Risky Business:Contract provisions thatmay seem harmlessbut can wreak havocAllen Matkins Leck Gamble Mallory & Natsis LLPM...
Miscellaneous Clauses:Think Before You Sign   We often use the “standard form” of these clauses without   considering the ...
Attorneys’ Fees Clause:What Do You Think You’re Getting?  EXAMPLES:  “If any litigation or proceeding is commenced  arisin...
Attorneys’ Fees Clause:What Do You Want?   Confirm you want the clause in general   Decide whether you want clause to ap...
Attorneys’ Fees Clause:Don’t Forget About Other Fees   Specify in detail prevailing party’s   right to costs other than at...
Time of the Essence Clause:Define Time Frame to Make This Clause Meaningful EXAMPLE: “Time is of the essence of this   Agr...
Time of the Essence Clause How effective is this clause? Despite an agreement that time is of the essence, courts often av...
Time of the Essence Clause         Time of the Essence provisions have no         effect on option contracts because time ...
Choice of Law/Choice of Forum Clause  Where do you want to go?    Where real property is located    Where the company is...
Choice of Law/Choice of Forum Clause:Will Your Choice Work?  Courts will not enforce choice of law/forum clause  if:    t...
Choice of Venue Clause: Nice TryVenue statutes identify proper court for particular action.EXAMPLE:“Borrower submits to th...
Severability Provision: Not So Cut and DryEXAMPLE:“If any provision of this Agreement is for any reasondeemed illegal or i...
Severability Provision: What Can GoWrong?         If the unlawful or unenforceable portion of thecontract         is an es...
Non-Waiver Clause:Be Sure It Covers All Provisions  EXAMPLE:  “No express or implied consent to or waiver of any  provisio...
Non-Waiver Clause GOAL #1: To protect you from waiving the benefit of a contract provision in the future by failing to enf...
Entire Agreement/Integration Clause:Have You Captured Everything?   EXAMPLE:   “This Agreement represents the entire   und...
Entire Agreement/Integration Clause Be sure there are no other agreements you may  want to reference in conjunction with ...
No Third Party Beneficiaries Provision:How to Prevent Party Crashers   EXAMPLE:   “Except as expressly provided herein, no...
No Third Party Beneficiaries Provision   A person asserting third party beneficiary status   must prove contract was made ...
No Third Party Beneficiaries Provision   EXAMPLE:   “Except as expressly provided herein, nothing in   this Agreement shal...
No Third Party Beneficiaries Provision Courts look to evidence of parties’ intent to determine whether a person is a third...
Waiver of Right to Jury Trial   EXAMPLE:   “Buyer and Seller each waive their respective right,   to the fullest extent pe...
Waiver of Right to Jury TrialGenerally Unenforceable If Alone Waiver or forfeiture of the right to a jury trial via a cont...
Waiver of Right to Jury Trial:The Major Exceptions   Agreements to arbitrate, which are essentially jury    trial waivers...
Selection/Waiver of Remedies Clause:Be Sure You’re Clear on What You Want  EXAMPLE:  “In the event Seller fails to perform...
Selection/Waiver of Remedies ClauseParties may select or limit remedies by contractual agreement,or by otherwise waiving c...
Selection/Waiver of Remedies Clause         Make sure if you provide for a remedy,         you really mean it.
This information is intended to provide a general summary ofsome commonly-used contract provisions and identify ways inwhi...
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Risky Business: Contract provisions that may seem harmless but can wreak havoc

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Risky Business: Contract provisions that may seem harmless but can wreak havoc

  1. 1. Risky Business:Contract provisions thatmay seem harmlessbut can wreak havocAllen Matkins Leck Gamble Mallory & Natsis LLPMay 19, 2010
  2. 2. Miscellaneous Clauses:Think Before You Sign We often use the “standard form” of these clauses without considering the impact in a subsequent dispute or lawsuit.  Attorneys’ Fees  Time of the Essence  Choice of Law/ Choice of Forum  Venue Selection  Severability  Non-waiver  Entire Agreement/Integration  No Third Party Beneficiaries  Waiver of Right to Jury Trial  Selection/Limitation of Remedies
  3. 3. Attorneys’ Fees Clause:What Do You Think You’re Getting? EXAMPLES: “If any litigation or proceeding is commenced arising out of or relating to this Agreement, the prevailing party shall be entitled to recover from the other party a reasonable sum for attorneys’ fees and costs reasonably incurred.” “In any action to enforce this Agreement, the prevailing party shall be entitled to recover from the other party its actual attorneys’ fees and costs of suit.”
