Contracts

Sometimes, when business people can’t directly negotiate (or re-negotiate) favorable deal terms, they are tempted to withhold a payment or some other obligation in an effort to leverage the other party into an agreement it otherwise would not make.  In-house counsel should be wary of endorsing such conduct, as this could result in exposing their companies to liability going far beyond simply having to lose face and/or doing what they should have done in the first place.  Take, for example, the following scenario:

Acme engaged Alpha as its exclusive manufacturer for widgets and gidgets for two years.  Four months later, Acme tries to negotiate a similar deal with Beta to manufacture didgets, and, if consummated, such a deal would provide Acme with ten times the revenue that the Alpha contract was expected to provide.  While Beta expresses interest, it eventually makes clear that unless it also can manufacture gidgets, there will be no deal.  While Acme tries to buy out of the gidget portion of the Alpha contract so that Acme can give Beta what it wants, Alpha refuses.  Acme’s CEO realizes that the Beta deal is going to fall apart if something does not change quickly, so she Keep reading

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While many employers take comfort in knowing that some or all of their employees have agreed to non-compete covenants, obtaining and enforcing such agreements does not come without costs.  As such, it is important for in-house counsel to explore with their business clients whether it really makes legal and economic sense to seek such agreements.  Among the issues you may want to raise are the following:

Issue # 1: How Likely is it that the Contemplated Non-Compete Would Be Enforceable?

Most in-house counsel who have had any dealings with non-compete covenants know that if such a covenant merely limits competition, it is not enforceable.  Because many business clients do not have a clear understanding of this counterintuitive principle, in-house counsel can save a lot of future angst if they make sure that the business people know right from the start that a non-compete covenant only is enforceable if it is necessary to protect confidential information, goodwill or trade secrets.  Indeed, because there are many situations in which none of these three interests will be protected by a non-compete, if your client knows this up front, s/he may decide that it is not worth the time and expense to even … Keep reading

It is pretty standard fare to have what is commonly known as an “integration clause” in a business contract.  Such clauses generally state things like the following:

This Agreement constitutes the entire agreement between the Parties relating to the subject matter reflected herein.  All prior negotiations, representations, agreements and understandings between the parties with respect thereto are merged into, extinguished by and superseded by the terms of this Agreement.” 

While many in-house counsel would like to think that such a clause provides bullet-proof assurance that whatever the contract says will control, that is not always the case.  Even the most well-crafted and comprehensive integration clause may not prevent a disgruntled former business partner from claiming that he or she was fraudulently induced into entering into the contract.  Further, if such a fraud claim can be established, that party then can steamroll right over the parol evidence rule and seek to introduce evidence of supposed agreements that supplement or contradict those in the written contract between the parties.  As the Massachusetts Supreme Judicial Court said over 20 years ago in McEvoy Travel Bureau, Inc., v. Norton Co., “[i]t is well established that the parol evidence rule does not apply … Keep reading

Emails Can Satisfy the Signature Requirement of the Statute of Frauds

Every once in a while, I actually do go on vacation.  So, my colleague, Alan E. Lipkind, a partner in the Business Litigation and Real Estate groups at Burns & Levinson, has contributed this post on the recent decision by a Massachusetts court finding email communications can satisfy the signature requirement in the Statute of Frauds.

 

Most of us know the basics of the Statute of Frauds: Certain contracts, including those pertaining to real estate, goods worth more than $500, and guarantees, as well as those that can’t be performed within one year, must be in writing and signed in order to be binding.  In a recent case where I represented prospective purchasers of real property, the Massachusetts Superior Court found that an email exchange among parties pursuing a real estate purchase transaction satisfied the signature requirement embodied in the Statute of Frauds. 

