You may have signed a contract for your small business that you really shouldn’t have.  Or you are being asked to perform under an agreement and think that such demand is not what you agreed to or just grossly unfair.   So you ask yourself, “can I get out of that contract?”

What does your Contract say?

The other party to the agreement may demand all kinds of things, but before you get defeated, you’d better make sure that the contract actually obligates you to do what the other party demands.  Please read the agreement in its entirety.  What does it state concerning your particular problem?

Can you terminate the Contract?

Check if the language of the agreement itself offers a way out of the obligation by terminating the contract.  If so, follow that clause to the letter to terminate the contract.

What if the Contract has no Termination Clause?

Under New York law, if there is no termination clause or if the contract seems to go on indefinitely, you are allowed to terminate the contract on reasonable notice to the other party.  Obviously, that does not relieve you of your obligations if they occurred before your termination. If the service was provided, you have to pay, regardless of your termination after the service was provided.

Is the other Party in breach of the Contract?

If the other party is in breach of their obligations, you can terminate.  For example, you don’t have to pay if the party did not provide the agreed services.  Or sometimes, contractual obligations have conditions.  In other words, you don’t have to perform unless the other party has fulfilled the condition.

Is the Contract enforceable?

Next, lawyers would check if the contract you signed or the particular provision you don’t like is enforceable.  In other words, if the other party takes you to court for breach of contract, would you have a viable defense?  Would the court take that contract and enforce it against you?

Several possible scenarios come to mind that typically make an agreement or one or more of its provisions unenforceable.

Consideration

To be enforceable, a contract must be an agreement between at least two people exchanging something of value (consideration).  No consideration, no contract.  Also, if the language is so ambiguous that nobody can tell what it means and there is no indication outside of the written contract for the parties’ intention, there is no agreement to enforce.

Fraud

If you have been defrauded in the context of the contract, you may be able to avoid being obligated to perform.  The obvious example is when someone forged your signature on a contract.  Or if someone makes changes to the contract at the last minute and fails to notify you of such changes so that you literally get tricked into signing a contract that you did not approve.

Another example is when someone tricks you into signing a document by making false statements relating to the agreement.  Had you known the truth, you would have never signed the contract in the first place.

But these examples are rare and usually hard to prove.  You can protect yourself by always reading the contract before signing and making sure it states exactly what you think it should state.  You should also do your own investigations as to any representations made to you in connection with the contract.  Ideally, these representations should be repeated and explicitly being written into the contract.  Otherwise, it just may be tough to prove that you were told “such and such” before signing.

Also, watch out for a provision that states the opposite:  a disclaimer that you did not rely on any representations not specifically stated in the contract.  This puts an even greater responsibility on you to conduct appropriate due diligence before signing the contract.

Is the Contract Illegal or against Public Policy?

For obvious reasons, courts will not enforce illegal contracts; A contract to provide illegal services (think prostitution) is void.

Then some contracts or provisions are against New York public policy and therefore not enforceable.  You are more likely to encounter this scenario in day-to-day business dealings.  One example is a waiver of liability in a gym membership contract.  These are unenforceable under New York General Obligations Law Section 5-326.

The prime example of a contract provision that violates New York public policy is a provision for penalties.   New York courts will not enforce contractual penalties that have no relation to the loss suffered by the non-breaching party, and such loss would actually be possible to determine without undue difficulties.    “Public policy is firmly set against the imposition of penalties or forfeitures for which there is no statutory authority.”

Then some contracts could hurt competition.  Again, New York believes an undue restriction of competition in the marketplace is against its public policy.  Whenever a contract clause has the ability to restrict competition, enforceability depends on the reasonableness of such restriction. For example, it may be reasonable to restrict a seller of a business from opening the same business right next door, but it is probably unreasonable to forbid the same seller to engage in a similar business for all times and eternity.

Has the Purpose of the Contract been frustrated?

You may have heard about this excuse for getting out of a contract in the recent covid pandemic: Frustration of Purpose.  It is different from “force majeure,” which is a particular kind of provision written into a contract.  Frustration of purpose means that a basic understanding underlying the contract has gone away.  Both parties must have understood the purpose and without it, the contract makes no sense.  It is only applied in very limited circumstances.  For example, not paying rent for your gym because of the pandemic has already been found not to be “frustration of purpose.”

