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Old Posts: From Ryan K. Hew, Attorney at Law, LLLC

Formalities

From: “Let me provide the formalities.”

Hew and Bordenave

To: “Let us provides the formalities.”

From Old Solo to New Partnership

Hey everyone, thanks for visiting our Blawg. I am just letting you know that all the posts prior to January 1, 2017 are from my solo practice. They are from Ryan K. Hew, Attorney at Law, LLLC. In particular, the old: hawaiiesquire.com. I brought the posts to our new site because a lot of the legal information is helpful for business owners and truth be told I loved doing Draw the Law, Boilerplate Blurb, and all the other content. So please continue enjoying them, but I do hope you like the new content from Trejur and me. Mahalo!

-Ryan K. Hew

BOILERPLATE BLURB: ENTIRE AGREEMENT; INTEGRATION; MERGER.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

What is the Entire Agreement (aka Integration aka Merger) Clause?

The entire agreement or integration clause basically states that anything not in or a part of the written agreement, is not a part of the agreement.  It is premised upon the parol evidence rule, which is a rule that prevents a party to a written contract from presenting outside evidence that contradicts or adds to the written terms in the agreement.  Basically, you can’t say the final agreement is wrong because you had discussed something different in letters, conversations, or side agreements prior to the final agreement.

Why do we have it?

At a certain point, you either have a deal or not, and while some people prefer handshakes, their attorneys feel that having something in writing is better.  Now, imagine, if we allowed parties that were in dispute of a contract continually bring in evidence that undermined the final written agreement.  It would kind of make settling on the terms of the agreement pointless, wouldn’t it?  So, we limit the understanding of the agreement to what is reduced to writing, bolstered by this clause.

Generic Example

This Agreement sets forth the entire agreement of the parties and supersedes all prior or contemporaneous writings, negotiations, and discussions with respect to the subject matter hereof.  Neither party has relied upon any such prior or contempraneous communications.

Example of a an Entire Agreement Clause in a Consultant Agreement

This Agreement represents the entire understanding between the parties with respect to the subject matter contained in it and supersedes all other written or oral agreements made by or on behalf of Consultant or Client.

Example of Integration Clause in an Employee Agreement

This agreement constitutes the entire agreement of the parties relating to the subject matter of this agreement and supersedes all other oral or written agreements or policies relating thereto, except that this agreement does not supersede or limit the Employee’s rights under any benefit plan.

What about changing the terms of the Agreement?

Well, that’s what the Amendment clause is for, and that is for another post!

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Boilerplate Blurb: Assignment.

Assignment Clauses

Generally, in contract law land contracts are freely assignable (meaning they can be transferred).  However, if an agreement possess a restrictive or anti-assignment clause it will prevent this transferring of the agreement.

Thus (anti)-assignment clauses determines whether rights, obligations and duties under an agreement may be transferred in whole in or part to another, and under what conditions. Under U.S. law, contractual rights are freely assignable or delegable, unless prescribed or limited by agreement.

The clause frequently overlaps with “successors and assign” or “parties in interest” clauses that controls whether successors or assignees can assume the rights and obligations under the contract.  Some of the frequently asked questions you should ask yourself about the deal you are doing in regards to the opposite party are the following:

  • Do you want the the ability to delegate tasks in the agreement?
  • Do you want the ability to assign something of value stemming from the contract, such as revenue?
  • Do you want the ability to assign all rights under the agreement to another company that may acquire your business? (remember assignability makes it easier to transfer, thus giving you more options, meaning more value)
  • Do you want to give the other party the ability to assign the agreement? Do you want them to always be responsible to you, even if the agreement is assigned (do you want them to remain on the “hook”)?
  • Do you want the party to specifically do the work or can they use sub-contractors?

Some examples:

Here is a simple assignment clause that makes it so that Person X, must get the written consent from Party A to assign the rights or obligations of the agreement.  It may show up in an independent contractor agreement where Person X is providing services to Company A:

This agreement or any of the rights or obligations thereunder shall not be assigned in whole or in part by Person X without the prior written consent of the Company A.

Here is an example of a clause that restricts the licensee (person receiving the license) to that one license, and they will not be do transfer it to anyone else without the permission of the licensor.  This is typically a clause used in intellectual property or grants of the right to use something, so consider software, logos, grants of access to things, etc . . . . It is in this way a licensor can make “more” single-holder licenses by restricting transfer, and forcing those that want the item in question by entering licensing agreements.

