Just Walk Away

By Andrew M. Apfelberg, Rutter Hobbs & Davidoff

Whether an acquisition, lease or contract with a vendor, every business transaction has its own particular pacing that develops. It is important to maintain that pace in order to effectively take the transaction from concept to signed agreement. However, when the parties involved focus exclusively on maintaining the deal’s momentum, they tend to ignore red flags that pop up, as well as their own inherent reactions to these cautionary signs. Getting caught up in the adrenaline rush of trying to close a deal is, in fact, a great way to wind up either with a transaction that does not deliver the opportunity you originally sought—or with a big bill for a deal you had to abort at the last minute.

Let me give you a case in point. Recently, a client wanted to acquire all the assets of a business as well as the property on which the business was located. The price was fantastic and the sales broker assured my client that the prospect was a rare opportunity. But the seller then delivered a skimpy purchase agreement, and put significant pressure on my client to review and sign the document within 24 hours of receipt. After a late-night and rather frank conversation with me, my client did not sign the document, and asked instead for a short no-shop period during which she could conduct her due diligence. The seller refused the no-shop restriction but, nonetheless, my client decided to proceed with negotiating the deal.

A day or two into the due diligence process, it came to light that one of the seller’s key employees did not hold a necessary license and had, instead, worked out a side-deal with the seller. My client instructed me to work around the problem by inserting an indemnification provision into the purchase agreement. The seller then provided some self-prepared financial statements, but would not give my client access to the back-up data or the seller’s previously filed tax returns. My client felt she could trust the seller and took him—and his financials—at face value.

In the meantime, I revised the purchase agreement and prepared the balance of the missing documents typically associated with this type of transaction. In response, the seller refused to accept any of my proposed changes to the language of his purchase agreement and was hesitant to agree to the terms of the other documents. He insisted that the sale was “as-is” and that if my client did not like it, there was another eager buyer in the wings who had already offered more money. My client the requested that I “trim down” the documents in order to appease the seller.

The transaction wound up not closing at the eleventh hour. After all the documents were laboriously negotiated and revised, one of the selling members refused to sign the non-competition agreement.
My client was livid. She had incurred significant legal, accounting and other fees, and invested more than eight weeks into the deal. She felt cheated, and looked for someone to blame—but ultimately concluded that the blame fell squarely on her shoulders. She was so eager to close the deal that she ignored obvious warning signs, failed to investigate red flags that popped up and refused to follow her “gut” instinct, which told her that the deal seemed questionable.

Unfortunately, my client ignored the following ten warning signals, and ultimately paid the price:
1) The deal seemed too good to be true.
2) The seller insisted on an overly quick closing of the transaction.
3) There was hesitancy in providing requested due diligence items in responding to transaction documents.
4) The records or documents reviewed in the due diligence process were incomplete and disorganized.
5) The other side was unwilling (or unable) to develop a transition plan for post-closing of the transaction.
6) The other side insisted on preparing the transaction documents, when the custom is for the buyer to prepare them.
7) The seller refused to negotiate the business terms or language of the agreements.
8) There was insistence on an “as-is” sale, and a refusal to offer any material representations or warranties.
9) The other side exerted significant pressure to close despite the existence of outstanding questions.
10) The seller had a questionable reputation within the community.

While the existence of one or more of these items does not necessarily mean that a deal is not a good one, it does mean that you should take the time to gather additional information and carefully analyze it before proceeding with the transaction. By continuously looking out for these red flags, you will inherently slow the momentum of a deal down just enough to analyze the information and issues presented without jeopardizing the pacing of the negotiations.

Above all, listen to your instinctive responses to these warning signs. In most cases, you inherently know what is right and what is wrong, and what makes sense and what does not. Never be afraid to walk away from a deal that simply does not feel right. There is almost always another opportunity just around the corner. When asked what his most profitable transactions were, a highly successful real estate developer answered without hesitation: “The ones that I didn’t do.”

About the Author: Andrew M. Apfelberg is a corporate transactional attorney for privately held middle-market companies. He represents clients as their day-to-day general counsel and in significant transactions such as mergers and acquisitions, financings, joint ventures, licensing, entity formation, agreements between shareholders and the establishment of manufacturing facilities in Mexico. He is a partner of Rutter Hobbs & Davidoff Incorporated, a full service law firm in Century City (www.rutterhobbs.com). The firm provides comprehensive transactional and litigation services to companies, their principals and entrepreneurs. Apfelberg’s clients benefit from his strong business and finance background gained from working for investment banks prior to attending law school. This experience enables him to more effectively structure transactions and negotiate agreements to maximize the return to the client and increase the likelihood of getting the deal closed. He was awarded the most coveted AV rating through Martindale-Hubbell, and was selected as a “Super Lawyer” in the field of Business Law by Law & Politics in 2005, 2006, 2007, 2008 and 2009.

Can It Be? Privity Of Contract Is Back!

Dust off those old law school books and turn of the century cases: privity of contract is making a comeback in Michigan!

Privity of contract, historically was a bar to certain tort law suits, such as product liability and professional liability cases filed by injured persons against other parties with whom they had no direct contractual relationship.

In 1916, the Seminal New York case of McPherson v Buick Motor Co. (1), triggered a major retreat in the country from privity of contract in product liability and professional liability cases, among others. In Michigan, privity disappeared as a viable defense for product liability and professional liability suits between the late 1950’s and mid-1970’s (2). While privity of contract still lived on in certain situations such as for claims of innocent misrepresentation (3), or malicious prosecution against an attorney (4), modern litigators by and large considered it an out dated and rarely viable way to contest claims.

