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!

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. 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. 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. CONTRACT MODIFICATION
CLAUSE
• Example: This Agreement may be
modified only in a writing that is signed by
authorized representatives of the parties.

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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.
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