Tag Archives: contracts attorney

Paperwork1

Easy Tips for Reading Contracts When You’re Not a Lawyer

Reading business contracts when you’re not a lawyer can be daunting.  It is often tempting to pass the heavy lifting off to the corporate legal department, and take what your in house counsel says at face value without actually reading the contracts.  However, anyone involved in business contracting, including salespeople, corporate purchasing agents, contract managers, or department heads, should have a basic understanding of how to read business contracts.  Here are a few tips for reading contracts when you’re not a lawyer:

  1. Just read the darn thing. Roman numerals with subsections and terms like ‘force majeure’ can be intimidating at first, but once you start reading, you might be surprised by how much a lay person can read and understand in a standard business contract.  The biggest hurdle is actually convincing yourself that you can tackle the contract.  Additionally, the more you actually read the contracts, the more familiarity you will gain, and the better your understanding will be, which is incredibly useful when negotiating future deals.  Once you become familiar with warranty language, for example, you’ll see variations on the same language from contract to contract.
  2. Ask when you don’t understand. It is perfectly acceptable to ask your attorney what terms mean, or why specific phrases are included in a given contract. Your corporate counsel should be more than happy to explain the basics, if it means that they have less contract review work in the long-run.
    • You’d be surprised. Sometimes, the other side may not even understand him/herself!
  3. Get to know your company’s boilerplate. When you are negotiating contracts, it is very helpful to know what is in your company’s standard form agreement, commonly known “boilerplate” language.  These include things like termination provisions, indemnity clauses and the like.  Again, ask your corporate counsel if you have specific questions or what to know why something is included.
  4. When you get a standard form contract from the other party, mark it up. One of the best ways to read and understand a contract is to pick it apart.  When the other party you are negotiating with drafts the agreement, print a copy out and take a red pen to it, or tab the document with comments in Microsoft Word.  Circle terms or provisions you do not understand, or things that seem more favorable to the other side (and less favorable to your company).  Ask your attorney about why things are written the way they are and how you might revise to bring parity into the contract.

If you are involved in corporate purchasing or sales, or have questions about contracts 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.

Pointing fingers

Resurrecting a Contract After You Reach an Impasse

Negotiating business contracts is as much an art as it is a science.  It requires thinking strategically, figuratively putting yourself into the shoes of the other party, and even keeping your human emotions in check.  But what happens when you hit a brick wall with the other side and the deal goes sideways?  Here are a few suggestions for getting your deal back on track when you reach an impasse:

  1. Ask questions instead of drawing hard lines. If you reach an impasse on any issue, ask lots of questions. It’s amazing how much you learn when you ask questions.  Think about this from a personal perspective:  How often have you assumed that your partner/ spouse/ friend undoubtedly was thinking one thing when…..much to your surprise you find….. they were thinking something completely different?   . . If the other side says “No” or “We don’t agree”, always ask them why.  Questions such as “Why is this a problem?”, “Would you give me an example of your concern?” and the like often have the effect of bringing to the forefront,  the frequently under discussed concerns of the other side
  2. Consider your style.  Some negotiators have success with the ‘just folks’ act asking the other party to explain everything, by mentioning how they graduated with an English major, or can barely add numbers above three figures.  Be cautious however, this type of act can be transparent.  My advice is to be yourself during negotiations. If you’re not a forceful personality, don’t pretend to be so.  If you need to take your time responding to a question, take that time.  Negotiating means obtaining information about the other side’s wants and concerns. And voicing your needs and concerns. Every one of us has our own unique style of eliciting this information and negotiating a deal with the other side.
  3. Change it up. If you have been negotiating over the phone, consider meeting via video conference or in person.  If you have been meeting in a conference room setting, consider meeting over lunch, or taking a walk outside while you talk.  Changing the venue, especially moving to neutral territory, can often completely shift the dynamics of the negotiation, and break up the log jam.
  4. Don’t take ‘best and final’ at face value. If you have the time, and can hold out, it is often strategic to reject even what the other side calls their ‘best and final offer’—if this were truly the case, they would not still be at the negotiation table.
  5. Consider walking away. Letting a deal go is never easy, especially if your job is to negotiate contracts on behalf of your company.  You might be under pressure to meet sales goals, have other departments relying on you getting the deal done, or be under specific orders from supervisors or company owners to ink the deal.  However, sometimes walking away can be the most strategic thing you do.  A break in the negotiations can often be the best thing to happen to both parties.  Many a contract has died and come back after a break, change in personnel or shift in management direction with either party.  It is also important to keep in mind that ultimately if a potential vendor, supplier or customer cannot deliver the goods and services at the right price, or is unreasonable during negotiations, perhaps the contract with this particular company is not worth the time, money, and hassles.