This began to change in 2004 when the Michigan Supreme Court issued a surprisingly broad ruling in a simple slip and fall on ice case, resurrecting the privity of contract defense in ordinary tort cases. Fultz v Union-Commercial Associates (5). The Court held that a snow removal contractor hired by the parking lot owner could not be sued by the injured plaintiff who had no contractual relationship with the contractor in the absence of proof that the contractor assumed a duty separate and distinct from the duties it assumed under its contract with the owner.

Finding that there was no separate and distinct duty, the court held that the snow removal contractor owed no duty of care to the injured plaintiff.

Several cases since Fultz have followed its holding in ordinary negligence and injury cases. However, some panels of the Michigan Court of Appeals have also applied Fultz to professionals and construction managers in unpublished opinions (6).

In 2006, in Matrix Construction, LLC v Barton Malow, et al (7), the Court of Appeals, applying the Fultz ruling limited the prior rulings of Bacco and National Sand (2), which had allowed suits against professionals without privity of contract. The Matrix court held that privity of contract was not required only if a design deficiency was at issue and privity did apply to claims involving construction management services.

Later that year the Court of Appeals again applied the Fultz case rationale and held that a consulting engineer could not be sued by a third party without proof of privity of contract or the assumption of a duty independent from the contractual duties owed by the engineer to the owner. See Wallington v City of Mason, et al(8).

In 2005 another Court of Appeals panel had held in favor of the professional hired by the township against a claim by a contractor for failure to discover defects in a sewer system during inspections. The court, in New Dimension Development Inc v Orchard Hiltz & McClinet Inc (9), found no duty owed by the professional in claims sounding in negligence, fraud, or negligent and innocent misrepresentation.

In December, 2007, another panel of the Michigan Court of Appeals in Burton v Suretitle, et. al.(10), followed Fultz again in holding that a Title Company acting as a real estate closing agent could not be sued by the purchaser in tort, because there was no privity of contract.

Will privity of contract regain its lofty stature in Michigan from over a half century ago to become a dominant defense and barrier to product liability, construction defect and professional liability claims? The trend suggests it will. Until published Court of Appeals or Michigan Supreme Court decisions confirm the application of the Fultz doctrine in those areas we will not be sure, but privity seems to have been resuscitated and is alive, breathing and kicking.

1. MacPherson v Buick Motor Co, 217 N.Y. 382, 111 N.E. 1050 (1916).

2. Bacco Construction Co v American Colloid Co, 148 Mich App 397; 384 NW2d 427 (1986) revsd on other grounds, 204 Mich App 445 (1994); National Sand Inc v Nagel Construction Co, 182 Mich App 327; 451 NW2d 618 (1990);Piercefield v Remington Arms Co, 375 Mich 85; 133 NW2d 129 (1965); Spence v Three Rivers Builders & Masonry Supply Inc, 353 Mich 120, 90 NW2d 873 (Mich, 1958).

3. Forge v Smith, 458 Mich 198, 580 NW2d 876 (1998) privity required for innocent misrepresentation claim; U S F&G Co v Black, 412 Mich 99, 118-119, 313 NW2d 77 (1981); Chimko v Shermeta, 2006 WL 2060417 (Mich App, 2006).

4. Mich AFSCME Council 25 v Livingston County Road Commission, 2007 WL 3357398 (Mich App, 2007) privity required to sue attorney except for fraud or malicious prosecution.

5. Fultz v Union Commerce Associates, 470 Mich 460 (2004).

6. Unpublished opinions of the Court of Appeals do not have precedential authority in Michigan, but their reasoning may be adopted and applied by other courts.

7. 2006 WL 399762 (Mich App, 2006). Also see the trial court ruling in Llangs Group v Barton Malow Co, 2006 WL 3950939 (Oak Ct Cir Ctm 1/12/06). However, a federal court continued to apply the Bacco and National Sand line of cases in RMF Nooter, Inc v Gleeson Constructors, LLC, 2006 WL 3290126 (W.D. Mi, 2006). It does not appear that the Fultz case was considered by the Court.

8. 2006 WL 3826784 (Mich App, 2006)

9. 2006 WL 2806134 (Mich App, 2005)

10. 2007 WL 4322269 (Mich App, 2007)

Randall Phillips is the Principal of Provizer&Phillips, P.C.,located in Bingham Farms, Michigan; http://www.provizer-phillips.com; Contact:(248) 642-0444;rphillips@p-ppc.com. He handles complex litigation such as professional liability, toxic tort,construction defect, and insurance coverage litigation.

Contract Law – Its Importance in the World Today

Our society depends upon free exchange in the marketplace at every stage. The interactions in the market all the times depend upon voluntary agreements between individuals or other “legal persons”. Such voluntary agreements can never become binding without a legal contract.

The origin of the contract law can be traced from the development of common law and it is also alleged to be an offspring of tort law, as both contracts and torts give rise to obligations. The difference between them lies in the fact that the tort obligations are imposed by law; on the other hand contracts are a medium through which people willingly create commitment between themselves.

Contract law is based on a number of Latin legal principles, out of which consensus ad idem is the most important, which means a meeting of the minds between the parties i.e. an agreement among them. It is said to be a part of “private law” because it does not bind the state or persons that are not parties to the contract. Thus, contracts are voluntary and require an “exercise of the will of the parties”. But not all agreements are contracts e.g. Non-business agreements, religious agreement, or charitable agreements etc.