See also How to execute a Contract.

Call me if you have any questions about the topic!

I don’t need to tell you that New York lies at the center of the universe.  But did you know that you can be a part of it by choosing New York law to govern your business contracts and New York courts to decide upon any conflicts arising from your business contracts, even if the transaction, you, or the other party to the contract have no relation to New York?

Choosing New York law and New York courts may be desirable, because

  • you and the other contract party are from different states or countries and you wish to agree on a neutral law and a neutral place for dispute resolution; or
  • you wish to take advantage of New York law and New York courts which are known to address the most complex financial and commercial transactions.

Choosing New York Law

You can choose New York law to govern your contract – whether or not the contract has any relation to New York – if your contract provides for consideration of at least $250,000.  (General Obligations Law Section 5 1401).

How do you choose New York law to govern your contract?  You agree to it with your contract partner by including a provision in your contract similar to this one:

This Contract shall be governed by and construed in accordance with the laws of the State of New York.

Some lawyers add “without regard to New York’s choice of law statutes” or something similar, but I believe that is unnecessary.

Choosing New York courts

Now, in order to ensure that your choice of law provision will be enforced when you find yourself in court over the contract, you are well-advised to choose New York courts in addition to New York law.  If you have chosen New York law in your contract and your contract relates to an obligation of at least $1,000,000, you can have New York courts decide upon your contract disputes.  New York General Obligations Law Section 5 1402 provides that you can sue a foreign corporation or non-resident where the dispute arises out of a contract for which a choice of New York law has been made and which is a contract with consideration covering at least one million dollars.

How do you choose New York courts?  You agree to it with your contract partner by including a provision in your contract similar to this one:

Each of the parties to this Contract hereby irrevocably consents and agrees that any legal action, suit or proceeding with respect to this Contract may* be brought in a federal or state court located in [_______, New York], and each of them hereby irrevocably accepts and submits to the jurisdiction of such courts with respect to any such action, suit or proceeding.

*Note that this provision makes the selection of New York courts optional.  You could also agree that the selection of New York courts is mandatory.  In that case it would read “must be brought exclusively in a federal or state court located in…”.

Consider Consenting to Special Service

If both parties are not present in New York, it is advisable to agree in advance what constitutes service for the purpose of starting a lawsuit in New York courts.  For this reason, you could agree to a provision similar to this one:

Each of the parties to the Contract hereby irrevocably designates, appoints and empowers [insert name and address of an agent in New York], as its authorized agent to receive for and on its behalf service of summons or other legal process in any action, suit or proceeding in the State of New York.  Each of the parties to the Contract further irrevocably consents to the service of process out of any New York court by mailing copies thereof by registered United States air mail postage prepaid to each of the parties of the Contract at its address specified in this Contract.

Don’t hesitate to contact me if you have any questions about this topic.

Easy Money or Debt Trap?

Merchant Cash Advances are often the small business owner’s last resort for cashflow. When an SBA loan or any other business loan is out of reach, Merchant Cash Advance businesses are eager to give the business owner money. It only takes a couple of days, minimal paperwork, and the money flows into the account. However, it is often a slippery slope into a debt spiral with no return.

Many articles have been written about how Merchant Cash Advances work, for example this one by nerdwallet.

But, as the nerdwallet article points out, the contracts underlying these transactions can be complicated and are certainly not standardized. The rules for default are all over the place and it really pays to know your rights under the Merchant Cash Advance agreement before you default and are faced with sometimes very aggressive debt collectors who will go after your business accounts, personal assets (if you gave a guaranty) and enter a judgment against you without you even knowing (if you signed a confession of judgment). The industry is not regulated and there are lenders out there who are engaged in what can only be described as predatory lending practices. New York has recently outlawed confessions of judgment against out of state borrowers.

Usurious Loan or Sale of Receivables?

