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Contracts & Top Mistakes
 

Contracts & Top Mistakes

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Find out the top mistakes in drafting, structuring and managing business contracts and how to avoid them...

Find out the top mistakes in drafting, structuring and managing business contracts and how to avoid them...

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  • COUP D’ETAT ?
  • The Monolith Concept , DUI USA & EUROPE,
  • MACY’S ACQUISITION OF TIFFANY, DAIMLER BENZ – CHRYSLER,
  • BMW IN 1998 WINS TRADEMARK RR FOR 40 MIO POUNDS, VW FAILS FOR 430 MIO – TERMINATION ON CHANGE OF OWNERSHIP CLAUSE MISSED IN LICENCE AGREEMENT
  • UNLESS PARTIES INTENTIONS ARE OF GREATER CONCERN
  • CONTRACT CAUSA ISSUES
  • CHANGED INTEREST RATE IN LOAN CONTRACT
  • WHICH REAL ESTATE IS SAFER TU BUY – IN THE RECORDS OR NOT ?
  • CLAIMS MAY BE ASSIGNED IN SPITE OF NO ASSIG. CLAUSE IN COMMERCIAL CONTRACTS !
  • FINANCIAL ENGINEERING ISSUES
  • VALUE AND SCOPE OF THE DEAL TO BE CONSIDERED
  • USUALY LOCAL LAW OF THE FORUM – BEST KNOWN
  • IT IS NOT OVER !
  • COUP D’ETAT ?

Contracts & Top Mistakes Contracts & Top Mistakes Presentation Transcript

  • Contracts & Mistakes
    CONTRACT DRAFTING - BOTH AN ART AND A SCIENCE
    “Only the Paranoid Survive”
    Andrew S. Grove ~ Intel
    Prima FACIE / Law Firm ®
    Corporate Legal Counseling
    All Rights Reserved © 2009
  • TOP MISTAKES IN CONTRACTS
    2
    "My God, it's Full of Stars!“
    Monolith, ArthurC. Clarke,2001 Space Odyssey©
    “IF STARS REPRESENT MANDATORY RULES OF CIVIL LAW, THEN THE DARK SPACE OF THE UNIVERSE IS THERE FOR CONTRACTUAL FREEDOM.
    USE IT WISELY.”
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • TOP MISTAKES IN CONTRACTS
    3
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
    • General Agreement
    • SoW
  • TOP MISTAKES IN CONTRACTS
    4
    Mistake No. 1
    There Is No Contract
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Thinking
    There Will Be
    No Problems
    Weather delays, employees are quitting, computers break down, software is full of bugs, governments and unions have new bright ideas that ruin the business, and more and more will happen. It always does
    5
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Not Investigating and
    Understanding Future
    Business Partners
    6
    TOP MISTAKES IN CONTRACTS
    Perhaps the most fundamental mistake made by businesses is failing to adequately investigate the entities with whom a business intends to enter a contractual relationship. While most companies analyze whether a proposed deal is financially advantageous, a surprising number fail to adequately study their proposed business partners. It is important because it provides warning signs about the partner, the likelihood that obligations will be met and whether litigation is likely if disputes arise.
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Failing to accurately
    identify the parties to the contract
    7
    TOP MISTAKES IN CONTRACTS
    The contractshouldidentifytheparties as completely as possible. In thecaseofcorporations or otherbusinessentities, it is important to verifythecapacityofthecontractingpartyto bindthecorporation to thecontract
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Hasty, Inadequate
    or Non-Existent
    Due Diligence
    8
    TOP MISTAKES IN CONTRACTS
    The next step should be to conduct thorough due diligence. Often businesses are so eager to "do the deal" that they perform inadequate due diligence, or not at all. While companies elect to take "calculated risks," there are real risks to circumventing due diligence. If a deal appears to be too good to be true, the need for due diligence is even greater.
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Not Writing the First Draft
    Negotiations start from the first draft. BE THERE.
    It might seem wise to let the other party write the first draft – as a courtesy – but this will work against you in the end.
    9
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Ambiguous (Payment) Terms
    Trust should never come into play when talking about business contracts. Make sure that the contract explicitly states the exact payment terms with no room left for ambiguity
    10
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • OPPORTUNITY DEVELOPMENT AND MARKET RESEARCH TELEMARKETING
    STATEMENT OF WORK
    Oracle Czech s.r.o. - Linea Directa d.o.o.
     