A contract an agreement between two or more persons, creating an obligation upon them to fulfill or not to fulfill some duties laid down specifically in the agreement. This agreement creates a legal relationship of rights and duties on the parties and if these obligations in the agreement are not fulfilled then stringent action could be taken by the courts on the party. There are three key elements for the conception of a contract. These are offer, acceptance, consideration and an intention to create legal relations. Contracts can be written, oral, or implied also. Generally the parties to a written contract comprehend that they have entered into a binding agreement, but they do not always grasp this point when making an oral or implied contract. It is always difficult to prove the terms of an oral or implied contract than those of a written one.

There are many important points that have to be kept in mind while forming a valid contract; after making the offer to the promisee, the contract will be formed when the promisee communicates his acceptance to the contract. The person making the offer is free to withdraw the same before the acceptance of the offer. Once the agreement is made, the following clauses should be present in the same.

1. There should be some consideration offered for the agreement.
2. The parties should be competent to contract.
3. The consent to the agreement should be free.
4. The object of the agreement should be lawful.

Consideration

This is one of the important aspects which is necessary for a party to enter into a contract. This is the return which a person gets for performing the obligations of the contract. This needs to be of some value but it is not necessary that it should be specified in the contract. An agreement made without consideration is void.
Persons competent to contract.

All persons are legally authorized to enter into a contract except for the following:
• Minors, who are above 18 years of age and when a guardian is appointed for them the age is increased to 21 years.
• Mentally incompetent persons.
• Person who is ineligible from entering into the contract by law.

Companies have a separate legal entity to enter into contracts through the acts of their agents, officers and workers.

Consent to the contract

Unless the consent of the contract is obtained through, coercion, undue influence, fraud, misrepresentation or mistake, it is presumed that the consent is free.

Relief given to the aggrieved party
Generally the party who has suffered due to the breach of contract of the other can claim money damages that will put the non-breaching party in the position it would be in, if the contract had been performed. In some cases the court may order the breaching party to perform its obligations.

The aim of the law of damages is to place the plaintiff in the same position that he would have been, had the breach not occurred. The parties to a contract may determine the damages beforehand which are called liquidated damages and can be recovered. In this case the sum of money should not exceed the amount already specified. But in the case when there are no predetermined damages then the person can claim the whole amount.

Essentials of a contract agreement

The contract should contain certain clauses without which the agreement will be incomplete.
• A detailed description of the duties and obligations of the parties should be stated to avoid ambiguity at a later stage.
• Representations concerning warranties should be present in the contract
• Confidentiality clauses should be present to ensure that the parties keep any information which comes into the possession, due to the contract, confidential.
• The force majeure clause which generally provides that no party will be liable for non-performance arising out of an event of force majeure i.e. war, aggression, epidemic should also be present.
• The term should also be specified in the agreement.
• The events on the occurrence of which the contract will be terminated should also be specified. This clause also describes the methods of giving notice, and whether the breaching party must be given a chance to cure the breach.
• The relief available to the other party on the breach by one party should also be stated. This would also include liquidated damages.
• An arbitration clause should also be inserted to settle the disputes through arbitration rather than court litigation.
• In international contracts, it is important to state the jurisdiction and the applicable law governing the contract.

Once these conditions are incorporated in a contract it will be easier for the parties to enforce them and claim their rights.

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Contract Law Summarised; Explanations, Definitions, Cases

Of the various agreements made some are social or domestic; some others are contracts – legally enforceable.

Jones -v- Padavattan 1969 was about an agreement between a mother and daughter ~the mother had promised to support her daughter during her studies the daughter argued -the judge decided that it had not been intended to be legally binding, so it was a domestic agreement.

But in Simkins -v- Pays 1995, the mother and daughter had intended to be legally bound by jointly entering a competition to share the prize won, it was a contract.

In Jones -v- Vernon Pools Ltd. 1938, and also in Appleson -v- Littlewoods Pools 1939, there was an intention to be bound legally, but it was one-sided; the other had not so intended it to be, for the football pool company showed that the coupon contained the words ‘binding in honour only’, and it was not enforceable.

A Local Authority did not have to sell a house at the price applicable at time of application -which it was to consider; no offer existed to accept but an invitation to treat: Gibson -v- Manchester C. C. 1997.

A reward-poster (if a product did not protect against influenza) was Intention to be legally bound, as Offer, and Acceptance too had Consideration -the essentials of a contract: Carlill -v- Carbolic Smoke Ball Co. 1893.

A Contract is distinguished from other forms of agreement by determining whether it contains those three basic essentials -as matters of fact, oftener of law.

An agreement is a Contract if it contains the three basic elements of Intention to create Legal Relations, Offer & Acceptance, and Consideration; but what constitute these, how, and why, or not, are matters, mostly, of precedent; therefore, it is useful, on each of these, to look at some more of such precedent…

Intention to Create Legal Relations: It is, of course, most unusual when commercial agreements between businesses are made that a legal relationship was not by both parties intended to be created; it is, essentially, more so a different situation than an exclusion clause making it binding in honour only, when, while may have been intended as a matter of fact, that an agreement may not be made the subject of the jurisdiction of the courts -in terms at least of whether it is legally binding, is not capable in law of having been intended; yet a contract in Rose & Frank Co.-v- J P Crompton 1925 was not the agreement -it showed that a legal relationship was not intended to be created.

