New York Small Business Law

Contracting by Email and the Statute of Frauds

Email can actually save many agreements that would otherwise fall prey to the "statute of frauds".   Let me explain.

I know that many of you neglect to get their agreements and understandings in writing.  And, on an emotional level, I understand why.  It can seem off putting, too demanding and even insulting to new business partners to immediately have every understanding in writing.  Even if you all plan to put your business deal into writing, it often gets postponed indefinitely for fear of not doing it exactly right, bickering over minute details, the time and money it takes to get legal help and so forth.  Meanwhile, everybody starts doing things, working hard, creating stuff.....

Statute of Frauds - Some Agreements must be in Writing

Now, an oral agreement can still be a good and enforceable contract.  But very often it is not, because a little law commonly called the "statute of frauds" requires certain agreements to be in writing.

For example, all agreements that by their terms are not to be performed within one year from the making thereof require to be in writing to be enforceable.  

Email to the Rescue

Still, there may be a way out of this dilemma, if you have an email or several emails combined which set forth all the essential terms of your agreement and which are sent and "authenticated" by the party you want to bind to that agreement.  

The statute of frauds states that if there is a note, memo or other writing sufficient to indicate that a contract has been made and signed by the party against whom enforcement is sought, the statute of frauds is satisfied.

A writing can be a text produced by "computer retrieval or other process by which electronic signals are transmitted by telephone or otherwise," if it was created by a party with the present intention to authenticate that writing.  Email fits squarely into that definition.

As court cases have shown, "authenticating" can be the fact that the party simply has typed his or her name at the end of the email.

Still, for a full fledged enforceable agreement, the email must lay out the essential terms of the agreement.

A court has held that an email, signed by the sender, naming the seller and buyer and the agreed upon price for a particular house  did not contain the essential terms of the agreement, since it failed to set forth any understanding about a contract deposit for the house and treatment of a lease that encumbered the house.

Lessons to be Learned

• Be aware of email's power to constitute binding contracts
• Save or properly archive all your email with past and present business partners
• If using email as a contracting device, make sure all essential terms of your agreement are contained in the email

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 **This post is for informational purposes only.  For actual legal advice contact a business lawyer, business attorney or business law firm**

 

Do you have to date a written Contract? - and other burning New York contract questions

Do you have to date a written contract?

No.  You should date the contract as a matter of fact, but if you don't, you still have a valid and enforceable contract.

Can you predate or postdate a contract?

Yes.  If you do so, by stating something like "agreement between x and y, dated as of ____", it means that the contract will be effective, i.e. in effect/enforceable, as of that date.

Do you have to notarize a contract?

No.  In any event, the notary would not notarize the contract, but only attest that the signatures on the contract are the signatures of the person named as a signatory to the contract.  You could require (i.e. it is optional) notarization of signatures, if you want to have super solid evidence that the person claiming to sign the contract is really that person.  But it is really uncommon to do that, unless you are dealing with million dollar contracts.

Speaking of signatures, what is that exactly?

A “signature” can be any mark, stamp, writing (and so forth) on a document, as long as it was put there with the intent to execute such document.  An “electronic signature” is an electronic sound, symbol, or the like, connected with an electronic record, which was implemented by a person with the intent to execute or sign the electronic record.  

In most cases, regular signatures and electronic signatures are valid for contract executions.

What if the contract hasn't been signed by the parties?

An unsigned contract may be enforceable, provided there is objective evidence establishing that the parties intended to be bound.  Exception:  Where the parties to a contract make actual signing a condition to the effectiveness of the contract, there is no contract until they have signed, although all the terms have been agreed on.  

Do I have to keep an original copy of the contract?

No, a scanned copy of the contract with the signatures on it should be fine. 

 **This post is for informational purposes only,  For legal advice contact a business lawyer**

A List of Must Have Startup Agreements

Having all the right kind of contracts in place at the beginning of a business venture manages expectations and prevents conflicts with your business partners, customers, vendors, lessors...you get the idea.  

Thus, I present you with a list of the most commonly needed agreements for any business startup:

"Terms and Conditions" may work for your Business

If you are in a line of business where you repeatedly have to enter into agreements with your customers and the basic terms of those agreements rarely change, you may want to consider the adoption of "General Terms and Conditions."

Rather than having every contract spell out all terms and conditions, your individual contracts with customers could be rather short and refer to your General Terms and Conditions.