     Nondisclosure & Security
    Upon completion of the services, Provider will destroy the list, related materials and all copies thereof (hard copy, electronic or otherwise) in its possession in a manner that ensures that these materials cannot be recreated or used
    by commonly encountered, usualcommercialsoftware.
     
    11
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Agreeing to
    Overly
    Restrictive
    Covenants
    Too restrictive covenants should be avoided if at all possible. If they are unavoidable, they should be reasonable in terms of time and they SHOULD BE MUTUAL. Such clauses either should not extend beyond the termination of the contract or should not apply if the contract is terminated for cause
    12
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Overly Restrictive Covenants
    INTELLECTUAL PROPERTY RIGHTS
    LINEA DIRECTA (LD) represents and warrants that the Marketing Services, and all parts thereof, provided under this Agreement do not infringe any patent, copyright, trademark, trade secret or other proprietary right of any person or entity (“Proprietary Interest”).LDagrees to defend, at its own expense, any claim or suit against “CLIENT” and to pay all awards anddamages of the foregoing arising out of such suits or claims, in respect of any infringement, misuse or misappropriation of any Proprietary Interest arising out of or related to this Agreement of any Marketing Service provided hereunder, provided “CLIENT” notifies LD of any such claim or suit.“CLIENT” shall be represented by its own counsel at LD’s expense.
    13
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Overly Restrictive Covenants
    INTELLECTUAL PROPERTY RIGHTS
    If any Marketing Service or part of it thereof is reasonably claimed to constitute an infringement of the IP or other rights of third parties, or if “CLIENT“ became the subject of a claim of infringement, LDshall, at its own discretion either:
     
    (a). Procure for “CLIENT”the right to continue usage; or
    (b). Replace or modify the Marketing Service so that it becomes non-infringing while continuing to meet specifications.
     
    The previous section states LD 's entire liability and “CLIENT's”remedy for infringement.In the event, that either of above solutions is reasonably adequate, each party may declare that a Force Majeure Event has occurred.
    14
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Committing
    to Long-Term
    Contracts
    Contract terms should be limited to one or two years and the parties should retain the right to terminate the contract if the other party fails to perform or if one reasonably determines that continuation of the contract is no longer in his best interest
    15
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Time is
    of the
    Essence
    In business it is usually so, but it is not all about Time Value of Money. The »Time is of the Essence« clause in transactions means that if time limits are not strictly complied with, you can lose legal rights or have rights of the other party exercised against you.
     
    16
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Not knowing
    what you want
    If you don't know what you want, you might not like what you get. Also, if you change your mind and change the goals, the contract and price will change. (Hint: it won't get cheaper)
    Know clearly what you want.
     
    17
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Entering a Contract
    Not Written or
    Approved
    by a Lawyer
    The temptation is greater when contracts "seem" simple. However, the rule that "THINGS ARE RARELY AS SIMPLE AS THEY SEEM" applies here. Having a lawyer to briefly review a contract is an investment that more than pays for itself and, if nothing else, allows a company to identify the risks of proceeding without greater attorney involvement. Where companies enter the same type of transaction over and over again, the use of form-template contracts is appropriate as long as they are drafted or approved by a lawyer and the form is occasionally reviewed in light of new laws and past performance.
    If you don't know what you want, you might not like what you get. Also, if you change your mind and change the goals, the contract - and price - will change. (Hint: it won't get cheaper)
    Know clearly what you want.
     
