Monthly Archives: June 2015

Contracts

A Summary of Essential Contract Terms – Part 1

Every industry and type of business requires its own unique contracts. However, there are certain essential terms that should be included in most every contract. Below is a simple summary of several questions you should ask in determining what types of clauses you need in your agreements.

Should the contract be assignable?

Most parties do not want the other party to have the right to assign or subcontract any part of its obligations under the contract without obtaining express consent. It is important to understand that unless expressly prohibited in the agreement, a contract is presumed to be assignable.

Who is liable to pay attorney’s fees?

Typically, a non-prevailing party is required to pay the lawyer’s fees and costs incurred by the prevailing party. In some states, there is a law that allows the prevailing party in a lawsuit to recover its attorney’s fees, but it is wise to have this type of provision in your agreement to ensure you are protected. Additionally, the law may limit your recover to the expenses associated with a lawsuit while the contract clause can allow recovery in a dispute.

What law will govern the contract?

You should select the law of a specified state to govern your contract. The state law you choose should have some relationship to the contract or the parties involved. Most parties select the state where their home office is located because they are familiar with them and already have attorneys representing their best interests in the state. You should also state your choice of venue for where lawsuits pertaining to the contract should be filed.

What happens if the agreement has conflicting terms?

Hopefully your primary document does not conflict with itself, but if it incorporates other contracts or documents, it is possible a conflict can occur. Thus, you should have a provision that sets forth how such a conflict will be handled. In other words, the contract will state which document will have priority over the other.

Are there exclusive or cumulative remedies?

If the contract outlines specific rights and remedies, it should state whether they are exclusive or cumulative with other rights and remedies.

What if breach is caused by events out of the party’s control?

Most contracts provide that neither party can be held liable for a delay or other failure in performance caused by fire, flood, war, or other similar causes beyond the party’s control. This clause should be fair in listing the catastrophic events that may be applicable to the business, the time frame for providing notice of the unforeseen event should be reasonable, and the time period giving rise to the right to terminate should be fair to both parties.

Is there are right to indemnification?

If one party agrees to indemnify or hold the other party harmless from all claims or actions arising out of the indemnifying party’s acts or omissions, it should be clearly stated in the contract. For more information, please read our blog titled “Indemnification Clauses.”

How will insurance be handled?

Depending on the type of transaction, it may be necessary to outline how insurance will be handled. Each party may agree to maintain insurance in commercially reasonable amounts to protect itself and the other party for damage to property or personal injury that may arise under the contract.

For more information on questions you should ask when negotiating and drafting a contract, be sure to read our next blog. If you have additional questions, contact Leslie S. Marell to schedule an appointment. Our office is located in Torrance, California, but we proudly serve businesses of all sizes from all over the country.

Contracts

10 Basic Steps for Creating a Strong Commercial Contract

If you’re going to enter into a contract, you want to make sure it is a strong one. Every transaction is unique, but below are a few general tips for ensuring your agreements are solid:

Get it in writing

Although some verbal agreements can be binding, they can be extremely tough to enforce. You should never take the risk with your business – get your contracts in writing. It will lessen the likelihood of confusion and disputes. Additionally, keep the language simple. Legalese can often make matters unnecessarily complex.

Negotiate with the proper person

It is imperative that you negotiate with the person who has the authority to make binding decisions on behalf of the other party. Failure to do this can result in a significant waste of time.

Confirm the parties are correctly identified

This may seem obvious, but it is a common mistake for contracts to use names for parties that are not their legal names. For example, they use “XYZ” instead of “ABC, Inc. doing business as XYZ” or they include the names of the owners of the business.

Be detailed

The terms and conditions of the contract should be clearly spelled out in full detail. If it was verbally agreed upon, it should be included in the document too. If you discover a detail was forgotten, have a short amendment to the contract drafted as soon as possible. The agreement should also specifically state which state law governs the interpretation of the contract.

Cover contract termination

Although nobody wants to think about terminating the contract before it is even signed, it is essential to do so. Not only should the agreement contain a termination date, but it should also set forth what will happen if a party defaults under the contract. This may include clauses that outline how disputes will be resolved.

Keep it private

If the contract covers sensitive business information, the agreement should include mutual promises that it will be kept confidential.