If you have questions about negotiating agreements 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.

wine bottles

Verbal Agreements to Buy/Sell Goods – Are They Enforceable?

Are verbal agreements to buy/sell goods real agreements?  In other words, are they enforceable?

If your company is involved with buying goods from suppliers or vendors, or selling goods to customers, you no doubt have many standard forms and agreements prepared by your corporate attorney, or at least standard operating procedures for contracting.  However, occasionally a customer or supplier will ask for something verbally—a last minute rush order, a missing part, a ‘handshake’ deal, and you might verbally agree to it on behalf of your company.  The question is whether or not this “agreement” is legally binding.

Generally speaking, any promise to buy goods (meaning anything tangible, including material, equipment, product and even off the shelf software) from a supplier, or sell goods to a customer in an amount over $500 is NOT legally finding.  The Uniform Commercial Code (U.C.C.) requires all contracts for the sale of goods (not services) must be in writing if they are over $500.  However, there are some notable exceptions to this rule:

  1. Merchant exception: This is the most significant exception applicable to businesses. If the verbal agreement is between merchants (two businesses), and one of the merchants confirms the deal in writing, that writing will be binding on the recipient merchant even if the recipient merchant does not countersign their acceptance….unless the recipient objects to that writing within ten days of receipt. In other words: if you confirm your agreement via email to your supplier (or customer) that document will fit within this exception.
  2. Where the supplier has already started performance, and the goods are being manufactured specifically for the purchaser.
  3. Where the supplier has partially or fully completed performance.
  4. Where the buyer admits in court testimony or legal pleadings that he or she made a verbal contract.
  5. Where the supplier had relied on the verbal promise to his or her own detriment.

Of course, it is always best to get things in writing! Where the supplier can demonstrate one of the exceptions, it has an argument that the verbal agreement is a binding contract.

If your company needs assistance with developing vendor or customer contracts, or has other contracting questions, 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.

Pallets

Master Agreements with Your Vendors or Suppliers

If your company buys goods from suppliers or vendors with any regularity, you may be familiar with Master Agreements for the sale of goods.  The Master Agreement is the contract between the parties that is negotiated—how many units, what price, and other terms and conditions.  However, you may be less aware of what is known as the ‘Battle of the Forms.’  The ‘Battle of the Forms’ is a situation where both companies have their own standard forms in addition to that Master Agreement—your company has a standard form purchase order, while your supplier has its own standard acknowledgement form, invoice, and so on.  There will be plenty of forms that are in conflict with one another, and the Master Agreement, even where the buyer and the seller have already agreed upon a price and conditions for the sale in the Master Agreement.

A typical situation is where your company, the purchaser, sends your standard Purchase Order to the vendor, the seller, and the vendor sends back an acknowledgement and the invoice.  That acknowledgement form might have terms and conditions on the back of it or referenced on the company’s website.  If you started reading those acknowledgment/ sales/ invoice terms, you might be shocked at what you would find.  For example, you might learn that the acknowledgement form cites a 25% restocking fee for returned goods!  Wait, a minute—the Master Agreement says nothing about a restocking fee—and your contact at the vendor never even mentioned it, or assured you that there was no restocking fee.

The best thing you can do as a purchaser (or seller) to prevent the inadvertent addition of your seller’s (or customer’s) terms, would be to include  language in the Master Agreement that negates any such additional terms appearing on the seller’s (or buyer’s) form, such as “This Master Agreement shall apply to all purchase orders and other documents issued by either party in connection with the purchase and sale of Products (referred to as “releases”).  No inconsistent or additional terms or conditions in any releases shall be applicable to a transaction within the scope of this Master Agreement.”  