When faced with out of control lenders trying to enforce under the Merchant Cash Advance, many borrowers have tried to characterize the merchant cash advance as a usurious loan. If you do the math, many of these transactions cost more than 100% interest. The nerd wallet article actually has a calculator how to really determine the cost of this kind of financing.

In New York, it is considered a criminally usurious loan if a lender charges more than 25% interest. If one succeeds on that argument, the entire agreement would be void and the borrower would not have to pay any interest or principal on the loan.

Unfortunately, many New York courts have now decided that a merchant cash advance is not a loan, but a sale of your future receivables. Therefore, the rules about usury do not apply and Merchant Cash Advance lenders can get away with highway robbery. How do you make the distinction between a loan and a sale of receivables?

Courts have explained that there are certain factors that a court should look for to see if repayment is absolute or contingent. Does the merchant lender have the risk of the merchant’s business going down, i.e. no receivables to collect? Or does the lender have a right to repayment no matter what?
Courts named three factors that should be present in any MCA agreement in order not to be a usurious loan: (1) a reconciliation provision that allows the merchant to adjust the fixed daily ACH payments to the amount of its actual daily receipts (answer should be yes); (2) an indefinite contract term, which is consistent with the contingent nature of each and every collection of future sales. . (answer should be yes).; and (3) whether the merchant financing company has recourse if the merchant declares bankruptcy (answer should be no).

Every Agreement must be Analyzed

Of course, every merchant lender out there, if smart enough, will now draft their agreements so that all these factors are present. But still, not everybody is skilled, and many of the other protections merchant lenders may want to put into their agreements to protect themselves may convince a court otherwise. Every agreement needs to be analyzed whether it is a usurious loan or a sale of receivables.

Every once in a while, a judge will still entertain the idea that such a transaction is a loan. In McNider Marine, LLC v. Yellowstone Capital, LLC, a judge ruled on a motion to dismiss by the lenders:

 “In determining whether a transaction is usurious, the law looks not to its form, but to its substance, or real character”

“After analyzing specific MCA agreements, many New York courts have found that they constitute legitimate purchases of accounts receivables instead of loans with usurious interest rates. Courts that found otherwise, that MCA agreements were usurious loans disguised as purchases of accounts receivable, typically found no provisions for forgiveness or modification of the loans, such as viable and enforceable reconciliation provisions, in the event that the funding companies could not collect the daily amounts required”

“Focusing on the reconciliation provision in a given merchant agreement is appropriate because it often determines the risk to the funding company. If the funding company truly is collecting a specified percentage of accounts receivable, then the funding company bears the risk of a downturn in the merchant’s business. The specified percentage typically is replaced by a fixed payment (as it was here), but if that payment is reconciled when accounts receivable drop below the merchant’s original estimation, then it may take the merchant far longer to repay the amount advanced than the funding company had anticipated.”

If, however, the merchant is unable to adjust fixed payments in the event of a reduction of its accounts receivable, and the funding company can collect the amount due and owing by way of a personal guarantee and confession of judgment, there is far less risk to the funding company. Therefore, whether the merchant may reconcile its fixed payment amount when there is a reduction of accounts receivable is often determinative of whether repayment is absolute or contingent. If repayment is absolute, then the arrangement must be considered a loan as opposed to a purchase of accounts receivable.
In this case, the court finds that plaintiffs have demonstrated that the reconciliation provisions contained in the addenda to the July and October agreements were illusory. First, the court cannot find from the language in the agreements that Yellowstone had any duty to reconcile. In fact, Yellowstone likely could refuse to even consider reconciliation if it contended that McNider Marine failed to sufficiently document a basis for it. Furthermore, even if Yellowstone was required to reconcile, there was no time to do so because McNider could request reconciliation only within five business days following the end of a calendar month. McNider Marine defaulted on December 16, 2016, so it could not request reconciliation until the first week of January 2017. Yellowstone filed for a judgment by confession on December 22, 2016 and obtained that judgment on December 28, 2016.”
The notion of reconciliation for McNider Marine appears particularly futile because the fixed daily payment in the October agreement was not a good faith estimate of 15% of its receivables to begin with inasmuch as there was no evidence that the receivables had increased over 40% from the July estimate. Without the right to effectively reconcile the fixed dollar amount, the agreement resulted in a loan payable over a fixed term with a criminally usurious interest rate in excess of 285%.”

