What Constitutes Force Majeure

When a “force majeure” event occurs, it prevents a party from performing its obligation under a contract in that either the event could not have been foreseen or could not have been prevented even with care and diligence. While many people think of natural disasters when considering force majeure clauses, this category can also pertain to wars, government actions, and pandemics.

Just because a specifically enumerated event occurs, does not mean that a force majeure clause becomes effective. Instead, for the force majeure clause to come into play, an event must result in “extreme and unreasonable” difficulty or hardship. 

A force majeure event will also not excuse a performance if the failure to perform is the result of a party’s negligence instead of the event itself. If a party to a contract could have prevented the force majeure event, the force majeure will likely not be effective. 

The Role of Force Majeure in Business Contracts

There are several ways that parties can be protected if there is a force majeure in their contract. If a contract’s purpose is frustrated or incapable of being performed, the clause can protect a person through the doctrines of impracticability or impossibility. 

Force Majeure and the Coronavirus

Because force majeure can encompass government actions that make contract performance impossible, these clauses are likely to come into play in various contracts during the COVID-19 pandemic. In this setting, a force majeure might take the form of a lockdown order or other government action that makes it impossible to perform a contract. 

Advice When Considering the Use of a Force Majeure Clause

Some helpful strategies that parties navigating force majeure clauses should remember to follow include:

• If you plan to use the COVID-19 pandemic as a reason to not perform under a force majeure clause, make sure to give the other contracted party ample notice.
• Remember to discuss potential business solutions with the other party. While the coronavirus has resulted in delays in shipment, reduced supplies, and other hardships, it might still be possible to arrive at an acceptable arrangement.
• The strongest arguments that a force majeure event has occurred and made the terms of a contract impossible often involve government actions taken to control COVID-19 as well as unanticipated disruptions of the supply chain. 
• Force majeure is a temporary defense and only applies for the time that the event restrains a party’s performance under a contract. 
• To learn even more about the relationship between force majeure clauses and the coronavirus pandemic, considering reading the American Bar Association’s recent article “Is the Coronavirus a Force Majeure that Excuses Performance of a Contract?”

Speak with a Knowledgeable Corporate Law Attorney

How “force majeure” applies to the COVID-19 pandemic remains largely unsettled. Fortunately, an experienced corporate law attorney can help you navigate this important issue and many others. Contact Resnick Law PC today to schedule a free case evaluation. 

Anyone who has seen the TV show

The Basics of Investor Agreements

Investor agreements outline the terms of an investment in a company. These agreements should include several important terms, such as: 

• The addresses, dates, and names of each of the parties to the agreement
• The amount of money that is being invested as well as details about how the investment will be used
• Payments terms about how the payment will be made and the dates on which the payment will occur
• The type of investment
• The length of time that the investor agreement will be valid
• Any deliverables to be fulfilled by certain dates
• Any products or services to be developed and certain dates

The Return on Investment

The agreed-on return on investment (ROI) should also be included. Terms should include details about what the investor will receive in exchange for the investment. You might decide that the ROI should be a flat interest rate or even a percent of the success of the investment. 

Escape Clauses

Investor agreements should address what will happen if the company ends up filing for bankruptcy or dissolving. Any risks associated with an investment should also be fully disclosed. Doing so protects both parties in case the company encounters challenges. 

Investor Management

Sometimes, parties decide to give an investor either control or management rights within the investor agreement. If you decide to utilize this relationship, it should be contained in your investor agreement. Similarly, companies sometimes decide to give investors voting rights to the company so they can participate in making business decisions. 

Strategies

The role that outside investment plays in growing a business is a complex one. As is true with other types of business deals, it is not without risk. As a result, investment agreements often contain provisions that limit a party’s ability to provide contract value payouts in some situations. When evaluating investment options, it is a wise idea to fully understand the potential risks involved with each term of the agreement. 

Contact an Experienced Corporate Law Attorney

Investing is a complicated and risky process. To make matters even more complex, after a company secures an investor, the relationship is not over. Instead, companies should make sure to avoid substantial challenges by properly drafting all investor agreements. 

Contact Resnick Law today for assistance navigating any of your contract-related challenges. 