The right of Licensee to hold and use the property of Licensor pursuant to this Agreement is restricted solely to Licensee and shall not be assigned, transferred, sublicensed, encumbered, or subject to any security interest without the written authorization of Licensor. Any attempted assignment will be void and of no effect.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Boilerplate Blurb: Severability.

Well, it’s been a while for a Boilerplate Blurb, but here is one that cuts to the chase (pun intended). The severability (aka savings) clause is used to keep a contract and its various provisions intact if parts of it are deemed illegal or unenforceable in a court.  Why? With written agreements being so long today, and business deals operating as ongoing transactions it is clear that sometimes something once was legal when first drafted may become illegal or unenforceable as time goes on.  However, is that one reason to throw out the whole contract?  Probably not.  Therefore, a severability clause will be used to save parts of the agreement even if other provisions are rendered inoperable, and they read something like this:

If any provision of this Agreement is declared invalid by a court of proper jurisdiction, the provision is affected only to the extent of the invalidity, so that the remainder of that provision and all remaining provisions of this Agreement will continue in full force and effect.

However, sometimes some parts of a contract are so essential the purpose of the contract that if they are voided the severability clause states that the whole contract should be voided.  Finally, it should be noted in many legal jurisdictions, such a clause shall not be applied if it fundamentally alters the contract.

Since it is legislative season here in Hawaii, you should also know that when drafting legislation we attorneys like to use a severability clauses to save laws should the be deemed unconstitutional. This represents another facet of the interplay between the judicial and legislative branches.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Boilerplate Blurb: Counterparts.

So Boilerplate Blurb is back! . . . well, on a non-regular basis, but I will try and give you business owners the riveting details of those Miscellaneous Provisions sections of your 80 to a 100-paged agreements. Today’s provision is the Counterparts provision.

What does it Look Like?

Generally, it looks something like the following:

Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same agreement.

What does it Do?

It allows the agreement to be executed in several, identical, copies.  Basically, Person A is on the Big Island and Person B is on Kauai and both have come to an agreement for some business deal.  Rather than have them travel for an intersland flight to be at one location to sign the document, they can sign the “same” document on their own islands.  Together, there two “copies” will be taken as one agreement, so long as the terms are identical.

Why Have it?

In our modern era, it is not unlikely that the parties of an agreement are scattered all over the place.  If the signature is representing their will to be bound by the agreement it would be foolish just because of an incomplete Signature Page that there was no contract formed.  Finally, while it is very common to have two parties to a deal, sometimes there are multi-party transactions or deals and rather than have someone with one printed copy run after people for signatures, say 51 of them, or even 8 different people, a counterparts clause makes it easier for each individual party to sign in a place of their convenience and also retain a copy for their records.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

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Another Word on Agents, Employees, and Independent Contractors

Yesterday’s post was primarily about an agent’s authority to enter into contracts with another party.  As many of you know, as a small business or startup owner there are advantages to using an independent contractor over hiring an employee.  I will not go into the tax details or compliance issues here, as I do a seminar that goes into that in-depth.  In addition, I covered some of those issues in a prior post.
What I did want to mention today is this: while all employees are agents, not all agents are employees.  Some agents may be independent contractors.  Finally, agents that are not employees do necessarily have to be independent contractors.

Why is this important?  The manner of the relationship is important when things go wrong, such as when there is injury or accident.  Your independent contractor agreement may not fully reflect the independence of your independent contract and you may be liable for the problems they caused.  Where is one of the places the law looks to see what dictates who is responsible in these situation?

Your agreement. Consider having an attorney or an expert review the provisions that deal with liability, duties, and responsibilities shifting.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

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Draw the Law: You, Your Contracts, and Other People – Using Agents

Last week I talked about the exception to the necessary consideration you need to form a contract, reliance.  Today, I will focus on dealing with agents in the context of contracts.

 Agents – Can Only Enter Contracts with a Principal’s Permission

Agents in contract law are people who enter agreements on behalf of another, called the principal.   Most everyone has met or been an agent at some point of their life.  Employees are agent and their principal is the employer.  I bring this up because when you hire your first employee give some thought into how they will be interacting with customers, clients, suppliers, vendors, and other business people.

When Can an Agent Bind the Principal to a Contract?

