Practice Pointers

Terminating Your Contract: Things to Remember Part 2

Posted by on Mar 10, 2014 in Draft Your Contract, Practice Pointers

Let’s continue the discussion on issues to consider with regard to the termination of your contract. Most contracts have provisions governing what will constitute a breach or default and what the parties’ respective rights and obligations are in the event the contract is terminated for such breach or default (“termination for cause”). Right to Cure It is common in termination for cause provisions for the terminating party to allow the defaulting party to have a period in which to correct the default. This is typically called a “cure period.” Determining a reasonable cure period is dependent on the subject matter of the contract, the nature of the default and the parties’ respective bargaining powers. For example, if a party defaults in a service obligation under a contract, the provision may state that the defaulting party has ten (10) days to re-perform the service in accordance with the contract before the terminating party may officially terminate the contract. Notice One element of having the right to cure a default before the other party may terminate the contract is the concept of notice. Notice is important because it is a means by which the parties communicate to each other what is deficient or lacking in the other’s performance. Without adequate notice of what the breach or default is, it is difficult or impossible for the defaulting party to take full advantage of the cure period. Contracts typically have provisions stating when and how a party must notify the other of a default. The notice period is usually congruent with the cure period, such that the terminating party must provide a certain amount of prior notice of the default, coupled with providing the defaulting party the opportunity to cure the default, before the termination right is triggered. There are other matters to consider when dealing with termination issues, and these are just a few which pertain to termination for default. If you’re in the process of terminating or drafting a contract, please contact an attorney to discuss the particular termination issues that may be encountered in regard to your...

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Trademarks 101: Avoiding Common Mistakes

Posted by on Oct 4, 2013 in Intellectual Property, Practice Pointers

Many entrepreneurs and small businesses try to handle their intellectual property (in this case, trademarks) independently. While this works in some circumstances, entrepreneurs and small businesses often make the same mistakes when dealing with trademark searching and clearance which could be avoided relatively easily. Trademark searching and clearance involves the collection and analysis of information in order to assess a potential trademark’s viability from an availability and protectability standpoint. The process of trademark searching and clearance is crucial for businesses from a risk management standpoint, particulary those who rely heavily on a specific logo or brand. Consequences of an inadequate search or, God forbid, the failure to search can be drastic and can include being sued for trademark infringement (which can result in significant monetary damages) and/or an injunction that completely stalls a product launch or advertising campaign. While the process of trademark searching and clearance can be complicated, there are common mistakes that an entreprenuer or small business can take steps to avoid. Common Mistakes To Avoid: #1) Failing to Consult a Trademark Attorney: While this may come across as redundant, manipulative or simply not heplful from a common sense standpoint, it is no lie that many entrepreneurs and small businesses get into trouble with their brand, logo or other trademark assets because they made decisions or took actions without consulting a trademark attorney. (NOTE: a “trademark attorney”) Searching a trademark can be complicated and there are many potential pitfalls which can be avoided if an entrepreneur or company consults an experienced trademark attorney first. Most trademark search mistakes occur when the process of searching and clearance is conducted by a business manager or other personnel or, surprise surprise, by an attorney who does not specialize in trademarks. Therefore, make sure the attorney you consult actually has experience in trademarks.   Stay tuned for additional common mistakes that you can avoid in the trademark search and clearance...

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Do I Need An Entity For My Business?

Posted by on Sep 9, 2013 in Practice Pointers, Your Entity

(*Note: this discussion presupposes a basic understanding of limited liability entities and alternatives, which have been discussed before and which we will discuss more in the future.) Many people starting a business often wonder if they need to set their business up as a corporation, LLC or some other entity. It is also common to encounter entrepreneurs who just automatically assume that they’ll structure their business as an LLC without really questioning whether they need to do so. By default, if you do not have an entity for your business, you will be considered to operate your business as a sole proprietorship, essentially meaning that the debts and obligations of the business will be considered to be your personal debts and obligations. Again, while this may be scary-sounding, it isn’t always that big of a deal for some people. While having the limited liability offered by a corporation, LLC or some other entity may be a good baseline, there are some individuals who will have businesses that could actually be operated as a sole proprietorship without any entity structure at all. How Do You Know If A Sole Proprietorship Is Okay For You? First and foremost, if you have partners or other individuals with whom you work closely on your business, you will more than likely need to be another type of entity (maybe even a general partnership, but probably another type of entity). Therefore, you really should only be considering a sole proprietorship if you operate your business alone. Whether you need an entity at all will depend on a number of other things, including (but by no means limited to): The kind of service or product you are providing. The degree to which you expect to make or lose money in the beginning. Whether your business is or will be open to the public (i.e. a place or portal where the public can access physically or digitally). Whether you plan to have employees or independent contractors. The degree to which you will borrow money or seek investors. How many assets you own in your name (home, stocks, etc.). Your personal risk tolerance. While we will discuss these issues in more detail over the next couple of weeks, it is important that you seek advice from legal counsel if you are starting a business or operating a business and have questions concerning your...