(image courtesy of Luca Bravo)

If you write a bad one, your

Make Sure the Liquidated Damages are Not Optional

One of the most common ways that parties challenge liquidated damages clauses is by arguing that the terms are optional and not mandatory. With few exceptions, courts tend to take the perspective that optional liquidated damage clauses are unenforceable. Courts have found that enforcing optional clauses would mean that parties would only exercise them when they are to their advantage. Consequently, companies are best off avoiding the use of optional damage clauses altogether. 

Specify the Amount of Damages

Parties to a contract often fail to give adequate consideration to the type or amount of damages that will be liquidated. When fully considering the damages that might result, parties often decide to include frequently overlooked damages like reputational harm. Your business lawyer can help ensure you do not omit damages that you should be sure to include.

Include the Clause’s Rationale

Michigan courts have a long history of enforcing liquidated damage clauses. In one case from the early 1900s, the Michigan Supreme Court stated: “In cases, where it is difficult to accurately determine the damages which one party may suffer by the failure of the other to perform his contract, the parties themselves may agree upon such sum as in their judgment and will be ample consideration for the breach.” 

Breaching parties often argue that the terms of the contract were not satisfied, which is why including the rationale for a liquidated damages clause in a contract can be a powerful strategy. While these statements will not ensure that a clause is found enforceable, these statements do have the ability to establish that a clause was not reasonable at the time of contracting.

Consider including What Events Trigger the Clause

In liquidated damage clauses, it is common for parties to argue that trigger events have not occurred. The strongest liquidated damage clauses often specify exactly when they will apply. In clarifying the events that both will and will not trigger the clause, it is possible to greatly reduce disputes about whether the liquidated damage clauses should be found to apply to any given situation. 

Speak with an Experienced Corporate Law Attorney Today

Writing a strong liquidated damages clause is just one of many ways to ensure successful business contracts. No matter your corporate law question, however, a knowledgeable lawyer at Resnick Law PC can help. Contact us today for assistance.

Contracts play a critical role in nearly every aspect of our daily lives. An adult can expect to sign a contract in order to complete medical visits, get help with a business, or retain an attorney to provide civil or criminal legal advice. Unfortunately, many people make basic mistakes when it comes to contract preparation that lead to numerous problems including litigation. A seemingly minor error on a major contract can lead to disaster; it is extremely important to check all contracts you draft carefully with the help of

Little or No Due Diligence

In the heat of the moment, many entrepreneurs or stressed out professionals are tempted to base their decision to enter into a contract with a person or business based solely on that party’s appearance of reputability. Instead of conducting a thorough investigation regarding the history and business ventures of a prospective partner, employee, or contractor, a person might do a cursory internet search or perform no research at all. This opens a person or business up to the enormous risk of entering into a contract with someone who is unreliable, unethical, or simply unable to uphold their part of the agreement. When this happens, companies and individuals lose money that they may have a difficult time recovering.

No Set Terms

A person who is drafting his or her own contract may want a document that reads easily and does not contain too much legalese. While, in theory, this may seem like a good idea, especially on informal contracts, it leaves too much up for negotiation. Any vague or poorly defined terms can become a point of contention between two arguing parties. If the terms are not clearly defined, a determined individual may be able to get out of his or her legal obligations by claiming to have misunderstood the agreement or presenting an alternative interpretation to already vague terms.

Not Acknowledging the Potential to Default

Even though thousands of small businesses throughout the United States provide stable employment for tens of thousands of citizens, over half of all businesses started are forced to close their doors. This occurs for numerous reasons and one of them is an inability to acknowledge the chance that their business, no matter how well planned, may fail. When creating a contract, it is crucial to include provisions that acknowledge what happens if either party defaults on their obligations and how to handle the termination of the agreement. Setting up a clearly defined plan is easier in the planning stage than when the business is suffering and managing parties are under pressure.

Failing to See an Attorney

Perhaps the biggest mistake of all when it comes to contract mistakes is failing to see an attorney before finalizing the agreement. No matter how thorough you believe your contract is or how appropriate it is for your business venture, always consult a contract law attorney before signing any agreement. The legal team at Resnick Law is here to help guide you during the most important moments of your personal and professional life. Our lawyers are ready to answer your questions and ensure that any contract you sign protects your best interest. Contact us today to schedule a consultation so that we can begin reviewing or drafting your next contract immediately.