That the husband would pay his wife £30pm was not intended in Balfour -v – Balfour 1919 to be binding; that he was to repay the mortgage and transfer ownership of the property to her in Merritt -v- Merritt 1970, as she had asked him to be put in writing and he had, was intended as binding ~as meant a travel firm’s sign that failed holidays would be reimbursed for in Bowerman -v-ABTA Ltd. 1995

Offer and Acceptance: An ‘offer’ is not an ‘invitation to treat’ ~an advert. in Partridge -v- Crittenden 1968 was an invitation to treat as the numbers of birds could not be infinite to make it capable of being ad-infinitum accepted -in Pharmaceutical Soc. -v- Boots 1953 drugs in self-service store could not be an offer to sell as a chemist at pay-point could refuse to. Nor is it ‘information’ ~’Will sell? State lowest price’ replied to stating it was information in Harvey -v- Facey 1893; the announcement of the auction cancelled did not in Harris -v- Nickerson 1783 entitle to travel expenses, as in Pane -v- Cane 1789, a bid constituted the offer.

Nor is an offer unwithdrawable if the offeree is informed -by anyone Dickinson -v- Dodds 1876, before acceptance Byrne -v- vanTienhoven 1880 ~and it can lapse eg shares Ramsgate Victoria Hotel -v- Montefoire 1866, or if goods become damaged or destroyed, or by a counter-offer (£950 ok?) Hyde -v- Wrench 1940, or if the offeror rejects it or dies.

A valid offer, therefore, as an expression of a proposition willingly to contract, can be, as by a reward poster in Carlill to any or many persons, if communicated -e.g. by biding by raise of hands, with clear terms, while it exits capably of being accepted.

Acceptance of such a valid offer constitutes contract.

Agreement to the offer is ‘acceptance’ -if communicated.

Generally, the offeree’s silence is not tantamount to acceptance and ‘if I don’t hear from you I’ll deem it so’ in Felthouse -v- Bindley 1862 did not constitute it.

Any effective way will do, Entores -v- Miles Far East 1955, if fax or e-mail, during working hours or the following work day: Brinkbon -v- Stahag Stahi 1982. If acceptance is posted or telegraphed, it is effectively made, even if it is incorrectly addressed and delayed Adams -v- Lindsell 1818, or lost in the post Household Fire -v- Grant 1879 -unless handed to a postal staff not authorised to receive mail; such acceptance is, and the contract is made, at that time -even if before its receipt the offer is withdrawn Byrne -v- vonTienhoven 1876 ~and, Blackpool Aero Club -v- Blackpool C.C. 1990, the offeror must check his mail before closing the offer.

The offeror may prescribe a way of acceptance -then only that, or possibly one more advantageous to the offeror, will do; in Ediason -v- Henshaw 1819 postal acceptance was not as specified -giving it to the driver; if unspecified conduct may imply it -e.g. purchasing aware of the offer, Carlill.-v- Carbolic Smokeball Co. 1893.

Acceptance must be unqualified, ‘subject to contract’, or Neale -v- Merrett 1930 ‘the rest later’, is not so; unless it is capable itself of acceptance, Hyde -v- Wench 1840, requesting information is not a counter offer barring later acceptance, Stevenson -v- McLean 1880.

Consideration: A contract’s point is consideration: ‘executed’ -something done because of which another has to also; or ‘executors’-to be done because of which a contract will exist that another will have too ~it is the benefit or the detriment involved: Currie -v- Misa 1875.

What is contributed to the bargain must be of some value – not necessarily adequately matching the other’s: in Thomas -v- Thomas 1842 £1pa rent was so; and in Chappel & Co.-v- Nestle Ltd. 1960 chocolate wrappers were the stipulated consideration for a music record.

Consideration is owed in return for pre-agreement considerations: the King’s favour was got upon the other’s request, not for £100 overjoyed promised later in Lampleigh -v- Braithwaite 1615; the children’s promise to pay was after repairs were begun in Re. McArdle 1951; also not for a duty: in Glassbrook Bros. -v- Glamorgan C.C. 1925 it was more than the job of the police, in Hartley -v- Ponsonby 1857 more than the sailor’s, but in Stilk -v- Myrick 1809 it was the sailor’s job -his duty. Nor, in is it owed to thirds parties -in Tweedle -v- Akinson 1861 the bridegroom was not a party to the parents’ agreement to give the couple £500 ~unless since Contracts (Rights of Third Parties) Act 1999 named in or identifiable from a contract as beneficiary.

Consideration less than agreed is not good -Pinnel 1602 -except in settling debts, but is if fair commercially -more funds to complete job: William -v- Roffley 1990.

Terms: Those conditions which, if breached, entitle to remedies (depending on their status and the type) are ‘terms’.

Express Terms, subject only to judicial interpretation, as a rule, cannot be argued, if in writing, to have misstated intentions: Jacobs -v- Batavia etc. Trust 1924 -unless unreasonably creating an inequity ~where oral, parole evidence is allowed: Hanish -v- Bank of Montreal 1969.

Implied Terms, unless by statute so, if customary or not occurring to the parties (‘the bystander test’) disregards business efficacy, are deemed so: In The Moorcock 1889 safety of the anchorage did not have to be express, nor in Liverpool CC -v- Irwin 1977 that dwellings must habitable. In Rowland -v- Divall 1923 that seller transfers ownership, Microbeads -v- Vinehurst Road Markings 1975 buyer’s right to quiet possession, Priest -v- Last 1903 (scalding hot water bottle) merchantable quality and Grant -v- Australian Knitting Mills 1936 (underpants -dermatitis) fitness for the purpose, Beale -v- Taylor 1967 that sale is by description also when upon inspection, are, respectively, ss. 12 & 12(1), 12(2), 15, Sale of Goods Act 1979 ~in s. 15 the bulk must be as the sample in quality, ss. 1(2) & 1(2B) Sale & Supply of Goods Act 1994 limited fitness to ‘satisfactory’, s. 1(2C) quality if defect not told of or where examined could not have been reasonably noticed ~they must not be serious: Frost -v- Aylsbury Diaries 1905 (contaminated milk -death), ss. 13, 14 Supply of Goods & Services Act 1982 imply reasonable care-skill-time; interpretation is strict: Re. Moore & Landau 1921.

