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June 2011 - Business Law & Order - Joseph R. Sgroi


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Commercial agreements set the ground rules for how you or your business interacts with your, customers, bankers, investors, suppliers, landlord and other third parties with whom you have business dealings. Our panel of experienced attorneys will discuss the basic fundamentals of contracts, also known as commercial agreements. Attorney Joe Lorenz will talk about entering into contracts (why you need contracts and how contracts are formed). Attorney Tom Cavalier will discuss performance of the contract you enter into (what are the important terms and conditions – how do they affect you). Attorney Joe Sgroi will talk about terminating contracts (how can you get out of a bad agreement -- or obtain performance from the other party). And….of course, the entire panel will be available to answer your questions!

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June 2011 - Business Law & Order - Joseph R. Sgroi

  1. 1. Commercial Agreements:Enforcement and Termination Presented by Joseph R. Sgroi, PartnerHonigman Miller Schwartz and Cohn LLP HONIGMAN
  2. 2. JOSEPH R. SGROI, Partner, Honigman Miller Schwartz and Cohn LLP’s Detroit Office Counsels customers, suppliers and lenders in contract disputes and workout situations (both in bankruptcy and outside of bankruptcy). Clients include many original equipment manufacturers and tier one suppliers in the development of strategies for protection of just-in- time supply chains. Advised General Motors Purchasing during its historic bankruptcy case. J.D. from the University of Michigan Law School. B.A. in Political Science from the University of Michigan. HONIGMAN
  3. 3. Bad Business Deals:How can you get out of a “bad” contract? HONIGMAN
  4. 4. Contractual Right to Terminate Identify contractual termination rights. Cost (if any) to cancel for convenience. Determine remaining term of the contract. Is there a termination notice period? HONIGMAN
  5. 5. Duress Unlawful threat or coercion inducing a person to act in a manner they otherwise would not. Results in an unenforceable contract. Example: Having a gun held to your head to get you to sign a contract. HONIGMAN
  6. 6. Fraud and Misrepresentation False statements relating to an important fact, used to cause a person to enter into a contract. A deliberate or innocent misstatement of a material fact. Example: misrepresenting a table as an antique, knowing it is a reproduction. Contracts resulting from fraud or a misrepresentation, can be cancelled by the defrauded party. The defrauded party can also sue for damages. HONIGMAN
  7. 7. Mistake One or both parties believe a fact about the contract to be true that isn’t. Unilateral mistake will not invalidate a contract. Example: you sell a table for a few dollars believing it to be made in 1950. Actually it is a valuable antique made in the year 1800. The law generally doesn’t protect an ignorant seller. If there was misrepresentation by the buyer, then there may be a claim to cancel the contract. HONIGMAN
  8. 8. Mutual Mistake Both parties to a contract make the same mistake. Resulting contract may be void. There was no “meeting of the minds” by the parties. HONIGMAN
  9. 9. Lack of Consideration Only a “peppercorn” is needed. An agreement without consideration is not enforceable. Example: promise to make a gift. If the other party acts in reliance on your promise, the promise may become enforceable. Example: you promise to donate a million dollars to your college to build a library. HONIGMAN
  10. 10. Statute of Frauds Certain oral contracts are not enforceable. Example, a real property lease with a term of a year or longer. Detrimental reliance exception. HONIGMAN
  11. 11. Impossibility of Performance Unforeseen event makes it impossible to complete the contract. Example: personal service contract – the individual service provider dies HONIGMAN
  12. 12. Rescission Contractual or legal right to treat the contract as if it never existed. Example: underage person can nullify a contract. Example: parties agree to treat the contract as if it never existed (within limited time period). HONIGMAN
  13. 13. Options and Remedies: What to do when yourcontract counterparty fails to perform HONIGMAN
  14. 14. Dispute Resolution Provisions Identify the contract breach. Are contract remedies provided? Is there an agreed dispute resolution mechanism? HONIGMAN
  15. 15. Negotiation Simple and direct. Avoid waiving any of your rights under the contract. Stating this up-front allows you to pursue remedies if negotiation fails. HONIGMAN
  16. 16. Mediation and Arbitration Third party “neutral” helps arrive at a solution. Mediation – non-binding attempt at resolution with help of third party. Arbitration – binding or non-binding resolution determined by a third party, based on arguments by the parties. Possible savings of cost in time, money and relationships. Confidential record for facts and results. HONIGMAN
  17. 17. Litigation What law governs your contract? Where can you file your lawsuit? Federal / State courts Jurisdiction over the person / event Example: contract governed by the law of the State of Michigan; enforcement actions limited to the applicable courts in the State of Michigan. HONIGMAN
  18. 18. Compelling Performance: InjunctiveRelief and Specific Performance Specific performance is an equitable remedy. Usually used to complete a previously established transaction. Injunction requires a party to do, or to refrain from doing, certain acts. To obtain an injunction, a party must address four elements: (1) likelihood of success on the merits; (2) the extent to which the plaintiff is being irreparably harmed by the defendants conduct; (3) the extent to which the defendant will suffer harm if the TRO/preliminary injunction issues; and (4) the public interest. HONIGMAN
  19. 19. Bankruptcy Concerns:Contract Status/Options if aContract Party files forBankruptcy HONIGMAN
  20. 20.  Determine under what chapter the party has filed for bankruptcy protection. Chapter 7 bankruptcy – liquidation; no further operations. Chapter 11 - contract will remain in existence and effective, at least for some period of time. The debtor will have the opportunity to either assume or reject. HONIGMAN
  21. 21.  Assumption requires “cure” of all defaults and proof of adequate assurance of future performance. You will have an opportunity to contest the proposed cure amount and to demand additional assurance of the party’s ability to perform on the terms of the contract. After assumption of the contract, both parties will continue to be bound by the contracts terms and it will be enforceable against both parties. HONIGMAN
  22. 22.  Rejection results in the contract being deemed breached as of the date of the filing of the bankruptcy case; neither party will have any further obligations under the contract. You will be entitled to file a claim for damages resulting from the rejection; however, this claim is a pre-petition unsecured claim, which is often worth only pennies on the dollar. HONIGMAN
  23. 23.  There are special protections afforded to certain contract parties, such as licensee’s under an intellectual property license agreement or tenant’s under a lease of real property. It is important to be cognizant of your rights and the nature of the proceedings in the bankruptcy case as things will move very quickly and you will have to react with the same speed in order to protect your contract rights and claims. HONIGMAN