  4. 4. Attorneys’ Fees Clause:What Do You Want?  Confirm you want the clause in general  Decide whether you want clause to apply to all claims  “Arises out of” language generally includes any tort claims arising out of agreement  Alternative is to narrow clause – for breach of agreement or declaratory relief only  Recover “reasonable” or actual fees?  Consider a cap on fees or only applies if dispute exceeds dollar amount
  5. 5. Attorneys’ Fees Clause:Don’t Forget About Other Fees Specify in detail prevailing party’s right to costs other than attorneys’ fees  Expert witness fees  Professional fees (such as appraisers’ and accountants’ fees)  Arbitration and/or mediation fees (if arbitration allowed by contract terms)
  6. 6. Time of the Essence Clause:Define Time Frame to Make This Clause Meaningful EXAMPLE: “Time is of the essence of this Agreement.”  If no time specified, courts will apply a “reasonable” time to perform.  What is a “reasonable time” is a question of fact – so it will be up to a jury
  7. 7. Time of the Essence Clause How effective is this clause? Despite an agreement that time is of the essence, courts often avoid finding a breach of this provision by:  finding the performing party waived its right to enforce the timeliness provision by conduct (e.g., by accepting late payment) OR  crafting a decision in order to prevent forfeiture of the benefit of the non-performing party’s bargain.
  8. 8. Time of the Essence Clause Time of the Essence provisions have no effect on option contracts because time for exercise of the option is an essential term of the option and is controlling.
  9. 9. Choice of Law/Choice of Forum Clause Where do you want to go?  Where real property is located  Where the company is incorporated  Where the company is headquartered What law do you want?  Your state  State with most favorable law
  10. 10. Choice of Law/Choice of Forum Clause:Will Your Choice Work? Courts will not enforce choice of law/forum clause if:  that state has no substantial relationship to the parties/transaction AND  there is no other reasonable basis for that choice OR  the law of the chosen state is contrary to a fundamental policy of California.
  11. 11. Choice of Venue Clause: Nice TryVenue statutes identify proper court for particular action.EXAMPLE:“Borrower submits to the jurisdiction and venue of the courts ofHumboldt County, California for the purposes of any action arisingout of or relating to this agreement.” Agreements selecting a non-statutoryvenue are void as against public policy.
  12. 12. Severability Provision: Not So Cut and DryEXAMPLE:“If any provision of this Agreement is for any reasondeemed illegal or invalid, such illegality or invalidity shallnot affect the validity of the remainder of this Agreement.”  Cal. Civ. Code 1599: “Where a contract has several distinct objects, of which one at least is lawful, and one . . . unlawful, . . the contract is void as to the latter and valid as to the rest.”
  13. 13. Severability Provision: What Can GoWrong? If the unlawful or unenforceable portion of thecontract is an essential part of the agreement, theentire agreement may be heldunenforceable. Give careful consideration to whether a party iswilling to perform the rest of the contract if suchprovisions are set aside. Remember: interpretation based on intent of parties.
  14. 14. Non-Waiver Clause:Be Sure It Covers All Provisions EXAMPLE: “No express or implied consent to or waiver of any provision hereof shall be deemed a waiver of any other provision.”
  15. 15. Non-Waiver Clause GOAL #1: To protect you from waiving the benefit of a contract provision in the future by failing to enforce it in the present. Goal #2: To allow a party to waive one provision while preserving the ability to enforce others. BUT… you can still waive through conduct inconsistent with the terms of that clause. “Even a waiver clause can be waived by conduct." Bettelheim v. Hagstrom Food Stores, Inc. (1952)
  16. 16. Entire Agreement/Integration Clause:Have You Captured Everything? EXAMPLE: “This Agreement represents the entire understanding and agreement between the parties as to the subject matter hereof and may be modified or waived only by a separate writing.” Looks OK, but is it really?
