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How to Prevent a Breach of Contract—Contract Warranties

Along with poor contract drafting, warranties are the most litigated issue in business contracts.  Typically the parties have different expectations, especially when the buyer claims that the goods or services did not meet the promised expectations.  Here are a few tips on warranties to protect your company from unnecessary disputes:

The importance of the description

The statement of work/specifications/scope of the product or service is key to a meaningful warranty. The more vague, subjective, or general the description, the greater likelihood of misunderstanding and conflict between buyer and seller. Even if you are not the subject matter expert, review your internal customer’s description.  Phrases like “target goal”, “if feasible”, or “to be determined” are seemingly innocuous but can cause stalemates down the road.  It’s in both the buyer’s and seller’s best interest to take as much time as possible and to ensure specificity in the contract description of the product/ service.

A promise is a promise

Buyers should ensure that all promises made by the Seller – in its proposal, advertising material, emails, and verbal discussions with internal customers – is included in the warranty provision. If you don’t, you risk the possibility of that particular promise not becoming part of the contract.

Sellers should make sure they do not over promise, especially promising generic things like, “this product will work for all buyer’s [fill in the blank] purposes.”  This is setting your company up for trouble—regardless of how useful your product might be you cannot possibly anticipate all of the buyer’s potential networking/animal husbandry/cosmetic purposes that he or she could use your product in or for.  The best way to prevent overpromising is by including all specifications,  plans, detailed requirements, , and the like in your contract, so that those specific purposes and promises (and those only!) become binding warranties.  Attaching these items as appendices to the contract is sufficient.

Be clear about the remedies

Whether drafted by the buyer or seller, the typical warranty states that the buyer’s remedy for failure of the product to meet the warranty will be seller’s obligation to repair, replace or issue credit.  Since these clauses are generic, they frequently do not specify the time period by which the “fix” should be accomplished.

While business people are skilled at negotiating the “deal”, they often do not discuss the “what if something goes wrong” issues. When lawyers discuss this issue, we discuss it in terms of Limitations of Liability and assume the parties are going into court and obtaining a million dollar verdict.

As we know, however, there are thousands of steps between the initial dispute and the time where the parties go to court.  Give thought to and discuss “what happens if” the seller doesn’t fix the problem within the defined time period.  Those guidelines identified upfront can help to avoid a major dispute if the parties

If you have questions about contract warranties for your business, attorney Leslie S. Marell can help.  Leslie has more than 25 years of experience as in-house counsel and as a legal adviser working with businesses, business people, and business contracts, in the technology, manufacturing, software, and medical device industries.  She understands the real-world practicalities of what it takes to draft, review, and negotiate corporate contracts, and has presented her dynamic seminars to Fortune 500 companies and small to mid-sized businesses across the country.  Leslie specializes in helping contract analysts, project managers, and department leaders work better with their own internal legal departments and outside counsel.  To learn more about Leslie’s seminars, or get expert advice on contracting matters, contact Leslie at (310) 372-8663, or visit her online.

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Benefits of Attending a Leslie S. Marell Contracting Seminar

If you work with contracts, and are looking for a more in-depth understanding of terms and conditions, a contracting seminar with Leslie S. Marell can help you do your job better, and protect your company’s interests around the globe.  Leslie S. Marell is well-known as a highly entertaining, funny, and energetic speaker, and is ready to share the wisdom and lessons she has learned in more than 25 years of practicing contract law.

Leslie has presented her popular contracts seminars to thousands of businesspeople everywhere from startups and family businesses to Fortune 100 companies.  Leslie demystifies contracts for non-lawyers, and answers your questions in plain English, without the legalese.  If you’ve ever wondered what ‘time is of the essence’ really means, or how to avoid paying ‘consequential damages,’ without being put to sleep, this is your chance.

In addition to an entertaining and engaging presentation, Leslie gives attendees the most comprehensive manual available in the industry, with lots of templates for corporate supply agreements, vendor managed inventory, and examples of services agreements, as well as checklists and clauses, and sample responses to typical contract objections.

Leslie’s workshops give attendees:

  • Approaches to working with your in-house legal department or attorney to review contracts faster.
  • Advantages and tricks for successful contract negotiation.
  • Understanding of critical contract terms and issues, for non-lawyers.
  • Ability to maximize your company’s profit and minimize its risk.

At the end of Leslie’s seminars you will be able to read and understand your company’s contracts and your customers’ contracts, understand the finer points of contract negotiations, and close your deals faster.  This benefits your company’s bottom line, improves negotiating power, and helps minimize risk.  You’ll also be able to put the information in the seminar to use immediately in each and every agreement you draft, negotiate, or close.

If you would like to take your company’s contracting to the next level, contact Leslie S. Marell at (310) 372-8663, or visit her online, to find out how you can schedule an in-house seminar at your company.

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Drafting Binding and Non-Binding Provisions in Letters of Intent

Understanding binding and non-binding provisions in a Letter of Intent (LOI) is important for anyone who works with business contracts.  Here, we will review some of important information on LOIs and what you should look for when you are negotiating, drafting, and otherwise working with LOIs.

1.  Ensure everyone is on the same page. The first important thing to determine is whether you are working with a binding or non-binding LOI.  The United States, much of the EU, and many other countries around the world only recognize non-binding LOIs where both parties expressly agree to them.  But what does this mean really?  In practical terms, if you are negotiating or discussing a LOI with a potential supplier, distributor, or customer, you should always spell out that you intend the letter to be non-binding, and make sure you put this in writing (e-mail is fine!).  In many cases, you and the other party will want some of the provisions to be binding, while others will be non-binding.  Again, make sure everyone is clear, and put this in writing.  Consider specifically including language that states, “The parties agree that the following provisions shall be binding” and “the parties agree that the following provisions shall be non-binding” directly in the LOI.