Conditions are terms entitling to withdraw from the contract and sue if breached. A singer’s partly not turning up to perform breached a condition: Poussard -v- Spiers & Pond 1976. In e.g. the Sale of Goods Act 1979 s. 12(1), seller transfers ownership, s. 15, bulk must correspond to sample, are implied conditions.

Warranties if breached are of trivial consequence, not entitling to withdraw from the contract: 19 out of 24 months could still be worked a ship in Hong Kong Fir Shipping -v- Kawasaki Ltd. 1962; a singer only from rehearsal had been partly absent: Bettini -v- Gye 1876. In s. 12(2) SGA a buyer’s quiet possession is an implied warranty.

Exclusion Clauses limit or disclaim liability, if not inequitably in bargaining power, as in Photo Productions -v- Securicor Transport 1980 for failures of employees -both equal in power and legal advice. In standard contracts, they are binding on who sign them: L’estrange -v- Graucob 1934; but how & when incorporated matter; on a receipt it would not do: Chapelton -v- Barry UDC 1940, it had to be pointed out: Spurling -v- Bradshaw 1956 -‘red hand rule’, it could not be relied on contained in the delivery: Interphoto Picture Library -v- Stiletto Visual Programmes 1988, nor on a sign in a room (theft) -contracted at the reception: Olley -v- Marlborough Court 1949.

They are confined to the matters excluded, strictly interpreted -ambiguity unfavourably to a party seeking enforcement -‘contra-preferentum rule’: Pollock -v- Macrae 1922.

The Unfair Contract Terms Act 1977 makes them void for death, personal injury, loss, damage, negligently caused -reasonableness in circumstances as proof of one relying on it. Supply of Goods & Services Act 1982 & 1984 invalidate suppliers’ exclusion of statutory implied terms; so the Unfair Terms in Consumer Contracts Regulations 1994 any unfair individually unnegotiated -it requires plainness in written consumer contracts, allows consumer organisations to challenge terms.

Discharge of Contracts: Fulfilled or comes to an end.

Performance is when the parties have fulfilled their obligations -not necessarily fully nor all at once. Part performance, if substantial, does not entitle to withdraw: Hoenig -v- Isaacs 1952 (£55 of £750) ~in severable contracts if performance in stages ceases, part performed must be paid -so also if prevented performance: Planche -v- Colburn 1831 (cancelled £100 job done £50 payable on a quantum meriut basis); to accepted part performance ends the contract and any remainders may be contracted for anew.

Agreement to other considerations is new contract: Pinnel 1902.

Breach of a condition frees the other party of obligations; of a warranty, only entitles to sue for damages.

Frustration is when it is, or becomes, due to no fault of either party, not possible to carry out the contract; if so when made, it does not exist: Paradine -v- Jane 1647; else, it is a breach which makes it void: Taylor -v- Caldwell 1863 (destruction of the subject -hall burnt down) and Condor -v- Boron Knights 1966 (incapacity re. personal service -ill) and Re. Shipton, Anderson & Co. 1915 (government intervention or supervening illegality -state requisitioned it) and Krell -v- Henry 1903 (non-occurrence of sole purpose -event cancelled). Under The Law Reform (Frustrated Contracts) Act 1943 money paid before the frustration is irrecoverable, if due is not payable; a party is entitled to expenses, and a valuable benefit has to be paid for: Gamerco -v- ICM Fair Warning Agy. 1995.

Remedies: Breach of one’s contract entitles remedies.

Damages are the actual financial loss of the wronged party that were in the reasonable contemplation of both of the parties, at the time they contracted, as would naturally arise from the wronged party’s normal activity: Hadley -v- Bexendale 1845, and any not so but of which the parties were expressly informed: Victoria Laundry -v- Newman 1945, in loss aiming to put the wronged party in the position that he would have been if the contract had been completed: Jarvis -v- Swan Tours 1973 ~general damages for distress or annoyance being recoverable where comfort or freedom from discomfort (e.g. holiday contracts) is the basis of a normal commercial contract: Alexander -v- Rolls Royce Motor Cars 1995 -but Forthsyth -v- Ruxley Electronics & Construction 1995 did awarded for amenity and disappointment (less deep pool than ordered); but one’s must have taken steps to mitigate his loss: Brace -v- Calder 1895.

Quantum Meruit is piecemeal as an implied term, unless conditional to completion: Sumpter -v- Hedges 1898.

Equitable Remedies may be specific performance if only that would do (e.g. land sale), except for personal services: Lumley -v- Wagner 1852; or injunction if must prevent, also in personal services: Warner Bros. -v- Nelson 1937.

Liquidated Damages as terms in advance agreed which are fair Dunlop Tyre Co. -v- Garage Motors 1915, not tantamount to a penalty: Ford Motor Co. -v- Armstrong 1915 (above list-price).

This is an outline of the English Law of Contract ~laws change, always ascertain current law.

The author has a website at: http://www.geocities.com/eoa_uk

Is an Oral Contract as Good as a Written Contract?

