Restaurant Law Blog

Wednesday, February 6, 2013

Buyer Beware: Linen Supply Agreements

Before entering into a contract with a linen supply company, read the fine print! Some linen supply companies use misleading sales tactics to lure clients in, but then place different (and often unfair) terms into the written agreement. There have been several recent court decisions in New York regarding this seemingly common problem.

In Best Metropolitan Towel & Linen Supply Company, Inc. v. The Oar Steak & Seafood Grill, a restaurant owner was orally promised a two-year contract by a representative for the linen supply company. However, when the restaurant owner tried to terminate services after two years, it was discovered that the written agreement demanded a five-year term. The agreement further provided for a “liquidated damages clause”, which requires the restaurant owner to pay a significant amount of damages for early termination of the agreement. The linen supply company sued the restaurant, and the Court awarded the linen supply company over $8,000 in liquidated damages, claiming that the restaurant owner breached the contract by failing to continue using the linen company for the full five years, despite the original two-year oral agreement, which could not be proven. Lesson learned: make sure you get everything in writing.

In a different case, Best Metropolitan Towel & Linen Supply Company, Inc. v. Afternoones Restaurant Corp., the linen supply company sued a restaurant for liquidated damages in the amount of $25,000 after the restaurant breached the alleged “five-year” agreement. In that instance, the Court chose not to enforce the liquidated damages clause, and awarded the linen supply company only $1,646.53 – the amount actually owed for linens that had been used by the restaurant. The Court did not favor the linen company here because the linen company failed to show how the liquidated damage amount was reasonably proportionate to the anticipated lost profits.

Although it is possible to be successful when faced with a lawsuit by your linen supply company, it is not worth the risk. By being aware of the common ways some linen supply companies operate, you can better protect yourself and your business. Before signing anything, locate where in the contract it states the length of service – does it say one year or five years? (Hint: these particular terms are usually in the fine print on the back-side of the contract.) Does the agreement provide for a possible change or increase in price after a “promotional period” ends? Do all disputes need to be sent to the company via certified mail? In some instances, if you fail to send your complaint via certified mail, you may be forfeiting your right to do so at a future date (i.e., in court).

If you have any questions regarding your linen supply contract, or if you are currently facing a lawsuit by your linen supply company, contact our office for a free consultation.


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