  17. 17. Entire Agreement/Integration Clause Be sure there are no other agreements you may want to reference in conjunction with the subject agreement. This clause does not prevent a fraudulent inducement claim.
  18. 18. No Third Party Beneficiaries Provision:How to Prevent Party Crashers EXAMPLE: “Except as expressly provided herein, nothing in this Agreement shall confer any rights upon any person or entity not a signatory to this Agreement.” Good enough?
  19. 19. No Third Party Beneficiaries Provision A person asserting third party beneficiary status must prove contract was made for his/her benefit. A provision stating there are to be no third party beneficiaries should exclude him/her from seeking protection or benefit under the contract. BUT…
  20. 20. No Third Party Beneficiaries Provision EXAMPLE: “Except as expressly provided herein, nothing in this Agreement shall confer any rights upon any person or entity not a signatory to this Agreement.”
  21. 21. No Third Party Beneficiaries Provision Courts look to evidence of parties’ intent to determine whether a person is a third party beneficiary. Also, don’t forget about future amendments to your contract.  Consider whether you or the other party may hire subcontractors.  Even where third party beneficiaries are not expressly contemplated, it may be advisable to include a provision prohibiting third party beneficiaries
  22. 22. Waiver of Right to Jury Trial EXAMPLE: “Buyer and Seller each waive their respective right, to the fullest extent permitted by law, and agree not to elect a trial by jury with respect to any issue arising out of this purchase and sale agreement.” Note: Pre-litigation contractual jury trial waiver must be expressly permitted by statute. See Cal. Civ. Proc. Code §631(d).
  23. 23. Waiver of Right to Jury TrialGenerally Unenforceable If Alone Waiver or forfeiture of the right to a jury trial via a contract is generally prohibited:  Grafton Partners v. Superior Court (2005) – the “nonstatutory authority for waiver of the right to a jury trial is not permitted by [the California] Constitution.” “California constitutional history reflects an unwavering commitment to the principle that the right of a civil jury trial may be waived only as the Legislature prescribes.”
  24. 24. Waiver of Right to Jury Trial:The Major Exceptions Agreements to arbitrate, which are essentially jury trial waivers, “are specifically authorized by statute.” Grafton Partners, 36 Cal.4th at 955; see Cal. Civ. Proc. Code 1281. Agreements for judicial reference, by which parties submit their dispute to a judicial referee rather than a jury. See Cal. Civ. Proc. Code 638.  BUT…CC&Rs cannot be treated as a contract for purposes of agreeing to judicial reference. Treo @ Kettner Homeowners Assn. v. Superior Court (2008)
  25. 25. Selection/Waiver of Remedies Clause:Be Sure You’re Clear on What You Want EXAMPLE: “In the event Seller fails to perform, Buyer may at its option and as its exclusive remedy: (i) terminate this Agreement, or (ii) seek specific performance. Buyer hereby waives any right to pursue any other remedy, including, without limitation, any right to seek, claim or obtain damages, punitive damages or consequential damages.”
  26. 26. Selection/Waiver of Remedies ClauseParties may select or limit remedies by contractual agreement,or by otherwise waiving certain remedies.  “Any one may waive the advantage of a law intended solely for his benefit.” Cal. Civ. Code 3513.  Statutes of limitation – can be waived  But, court may still not enforce all remedies despite parties’ agreement
  27. 27. Selection/Waiver of Remedies Clause Make sure if you provide for a remedy, you really mean it.
  28. 28. This information is intended to provide a general summary ofsome commonly-used contract provisions and identify ways inwhich they might be interpreted in the context of litigation. It is ageneral overview only and does not constitute legal advice. Itshould not be relied or acted upon with regard to any particular setof circumstances without first consulting professional legalcounsel.
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