If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.

Contracts

Don’t Make Assumptions In Your Outsourcing Contracts

It is a common mistake for users to enter into an outsourcing contract with the assumption that they will automatically be given new or updated technology during the life of the agreement. Unfortunately, unless this is specifically stated in the outsourcing contract, the supplier is not obligated to provide you with upgraded equipment. This can be problematic since advances in technology occur quite quickly.

If you are in a situation where your contract does not require the supplier to provide upgrades, there may still be hope. For example, if the supplier is failing to meet certain terms and conditions in the contract, there is likely a provision that works in your favor. Don’t give up hope without having an attorney review your outsourcing contract to determine if you have leverage for a renegotiation of the contract terms.

Advances in technology occurring at a fast rate also make it important for you to have exit rights in your contract. However, you must consider that an abrupt termination of the contract could be devastating to your business if you don’t have services during the transition period. Thus, you must create transfer agreements or ensure that alternative arrangements have been made.

The most effective thing you can do to protect yourself in outsourcing agreements is to obtain legal counsel early in the process. This is particularly important if the supplier is not being cooperative. A knowledgeable attorney will have subtle ways of negotiating your rights that the supplier will find agreeable. For example, the agreement may allow you the right to conduct an audit which could result in improvements by the supplier.

When negotiating and drafting an outsourcing contract, the value of obtaining professional advice is clear. The user has the most leverage during the negotiation process, so it is important to take advantage of it. Once the agreement has been signed and you are “locked in,” the power shifts to the supplier.

If you need assistance creating an outsourcing agreement or you have questions regarding your company’s contractual needs, contact Leslie S. Marell for help. We serve as general counsel to clients who do not require, or choose not to employ, a full-time lawyer in-house. Call today to schedule your initial consultation.

Contracts

What Does “Contract Management” Consist Of?

Having strong contracts is one of the most crucial steps to ensuring you have a successful business. Your written agreements govern not only daily operations and deadlines, but also all of the terms and conditions governing your relationship with the other party. When you have numerous contracts, keeping track of all the different duties and obligations can be difficult. As a result, many companies are implementing contract management systems.

A contract management system allows you to track deadlines, deliverables, and all of the terms and conditions to ensure customer satisfaction. It allows you to manage your customer’s expectations and relationships, as well as control risk and cost. You can implement best practices and improve all applicable policies and procedures to ensure compliance with the law.

There are numerous agreements that must be managed with each transaction, which differs depending on what industry you are in. For example, sellers, purchasers, and licensors or licenses of software technology all have different contractual needs. Below are examples of the different types of contracts that may be needed and that should be properly managed:

  • Letters of Intent
  • Master Contracts
  • Partnering Agreements
  • Employment Contracts
  • Services Contracts
  • Licensing Agreements
  • Consulting Agreements
  • Products Agreements
  • Assignments
  • Non-disclosures Agreements
  • Non-solicitation Agreements
  • Environmental Agreements
  • Outsourcing Contracts
  • Leases
  • Subcontracts
  • Work orders
  • Escrow Agreements
  • Training Agreements
  • Requests for information
  • Proposals
  • Click Wrap Agreements

As you can see from the above list, managing your contracts can be a difficult task! If you need assistance creating any of the above contracts or you have questions regarding your company’s contractual needs, contact Leslie S. Marell for help. We serve as general counsel to clients who do not require, or choose not to employ, a full-time lawyer in-house. Call today to schedule your initial consultation.

Business, Contracts

6 Actions that Help Avoid Lawsuits

One of the most important goals in drafting a contract is to lessen the risk of your business being sued or having to sue another party. Another important goal is to safeguard your position if litigation should become necessary. Below are a few things to consider:

Investigate the other party

It is always a good idea to conduct due diligence on the party you are entering into a contract with. This may be as simple as an Internet search or obtaining referrals from other parties that have had agreements with the party.

Get your agreements in writing

Putting things in writing is one of the most effective ways to protect you. Whether it is a contract with a vendor, supplier, employer, or business partner, a contract that clearly outlines the agreement can prevent the need for litigation. In contrast, if the contract is poorly drafted and leaves questions as to what the actual agreement is between the parties, then litigation is likely. It should also be noted that if you don’t have a contract in place, verbal agreements should at a minimum be documented with a follow-up note or email.