(image courtesy of Kelly Sikkema)

Buy-sell agreements are enforceable contracts that govern what happens when a business co-owner leaves a business. In these agreements, the business owners agree to an exit strategy for a leaving owner, including buying out his or her interest in the business at a pre-agreed price. Instead of a guaranteed purchase, some buy-sell agreements give the remaining owners a right of first refusal to buy the business interest of a departing owner.

Buy-sell agreements can be drafted as part of a business’s organizational documents or as separate documents. Some businesses are required to have buy-sell agreements in place as a matter of law.

The value of negotiating this kind of agreement before the actual event causing a partner to leave takes place is that all parties will come to the negotiation on more or less the same footing. If it is left until the last minute, the departing business owner or his or her estate may feel that the terms negotiated for the sale of his or her interest in the business is not fair. Alternatively, the remaining business partners may feel the departing business owner is making too many demands. With each side feeling dissatisfied, lawsuits to resolve the issues are more likely to be filed.

Buy-sell agreements also provide predictability on business continuation, which is valuable to shareholders and customers. Customers are likely to face fewer interruptions in service when the business is transitioning out an owner. The buy-sell agreement also provides a market for the sale of the business interest where it may not otherwise exist.

There are several methods used to determine the value of a business for purposes of determining the future price to be paid when a business owner leaves. The owners can agree on a fixed price, set forth a detailed formula to determine the sale price of business shares later on, or use an appraiser. The method used for each business depends on the kind of business and on the method the owners agree to use. In some cases, the shareholders may be required to hold regular meetings to set or review the sale price. This can help ensure that the sale price always reflects a fair market value.

Contact an Experienced Business Attorney

There are many legal considerations that go into drafting a good buy-sell agreement. This is a document that should be drafted by an experienced business attorney who can offer legal advice on any issues that may arise as the document is prepared. For more information on how an experienced business attorney can help you prepare a buy-sell agreement, contact us at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan, to schedule a consultation.

(image courtesy of Samuel Zeller)

Generally, a “time is of the essence” clause in a contract states that one party is to complete performance under the contract within a certain amount of time. For example, in a construction contract, a homeowner may require the contractor to complete building the home within a year, and include that the failure to complete the home within that time would constitute a material breach of the contract.

In some cases, instead of terminating or rescinding a contract when a deadline is not met under the “time is of the essence” clause, the parties may agree to liquidated damages. Liquidated damages are a certain amount of money that the parties agree will be paid by the party failing to meet a deadline to the other party to the contract. Liquidated damages are a less severe remedy than rescinding or terminating a contract, and therefore, may be more acceptable by the parties when they initially agree to the terms of the contract. The amount set for the liquidated damages has to be reasonable.

However, clauses in contracts indicating that time is of the essence do not guarantee that a failure to act within the time indicated will result in a court finding there was a material breach of the contract. The intention of the parties is generally more important than the language they include in the contract when it comes to contracts containing “time is of the essence” clauses. Michigan courts have found that in some contracts, despite the clause, time was not of the essence, and therefore, no breach resulted from the failure to meet a deadline.

It is important to ensure that if a clause indicating that time is of the essence is added to a contract, the language used is clear, and that the parties understand the consequences if the deadline is not met. If the contractual language is unclear, or if it contains no information on what happens when the deadline is not met, it is more likely that the clause will not be upheld.

Contact an Experienced Attorney

Making sure that your contracts are well drafted and convey your understanding of a transaction is very important. Before you sign any contract, it should be reviewed by an experienced attorney who can explain what the contract’s key terms are and how they can affect the deal. For more information on how our experienced contract attorneys can assist you, call us at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan.

(image courtesy of Niklas Rhose)

There are some contracts by which the employer and employee enter into a relationship for a set period of time with a clear agreement of the relationship contract. These are known as express employment contracts. Most employment contracts are not express contracts. Most employment contracts in Michigan are for an indefinite period of time and are presumed to be at-will contracts that can be terminated by either the employer or employee for any reason, although notice may be required.

Employers can create what are known as implied contracts by including certain terms in the employee handbooks and manuals that they distribute to employees, such as those that govern employee discipline and termination. If an employer of at-will employees includes language in the handbook that employees can only be fired after progressive discipline, that employer may be required to abide by these terms, and may not be able to terminate an employee after only one disciplinary action.