Have your Situation checked by a Lawyer

So, many things can go wrong. Lenders may not draft their agreements properly and it could actually turn out to be a usurious loan. Lenders may try to enforce the agreements against the terms of the agreement and in the process freeze your entire business. Lenders may fail to properly enforce their rights against you. For example, many of the predatory lenders try to bully you and your third-party debtors into paying them directly, despite the fact that they have not properly entered the judgment in your home state and have no right to demand direct payment.

If you are under the squeeze of a merchant lender gone wild, it pays to run your contract and the events by a lawyer. The worst case scenario is that your lawyer can help you to savely negotiate a way out of debt.

If there is one agreement that every independent contractor will encounter in this gig economy, it is the service agreement.  If you are not selling or buying widgets, you are most likely providing services.  Either you will have an agreement to present to your clients, or your clients will present you with their agreement, which you will have to review.

Freelance Isn’t Free Act

Before going into more detail about service agreements, note that there is a law protecting every freelancer in New York City: The “Freelance Isn’t Free Act” which became law last year.  Under the new law, agreements for services with freelancers have to be in writing (if for $800 or more); there are protections for retaliation; payment is due in 30 days unless something else is agreed upon in writing and you have a right to complain and possibly get attorneys fees if there is a breach.  See this helpful guide for freelancers which explains the law and all your remedies.

Now about Service Agreements

What needs to be in your standard service agreement?  What should you look out for when reviewing a service agreement presented to you?  The following assumes that you are the service provider and not the customer of the services.

Description of Services

The agreement has to describe the services to be provided in clear, unambiguous terms.  Often you see language stating that services shall be provided as set forth in an attachment to the agreement or in a “statement of work.”

The statement of work has to set forth a description of all elements of the services to be provided.  There cannot be any question about what you are supposed to do, when you are supposed to do it and when you are finished with everything.  Many times these statements of work are not very precise and the parties rely on “working it out” later.  Don’t make that mistake.  If a dispute arises, you want to rely on the descriptions of your obligations.

You have to look out for inconsistencies between the statement of work and the main agreement.  Ideally, it all syncs up.  As a protection, the service agreement should state that in case of conflict, the main agreement, not the statement of work, controls the question.

Payment for Services and Expenses

How much are you going to be paid for your services and when?  Do you have to send an invoice? Will there be interest on unpaid fees?

Are you being reimbursed for expenses?  If so, do expenses require pre-authorization by the customer?

Warranties

It is often requested, and seems reasonable, that the service provider warrants that the services are provided in accordance with the statement of work, in a timely and professional manner using industry standard skills.  These are all terms that will be interpreted by the courts and basically mean that you have to provide decent work.  Ideally, you do not want to agree to provide services according to the highest standards or to customer’s satisfaction.

You may want to provide that in case of a breach of your warranty, you will only re-perform the services. This would be the exclusive remedy of the client; they can ask you to do the service again, or, if you won’t, terminate the agreement.

At the end of your warranty section, you must include language along the lines of

“OTHER THAN THE WARRANTIES PROVIDED HEREIN, CONTRACTOR MAKES NO WARRANTIES AND ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, ARE EXPRESSLY DISCLAIMED”

Limitation of Liabilities

This is a big one.  You have to have language that limits your liability, ideally you would agree to limit damages to direct damages, meaning no consequential, incidental, indirect, exemplary, special or punitive damages;  and you want to limit your total liability to a maximum cap; it could be the fees paid under the agreement or a certain fixed number.

Client Obligations

Sometimes your services are not really possible unless you get cooperation from your client.  If this is so, put it into the service agreement.  You may want to state that you have to have access to the client’s business, that you need content from the client or need the client to cooperate to get permits and licenses.