An Oral Contract is as legally binding as a Written Contract, the issue with an Oral Contract is in proving its existence. To begin, the existence of a Written Contract is fairly obvious, either there is a writing or there isn’t. An oral contract, by definition, does not have a writing to support its terms, conditions or even existence. So how can we prove that it exists? One way is to use witness testimony. If A and B enter into an oral agreement, and C and D are present at the time the oral contract is made, C and D can be used to prove the existence of the oral contract. Their testimony that they heard the terms of the agreement will be sufficient to prove the existence of an Oral Contract. Course of Conduct is another way to prove the existence of an oral contract. Let’s assume that X offers to buy a radio from Y for $50. Y accepts and hands the radio to X, who then gives Y $50. The parties’ course of conduct indicates that an oral contract existed. If the radio were defective, or if Y changed his mind, he could not say that a contract did not exist. Another example of Course of Conduct would be your typical neighborhood newspaper delivery. For the most part, the newspaper boy delivers a newspaper to you and you pay him on a weekly basis. There is rarely a written agreement with the newspaper boy to deliver newspapers. You simply tell him, “please deliver a paper to me, and I will pay you”. If the newspaper boy delivers newspapers to you for a few week, and you pay him, an oral contract exists based upon the parties course of conduct. After this time, if the papers are delivered and then you refuse to pay, you cannot allege that there is no contract. The Course of Conduct indicates that an Oral Contract exists. Credibility of the parties is another factor in proving the existence of an Oral Contract. Suppose that Patron walks into a local restaurant and orders a plate of spaghetti. When Patron orders the spaghetti, an offer is made by Patron to pay for a plate of spaghetti. When the server brings the spaghetti to Patron, an Acceptance occurs and a binding oral contract is made. Credibility comes into play where the Patron then refuses to pay for spaghetti, saying “I never agreed to pay for this, I thought it was free”. All of you can see that is an incredible statement. Should that type of matter go to court, a judge would look at the credibility of the parties in regard to the situation and likely find that an oral contract was formed. If you reconsider the spaghetti scenario, though, you can see where an oral contract would be just as legally binding as a written contract. If a lawsuit were to arise out of the patron’s failure to pay, any court in the land would find the existence of the oral contract based upon credibility. The existence of an oral contract can be more difficult to prove in a different type of scenario. Imagine a scenario with P and Q. P and Q are complete strangers. P approached Q and offers to buy a Corvette from Q for $1,000. Q laughs, and says “sure”, then drives away in the Corvette. If P attempts to enforce what he feels is a binding oral agreement, will he succeed? He will have a very difficult time proving that a contract exists. There is no writing to show the agreement. There is no prior course of dealing between the parties. There were no other witnesses to this alleged conversation. Credibility becomes an issue here, along with believe-ability. As you can see, the difficulty in enforcement of an oral contract lies in the parties’ ability to prove what the terms of the contract were. Absent proof of the terms of the contract, a party may be unable to enforce what it believes to be a firm contract. Evidence, such as witness testimony, prior dealing of the parties, course of conduct and credibility of the parties are some factors that may play into the enforcement of an oral contract. If sufficient evidence can be established that the parties orally entered into a contract, the terms of that contract will be enforced. If the proof is strong, then an oral contract is just as binding as a written one. The question at hand lies with the sufficiency of that oral evidence.

Greg Artim is an Attorney with offices located in Pittsburgh, PA. For more answers to your Contracts or other legal questions, please visit his website at www.gregartim.com

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How To Remedy Infringement of Contract Agreement

Violation of contract agreement has always been a universal and familiar starting place of disputes and conflicts. As contract may take various forms and may even be entered into by the parties verbally, agreements embodied therein are indeed very susceptible to infringement or abuse. A contract has been defined as the meeting of the minds between the parties whereby one of the contracting parties obligate himself to perform certain acts or render service in favor of the other. The agreement embodied in the contract is the law between the parties. The provisions contained therein, the stipulations, terms and conditions must be enforced and faithfully complied with in order to steer clear of liabilities and possible legal sanctions. Non-compliance with the terms and conditions agreed upon, entitles the party who has complied with his or her obligation to resort to remedies available under the law. Remedies for breach of contract may be embodied within the letters of the contract itself or in the absence of specific provisions in cases of breach, the applicable laws will supply the remedies. What then are the most common remedies for breach or violation of contract agreement?

The most common remedy in general for breach of contract is an action for specific performance whereby the erring party will be compelled by the party against whom the violation was made, to comply with the stipulations as agreed upon, if still plausible. Another remedy if specific performance is no longer possible is the rescission of the contract wherein the parties will agree to annul the agreement instead. In both remedies mentioned, award for damages can be rightfully claimed.

Hence, care should be taken in understanding the import of the contract being entered upon as this has the force and effect of law between the contracting parties. As far as practicable, take the necessary care and caution in performing or complying with the terms agreed upon to sidestep obligations and to evade possible law suits.

Our Los Angeles Business Attorneys specialize in all fields of business law, personal injury, social security, and employment cases

John Luke Matthews is a regular contributor of relevant articles about the jurisprudence of businesses. He is part of the Mesriani Law Group and is currently taking information technology studies as well.

The Basic Elements of Contracts

At the foundation of every legal transaction is the document known as a contract. Here is a guide to this document, why it is important and why you should use it. The Basic Elements of Contracts

For as long as we can remember, things have been accomplished by agreement. At one time, a person’s handshake was good enough to cement that agreement. In these more hectic times, that is no longer the case. To bind someone to an agreement, a written contract is needed.

At its core, a contract is simply an agreement between two parties. One party agrees to do something in exchange for the other party doing something. In most instances, this involves one party paying money to the other in exchange for something. A classic example would be a real estate transaction. I agree to pay you $300,000 in exchange for you transferring the home to me. Obviously, there is more a real estate agreement, but this is the basic idea.