Statements of general company policy within the employee handbook can also create this kind of implied contract. If the employer states that it is the company’s policy to encourage employees to work hard by offering incentives, or security from termination without good cause, these terms may be taken as implied terms creating a contract between the employer and employee.

Even with these concerns, employee handbooks and manuals are still beneficial and can be helpful in managing employee conduct. Employers have to be careful when drafting manuals and handbooks and include disclaimers in order to limit any misinterpretations and the possibility that an implied contract is formed. Disclaimers should warn employees that the handbook does not create an employment contract.

Additionally, the handbook should not include policies or general statements that the employer does not intend to follow. Even with a disclaimer, the employer’s inclusion of terms that go against the general understanding of an at-will contract can cause problems down the road. Even if the employee does not win in court, the cost of defending the lawsuit can be expensive. It is better to take steps to ensure that there are no misunderstandings before lawsuits are filed.

Contact Us for More Information

If you are an employer wondering if you need to have an employee handbook or manual and how distributing such a manual will affect the contractual relationship between you and your employees, you should discuss your concerns with an experienced employment contract attorney. Before distributing an employee handbook to your employees, call us at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan, to schedule a consultation.

(image courtesy of John-Mark Kuznietsov)

A case from last April, adjudicated in the Massachusetts Land Court, delivered a decision that could help establish a precedent for years to come regarding text messages and what constitutes a binding agreement. Specifically, a text message can constitute a signature sufficient to satisfy the Statute of Frauds and form a binding contract for the purchase and sale of land.

The case, St. John’s Holdings, LLC v Two Electronics, LLC, (available here), basically involved a buyer and seller who, through their brokers, were negotiating the purchase and sale of a commercial building in an industrial park in Danvers, Mass., about 20 miles north of Boston. After some back-and-forth on the terms, the purchaser’s broker emailed the seller’s broker a Letter of Intent (LOI), which was included as an attachment; however, the LOI was unsigned. Subsequently, the seller’s broker communicated by text with the purchaser’s broker requesting a signed LOI by the purchaser, as well as a good faith deposit. Specifically, according to what was written in the court’s decision, the text read:

“Steve [the broker for the purchaser]. [Seller] wants [buyer] to sign first, with a check, and then he will sign. Normally, the seller signs last or second. Not trying to be stupid or contrary, but that is the way it normally works. Can [buyer] sign today and get it to me today? Tim [the broker for the seller].”

The purchaser, St. John’s Holdings, signed the LOI and cut a check, both of which were dropped off with seller’s broker. That same day however, the seller, Two Electronics, accepted and countersigned a third party’s offer for the property; the seller then refused to countersign the original purchaser’s LOI and the buyer filed suit.

The fundamental issue the court focused on was whether the emailed LOI and the subsequent text message, taken together, constituted a writing sufficient to satisfy the Commonwealth’s Statute of Frauds, thus creating a binding contract enforceable against the seller for the sale of land.

In its decision, the court held that, between the LOI, which set out the terms of the deal in sufficient detail, and the text message “signed” by the seller’s broker, there could be an enforceable contract.

Mind you, this decision was only on a motion to dismiss that was filed by the seller. The decision didn’t hold there was an enforceable contract, only that, viewed in the light most favorable to the non-moving party (i.e., the buyer), there could be an enforceable contract and therefore the motion to dismiss was denied.

As to whether the case settles, goes to trial, or comes to some disposition in between, is anybody’s guess. For the sake of brevity, and without getting bogged in the weeds of detail, the most interesting line of reasoning by the court seemed to be how the court focused on the seller broker’s “signature” at the end of his text message. Sometimes both brokers signed their names at the end of text messages and emails; sometimes they didn’t. When they didn’t, the text messages tended to be briefer and more informal. The court then reasoned that, by adding their names to the end of certain (material) messages and not to other (more informal) messages, “evidenced an intent to be legally bound by the signed text messages.”

It’s important to note that what the seller did, by running two buyers in parallel negotiations, wasn’t illegal; it wasn’t even particularly shocking as a business matter. It began to look a tad sharp, however, when the seller’s broker made it sound like it was a “done deal.”

In any event, the takeaway here is pretty simple: When you’re negotiating a deal, and particularly when using electronic communications, think before hitting send. E-mails, text messages, instant messages, whatever — they all matter.