Definition of Trailer Interchange Agreement
A trailer interchange agreement is a specialized legal contract based on the more generic terms of an "interchange" agreement. Such an agreement typically describes the obligations of the appropriate parties to maintain certain pieces of transportation-related equipment, namely carriers’ trailers. It is separate from the leasing of the trailers themselves , through which an owner of the trailers provides them to a carrier for a period of time in return for payment.
Interchange agreements within the context of trailer interchange agreements are more for the purpose of determining price in the event of damage or loss. The aim is to determine who is responsible.
A trailer interchange agreement template, therefore, is a generic, pre-prepared legal document that can serve as the basis of an interchange agreement. Such templates are often supplied by insurers or organizations responsible for the creation and implementation of such policies, or they can be generated by transportation companies themselves.
Components of a Trailer Interchange Agreement Template
The trailer interchange agreement template will vary depending on the specific needs of the broker, carrier and shipper. That said, the following terms are often included in a trailer interchange agreement template:
- Liability – This key item to have in the agreement template should clearly specify who is responsible for liability and any related loss. Carrier should hold responsibility for loss of an empty trailer, while the brokers usually hold responsibility for any cargo needed to be delivered.
- Insurance requirements – At the very least, there should be a stipulation that the carrier hold physical damage on the trailer it receives, and insurance for the products being transported. It may also make sense to require at least two million dollars of cargo insurance coverage. Liability for accidents with other vehicles should fall on the carrier.
- Responsibilities of the parties involved – An example of what this would look like is specifying that the carrier agrees to use their best efforts to deliver the trailers in good condition and that the shipper agrees to try and provide the carrier with trailers in good condition. The shipper may also be responsible for emptying the trailers after delivery, depending on agreements set beforehand.
- Term of the agreement – This lets the signer know how long they are bound to this agreement with that party.
- Trailer spaces – If the parties are storing the trailers in question with one another, the number of spaces available should be a part of the template. Care should be taken to avoid congestion.
- Inspection – There should be a minimum standard for trailer quality in each agreement template so each party knows what to expect from the other. Setting this particular term is essential to preventing disputes over whether the trailer is satisfactory or not.
- Jurisdiction – As with any contract, you should decide the jurisdiction the contract falls under.
Advantages of a Template
A trailer interchange agreement template can help save time, ensure compliance with industry standards, and minimize legal risks. A well-written agreement covers all of the points that should be addressed when one company owns the tractor and another company owns the trailer. When two businesses use a uniform trailer interchange agreement template, there is no confusion about the terms because the template reflects common industry practices. Examples of terms that would be included in a trailer interchange agreement are the names of the parties, the date of the agreement, the explanatory preamble, and the signature block.
The applicability of a trailer interchange agreement template extends to different areas of the transportation process, such as the leasing of equipment to third parties. For instance, if your company leases semi-trailers to trucking companies, you might want to consider using a trailer interchange agreement. Your lease agreements may not address which party is responsible for damage that might occur in an accident. Since transport trailers are separate units from motor carriers’ tractors, the insurance coverage for the tractor may or may not cover damage to the trailer that occurs during an accident. To avoid litigation over whether the lessee or lessor of the trailer was responsible for any damages to the trailers, you can enact an agreement that designates that responsibility in advance.
Customizing Your Template
While templates are a great starting point for businesses, it is important to note that they are not a "one-size-fits-all" solutions. Once you have selected a template that meets your business needs and is compliant with state and federal law, there are still several steps to take to ensure your agreement is appropriate and addresses issues related to the unique circumstances of your business. For example, many templates will include a blank space where the template’s user is expected to add its business name. In some cases, a generic term, such as "demise", may be used in place of a party’s name. However, because a trailer interchange agreement is a legally binding contract, a party should be careful to ensure all spaces are properly filled in before entering into an interchange agreement. You may also want to consider adding language that specifically identifies any additional terms that you expect to be included in any prospective interchange agreement. A company may choose to start with a template agreement and then add any supplementary language it deems relevant for its own needs. Business considerations may also be helpful in drafting your own language for use in a trailer interchange agreement. For example, if you are a "shy party" when it comes to negotiations, you may want to draft language that is specific enough to encourage a counterparty to provide additional terms to your template. On the other hand, you may want to be as general as possible in your proposed terms if you anticipate having a competitive edge over a counterparty in negotiations. In either case , identifying these points in-house is a good way to start the process of creating an interchange agreement that will work for your company. When evaluating whether to create its own language, a business should also consider whether the proposed language will require a change to the trailer interchange agreement generally. For instance, a business may need to consider whether it wants to add an indemnification provision. If it decides it does, that decision may turn on whether it is a supplier or retailer entering into the agreement and whether it is negotiating from a position of strength or weakness. A company looking to customize its own interchange agreement may also consider addressing the most common issues that arise during trailer interchange negotiations, including: Again, a business is better off identifying its negotiation priorities in-house before entering discussions with a counterparty. Businesses should also weigh the pros and cons of approaching a legal professional to assist in drafting an interchange agreement. In some cases, the cost of redrafting a trailer interchange agreement when it is first drafted and at later stages in negotiations can be avoided or minimized through the use of a template. However, there may be instances in which the need to add language to a proposed interchange agreement is unavoidable or remedial action is needed due to changes in applicable federal law. The practical advice for addressing issues that arise in a trailer interchange agreement remains the same. Businesses should plan ahead and do their research to identify points to address with a counterparty before a trailer interchange agreement is signed.
Preventing Common Mistakes
Companies frequently make one of the following common mistakes:
- Agreeing to terms in a negotiation without a clear understanding of the legal implications.
- Relying on an incomplete, unavailable, outdated or poorly drafted.
- Avoiding the need to use a trailer interchange agreement. However, a trailer interchange agreement is fundamental for liability, risk transfer and indemnification purposes. It is better to use a trailer interchange agreement than to get involved in a potential liability-shifting dispute with a motor carrier.
- Taking a trailer exchange in exchange for a smaller trailer not included in the agreement. Businesses should avoid agreeing to exchange for anything that is not specifically identified in the trailer interchange agreement.
- Not keeping a record of the trailers in the interchange agreement. If a Trailer Interchange Agreement does not set forth the identification numbers of the vehicles involved, turn-in and turn-out records are a must.
- Not completing the paperwork following taking a trailer in or out of service. Do not forget to complete the paperwork after taking a trailer in or out of the service. Complete and retain a written record. (See "Why Companies Should Maintain Trailer In and Out Records" for more detail.)
Key Considerations for Validity
Both interchange agreements and full-service lease agreements have been recognized as leases for state law purposes, despite their differences. And there are times when a court will treat them that way even if a party tries to assert the contrary. Some courts have held that the use of trailers under a trailer interchange agreement constitutes a bailment rather than a lease. This leads to challenges in terms of the proper remedy in the event there is an issue with the condition of the trailers at the end of the agreement. Courts are required to strike a balance between giving the parties the ability to customize their own agreement and ensuring that some basic legal requirements must be met .
The written contract should have a few essential legal requirements, such as:
Most courts will enforce these substantive requirements regardless of the label used, especially if the agreement was supposed to be for a period longer than one year, when it should comply with applicable statute of frauds requirements. In Triumph, Int’l, the court determined that plaintiff’s use of the parties’ trailer interchange agreement "was significantly more akin to a bailment agreement than a lease agreement." The court nonetheless ruled that any legal effects of characterizing the agreement as a lease or bailment were diminished because the parties did not intend to create a lease and instead just wanted to satisfy the statute of frauds.