Intellectual Property

If your services involve intellectual property, this is an area where you may want to get a lawyer involved.  You have to make sure that you retain ownership of your pre-existing intellectual property and that you don’t inadvertently transfer such ownership to the client.  The client, on the other hand, may want to obtain a license to all intellectual property that is necessary to enjoy the benefits of the services that you are providing.  You also have to make sure that you don’t restrict yourself in using certain intellectual property on other clients after you are done with the current project.

Confidentiality

Most service agreements contain language about confidentiality.  More likely than not, you the service provider, will come in contact with the client’s confidential information.  You want to make sure that your obligations to keep the client’s information confidential are not too strict, so as to make you liable for inadvertent breaches.  Make sure that it is clearly and narrowly defined what constitutes confidential information, ideally only information that has been clearly labeled as confidential.  There should be time limitations on secrecy.  You should only be responsible for yourself, not for anybody else’s disclosure of confidential information.

Termination

You should have a provisions that provides that you can terminate the agreement and thus your obligation to perform services, if the client fails to pay your fees.

Relationship of Parties

You want to include that the relationship with your client is nothing more than that of an independent contractor; this avoids any interpretations that you are in some kind of partnership, joint venture or liable for the actions of the client.

Choice of Law and Courts

Ideally you want to have the law of your home state apply to the service agreement; and have the other side agree to the courts closest to you.  In my humble opinion, do not agree to exclusive arbitration.  It is too expensive and limits your rights to discovery and appeal.

 

 

 

You put it in writing, you aced the negotiations, and you are ready to execute the contract.  Don’t let down your guard at the last minute!  The following points are worth noting when executing a contract in New York.  While neglecting to follow the below points may not result in an invalid or unenforceable contract per se,  following below “good practice” can help to avoid problems later on.  Remember, spending a little extra time to get it right the first time – a minor expense;  staying out of court – priceless.

1.  Don’t let technology (or anybody else) fool you

If the contract has gone through several rounds of negotiation and revisions, don’t assume that the last circulated “execution copy” is what you think it is.  Before you sign, be one hundred percent sure that you know exactly what you are signing (you’d be surprised how many people neglect this one). Microsoft Word “Tools” – “Track Changes” – “Compare Documents” is your friend here.

Under New York law, you are generally bound by a contract which you signed even if you have no knowledge of its content.   Unless  fraud or other  wrongdoing is involved, you are presumed to know the contents of the contract.

2. Date the Contract

While a contract need not be dated to be valid and enforceable, it is kind of foolish to not date a contract.  Dating helps to identify a contract years later and puts the contract into chronological context.

FYI, you can predate a contract under New York law.  If you provide that your contract is entered into “as of” a date earlier than the date of execution, the agreement is effective retroactively “as of” such date.

3.  Both parties should execute the contract

It might come as a surprise to you, but in New York , unless a signature is required by statute, you don’t necessarily have to sign an agreement for it to be valid.  If you and the other party in some other way indicate consent to the contract, you are both bound.

However, nothing beats a solid signature from both parties when it comes to proving that a contract was entered into by the parties with an intent to be bound thereby.  Better yet, put a provision into the contract that provides that the contract is not binding unless signed by both parties.

The signatures of each party to the contract do not necessarily have to appear on the same page of the contract, as long as you both agree that only the signature pages together constitute a complete executed agreement.  To that end, parties to a contract sometimes include a provision that states “the parties may execute this contract in counterparts, each of which
is deemed an original and all of which constitute only one agreement.”

4. Initial last minute hand written changes to the contract

Any last minute change to a contract that is done by hand should be initialed by the parties to the contract.   Better though, insist on a revised contract reflecting the change.

5.  Sign in your correct capacity

If you are signing for an entity, make sure that the signature block properly identifies you.  For example, if you are signing as president of a corporation, the signature block should read substantially like this:

ABC Corporation

By: _________________
Name: Joe Smith
Title: President

Signing correctly on behalf of a corporation prevents later claims that you are personally liable under the agreement.

6. Check the other party’s authority to sign

For example, if the other party to the contract is a corporation, you want to be sure that the corporation is in existence, that the person signing on behalf of the corporation is authorized to do so, and, particularly in larger transactions, that the corporation approved the contract by consent of its shareholders or directors.