    18
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • No Provisions
    Relating to Defaults,
    Opportunities to Cure
    and Termination
    Companies are sometimes reluctant to raise these issues, because they worry that their partners will have second thoughts. However, these provisions are important ways to PROMOTE PERFORMANCE and AVOID LITIGATION. If notice of breaches and opportunities to cure are required, parties that might otherwise litigate are forced to attempt to work out their differences. Another important benefit of these provisions is that they require alleged contractual breaches to be raised when they first arise and not after problems spread and damages escalate.
    If you don't know what you want, you might not like what you get. Also, if you change your mind and change the goals, the contract - and price - will change. (Hint: it won't get cheaper)
    Know clearly what you want.
     
    19
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Failing to be All-Inclusive
    You should dot every i and cross every t.
    Not only should the legal terms be covered, but also the specific requirements of both parties. Leave no stone unturned, and your interests will always be protected.
    20
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Assumptions
    Assumptions are particularly harmful in contracts.
    If you are purchasing equipment, do not assume that the other party will deliver the equipment with all related software or attachments. Spell it out explicitly.
    Don't assume the other party will know that if you receive the goods late, you will lose big money.
    Put a “Time is of the Essence“ clause in your agreement
    21
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Failing to Negotiate
    Everything is negotiable. EVERYTHING.
    Even the things the other party tells you are not negotiable are negotiable. Even preprinted forms are negotiable.
    It means that you discuss, argue, deliberate, and ultimately agree upon all terms of the agreement.
    Not only are you ALLOWED to do this, you SHOULD. Too many people fail to negotiate unfavorable terms in contracts.
    22
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Failing to
    Understand
    If you do not understand a provision, find out what it means. Demand explanations, seek for answers. AND DO IT BEFORE SIGNING
    23
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Lack of Deadlines
    And Penalties
    When contracting for services it is critical that you include
    timelines for completion of the work. It's one thing to say "Work to be completed by May 2nd," but better to add, “EUR 300 per day to be deducted from the contract price for each day the job is unfinished beyond May 2nd." That's what I call a motivational clause.
    24
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Not Including
    All Deal Terms
    In The Agreement
    Include items upon which you relied when entering into the agreement. What is your reason for entering into the agreement ? Did the party state that he has been in business a long time or has a particular type of expertise in a particular field? What did the other person agree that he would do for you and what did you agree to do in return?
    25
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Leaving the
    Negotiation
    Process Strictly
    to Lawyers
    Lawyers will eliminate onerous clauses, but are often not aware of industry standards. Have the contract reviewed by both a legal professional and an industry professional. Having a legal professional draft or review a contract is necessary, but not always sufficient to ensure a solid contract.
    26
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Failing to Adequately
    Define How or When
    The Contract
    Terminates
    A contract should specify the length of time of the contract – either terminating on a stated expiration date or on completion of performance. Litigation may be avoided if the parties are clear about the grounds for termination
    27
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Contract Language/s
    &
    Translations
    If the contract exists in several language versions, only one
    version of the contract, is a binding contract. All other language versions are translations for conveniance only and have no legal binding power
    28
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Leaving Out Boilerplate Provisions
    These are clauses that protect the rights and privileges of the parties, like Notice Provisions, Assignment, Integration, Consent to jurisdiction and Forum selection, Modification of Agreements…
    29
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • No Paraph
    on all
    Pages
    before Signing
    Puting a paraph on each numbered page of the contract, declares that negotiations are concluded but also prevents the integrity of the substance of the contract untill the signing - closing
    un
    30
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Not Signing the
    Contract as the
    Last Party
    It is the best solution if the contract is signed simoultaneously by both or all of the parties. If this is not the case, never be the first party to sign, be the last, so nothing can be changed or amended in the contract with your signature already on.
    un
    31
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Using Generic,
    One-Size-Fits-All
    Contracts
    Popular in Sales, but dangerous if not used properly.
    The fact is, there are no One-Size-Fits-All business situations in real life. Use with caution.
    Have them checked by the lawyer anyway.
     