The courts have very particular views about the enforcement of contracts. Simply put, they almost always enforce them. If they did not, the entire business world would be rocked to its foundations. If you cannot count on the other party doing something, how can you possible do business? Imagine if you made widgets and a large retailer ordered a huge amount after signing a contract to pay you an equally large amount. What if the retailer than decided not to go forward and didn’t pay? You would be stuck with a huge inventory, no revenues and probably go out of business. With a contract, you can go to court and force the retailer to honor the terms of the contract, to wit, pay you and take the product. This is the beauty of a contract.

For contracts to be enforced, they need to be in writing. If you reach an oral agreement with another party, it means little. The reason this is the case is it is very difficult to tell which party is telling the truth about whether there was an agreement and, if so, what the terms were. The courts feel so strongly about this that there is a body of law known as the Statute of Frauds. Although it differs from state to state, the basic premise is any agreement exceeding $500 must be in writing to be enforced. Obviously, there are exceptions to this rule, but they are few.

A contract is a critical weapon in the arsenal of any business. Oral agreements mean nothing these days, so make sure it is in writing to protect yourself.

Gerard Simington is with FindAnAttorneyForMe.com – an online business attorney directory.

When is a Contract Violated?

Contracts are the foundation of all business transactions, the agreements that bind people to their word. So, what constitutes a violation of a contract? When is a Contract Violated?

A contract is simply an agreement between two or more parties to do something. A simple example might be a situation where I agree to sell you a car. In such an agreement, I am binding myself to deliver the vehicle to you. In turn, you are agreeing to deliver money or some other agreed thing to me in exchange for my act. Ah, but what if things don’t work out?

A violated contract occurs where one or more parties do not live up to the terms of a contract. Using our example above, I would be in violation of the contract if I did not actually sign over title to the car or give you the keys. You, in turn, would be in violation of contract if you did not give me the money or wrote a bad check. Either of these failures would be enforceable in a court of law.

Importantly, not all violation of contract situations carry the same wait. To give grounds to a lawsuit, the violation must be “material”. What does this mean? Well, it depends on the law of your state. In general, a material violation is a significant failure to meet the contractual terms. For instance, if I forget to sign something on the title transfer for the car in our example above, but then do so when you raise the issue, I am not in material violation of the contract. You were not really harmed in any significant way.

As you might imagine, businesses spend a lot of time in court arguing about these situations. What is material and what is not is often determined by the situation. Assume I order 1,000 toys from you for delivery on November 25, the day after Thanksgiving. Something comes up and you cannot deliver them till the following Monday. Is this small delay a violation of the terms of contract? On one hand, it is only a few days. On the other, those days occur right in the middle of the biggest shopping period for toys each year. There is no absolute answer to the question, but a court is probably going to be receptive to my claim against you.

What is a violation of the terms of a contract? Typically, it is something more than just a minor failure or delay in meeting a contractual obligation.

Gerard Simington is with FindAnAttorneyForMe.com – offering legal information articles.

Is A Person Who Has A Services Company Entitled To Relief Under S 106

Section 106: An overview Early forms of unfair contracts provisions were aimed at simply protecting the arbitration system. Contracts had to have a distinctive industrial ‘flavour’ before the courts or commissions would intervene. Over time a more expansive and liberal approach attitude towards the review of unfair contracts developed. Such a broad response acted as a springboard for the Industrial Relations Commission of NSW to intervene in a wider variety of commercial transactions.

Strictly speaking, the scope of s 106 is to be restricted to contracts that lead directly to performance of work in an “industry.” However the term “industry” may be broadly interpreted. It appears though that the “industry” component is satisfied by doing the work in an industry.

The section is designed to protect citizens from unfair consequences of employment contracts. However more recently there has been a growing willingness to indirectly allow the jurisdiction to operate as an alternative to actions for a breach of contract.

The question of whether a person who has a services company is entitled to make a claim under s 106 depends greatly upon the width that the Commission is prepared to afford the section.

Who can apply?

Section 108 of the Act contains a list of persons that may apply for relief under s 106. Generally speaking, any person who is party to a contract can apply under s 106. This includes anybody whose status is a:

– Natural person or company – An employer – An employee – Contractor – Licensee – Trade union official – Employer organisations

The general rule that a person must be party to a contract is subject to exceptions. For example, s 108 allows that a union or employer organisation that is not party to a contract arrangement could be an applicant without express requirement for consent by the relevant parties. This is an important operation of the Industrial Relations Act. It gives effect to one of the key policy considerations, that is, broader public interest and industrial concerns. However, an association that employs contractors, drivers and carriers who are registered under Chapter 6 of the Act can apply for relief under s 106 only in the event that a party to the contract is a member of that association.

Width of jurisdiction under s 106

Historical analysis of relevant decisions demonstrates that the jurisdiction of the Commission regarding unfair contracts is sufficiently wide to include agreements between sub-contractors, contractors and principals. The interpretation and application of s 106 has become increasingly liberal and flexible.

The decision of the High Court in Stevenson v Barham confirmed that the Commission’s unfair contract jurisdiction is not limited to agreements that subvert industrial relations or contracts of employment.

There is potential for sub-contracting arrangements to be implemented under the pretext of “flexibility” but which in actual fact are intended to disadvantage workers by avoiding obligations that would exist if the relationship were one of employment.

Furthermore, s 106 has been invoked in many other areas and is now regularly used in relation to franchise agreements, partnerships, commercial leases, share farming agreements and copyright agreements. There have also been numerous claims from independent contractors that have provided those workers with some protection in circumstances where they have been excluded from the protection of awards with some protection in circumstances where they have been excluded from the protection of awards and many statutory entitlements that applied to employees.

