Tuesday, June 30, 2009

Business law for the Mom & Pop or the Fortune 500

Many small businesses as well as large businesses enter into written contracts on a daily basis. All to often these contracts end up in litigation. Once in litigation many companies are surprised that the contract doesn't contain the protection, terms, or interpretation which would benefit them.
Therefore, all contracts, even 1 or 2 page agreements should be reviewed by an experienced lawyer in the area of business contracts.

I have drafted, reviewed, modified, interpreted and negotiated perhaps 1000's of contracts. For 3 years I was the assistant general counsel for a $300 million dollar company. Most of my job there was to review, modify, negotitate, draft and litigate numerous types of contracts. These contracts included manufacturing, distribution, sales, product licensing, property leases, recording agreements, production agreements, publishing, editing, talent host agreements, national and international retail agreements, settlement releases, telecommunications agreements, infomericial agreements, media purchase agreements, partnership and joint venture agreements, call center agreeements, independent contractor agreements, mass market agreements and many, many more.

Five things you should look for in the text of the agreement that should be written in your favor are the following:

  1. Jurisdiction and Governing Law: Very often the jurisdiction is in the other party's or company's city or county, if they are out of state. But you can negotiate for jurisdiction in your own city or county or at least that of the defending party's. Usually the party who drafts the agreement will make the jurisdiction in their state. Do your best to get jurisdiction in your own city or county. WATCH OUT!
  2. Attorneys Fees: Be sure to look out for this provision. If the type of contract naturally puts you on the side of the defense, in case of litigation, you don't want a provision saying that the loser pays the other party's attorney fees. Of course if you win this works out for you. However, this clause, if present, can encourage a party to sue. SO, SPOT AND THINK ABOUT THIS CLAUSE.
  3. Arbitration: Arbitration used to be the way to go. However, these days arbitration is sometimes just as costly as having your case heard in court. My rule of thumb is that if you are bigger than the other company dispense with arbitration. Just delete the clause. On the other hand, if your smaller than the other party arbitration could be a more economical way to get the contract litigated. I'm not contradicting myself. There are still many situations where arbitration will be cheaper, but it's just not the end-all, be-all, it used to be. SOMETIMES ARBITRATION CAN CAUSE THOUSANDS OF DOLLARS JUST TO GET STARTED.
  4. Limitations on Liability: This is a good one. If you contract with a manufacturer to have that manufacturer make 10,000 widgets to be sold by you to a third party at a handsome profit but the manufacturer renigs on the contract knowing that you intended to resale the product, why should he be let off the hook just because his boiler plate provisions say that no matter what, that you cannot get what us lawyers call "consequential damages" from the manufacturer. Yes, those are the profits you would have made if the manufacturer would have kept his word. TRY TO CONTROL THIS.
  5. Termination: This is the clause that allows one side or both to get out of the contract under certain circumstances. The problem with this clause is that the drafter will put in nice exit provisions for himself but will not be as generous for you. SO, MAKE SURE THAT YOU TOO CAN GET OUT OF THE CONTRACT JUST AS EASILY AS THEY CAN.

    Contact me at (818) 284.3159 or jamesnobleslaw@gmail.com

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