industry and preserving legal precedents.”  Not always so….remember your ill-fated defense of a subscriber breaching its contract with us a couple of years ago?  But you did help preserve positive precedents for the industry--- you lost that one!
Robert Kleinman, Esq., CEO, General Counsel
AFA Protective Systems, Inc.
Syosset, NY
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Response
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    There are certainly good arguments on both sides of the issue of whether your sales person should be able to sign off on the subscriber contract or be required to bring it back to the home office, signed by the subscriber, so that the home office can review it and have a company officer approve and sign the contract.  You have expressed the company position well.  So your sales reps are OK to "make the deal" but not "seal the deal"?  After spending their time and the subscriber's time, filling out the Subscriber Contract and getting the subscriber to sign the contract, you and your fellow corporate officers get to play Monday night quarter-back and decide if you want to go ahead with the deal.  There's nothing wrong with that business practice, but it doesn't work well for everyone.  In your case, most of your subscriber contracts are for commercial fire.  The installations are costly and the recurring services are also priced on the high end.  Indeed, your typical subscriber contract calls for you to install and provide the system as part of your fire alarm services, you continue to own the equipment and the subscriber's contract may contain more terms that are unique to that subscriber.  
    Other alarm companies, probably most, don't permit much negotiation beyond scope of equipment and services.  More than slight changes to the "protective provisions" are not permitted.  Sale persons are highly trained and know that changes are generally not permitted and they are also trained enough to call the home office for approval if changes are requested and the sales person thinks the changes should at least be entertained by the "home office".  
    One reason not to require home office signature is that the deal is not "sealed" until the fully executed contract is delivered to the subscriber.  This means the subscriber can cancel until the fully executed contract is delivered to the subscriber, and in the case of a residential subscriber, the 3-day notice is given.  
    You would be surprised how many subscriber contracts are sent to my office, for collection or defense, that are not signed by the alarm company.  This generally does not create a problem since performance of the contract can act as acceptance or ratification by the alarm company, but a provision "not valid unless signed by an officer" is not an issue we should have to deal with at that stage of the relationship between alarm company and subscriber.  That's why I decided a long time ago not to include that provision.  The right response to the concerns you raise is, train your sales reps better.  
    Regarding my commitment to the legal issues facing the alarm industry I think my "record" is pretty well established.  To get an idea of that record all you need do is visit our website and read our Reported Decisions, hundreds of reported cases, most dealing with the alarm industry.  Check it out here:  https://www.kirschenbaumesq.com/page/reported-cases
    Just today we received a decision from an Appellate Court reversing a lower court's judgment because it didn't include legal fees in connection with our proceeding to confirm an arbitration award in a collection case.  The economics certainly didn't support the appeal, but we processed the appeal because we thought it important to the alarm industry and the arbitration process that we have included in the Standard Form Agreements.  There have been a handful of times when I believed it appropriate to take a position adverse to an alarm company, but not necessarily adverse to the industry as a whole.  In the case I took an adverse position to the alarm company, as I recall, the alarm company was suing to remove wiring it had installed in a building almost 30 years before the subscriber's contract expired and its services were terminated.  The alarm company also sued for monetary damages for the "conversion" of its wiring, which I recall it valued as the cost of re-wiring the building.  A lawyer in my office took the case in, defending the new owner of the property, and I found out about the case only after the litigation was well underway.  I didn't think the alarm company had a great case.  In fact, I didn't see how it could sue to recover the "value" of converted equipment and the right to remove the equipment.  The value is a monetary action [action at law] and removal an equitable action.  An essential element of an equitable action is that there is no action at law [monetary].  Anyway, I thought the alarm company's position did not advance the interest of the alarm industry.  Bad facts make for bad law.  But the learned judge in NJ let the case proceed; it was settled to satisfaction of the new property owner and the alarm company.  Thanks for reminding me.
    By the way, I don't have a crusade against First Mercury.  It's not the only carrier offering E&O to the alarm industry, and it may not even be the worst.  But there are better options.  The better options include those insurance carriers who don't try to exclude coverage unless the broker has a relationship with the carrier or is smart enough to ask for certain changes.  The carrier should be on the alarm company's side, not a vendor the alarm company should be leery of or needs to be on guard with.  Caveat Emptier should not apply to the insurance carrier.  So coverage is one issue.  The horrible way FM handles claims is another.  Don't get me started.......
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
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