Tag Archives: terms

A Summary of Essential Contract Terms – Part 2

Hopefully you have read our blog titled “A Summary of Essential Contract Terms – Part 1.” This blog is a continuation of the questions that should be asked while negotiating and drafting every contract:

How will notices be given?

It is important to require all notices to be given in writing and set forth how they should be delivered (personally, U.S. mail, certified mail, overnight delivery service, etc.). The contract should also specify the address where each party will be served with a notice. You should also identify when the notice shall be deemed to have been received, especially if a certain time period starts upon delivery of the notice.

What is the relationship of the parties?

Depending upon the type of contract, it is important to identify the relationship being established between the parties. For example, is one of the parties an independent contractor or an employee? Does the agreement establish a joint venture, partnership, agency or other association between the parties? Does the contract confer power or authority from one party to the other?

Is the contract severable?

If one portion of the contract is declared by a court to be unenforceable, does the remainder of the contract remain in full force and effect? This type of provision is particularly important in non-compete and non-solicitation agreements.

Can the contract be assigned?

Most contracts specify whether the agreement is binding on and inure to the benefit of the parties and their successors and assigns. As a general rule, however, a contract is only binding on the parties that signed it. However, if a company is sold, you want to ensure that the agreement is binding on the new owners.

Will certain contract clauses survive termination?

When a contract is terminated, it means that it is no longer effective or binding. However, there are certain provisions that you may want to continue to be effective such as confidentiality, indemnification, or limitation of liability clauses.

How can the contract be terminated?

Most contracts provide that they can be terminated “for cause” or “without cause.” This provision should set forth what constitutes cause and the notification requirements, as well as any time period in which the breaching party can cure. If a party is allowed to terminate the contract for convenience, notification requirements should be detailed in the contract.

Does failure to enforce constitute waiver?

Most contracts provide that the failure of either party to strictly enforce the terms or conditions of the contract do not constitute a waiver of such terms or conditions.

Are there any warranties being made?

If warranties are made, they should be clearly identified in the contract. Further, a provision should be included stating that unless expressly stated in the contract, the seller disclaims and makes no other implied or express warranties.

Can the contract be modified?

It is wise to include a clause that states the contract can only be amended or modified in a writing that is signed by both parties.

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

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.

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.

Defining “Material Breach” in Your Contract

Hopefully you have read our blog titled “State of Indiana v. IBM: Test for Determining the Materiality of a Breach of Contract.” Below are a few tips for how to define what constitutes a material breach in your contract and help ensure the court will support your termination when a material breach occurs:

  • Clearly identify the specific events that constitute a material breach and that the parties agree will allow termination of the contract without the payment of termination charges. This will not only help ensure the court enforces these provisions, but the negotiated terms will also provide the court guidance in assessing if an unlisted breach is material.
  • The contract should set forth a notice requirement prior to terminating the contract for a material breach event. The breaching party should be given the opportunity to cure the defect. By giving this notice, you will likely learn any arguments the breaching party has that its conduct does not meet the material breach standard.
  • In addition to the specific material breach provision, the contract should also contain general breach of contract terms. You will want to include operational standards that must be met in measuring performance.
  • When defining the standards of performance, avoid using ambiguous terms. Common examples of terms to avoid include “industry standard,” “appropriate,” or “best practice.”
  • To ensure that the service levels are important, you must have meaningful service level credits. If the service level credits are minimal, it minimizes the significance of missed service levels. You should also avoid using service level credits as liquidated damages. You don’t want the other party or the court to view payment of these “liquidated damages” as a valid alternative to performing.
  • Set forth service levels that allow you the ability to terminate the contract if performance falls below a defined standard.

If you need assistance defining a material breach in your agreements 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.

11 Shipment Terms Defined under the Incoterms

Hopefully you have read our blog titled “Shipping Terms in Your Commerce Contracts.” This blog will provide a brief summary of some of the terms defined in Incoterms 2010. Remember, these are summaries of the terms and you should confer with legal counsel before using an Incoterm in your transaction.

Below are Incoterms that apply to all modes of transport:

Ex Works (EXW). The Seller agrees to have the goods at an agreed point (usually the seller’s facility) and provides the Buyer notice to allow the Buyer to take delivery of the goods. The Seller’s only responsibility is to prepare the goods for pick up by the Buyer’s carrier; Buyer assumes the risk of loss of the goods, freight charges, export and import responsibilities and delivery to buyer’s facility. EXW is typically not an ideal option for most importers unless you have a freight forwarder and broker in place and have negotiated preferential shipping rates.

Free Carrier (FCA). The buyer and seller can name a location on the seller’s side (for example, “FCA Seller’s Facility at [address]”). If the parties name the seller’s facility, the seller is responsible for loading the goods onto the initial carrier and the buyer is responsible for transport, freight charges and risk of loss thereafter as well as export and import responsibilities.

Free Alongside Ship (FAS). This term is followed by a named port of shipment and is only applicable for water transport (”FAS Boston.”). The seller is responsible for the cost of transporting and delivering goods to the export point, but the responsibility shifts to the buyer once the goods are unloaded at the export point..

Free on Board (FOB). This term is followed by the named port of shipment, for example FOB New York, and applicable only for waterway transport The goods are place on board the vessel by the seller at a port of shipment at seller’s expense. Seller has responsibility until the goods are loaded on the transport vessel, then all responsibility shifts to the buyer.

Cost and Freight (CFR). This term is followed by the name of the port of destination and applies only to waterway transport. CFR requires the seller to pay the costs and freight necessary to bring the goods to the named destination. Buyer assumes responsibility for loading the goods on the truck at the place of import, transport to the destination and import responsibility.

Cost, Insurance, and Freight (CIF). CIF is similar to CFR (applicable only to waterway transport) with the additional requirement that the seller purchases insurance against the risk of loss or damage to goods.

Carriage Paid To (CPT). The buyer and seller name a location on the buyer’s side to which the freight is prepaid by seller. The wording would be something like “CPT Buyer’s Facility at [address].” The import responsibility is buyer’s only obligation, while the seller is responsible for transport, freight charges, risk of loss and exporting obligations.

Carriage and Insurance Paid (CIP). The parties name the place on the buyer’s side to which the freight is prepaid by seller (“CIP Buyer’s Facility at [address]”).. Seller carries all of the responsibility, including providing insurance against loss of damage, and import responsibility and unloading from the final carrier are buyer’s only obligation.

Delivered at Terminal (DAT). The buyer and seller identify a terminal, or a named point within the terminal, where appropriate, on the buyer’s side to which the goods are delivered. Seller carries all of the responsibility, except import responsibility falls on the buyer as well as obligations to unload at the terminal.

Delivered At Place (DAP). The parties name a stipulated destination on the buyer’s side where the goods are to be delivered. Seller carries all of the responsibility, except import responsibility falls on the buyer as well as the obligation to unload once it reaches the designated destination

Delivered Duty Paid (DDP). The parties name a Buyer’s location to which the goods are delivered (e.g. “DDP Buyer’s Facility at [address]”). All responsibility falls on the seller, except for obligations of unloading once the goods reach the Buyer’s location.

As you can tell, Incoterms can be confusing. The above is only a summary of the terms and there are many other factors to consider.

. I’ve created a graph identifying the buyer’s and seller’s obligations within the 11 Incoterms and will be happy to email it to you if you send me an email to Leslie@marell-lawfirm.com

If you need assistance understanding shipping terms or drafting an effective contract, contact Leslie S. Marell to schedule an appointment.