June 2011 - Business Law & Order - Thomas J. Cavalier


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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 - Thomas J. Cavalier

  1. 1. INTEGRATION CLAUSE• Example: This written Agreement contains all of the parties’ agreements relating to the subject matter of this Agreement and supersedes all prior understandings, proposals, negotiations and representations concerning its subject matter.
  2. 2. BARS EXTRANEOUS CONTRACT TERMS• Ordinarily, a party may prove that the contract was not intended to contain all the terms of the agreement.• The integration clause prevents either party from enforcing a prior agreement relating to the subject matter of the written contract that is not contained in that contract.• There are two narrow exceptions: – The written contract is obviously incomplete on its face. – The integration clause was obtained by fraud.
  3. 3. PUT ALL CONTRACT TERMS IN THE DOCUMENT• Examples of prior agreements barred by the integration clause: – Proposals and presentations – Quotations – Conversations – Email exchanges• Make sure that all agreed-upon terms are included in the written contract.
  4. 4. CONTRACT MODIFICATION CLAUSE• Example: This Agreement may be modified only in a writing that is signed by authorized representatives of the parties.
  5. 5. PUT CONTRACT CHANGES IN WRITING• Ordinarily, a commercial agreement may be modified orally or even through the conduct of the parties.• The modification clause recognizes only changes in writing that are signed.• Exception: parties agree that they will not follow the procedure required by the modification clause.• Make sure that changes to the contract follow the requirements of the modification clause.
  6. 6. LIMITATIONS OF REMEDIES PROVISION• Example: Buyer’s sole and exclusive remedy against Seller shall be the repair or replacement of non-conforming or defective goods.
  7. 7. BUYER MAY NOT BE FULLY COMPENSATED FOR LOSS• Ordinarily, the Buyer would have all the remedies allowed by law if the Seller breaches the contract.• This provision restricts the Buyer’s remedies to repair and replacement of the defective goods.• This provision protects the Seller against exposure to paying money damages but gives the Buyer a remedy that may not compensate it completely for its loss.
  8. 8. DISCLAIMER OF CONSEQUENTIAL DAMAGES• Example: Seller shall not be liable to Buyer for incidental, consequential or special damages, including, but not limited to, lost profits.
  9. 9. BUYER WILL NOT BE COMPENSATED FOR LOST PROFITS• Consequential damages are losses that flow naturally from the breach of the contract, such as lost profits.• Ordinarily, lost profits are recoverable.• Disclaimer of consequential damages prohibits recovery of lost profits.• This disclaimer exposes the Buyer to substantial losses caused by the other side’s breach.
  10. 10. ARBITRATION CLAUSE• Example: Any dispute arising out of or relating to this Agreement or the breach of it shall be finally and exclusively resolved by arbitration under the rules of the American Arbitration Association then in effect. A judgment on the arbitration award may be entered by any court of competent jurisdiction.
  11. 11. PARTIES GIVE UP RIGHT TO GO TO COURT• By agreeing to arbitrate their disputes, the parties give up right to go to court.• Arbitration is private. The parties select one or three arbitrators to hear and decide their dispute.• Arbitration is by agreement only.• Courts strongly favor arbitration.
  12. 12. ARBITRATION MAY BE MORE EXPENSIVE• Arbitration may be more expensive than litigation in a court. For example: – The fee charged by the AAA to start the case may be higher than the fee charged by a court, especially if a large amount is at issue. – Arbitrators are paid for their time. The judge is free.
  13. 13. FEWER PROCEDURAL SAFEGUARDS• Arbitration is usually faster because it is informal. But there are trade - offs.• Formal rules of evidence are suspended.• Arbitrators rarely dismiss a claim without a full evidentiary hearing.• No right to appeal the arbitrator’s decision.
  14. 14. CHOICE OF FORUM PROVISION• Example: Any judicial proceeding on a claim arising out of or relating to this Agreement or to the breach of it shall be commenced in the Superior Court for the County of Los Angeles or the United States District Court for the Central District of California. The parties hereby submit to the personal jurisdiction of those courts.
  15. 15. LIMITS CHOICE OF COURT• Generally, the law determines where a party may start a lawsuit. Frequently, courts in two or more states may hear the case.• A choice of forum provision limits those choices to the courts specified in the provision.
  16. 16. SELECTED FORUM SHOULD BE CONVENIENT FOR YOU• A choice of forum provision can cause serious inconvenience and additional expense for the party who is not located in the selected forum.• In the example, a Michigan-based company that is a party to that contract would be required to retain California counsel, incur travel expenses for witnesses and have the case resolved by a judge or jury that may be unfamiliar with the company. In short, the company loses the advantage of litigating the case in its own backyard.
  17. 17. ATTORNEY’S FEES PROVISION• Example: In any proceeding to enforce any provision of this Agreement, the prevailing party shall be awarded its reasonable attorney’s fees and costs of suit.
  18. 18. GENERALLY, PARTIES PAY THEIR OWN ATTORNEY’S FEES• Ordinarily, each side in litigation pays its own attorney’s fees, even if it wins the case.• This rule does not apply where the recovery of fees are authorized by a: – Statute – Court Rule – Contract
  19. 19. PREVAILING PARTY MIGHT NOT RECOVER ACTUAL FEES• In the example, the prevailing party may recover a “reasonable” attorney’s fee. A reasonable fee is not necessarily the actual fee charged by the attorney and paid by the client.• “Reasonableness” depends largely on: – how the attorney’s hourly rate compares to the average hourly rate charged by attorneys in the community for the same services. – whether the time spent on a particular task was excessive. – whether the tasks performed were necessary to protect the client’s interests.
  20. 20. INCREASES RISK OF LITIGATION• An attorney’s fees provision increases what is at stake in the litigation – the losing party may end up paying not just the prevailing party’s damages but its attorney’s fees as well.407215