In the case of the AOS Group Australia Pty Ltd (In Liq) v Arrongate & Ors, the Full Bench of the Commission built upon the notion that the jurisdiction under s 106 enables the Commission to order that damages be paid by parties who were associated with the unfair contract – even if they were not part of the contract.

The result in the case lead to the inevitable conclusion that s 106 empowers new contracts to be created. This decision has great ramifications for not only liquidators and administrators but also participants on labour hire and other forms of indirect labour arrangements.

More recently allegations have been levelled at some applications that appear to be bringing claims under s 106 that are in actual fact more akin to unfair dismissal claims – found in Division 3, Part VIA of the Industrial Relations Act.

Unfair dismissal claims are designed to address a distinctly different circumstance and type of claim. Considerable claim must be taken in relation to the facts and pleadings if matters are to be brought under the jurisdiction of s 106. This is also the case if a person who has a services company seeks to bring an action. This is particularly important as the Commission will only determine jurisdiction at the end of the trial.

Frank Egan is the Chief Executive Officer of LAC Employment Lawyer Sydney and has over 27 years of experience as a lawyer.

Legal Significance Of Digital Signatures

A cornerstone of United States contract law is the general application of the Statute of Frauds to contractual agreements. Emerging forms of electronic commerce and new types of contractual relationships have begun challenge the very idea of defining the four corners of a contract. Many obstacles concerning contractual relationships arise with the proliferation of electronic commerce, most notably determining what constitutes a valid signature. Traditionally, the Statute of Frauds is a collective term describing various statutory provisions that deny enforcement of certain forms of contracts unless they are reduced to writing and signed by the party to be charged. The problem with this traditional idea of the Statute of Frauds is how it relates to electronic commerce in determining whether the party being charged with the contract has actually “signed” the contract for purposes of enforcement.
Various forms of legislation dealing with internet law have attempted to define and describe digital and electronic signatures for purposes of determining enforceability.

Generally, there are two broad categories of signatures when dealing with electronic contracts.

1. Electronic Signatures (“E-Signatures”)
2. Digital Signatures

I. Electronic Signatures
The Uniform Electronic Transactions Act (UETA) defines electronic signature as “an electronic sound, symbol, or process attached to or associated with, an electronic record and executed or adopted by a person with the intent to sign the record.” UETA, §2. Often referred to as ‘click-wrap’ agreements, these forms of electronic signatures are given a broad presumption of enforceability through acts such as UETA and the Electronic Signatures in Global and National Commerce Act (ESGNCA/ “E-Sign”). These acts make it clear that binding contracts may be created by the exchange of email or by simply clicking “yes” on those click-on licensing agreements that we have all accepted w ith all types of internet transactions. Like the UETA, the ESGNCA does require that consumers affirmatively consent to the click agreements and that the vendor must provide the consumer with a clear and conspicuous statement regarding the effect of agreeing to click, but parole evidence is rarely allowed in order to prove or disprove intent to contract. ESGNCA§101(c)1. By simply clicking “I agree” intent is presumed.

The widespread enforceability of electronic signatures is also recognized as completely valid for purposes of liability protection by the Digital Millennium Copyright Act. DMCA§512(3)(A)(i). As a relatively settled area of internet law, it is important to understand the enforceability of electronic signatures, whether or not intent is manifest from the face of the agreement itself. Since these click wrap agreements are presumptively enforceable, it is important to advise your clients regarding the potential pitfalls accepting terms of an online transaction without fully understanding what they are agreeing to. Simply accepting these terms may interfere with your client’s right to the judicial system for dispute resolution, as click-on arbitration clauses are also generally enforceable. Your clients will not be able to rely on the Statute of Frauds in order to demonstrate that there was no intent to contract. With electronic signatures, intent is an objective standard, generally determined by the simple click of a mouse.

II. Digital Signatures

Unlike electronic signatures, digital signatures are more often than not used as a means of demonstrating affirmative intent. The problems with digital signatures do not stem from inadvertent agreement to terms, but rather from the security and confidentiality of the digital signatures. Generally speaking, digital signatures are encrypted electronic signatures that a third party (often referred to as the certification authority) authenticates as genuine. Unlike the more general electronic signature, a digital signature must be unique and strictly under the sole custody of the party using it. Unlike electronic signatures, where a typed name, a company name or even a logo can all bind the party to be charged by its mere presence, digital signatures offer the agreeing party greater levels of security and efficiency. The general types of signatures will not be enforceable as a digital signature. Because of the authentication requirements of a digital signature, it should be recommended that clients rely on the use of digital signatures for any high-profile or high liability electronic contract.

Digital signature use will only increase in use in the future, as parties to all transactions will seek a heightened level of information security without the fear of accidentally agreeing to unfavorable terms. While there is an inherent fear of paperless transactions, especially with more traditional attorneys and companies, the use of digital signatures makes commerce faster, more secure and more effective and should be recommended to clients when appropriate. The use of digital signatures is even more effective when dealing in international trade, making it no longer necessary to fly overseas in order to demonstrate intent to sign a contract.

While understanding and zealously advising clients to the use of various forms of signatures for electronic commerce is important, it is also imperative to understand that we are still in the early years of a technological revolution, and that part of being an effective advocate is keeping up to date on advancements in the law. Electronic and digital signatures are only the beginning. Advancements in technology will soon allow for the widespread use of biometric identification as a means of demonstrating intent to contract. Principles of contract law will continue to evolve with technology and while the application of contract principles and the Statute of Frauds will not substantially change, their interpretation and use surely will.

This article was written by Nicholas J. Deleault, Pierce Law Center ‘07. Nicholas writes select legal articles for the Law Firm of Goldstien and Clegg, a Massachusetts cyberlaw firm.

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