It depends on the authority given to them by the principal.  An agent can only act as far as the authority given to them by the principal.  An action beyond their authority is unauthorized.  Thus an agent who is only authorized to purchase 3 computers exceeds their granted authority when he buys 5 computers.

Is the Principal Bound to a Contract made by their Agent when the Agent Exceeded their Authority?

First of all, it is important to understand that when an agent enters a contract, you sue the principal not the agent if something goes wrong.  In the situation of a contract that was unauthorized we need to see there was apparent authority.  In the above example, it is clear the agent had the authority to buy 3 of the 5 computers. However, does the principal have to pay for the other 2?

Under the rule of apparent authority, if the seller reasonably does not understand the agent exceeded their authority the principal is bound on the contract.  If the seller had reason to know, then the principal is released from the contract.

How would you know? For example, if the computer seller sells computers to Computer Purchasing Agent Alex of Principal Piko Powers Partnership on a weekly basis it is safe to assume they would not question the purchase.  However, if Uncle Adam came into the computer store and said he for Piko, the computer seller should question his authority.

The rationale behind apparent authority is that the principal is in the better position to control their agent.  Secondly, an agent who exceeds their authority gives the principal a cause of action against the agent.

Last Word on Agents, Contracts, and Duty

An agent has the duty to put their principal’s interest ahead of their own.  Therefore, an agent cannot make personal gain or profit beyond what the principal and agent agreed to in an agency agreement.  Where does this concept frequently get violated?  When the agent sees a better business opportunity with a third-party, thus they never enter into a contract on behalf of the principal.  Instead they supplant the principal and “steal” the contract and make it their own.  This will also give rise to a cause of action by the principal against the agent.

As a small business and startup owner you always need help, but just be aware of what others are doing on your behalf.  You don’t want to find yourself stuck with extra inventory and equipment and the bill to pay for it.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

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Know Your Legalese: Promissory Estoppel

Yesterday, I talked about detrimental reliance, which is known to lawyers as promissory estoppel. The reason why lawyers call detrimental reliance by that weird-looking term, promissory estoppel, has to do with the way the lawsuit works operationally in court.  In a typical breach of contract, the nonbreaching party sues for damages under the contract that the breaching party fulfilled to do its obligation.  The nonbreaching party has to prove there was a contract and that to have a contract good consideration needed to be a part of it.
In the case of detrimental reliance there is no consideration.  It is just a promise that one party relied on.  Therefore, in a a standard breach of contract suit the nonbreaching party would lose the case.  However, this is where promissory estoppel steps in.  A party that has reasonably relied to their detriment can assert promissory estoppel as the basis of a cause of action for damages.  It operates by estopping the promisor from denying the existence of a contract due to lack of consideration.

Basically, in an employment type of situation it goes like this, “Hey, you cannot say there wasn’t a contract. I moved across the ocean to work here because of what you promised.”  Even though the speaker, gave no consideration to the prospective employer, he is saying that due to a promise he changed his position (he moved).

*That it is why, in my opinion, promissory estoppel is a contract-like situation because there is no consideration. We are using a legal device (promissory estoppel/detrimental reliance) to enforce a promise where no consideration has been given between the parties, only a promise.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

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Draw the Law: Reliance, the Exception to Contract Consideration

So for the past couple of weeks I spent talking about how consideration is the cornerstone of contracts and what is good consideration.  Now, in typical lawyer fashion I am going to tell you that there is a situation where you will have a contract-like situation without consideration.  Another words, an exception.  That exception is known as reliance.

Why did you say Contract-like?

First, remember that consideration is a two-way street.  Both parties in a contract MUST give good consideration for a contract to be formed.  In Contracts law, all law students learn that there are contracts, and then there are situations that look like contracts.  One of these contract-like situations is promissory estoppel.  As I don’t want to confuse you with legalese in this post I will refer to it by its other name, detrimental reliance.

What is Detrimental Reliance?

It is when one party reasonably relies on the other party’s promise to their detriment.  Detriment in this situation is when the promisor reasonably expects to induce an action or forbearance from the promisee, and there is actual action and or forbearance by the promisee.  In other words, the promisee has had to have a change in position.