7. Get an original executed copy of the contract for your files

Each party should have an original executed copy of the contract for their files.  In other words, if there are two parties to the contract, you have to execute two identical contracts.  One copy goes to you, one copy goes to the other party.  Each copy constitutes an original contract.

Once the contract is executed, Can I get out of that Contract?

How do I review Contracts in the first place?

8. Get an experienced Attorney to help you

If the contract involves a large amount of money or binds you for a long time to come, I highly recommend to get an attorney to help you.  I have reviewed and negotiated thousands of agreements and can spot issues that you may not notice.  Feel free to contact me to discuss your contract.  Contact Info right below this post.

What is a Promissory Note?

A Promissory Note (also known as “note” or “negotiable instrument”) is a written statement that money is owed to you by the author (also known as “maker”) of the statement.  You can transfer the note to other people, who can then demand payment from the person or entity that owed money to you originally.  Your attorney might say  that  the note is “negotiable.”  Another benefit of a note:  You can enforce the note in court without further evidence of the underlying reason why money was owed to you in the first place.  You also don’t have to worry that the debtor will raise issues in court based on the underlying transaction since the court won’t consider any of those issues.

If you want to look up the code that governs promissory notes in New York, look here:
Article 3 New York Uniform Commercial Code.

Where do you encounter Promissory Notes?

Promissory notes are often given (“issued”) in the context of loans or other financings.  For example, when you buy a business, the seller may finance the purchase price by letting you pay in installments.  At the closing of the business sale, the seller will most likely demand a promissory note from you covering the outstanding amount of the purchase price of the business.  But whenever you lend money to a business partner, a friend, or any other person, it is a good idea to get a promissory note as security for the repayment.

How do you create a Promissory Note?

You need:

  • Something in writing from the debtor.
  • The writing must be signed by the debtor.  “Signed by the debtor” includes methods other than original signatures, such as email signatures, symbols, and so forth, as long as the debtor had the intention of signing the writing (see Section  1-201(37) New York Uniform Commercial Code).
  • The writing must state that your debtor unconditionally promises to pay you a certain amount of money at a certain time or upon demand by you.  Other than the promise to pay, there are very few other obligations by the debtor allowed in a promissory note.  If your debtor insists on inserting provisions beyond the  promise
    to pay on the promissory note, be sure to consult with your attorney.
  • Even though a promissory note is considered a contract, it does not require the signature of the creditor in order to be enforceable.

Example of a Promissory Note

A simple promissory note may look like this:

For value received, the undersigned, Bob Borrower, by this Promissory Note unconditionally promises to pay on July 1, 2024 to Leni Lender, the principal sum of THREE HUNDRED THOUSAND DOLLARS ($300,000).
This Promissory Note may be prepaid in whole or in part without penalty at any time.
The undersigned also promises to pay interest on the outstanding and unpaid principal amount of this Promissory Note, from the date hereof until repayment in full, at a rate per annum equal to five point five percent (5.5%), computed annually and payable in arrears upon the earlier of prepayment in full and maturity.
The undersigned hereby waives diligence, demand, protest, presentment, notice of dishonor or any other notice or demand whatsoever.
IN WITNESS WHEREOF, the undersigned has duly executed this Promissory Note as of April 27, 2021.

__________________
Bob Borrower

 

How do you enforce a Promissory Note?

The beauty of a promissory note is that you basically just need the piece of paper that constitutes the note.  You don’t need any further evidence.  The debtor cannot raise defenses based on the underlying transaction that was the reason for the note.

In addition, the law gives you an expedited way to get a judgment on your promissory note.  You would file a “notice of motion for summary judgment in lieu of complaint,” which gives you a much faster day in court than a regular complaint.  This motion would be accompanied by your affidavit and a copy of the note.  This is a simple action that should not cost you an arm and a leg, even if you have to hire an attorney to do it for you.

We charge flat fees for the enforcement of a promissory note in default.  Get in touch with us to find out if we can help you enforce your promissory note in default. 

 

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

_______________________________________________________________________________________

**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?

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**

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, landlords…you get the idea.

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

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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**