In Feldberg v. Coxall, buyers’ counsel emailed to seller’s counsel a proposed offer to purchase real estate which included a financing contingency.  The next day, the seller emailed buyer’s counsel directly, stating that if a written approval letter from the buyer’s lender was received by 5 p.m., “I think we are ready … Keep reading

Litigation is time-consuming, is costly and, even in a business context, can be emotionally draining.  Thus, it makes perfect sense that in-house counsel and business people, alike, often try to implement mechanisms to avoid having to file or defend suits.  One such method, about which I posted earlier this year, is the use of a liquidated damages provision.  Another that has become increasingly popular is to include a requirement that the parties meet and confer before they can file suit. A typical version of such a clause that I periodically see in contracts is one like the following:

Before a party may file suit, it first must give the other party written notice of the dispute.  After notice is received, representatives of each party shall meet within 5 days in a good faith effort to resolve the dispute.  If the dispute cannot be resolved within 5 days after such meeting, suit may be filed.

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In addition to having a choice of law provision in a contract (a topic on which I posted last week), many contracts also include what is commonly known as a forum selection clause.  Such clauses can be extremely important and can have an impact that goes well beyond simply setting up one party as the “home team” and the other an outsider.

For instance, even if a contract has a choice of law provision calling for the law of New York to apply to all contract disputes, if a forum selection clause requires suit to be brought in Massachusetts, the procedural law of Massachusetts applies.  Consequently, while New York law does not have a trustee process attachment rule like we have in Massachusetts, a plaintiff should be able to obtain a freeze on the defendant’s bank account as long as a showing is made that the plaintiff is likely to succeed on the merits of its claim.  The logic behind this is that, freezing a bank account (known as a “trustee process attachment”) is governed by procedural law (Rule 4.2 of the Massachusetts Rules of Civil Procedure), not by substantive law.  Alternatively, if a suit was … Keep reading

Often, one of the last provisions in a contract will say:

This contract shall be governed and construed in accordance with the laws of the State of ______.”

Most courts will abide by the parties’ choice and apply the law designated by them – even if the law selected is not from the state where the case is being tried.  It is only in limited situations, such as (i) where application of the selected law would undermine a significant public policy of the jurisdiction where suit is filed, or (ii) if the locale of the law selected has no relation to the parties or the dispute, that a court is unlikely to abide by the parties’ choice of governing law.

Why should in-house counsel care about choice of law?  Well, while most states may have similar common law with respect to garden variety contract or tort claims, all states have statutory claims that only can be pursued if their own law is applicable.… Keep reading

As suggested in “The Effective Use of Liquidated Damages Provisions,” there can be a fine line between an enforceable liquidated damages provision and an unenforceable penalty clause.  Thus, when drafting an agreement, it is important to keep in mind that a payment-for-breach provision will only be enforceable if, at the time of drafting:

  1. It would be difficult to determine the damages that would be caused if the contemplated breach were to occur; and 
  2. The amount of the of the liquidated damages is a reasonable estimate of the actual damages that your company would suffer if there were a breach.

In light of these overarching principles, be sure that the contract expressly states that:

  1. All parties agree that if a breach were to occur, it would be difficult to determine actual damages;
  2. Based on what the parties presently know (include specifics if you can), they agree that $X is a reasonable estimate of the damages that would accrue if a breach occurred in the future; and
  3. All parties agree that the amount of liquidated damages is fair and reasonable and would not act as a penalty to the breaching party.
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Like many lawyers, I learned way back in law school that an “agreement to reach an agreement is a contradiction in terms and imposes no obligation on the parties thereto,”  (Rosenfield v. United States Trust Co. ). What I didn’t learn until many years later, however, was that although a Letter of Intent (LOI) expressly says that the parties’ rights and obligations are subject to the execution of a full-blown contract, that LOI can be binding – even if the contemplated full-blown contract never is executed. 

I learned this through my representation of Robert and Juliann DiMinico in the case of McCarthy v. Tobin.  In that case, Ann Tobin and John McCarthy executed a one-page “Offer to Purchase Real Estate” in connection with Tobin’s condominium at Burrough’s Wharf.  The Offer to Purchase expressly made the parties’ rights and obligations “Subject to a Purchase and Sale Agreement satisfactory to Buyer and Seller,” which was required to be executed by August 16, 1995, and time was of the essence.  After McCarthy failed to return a signed Purchase and Sale Agreement by the August 16 deadline, Tobin sold her property to the DiMinicos.

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