Read and understand the contract

It is essential to not only carefully read every agreement, but also to ensure you understand the terms and how they will apply to your daily operations. Knowing and understanding what your agreement provides can help you recognize when things are going downhill. Addressing problems as soon as they start to occur can keep them from evolving into nasty disputes.

Communication and action

If you keep your clients informed about what is going on, it can help prevent litigation. In other words, if they are aware of price increases or scheduling conflicts as they occur, they are more likely to understand when you miss a deadline. That being said, as soon as you encounter an issue, take action to correct it and giving your attorney a heads-up is a good idea too.

To ensure that your contract provides you with the most protection from liability available, contact Leslie S. Marell to schedule an appointment. Our office is located in Torrance, California, but we proudly serve businesses of all sizes from all over the country.

Business, Contracts

Is our Letter of Intent Binding?

Buyers and sellers often use a letter of intent (LOI) to memorialize their agreement on the key terms of a transaction. Some of the material terms that are included in the LOI are the price, closing date, due diligence terms and other important deal points. Many parties find a sense of comfort once the LOI has been finalized and executed because it is a strong indication that most of the issues have been hammered out and a deal will occur. In fact, the LOI allows a supplier to start buying material in order to provide its customer with the product on time with the comfort of knowing that they will at least get reimbursed for this expenditure. The LOI serves as the approval to go ahead and spend the money.

Of course, the smaller issues and boilerplate language are not included in the LOI, so negotiations must still occur during the drafting of the contract. Although the LOI is not intended to be binding, certain contractual provisions such as confidentiality clauses and exclusivity terms are binding on the parties. As a result of this mix between binding and non-binding terms, it may leave you wondering when a non-binding LOI is binding?

It is common for the LOI to include a broad disclaimer that the parties are not bound by it unless or until a separate and binding contract has been executed by the parties. Yet, numerous courts have found that the LOI is evidence that the parties had a “meeting of the minds” sufficient to create an enforceable contract that is adequate for awarding damages if a breach occurs. In fact, the court applies an objective test to determine if a binding agreement exists. Thus, whether a party subjectively intended to be bound by the LOI does not matter. Rather, the court examines what a reasonable person in the same position as the parties to the LOI would’ve thought it meant.

Although there are no guarantees on what a court will decide regarding whether a LOI is binding or not, if you want to avoid it being binding on you, there are a few steps you can take, including:

  • Use clear an unequivocal language stating that the LOI is not binding on the parties
  • Include a provision stating that the LOI is an initial statement for consideration only and that additional information will be negotiated as part of a subsequent formal contract
  • Allow each party the right to terminate negotiations at any time and for any purpose
  • Comply with any exclusivity or confidentiality provisions contained within the LOI
  • Exclude the covenant to negotiate in good-faith or consider expressly disclaiming this obligation
  • Never refer to the LOI as a binding or final agreement in any correspondence or other communications with the other party

If you are interested in learning more about a LOI or you need assistance drafting one, contact Leslie S. Marell for an appointment.

Business

Selecting the “Right” Legal Counsel for Your Business

For many business owners and managers, selecting the right legal counsel can be intimidating. Many businesses, especially smaller ones, worry that the cost of working with an attorney will not be worth the benefit gained.

It is important for business owners to understand that having an experienced lawyer on your side can help ensure the success of your company. An attorney can protect your finances, intellectual property, and exposure to risks. Spending a little money now can save you thousands of dollars in the future.

When looking for the “right” lawyer for your business, consider the following tips:

Don’t believe the rumors about attorneys.

How many attorney jokes have you heard? There are a lot out there, as well as all the misperceptions regarding lawyers such as they are too expensive, self-interested and not to be trusted. However, most attorneys are dedicated to helping others and they will go out of their way to achieve your goals. When you work with the right attorney and utilize him or her correctly, it will be one of the most supportive relationships you have in your business.

Work with a lawyer who supports your vision.

There are a lot of law firms out there, so you want to pick one that believes in your business and that will proactively support your goals. It is important to pick an attorney that has significant legal experience in your industry and the areas of law that you need expertise in. You can discover a significant amount of information from reading the law firm’s website to help you understand the areas of law they practice in and whether they have the expertise you require.