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Your Liability Can Have Limits #3

Posted by on Aug 22, 2013 in Draft Your Contract, Limiting Liability, Practice Pointers

We’ve talked about 2 ways people limit liability in a contract (waiver of consequential damages and limitation of liability provisions). Another way you or someone you’re negotiating against can limit contractual liability is by including a provision that limits the time in which a party can bring a claim under the contract—i.e. shortening the statute of limitations that otherwise would apply. I know that sounds great, but: “what’s a statute of limitations”? A statute of limitations is essentially a law which establishes the maximum time after an event has occurred within which a party may commence legal proceedings. That is to say, a statute of limitations is a law that basically tells people how long they have to file suit. Statutes of limitations can vary depending on the type of claim or issue at hand. For example, in the State of Tennessee, the default statute of limitations for breach of contract claims is 6 years, meaning if 6 years has passed since the other party breached your contract, you probably can’t sue him or her for breach of contract (unless your contract says otherwise). The Tennessee Code sets forth statutes of limitations for many types of actions, including defamation, injury to personal property, products liability, medical malpractice, and the list goes on. Not only is it important to know the statute of limitation which may apply to your potential legal claims in any given situation, you should remember that you can often limit these statutory limitations contractually. It is common for contracts to include a provision that shortens the default statute of limitations to 3 years, 2 years or even 1 year. I’ve even seen a contract that attempted to limit the period to 3 months (!). Statute of limitation provisions are often placed at the back of the contract in a “governing law,” “dispute resolution” or “miscellaneous” section. A shorter statute of limitations can really take you for surprise if you dilly-dally or delay your decision concerning whether to file a claim. Obviously, if you are providing the good or service, you’d probably want the period to be shorter, and if you’re the one buying the good or service, you’d probably want the period to be longer. If your contract doesn’t say anything about it, don’t worry: the statutory default of 6 years would kick in. Don’t be afraid of these limitations, though, because, if used correctly, they can really help both parties understand and manage their respective risks under the contract. While there may be a way to argue around the statute of limitations provision in your contract, this is one reason why you should always read the fine print carefully (*or have an attorney review your contract and advise you concerning liability matters). If possible, you want to avoid having to hire an attorney to argue why your contract provisions should be...

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Your Liability Can Have Limits #2

Posted by on Aug 20, 2013 in Draft Your Contract, Limiting Liability, Practice Pointers

Last time we discussed limitation of liability provisions and how they can be used by you or your vendors, suppliers and other independent contractors to limit, reduce or otherwise control liability under a contract. Another way contracting parties can limit liability is by including a Waiver Of Consequential Damages provision. While this provision can be part of an overall limitation of liability provision, it is often set apart as its own provision. Without getting into a detailed discussion on what types of damages constitute consequential damages (this is an entirely separate blog discussion that will come later), we can use the most classic example of consequential damages: lost profits as the focus of our discussion. When you are providing goods or services to a client, you may want to consider including a waiver of consequential damages provision in order to better protect yourself in the event your client later claims that you breached the contract (or a warranty) and that caused them to lose profits or incur other consequential damages. Conversely, if you are buying goods or services, you will want to look very closely at any waiver language to see if your suppliers, vendors or independent contractors are attempting to waive responsibility for any consequential damages, including lost profits, that you may suffer as a result of their breach. Depending on the distribution of bargaining power between you and the other contracting party, you may not be able to negotiate this issue, but here are 2 things to consider about waivers of consequential damages: (1) If you are faced with a supplier, vendor or independent contractor who wants you to agree to a waiver of consequential damages, you will at least want to try to make sure the waiver is MUTUAL (i.e. applies equally to both parties). (2) Although we will have to discuss the scope of consequential and other damages at a later date, it is important for you to understand your level of exposure to damages in general, including consequential damages like lost profits, should your suppliers, vendors or independent contractors breach. It could be that whatever you’re buying from them wouldn’t really impact your business in a way that concerns you enough to put up a big fight about including this waiver language. So, know and understand the types of damages you may suffer from a supplier’s breach. (e.g. There is a huge difference between suffering from some losses resulting from additional rental fees should your supplier be late in a delivery of purchased goods vs. losses resulting from a complete shutdown of operations). Please contact an attorney if you’re ever faced with the decision of whether and how to waive or limit consequential damages in your contracts–there are many more considerations and this discussion only skims the...

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Making Sure You Get Paid For Your Services

Posted by on Jul 2, 2013 in Draft Your Contract, Practice Pointers

If your company performs services for a fee, you know first-hand how great it is and how much of a relief it is when you get paid….on time and in the correct amount, that is.   While it is great when things work out and you can move onto the next project, it is unfortunately common for service providers to run into trouble when it’s time to collect for the services they’ve performed.  Here are ways to help make sure you get paid for your services: (1)    For any contract you enter into under which you agree to provide services for a fee, it is important for the contract to clearly set out the method and timing of payment, as well as any penalties that will be assessed if the payment is not made timely. (2)    It is also very important that the contract contain a provision entitling you to recover your attorney fees and related expenses should you have to retain an attorney to help you collect what you are owed under the contract.  Late fee penalties and attorney fees provisions in contracts provide strong incentives for the other party to pay you on time and in full.  Including an attorney fees provision in a contract is especially important in situations where the contract fee for your services is relatively small.  Without an attorney fees provision, the other party may simply refuse to pay you knowing that it will be cost prohibitive for you to sue them, i.e., you will end up spending as much or more on attorneys than the amount of contract fees you are actually owed without the ability to recover the attorney fees you incur in the process. (3)    It also important that you always invoice the other party per the time intervals for payment set forth in the contract (e.g., if the contract provides that you are to be paid every month, you should submit an invoice every month).  In addition to clearly setting forth the fee amount due and due date for payment, your invoices should also note the late fee penalties that will accrue if payment is not timely made as per the contract as well as your right to recover your attorney fees and expenses if you retain legal counsel to assist you in collecting the amounts due. These simple steps will provide you with a first line of protection against the other party to the contract not paying you for your services on time and/or in full. Remember though, before you sign any contract, you should always consider having your attorney review it to make sure you are properly...

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