2.  Use the mutually understood language. One of the best ways to make sure everyone understands which clauses are binding, and which are not, is to use the right kind of language that is understandable for all parties.  Words like ‘shall’ or ‘require’ conveys a binding requirement, while words like ‘will’ or ‘may’ convey a future intent.  Be cautious, however, that everyone understands this language.

3.  Consider how you frame obligations to negotiate in the LOI. For example, if the LOI ‘requires’ or otherwise obligates the parties to negotiate the proposed terms in good faith, then arguably the entire LOI is binding. Carefully consider the language you use in the LOI with regard to negotiations, and what would happen if the parties fail to reach an agreement on the substance of the bargain.  Could one have a claim against the other for bad faith or even breach of contract?

4.  Consider your leverage when adding binding or non-binding clauses. On many levels, negotiating a contract can be a head game, but many parties to LOIs don’t place the same emphasis on them as they do on “real” contracts.  For this reason, you might consider using binding and non-binding clauses in your LOI to your strategic advantage when you are negotiating the underlying contract itself.  The other party may not review an LOI to the extent that you have, and you may have much better leverage on terms that were listed as binding in the LOI when you are negotiating the deal itself.

5.  Finally: And from the Buyer’s Perspective:  Consider the impact of issuing an LOI on your future leverage. I’ve had seller clients who have told me that once they receive an LOI from their customer, they don’t have the same sense of “urgency” to finalize the contract as they did prior to the LOI. In other words, they know that their customer has “skin in the game” and is unlikely to pull out unless a major problem occurs.  Leverage is an important issue in LOIs!

Leslie S. Marell has more than 25 years of experience as in-house counsel and as a legal adviser working with businesses, business people, and business contracts, in the technology, manufacturing, software, and medical device industries.  She understands the real-world practicalities of what it takes to draft, review, and negotiate corporate contracts, and has presented her dynamic seminars to Fortune 500 companies and small to mid-sized businesses across the country.  Leslie specializes in helping contract analysts, project managers, and department leaders work better with their own internal legal departments and outside counsel.  To learn more about Leslie’s seminars, or get expert advice on contracting matters, contact Leslie at (310) 372-8663, or visit her online.

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Working with Your In-House Legal Department

As a contract manager, purchaser, sales manager, or department head, have you ever felt like your in-house attorney was ignoring you?  Do other departments seem to get priority treatment from the legal department, while your deals languish at the bottom of the pile waiting for the lawyers to sign off?  Here are a few tips to improve your working relationship with your internal legal department, and move up in the internal legal food chain:

  1. Explain the deal to your attorney. They’re not mind readers. They don’t know if the deal you’ve discussed with your supplier/ customer is actually the deal that is reflected in the written document.  Give them a short, basic outline of what you’ve agreed upon when you give them the contract. Don’t just throw the contract over to your attorney without giving an explanation or context. That’s what everyone else does!
  2. Review your supplier/ customer objections to your contract before sending to your attorney. You’d be surprised how many “contract/ legal” issues lawyers deal with that are actually issues that the business people should have addressed before turning over the document to their legal departments. For example, I am often asking my seller clients if they understand that they are signing up to a 3 year firm price agreement. They’ll tell me that is not the discussion they had with their customer.  However, they haven’t read the contract. So many people are intimidated by the contract that they don’t even read it.
  3. Give your in-house counsel enough time. If you put yourselves in the shoes of the company attorney, you might imagine how many things come across his or her desk with a ‘URGENT’ stamped on them. Think about your own situation: How many of your internal customers tell you their project is “hot”?  Your attorney will be much more responsive to you in the long-term if you always make sure to give them a sufficient amount of time for review—at least a week.  Attorneys much prefer to deal with the ‘reasonable’ departments and personnel, and may give those projects more time and attention.
  4. Consider how you loop your attorney in with information. Find the appropriate balance between carbon-copying your attorney on every email communication and keeping them entirely in the dark until the day before the contract deadline.
  5. Get organized. Your in-house counsel is likely buried under documents.  It will make your attorney’s job much easier if you send a single email with all of the necessary documents attached, or drop by the legal department with a complete file.  Sending documents or email correspondence piecemeal is likely to put you on their black list.  Attorneys particularly like a one-page time line summaries of the deal, summaries of the important points that were negotiated, or summaries of important materials and documents.  Good organization is always appreciated.
  6. Get back to your attorney promptly. If your attorney asks for more information, or calls you with a status update, you should make it a priority to get back to him or her as quickly as possible.  Your attorney is balancing multiple projects simultaneously, and the more quickly you respond, the more likely your deal will be to move to the top of the list.
  7. Lawyers are people too. If you’re a newer employee, or even if you’ve been with the company for years, stop by the legal department to introduce yourself in person.  Getting to know your internal attorneys and staff is one of the best ways to make sure your deals get speedy review.  You know: the more familiar you are with the person who emails you, the more likely you are to respond. Lawyers are also not above being encouraged with free food or other goodies.  You might be surprised at how far you can get with your attorneys through their stomachs! Personally, I love M&Ms!

Leslie S. Marell has more than 25 years of experience as in-house counsel and as a legal adviser working with businesses, business people, and business contracts, in the technology, manufacturing, software, and medical device industries.  She understands the real-world practicalities of what it takes to draft, review, and negotiate corporate contracts, and has presented her dynamic seminars to Fortune 500 companies and small to mid-sized businesses across the country.  Leslie specializes in helping contract analysts, project managers, and department leaders work better with their own internal legal departments and outside counsel.  To learn more about Leslie’s seminars, or get expert advice on contracting matters, contact Leslie at (310) 372-8663, or visit her online.