Get “big firm” help at solo practitioner’s prices.

If your legal issue does not require an entire legal team, consider working with a solo practitioner with prior big firm experience. This way you can work with an attorney experienced in working with complex matters without paying the big firm prices.

Take full advantage of an initial consultation

During your initial consultation, don’t be afraid to ask a lot of questions. You will also want to explain the nature of your business and your goals for it. You will learn a lot about the lawyer in this type of discussion and the advice he or she gives you. Remember, your conversation is protected by the attorney-client privilege, so you can talk openly and honestly. A good attorney will focus on listening to you and be able to answer your questions, so you have a clear understanding of your options and the choices you need to make.

Finally, follow your “gut” when it comes to choosing your business’s legal counsel. You want somebody that you trust, your comfortable working with, and that provides you the guidance you need. In no time at all, you will soon realize just how valuable the relationship with your attorney is to your business.

If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.

 

Contracts

Mirror Image Rule vs. Last Shot Rule

Depending on the industry, a certain percentage of business is conducted vis-à-vis signed contracts. However, my observation is that much of commerce is conducted by the seller submitting its quotation (with its terms of sale), the buyer submitting its purchase order (with its terms of purchase) and neither signing the other’s form. This is an effective practice, but what happens when both parties have not signed the same document? How do you know what the terms of the agreement are? Unfortunately, it is difficult to answer these questions until after the fact.

Battle of the forms

During contract negotiations, each party typically exchanges its form which contains very different terms from the other’s form. In fact, it is common for numerous forms to be exchanged with competing terms and no final contract to which the parties have agreed to all the terms is ever signed.

General contract law

Traditional contract law requires that an offer and an acceptance to that offer be exchanged in order for a contract to be formed. In the real world, the issues are: What happens if the offer and acceptance contain different terms? Has a contract been formed? If so, whose terms control?

Two approaches have evolved over the years to address these issues:

1.      Mirror image rule

The mirror image rule requires the offer to be accepted “as is” for a contract to be formed. Once an offer is accepted, the parties have a legal agreement. If the party accepts the offer but changes one term, a contract does not exist under the mirror image rule. Rather, the acceptance with the changed term becomes a counteroffer to be accepted or rejected by the other party.

In the context of commerce, if the buyer submits a purchase order with its standard terms and conditions, and the seller accepts it but submits its own standard terms and conditions that are significantly different, there is not a contract under the mirror image rule.

In that common scenario, the contract is formed when the parties begin performance.

2.      The last shot rule

Under the last shot rule, however, the acceptance does not necessarily have to match the offer word for word. In the example above, if the buyer submitted its purchase order with full payment and the seller accepted by sending its own terms and conditions, then the seller’s “acceptance” becomes a counteroffer with its terms and conditions applied. The buyer’s payment constitutes acceptance by performance and, since the seller’s form was the last document to be sent, it constitutes the contract under the “last shot rule.” In other words, the last shot rule provides that the last document sent before performance is the governing document.

The Uniform Commercial Code (UCC) overrules both the mirror image rule and the last shot rule, which will be discussed further in our next blog.

If you need assistance understanding if a contract has been formed or you have questions regarding your company’s contractual needs, contact Leslie S. Marell for help. We serve as general counsel to clients who do not require, or choose not to employ, a full-time lawyer in-house. Call today to schedule your initial consultation.

Contracts

Understanding Common Contractual Clauses

While every contract is unique, a typical business contract contains some basic or “boilerplate” provisions. These clauses usually follow a standard format and they are carefully worded to ensure they will hold-up in court. Because so many contracts contain similar boilerplate provisions, many people do not read them or do not understand what they are agreeing to.

Below are a few examples of legal terms and conditions that you should fully read and understand before signing the contract. The consequences of ignoring these clauses could lead to an unintentional breach of the contract and/or litigation.

Merger and Integration Clause

This clause is often referred to as the “entire agreement clause” because it provides that the entire agreement between the two parties is what is laid out in the written contract. This is a very important provision to understand because it makes it extremely difficult for the parties to enforce any promises that are not documented in the contract, even if they were sent in writing or via email prior to contract signing. The court will look only within the four corners of the contract to resolve a dispute. Thus, it is imperative that all prior agreements are fully recorded in the written contract, leaving no ambiguity.