     
    un
    32
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Rushing Through
    the Agreement
    to Closing
    Businesses are often in a hurry to get deals done.
    But, it is never a good idea to negotiate and execute an agreement hastily.
    The results could be unfavorable terms, ambiguance language or even an unenforceable contract
     
     
    un
    33
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • No Third-Party
    Escrow Servicing
    (Escrow Account)
    Using an escrow account or agent is well worth the small cost. All deposits and down payments should be deposited on escrow account and not to the other party, whenever possible
    34
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Failing to Define
    Rights and Obligations
    That Are Assignable
    f
    You should include an assignment clause, so you can transfer the rights to third parties without seeking consent of the other party.
    (Contract, not claims in commercial contracts)
     
     
    un
    35
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Failing to Include a
    “No Set-Off"
    Clause
    If
    Without a “No Set-Off” clause, you open the back door for the other party to acquire your outstanding debt (with discount) and set it off against your claims. You’ll never see any money, no Cash Flow, just Paper Flow…
     
     
    un
    36
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Failing to adequately
    state the method
    for resolving
    disputes
    Arbitration clause is often drafted too narrowly; thereby, excluding certain types of disputes from arbitration. Other essential elements include the location of arbitration, the governing law…
     
     
    un
    37
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Failing to Include a
    Choice
    of Law Clause
    If
    Conflicts of law issues arise when the parties are residents of different jurisdictions, or obligations are to be performed in more than one. It can be resolved in advance with the proper choice of law provision. Without this clause, the law of the place where the contract was made, or services were performed will apply.
     
     
     
    un
    38
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Failing to include a
    Contract
    Effective Date
    If
    It is important that the contract states when the contract is effective, for purposes of determining obligations and the time for performance
     
     
    un
    39
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Failing to determine
    What Happens
    After Termination?
    If
    The contract must spell out obligations of both parties, during and AFTER the life of the contract.
    Some provisions SURVIVE TERMINATION
    (Reps & Warranties, Non Disclosure…)
     
     
    un
    40
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Have You Ever
    Actually Read
    Your Entire
    Contract?
    The contract is the key to your obligations and responsibilities. How many contractors actually read the entire contract before beginning performance? Most read the Statement of Work (SOW) and proceede, but there are other critical sections in the General Agreement that are equally or more important
    .
    If
     
     
    un
    41
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Follow the Contract
    not verbal
    Promises and
    Directions
    Only the written word is binding. Contractors should learn to ignore diplomatically any verbal advice from any business partner or government official - no matter how convincing.
    The written contract always defines your duties and responsibilities. Reliance upon verbal advice is at your own risk.
    .
    If
     
     
    un
    42
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Establishing
    Internal Procedures and
    Protocols to Insure
    Contractual Compliance
    and Avoid Disputes
    If
    The final and often most serious mistake that businesses make is that they merely file a contract in a cabinet and then proceed to "do business.“ Companies too often ignore the contract and only consult it when problems arise. By failing to establish procedures to monitor performance, companies may breach their contracts or may waive the right to insist that their business partners fulfill their obligations.
     
     
    un
    43
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Protocols to Insure
    Monitoring of
    Executed Contracts
    If
    Executed contracts should be forwarded to the managers and employees responsible for performance. Individuals should be assigned to insure that business partners fulfill their responsibilities. These people should understand the agreement . If personnel changes occur, companies must have procedures to insure that the new managers or employees are educated about the contract. Companies should verify that its managers and employees are fulfilling the requirements of the contract and regularly
    CHECK TO INSURE THAT PROTOCOLS ARE FOLLOWED.
     
     
    un
    44
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling 
  • Tips & Warnings
    If
    TAKE YOUR TIME to read the contract.
    If you don't understand it, ASK A LAWYER to look it over.
    Always KEEP A COPY of the contract.
    DO NOT SIGN anything that is BLANK. Make sure everything is filled out before signing your signature.
    Read the DEFINITIONS and checkATTACHMENTS
     
     
    un
    45
    TOP MISTAKES IN CONTRACTS
    Prima FACIE / Law Firm ® Corporate Legal Counseling