An ounce of prevention in purchase and sale agreements is often worth a pound of cure.  If your company needs assistance with developing vendor contracts, or has other contracting questions, 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.

Tug of War2

Battle of the Forms

If you work for a company and have any involvement in contracting for goods, you are familiar with the dreaded ‘Battle of the Forms.’  Both your company and the company you are contracting with have their own standard contracts, RFP terms, purchase orders, or conditions of sale.  Perhaps the advice you’ve received from your own in-house legal department is to ‘use our standard contract/form.’  The problem is, your customer or supplier is getting the same advice from his or her own corporate attorney.  So what are you to do? Can you still do the deal? And which terms and conditions prevail?  Here are a few general tips:

  1. Neither document prevails. So long as the parties each had good sets of terms and conditions on their respective forms and the forms generally comply with Uniform Commercial Code (U.C.C.) requirements of taking exception to the other’s terms, where the forms are in conflict, neither document supersedes the other.
    • Professional Tip: Your purchase order forms should include standard language that meets the U.C.C.’s requirement of taking exception to the seller’s terms along the lines of Section 2-207 of the U.C.C. “This purchase order is limited to terms and conditions contained on the face and the reverse. Any additional or different terms proposed by Seller in any quotation, acknowledgement, or other document are hereby deemed to be material alternations and notice of objection to them is hereby given.  Any such proposed terms shall be void.”  Of course, the Seller’s documents should include the same sort of language which objects to the Buyer’s additional and different terms.
  2. The U.C.C. will fill in the gaps. In situations where your company issues a purchase order/quotation without negotiating terms other than the most important terms (such as product, price, delivery), and without requiring the other party’s signature, if there was a dispute, the court would look to the U.C.C. (for the sale of goods) to fill in the gaps of the terms that have not been agreed to. For service type contracts, general contract law says that when the forms do not agree, no contract has been formed. Of course, the parties rarely read those forms and proceed with business. The contract is formed when the parties proceed with the work.
  3. Agreed upon terms prevail. Where the buyer’s and seller’s terms are in agreement, those terms apply.
  4. Focus on the front of the forms. Frequently, a dispute originates because the parties have not agreed to an essential deal term. For example, how many times have you seen the Seller’s quote with 30 day Net payment terms, but the Buyer’s P.O payment terms are 60 days? Make sure that the face of both the Buyer’s and Seller’s forms are consistent with respect to description of product/ service, delivery terms, price/payment terms, service levels and other key deal points.

If you are involved in corporate purchasing or sales, or have questions about standard form agreements 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.

Atty mtg

Sellers: Limiting Your Liability for Damages in Contracts

There are four major ways to reduce your risk and limit liability in contracts—disclaimers, limitation of liabilities, indemnification, and “Entire Agreement” clauses.  These are discussed in more detail below:

  1. Disclaimers. Shrewd contract negotiators live by the rule of disclaiming responsibility for anything beyond the specific commitments listed in the contract.  The only way a seller can disclaim implied contract warranties is by adding clear, specific language in BOLD, CAPITALIZED TYPE disclaiming the implied warranties.
  2. Limitation of Liabilities. Breaching parties are automatically liable to the other party for damages as a result of the breach unless the parties have specifically agreed to limit their liabilities.  Consider just what you want to limit.  For example, a Seller may negotiate that it will not be responsible to the Buyer for incidental or consequential damages.  As another example, you might also choose to negotiate your company’s maximum dollar limit on liability.
  3. Indemnification. Indemnification shifts the responsibility from one party to another in a contract.  Indemnity clauses can be drafted to protect your company from any acts, misrepresentations, wrongdoing, or omissions of the other party. 
  4. “Entire Agreement” Provisions. “Entire Agreement” or “integration” provisions in a contract limit the seller’s warranty liability to exactly what is written into the agreement.  In other words, adding this type of clause negates any other prior verbal agreements or commitments between the parties.  Put yet another way—if it is not in the agreement, it is not agreed to!

If you have questions about limiting liability in your business agreements, 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.

stack of bools

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.

17640001_s

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.

legal documents

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.