Indemnification Clause

The indemnification clause is a tool designed to protect one party from certain actions or negligence of the other party. In other words, this provision can protect you from misconduct or wrongdoing that you are not involved with. This type of protection is extremely important when there are contractors and subcontractors involved with performing the work. To learn more about indemnification, please read our blog titled “Resolving the issue of Limitation of Liabilities between Buyer and Seller.”

Time is of the Essence Clause

If your contract deals with a time-sensitive matter, you must include a clause the dictates failure to meet a specific deadline is considered a breach of the contract. The clause can outline the consequences or damages available to the non-breaching party for failure to meet the deadline.

Severability Clause

A severability clause provides that if a portion of the contract is held to be void or unenforceable, the remainder of the agreement can still be valid. Without this provision, the entire contract could be unenforceable if any part of it is void.

Liquidated Damages Clause

A liquidated damages clause provides that if a party breaches certain terms of the agreement (often delivery or performance requirements), they will be required to pay the other party a certain amount of money as compensation for the damages. Liquidated damages can be helpful when it is hard to calculate the actual damage that will be incurred by the non-breaching party.

Acceleration Clause

The inclusion of an acceleration clause allows a party to demand performance in full if the other party breaches the contract. For example, if one party misses a payment, the other party can demand payment in full.

The Takeaway

The above are just a few examples of the boilerplate language that can be included in a contract. Failing to read these clauses and to fully understand what you are signing can put your business at significant risk and make it vulnerable to a lawsuit. Remember, every clause in a contract is negotiable, so don’t think you are “stuck” with the boilerplate clauses. If you don’t understand any part of an agreement, it is imperative that you have a competent business attorney review it.

To learn more about boilerplate language in a contract or how we can assist you with other business-related matters, contact Leslie S. Marell today.

Business, Contracts

Simple Steps for Preventing Contract Disputes

As a seasoned business attorney, I can tell you that a significant number of contract disputes can be prevented with strategic pre-planning during negotiations and drafting of the document. Regardless of the size of your business or your level of expertise, it is common for the same underlying issues to lead to litigation over contracts.

Make sure the contract reflects the Deal

When parties are entering into a contract, they typically want to get the transaction completed ASAP so they can get started on the new venture. Frequently, one party gives the other its “form contract” without ensuring that the deal points agreed upon have been included in the document. The perception is that contract bears little relationship to reality and is only useful if the parties go to court. However, this thinking is exactly what gets people into trouble.  Form contracts are useful tools and outline your company’s position. But, they must always be modified to include the deal points and agreements. If those deal points are not included, they will be considered outside of the scope of the agreement and not binding obligations.

Be clear about performance

The contract should be specific about deadlines that must be met and the performance requirements. Not only does setting forth the time-for-performance protect you by helping ensure you obtain the product or services in a timely manner, it may also provide you the ability to get out of the contract if the deadlines are not being met. Thus, use exact dates and avoid any general or vague time periods.

Establish expected level of quality

Your written agreement should set forth the level of quality that is expected, the criteria for meeting that quality level, and who will determine if it has been met or not. The contract should outline what will happen if the expected level of quality is not met and who bears the burden of rectifying the problem (within a certain period of time).

Escape clauses

It’s always important to include an escape clause in the contract. If one of the parties can no longer continue to perform under the contract or the product, equipment, services or subject matter is no longer needed, an escape clause can provide a way to mitigate the damages and avoid disputes and litigation. For example, if a party needs to get out of the contract, it can pay a certain amount of money for work in process, materials on order, and the like as a type of agreed upon consequence.

In sum, don’t rush into a contract even though your internal customer will often push you to do so.  Prepare a document that reflects the deal points. Draft a strong agreement that is clear on the specifics and deals with potential issues that may arise. This can save you a significant amount of time and money, as well as preserve the relationship with the other party.

If you need assistance negotiating and drafting a contract or you have questions regarding your company’s contractual needs, contact Leslie S. Marell for help. We serve as general counsel to clients who do not require, or choose not to employ, a full-time lawyer in-house. Call today to schedule your initial consultation.