The General Terms and Conditions could contain all the terms of the business relationship that rarely change, such as:

The representations you do or do not give about the quality of your products or services,

the general nature of your goods and services,

when you expect payment for your products or services,

when you or your contract partner are allowed to terminate the contract and the consequences of such termination,

any elements of the price of your goods and services that never change and

all those boilerplate legal provisions you don't understand but your lawyer tells you to put in there anyway.

By using General Terms and Conditions, you standardize a large part of every customer relationship.  The individual contracts with customers would become much shorter and easier to draft and execute.  You just have to make sure that every individual contract or oder specifically incorporates your General Terms and Conditions.  For example with language like this:

"The General Terms and Conditions dated _____ are incorporated into this work order by reference and are a part of this work order as if fully stated herein."   

In addition, you may want each individual customer acknowledge receipt of your General Terms and Conditions, so that there is never any doubt which version governs the business relationship.

You could even consider allowing for changes of your General Terms and Conditions without the agreement of  your customers who are already governed by the General Terms and Conditions.  Be aware, though, that not all changes without proper notice may pass muster with the courts if challenged.  Check out this post by Techlaw on the subject.

The individual contracts could be called anything you want, but terms like "work order," "service order," "project order," "project specifications" may make sense.

Beyond being a time saver, there are other potential benefits of General Terms and Conditions:

You can post your General Terms and Conditions  on your website and give your customers immediate access to what a contractual relationship with you would look like;

You can create the appearance that your General Terms and Conditions are non negotiable and deter your customers from trying to change the terms of the business deal.  While you and I know that every contract is negotiable, for some reason many people think that General Terms and Conditions are set in stone.

**This post is for informational purposes only and does not constitute legal advice**

How to Amend a Contract

When you enter into a contract (or agreement, same thing really) you cannot possibly foresee all future developments of the relationship that is governed by that contract.  As a result, you may find yourself in a situation where you have to amend an existing contract.

How do you amend a contract?  By entering into a new contract, which provides for the terms of the amendment.  Let's say you entered into a contract on August 10, 2006, which contract provided in its Section 10:  "This contract terminates on August 1, 2010."  Now you and your contract partner decide that the contract should really go on until August 1, 2012.   You plan on amending the original contract.

The amendment of the provision should be in writing and clearly reference the agreement that is being amended.  The amendment doesn't have to be very formal, it could be in a simple note or letter, but it should be in writing and signed by all the parties who signed the original agreement.

By way of example, the amendment could look like this:

Amendment

Joe Junior and Daphne Danzig entered into the Service Agreement dated August 10, 2006 and wish to amend the Service Agreement.

Joe Junior and Daphne Danzig hereby amend Section 10 of the Service Agreement by replacing such section in its entirety with the following:

"This Agreement terminates on August 1, 2012."

Other than as amended hereby, the Service Agreement shall remain in full force and effect.

So agreed, this ___ day of August, 2007.

Joe Junior (signature)

Daphne Danzig (signature)

There you have it.  You can do this as many times as you want, so that you may end up with Amendment No. 1, Amendment No. 2 and so forth.  However, if there are many changes to an Agreement at the same time, you may be better off by "amending and restating" the Agreement.  I'll explain what that means another time.

**This post is for informational purposes only and does not constitute legal advice**

Terms of Use: Do they have to be Fair?

Who knows what fair is, anyway.  But, under certain circumstances, your terms of use cannot be completely unconscionable.

When drafting terms of use for your Website, you are probably inclined to make them as favorable to you as possible, thinking it is a "take it or leave it" proposition.  If visitors don't like your terms of use, they can take their web surfing elsewhere.

Unfortunately, this approach may cause your terms of use to be unenforceable when brought into court by a disgruntled web site visitor.

As blogged about by E-commerce and TechLaw, Linden Research, the creator of Second Life, had to learn this the hard way in federal court recently.

The terms of use on Second Life provided that anybody who wanted to fight a legal dispute over the use of Second Life had to do it by arbitration and could not take Second Life to court.

Well, someone did take them to court and the federal court decided that the arbitration provision was unenforceable, because it was procedurally and substantively unconscionable ( Bragg v. Linden Research Inc., No. 06-4925 (E.D. Pa. May 30, 2007).

Some of the court's reasons:

• There is no second Second Life.  Thus, Second Life had "superior bargaining power" over its users.
• The arbitration provision was hidden in a long provision with no descriptive heading.
• The rest of the terms of use were  very one-sided and in favor of Second Life.
• Second Life could not prove to the court that its one-sided terms of use were necessary for its business.