I am sure you have no clue what I just said, so it is time for an example and pictures:

Example: Construction Projects and Subcontractor Bids

Let’s say a subcontractor (S) submits a bid of $7,100 to a general contractor (GC) trying to secure a public works construction project.  The general contractor uses this bid to prepare his own final bid.  The general contractor is awarded the job.

The following day the subcontractor tells the general contractor that it had underestimated the cost and refused to perform the job for less than $15,000. The general contractor then hires another subcontractor (AS) to do the work for $11,000.

The general contractor sues the original subcontractor for the difference between $11,000 and $7,100.  The main argument is that the general contractor relied on the offer by the subcontractor.

In this situation, the general contractor relied on a promise, there had been no consideration exchanged from the original subcontractor to the general contractor.  However, the general contractor changed his position based on the subcontractor’s bid (he made the final bid with it calculated into the cost).  In this case, a court would award the general contractor the difference of $3,900 as the damage done to the general contractor for detrimentally relying on the subcontractor’s promise.

Last Word: Real World Reliance

Reliance is not some kind of legal fairy-tale that lawyers come up with just to tell you stories.  While it is an old English law concept, it still has very real world consequences.  It has been used successfully in option contracts, employment agreements, franchise arrangements, and as you just saw in construction projects with subcontractor bids.  The example is actually based on a real case.

Detrimental reliance frequently comes up in the situation of employment law;  the typical situation is where the HR person makes a lot of assurances and promises to prospective employee.  However, for whatever reason the job never materializes, but the employee has quit their previous job, moved, and other changes to their life.  Angry and frustrated they usually sue the company that offered them the job or made them certain promises with the claim being detrimental reliance.

Many times lawyers will advise their employer-clients (as well as marketers) not to make promises that they cannot or do not intend to keep, especially in those situations where the other side is going forward with its plans based on those promises.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

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Draw the Law: Consideration is the Cornerstone of Contracts, Part II

So last week I started talking about consideration. Consideration is the basis of a contract and without it there is no contract. So today’s post focuses on what is good consideration, and then applies it to a complex agreement that many businesses face when dealing with litigation.

What is Good Consideration: Illusion, Value, and Obligation

One party may not hold an unqualified right to ditch out on their side of promise. This is similar to an idea of a gift, where one party is receiving the benefit for nothing; the promises exchanged cannot be illusory.   Without the agreement to promise to do something there would be no bargaining, and there would be no way to enforce the promise against the one who bailed out on the contract.  In addition, the illusion of paying at an underestimated value to avoid sales tax is illegal.  This brings me to my next point about the value of the consideration.

In terms of a set amount, remember in our free market economy everything has value, but not all value is equal.  Due to the fact, that one man’s junk is another man’s treasure it is hard to say that there is a “correct” amount for consideration.  What is presumed is that people will only make agreements for things they consider worthwhile.  Consumers generally have the safety of courts protecting them from deals that “shock the conscience of the court.”  In addition many consumer protection laws prevent contracts of adhesion.  However, for you business owners, in a B2B sale, you are on your own; if you paid too much for a service or product consider it an expensive lesson.

Lastly, good consideration has to be a new obligation.  If a contract is already made, one party cannot use the prior obligation as the basis of a new agreement with the same party.

Example: Value and Taxes – If you choose to sell hand-crafted chopsticks for $0.60 a piece, and sell a 1,000 of them to a restaurant supply store that is your choice.  You can negotiate and sell it for $0.10 or $1.00 apiece. There is no right or wrong price for consideration. However, what is wrong is if you keep making sales for $600 and report sales of $500 just to avoid paying taxes.

Final Word: Accord and Satisfaction, Paying to be Free From Obligation

I mentioned last week that consideration can be refraining from doing something. For example, refraining from exercising the right to sue the opposing party that did not perform their obligated duty. In a dispute, where one side has not received its promise there is a breach of contract and the nonbreaching side has the right to sue. The side that broke the contract has an outstanding debt or obligation to the nonbreaching side.

This is where Accord and Satisfaction steps in; it is a concept of purchasing the release from a debt obligation.  The accord is the agreement to discharge the obligation and the satisfaction is the consideration.  Contractually, what happens is the side that broke the agreement agrees to pay money or settle the dispute, in exchange for the nonbreaching side to give-up its right to sue or drop the suit. This is done because the nonbreaching side does not want be sued and generally the debt-collecting side finds it less costly to collect a sum of money (albeit less than the actual value of the original contract) from the breaching side.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.