Thus, resist the urge to be a jerk and put yourself into the shoes of your web site visitors.  Clearly, you want to protect your own, but try to be somewhat fair.

**This post is for informational purposes only and does not constitute legal advice**

Incoming Google Search: is it legal to sign a contract as an LLC that is not yet formed?

I guess it isn't illegal, unless you think doing something stupid should be illegal.

But I can see how this can happen.  You are presented with the perfect business opportunity and are pressured to enter into a contract.  You know that you should probably wait until your LLC has been formed, but you cannot wait until "FileYourLLC.com"  actually gets around to doing it (you opted for the "basic" LLC formation package which indicated 2-3 weeks processing time).

So you figure, why not sign in the name of the LLC, nobody is going to ask later.  Bad idea.  If you sign for your LLC despite the fact that the LLC has not been formed, you are likely personally liable on whatever obligation you signed for.  You may or may not be able to get the other party to the contract release you once the LLC has been formed.

So, if at all possible, wait until your LLC has been formed by filing the articles of organization with the Department of State.  If you are really in a hurry and are ready to pay extra filing fees for expedited handling, you can form an LLC within 2 hours, so there is really no reason to risk personal liability on any contracts entered into before the LLC came into existence.

**This post is for informational purposes only and does not constitute legal advice**

Must Read for hungry Startup Entrepreneurs: How not to Hand out Equity

Learn how a young startup died an early unnecessary death due to a faulty capital structure in "A Fatal Paper Cut."

Great post, but IMHO, bad title.  Had I not found it through Ask The VC, I would have never read the post based on the title.

Think of your Agreements as Marketing - Six Things to Avoid

Have you ever thought that the contracts you hand out to your customers are another part of your marketing strategy?  If not, think again.  Everything you present to your potential customers (i.e. market) is marketing.  Here are six things that can damage your otherwise perfect marketing script:

1.  Agreements that are too long.  Almost every agreement can be shortened.  ("Unless you are going to pay me to read your never ending agreement, I am not going to hire you"). 

2.  Agreements that are full of "fine print."  Use a decent sized type font. 

3.  Agreements that are disorganized.  Price in the beginning, payment terms in the middle and payment due dates at the end of the agreement is confusing, results in missing or duplicative terms and leaves your customers irritated and suspicious ("don't make me think").

4.  Agreements that are full of legalese or have sentences like this one:

The parties hereby and herewith agree that any and all, heretofore and hereinafter existing, documents, including but not limited to, papers, letters, briefs, postcards, white sheets made out of trees, received by one party, its subsidiaries, affiliates, partners, agents or secretaries shall be forwarded to the other party by certified mail, return receipt requested, double stamped, blessed and notarized.

I made this up, but you get the picture.  Nobody likes it, it is rarely necessary, so get rid of it.

5.  Agreements that have a rude and suspicious tone to them.  Granted, you are trying to prevent disputes and cement rights and obligations.  Still, an agreement can be phrased so that it doesn't sound like the other party is already guilty of having breached all of the terms under the sun.  In other words, if you already have a right under the law to sue for damages if your customer breaks your equipment or whatever, why state it again in your agreement.  It will irritate the customer.

6. Agreements that look like you bought them for $9.95 at AgreementsOnline.com.  In other words, your agreements should tell your story.  The story of your particular deal with your business partner.  The drafter of the $9.95 version has never heard of you, your business or your deal.

Do you have to have a Signature on your Contract? Is an E-Signature enough?

This comes as a surprise to some people: In New York, unless there is a special law that states otherwise, you can become bound by a contract, even though you have not actually signed it.  As long as you have somehow shown that you agree to the terms of the contract, you can be on the line.

But what if a signature is required, as for example, when executing a personal guarantee?  What is a signature?

The term signature includes any memorandum, mark or  sign, written, printed, stamped,  photographed,  engraved  or  otherwise  placed  upon  any instrument or writing  with  intent  to  execute or authenticate such instrument or writing.  (See New York General Construction Law Section 46).

This now includes electronic signatures, i.e. any electronic sound, symbol, or process, attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign a record (See New York State Technology Law Section 304).

(Some exceptions apply to electronic signatures, in other words, they can't replace hand signatures in all cases, see Section 307.)

If this is all too complicated and ambiguous for you, you can say so and state in your contract something along the lines of:

This contract is not binding on the parties unless both parties have signed their handwritten signatures on the signature lines below.

Otherwise, learn how to get your electronic signature in this post.