contracts, the essential business desk reference (2011)

“In Nolo you can trust.” THE NEW YORK TIMES Contracts N O L O ® Essential Business Desk Reference The tort consideration covenant undue infl uence par issuer accretion grant release exculpatory cross-collateralization waiver injunction negligence fraud severability preamble oral contract redemption nonbinding redlining void nonrecourse gross surety counterparts mediation addendum debenture parties net obligee estoppel indemnity equity lessor privity warranties license agreement underwriter assignor escrow implied contract attest ipso facto GAAP Attorney Richard Stim Nolo’s Quick Reference Series • Contract language deciphered • Legal rules for electronic contracts • Sample clauses—ready to use e Story Dear friends, Founded in 1971, and based in an old clock factory in Berkeley, California, Nolo has always strived to offer clear legal information and solutions. Today we are proud to offer a full range of plain-English law books, legal forms, software and an award-winning website. Everything we publish is relentlessly researched and tested by a dedicated group of in-house legal editors, who together have more than 150 years’ experience. And when legal changes occur after publication, we promptly post free updates at Nolo.com. Ten s o f m illi ons of Ame ric ans h av e l oo ked to No lo to help solve their legal and business problems. We work every day to be worthy of this trust. Ralph Warner Nolo co-founder Emma Cofod Books & Software Get in-depth information. Nolo publishes hundreds of great books and software programs for consumers and business owners.  ey’re all available in print or as downloads at Nolo.com. Legal Encyclopedia Free at Nolo.com. Here are more than 1,400 free articles and answers to common questions about everyday legal issues including wills, bankruptcy, small business formation, divorce, patents, employment and much more. Plain-English Legal Dictionary Free at Nolo.com. Stumped by jargon? 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Products & Services “ In Nolo you can trust.” THE NEW YORK TIMES “ Nolo is always there in a jam as the nation’s premier publisher of do-it-yourself legal books.” NEWSWEEK “ Nolo publications…guide people simply through the how, when, where and why of the law.” THE WASHINGTON POST “ [Nolo’s]…material is developed by experienced attorneys who have a knack for making complicated material accessible.” LIBRARY JOURNAL “ When it comes to self-help legal stuff , nobody does a better job than Nolo…” USA TODAY “  e most prominent U.S. publisher of self-help legal aids.” TIME MAGAZINE “ Nolo is a pioneer in both consumer and business self-help books and software.” LOS ANGELES TIMES  e Trusted Name (but don’t take our word for it) Contracts The Essential Business Desk Reference by Attorney Richard Stim 1st edition FIRST EDITION JANUARY 2011 Cover Design JALEH DOANE Book Design TERRI HEARSH Proofreading SUSAN CARLSON GREENE Printing DELTA PRINTING SOLUTIONS, INC. Stim, Richard. Contracts : the essential business desk reference / by Richard Stim. 1st ed. p. cm. Summary: “An A to Z, plain-English encyclopedia of contract terminology that dissects important contract concepts for business owners, law students, managers, and consumers. It also includes sample agreements with explanations on how to complete them” Provided by publisher. ISBN-13: 978-1-4133-1281-2 (pbk.) ISBN-10: 1-4133-1281-0 (pbk.) ISBN-13: 978-1-4133-1289-8 (e-book edition) ISBN-10: 1-4133-1289-6 (e-book edition) 1. Contracts United States Popular works. I. Title. KF801.Z9S75 2010 346.7302 dc22 2010021161 Copyright © 2010 by Nolo. All rights reserved. The NOLO trademark is registered in the U.S.Patent and Trademark Office. Printed in the U.S.A. No part of this publication may be reproduced, stored in a retrieval system, or trans- mitted in any form or by any means, electronic, mechanical, photocopying, recording, or other wise without prior written permission. Reproduction prohibitions do not apply to the forms contained in this product when reproduced for personal use. For information on bulk purchases or corporate premium sales, please contact the Special Sales Department. Call 800-955-4775 or write to Nolo, 950 Parker Street, Berkeley, California 94710. Please note We believe accurate, plain-English legal information should help you solve many of your own legal problems. But this text is not a substitute for personalized advice from a knowledgeable lawyer. If you want the help of a trained professional—and we’ll always point out situations in which we think that’s a good idea—consult an attorney licensed to practice in your state. Acknowledgments Thanks to Lisa Guerin, editor extraordinaire, and to Terri Hearsh, for design and layout. 1 Your Legal Companion Contracts may sound like a topic of interest only to lawyers and perhaps some high-level business executives. But the rest of us need to know about contracts, too, whether we’re running or managing a business, buying a house, signing up for a credit card, or insuring a car. e truth is, contracts pervade every aspect of our lives. Many everyday transactions and activities, from shopping to working to marriage and more, are contractually based. Consider a typical day: Welcome to your day. You get up at 7 a.m. because you have an employment contract that requires you to appear at work. In exchange for the eight hours you spend reviewing spreadsheets, going to meetings, and hanging around the water cooler, you receive certain benefits and a paycheck twice a month (Hey, today’s payday!). On the way to work, you stop at the gas station where you accept a contractual offer to buy 16 gallons of gas at $3.15 a gallon. You take the freeway to the bridge tollbooth, where you exchange money for the opportunity to cross the bridge (actually you signal your electronic acceptance of this contractual arrangement via your FastTrak card—VALID!). You arrive at the parking garage where you accept the parking garage’s offer to store your car for the day for $15. At the local coffee shop, the waitress offers you coffee and a vegan donut; you accept the offer by handing over $3. At work (when you should be preparing spreadsheets), you click the “I accept” button to enter into a contract to buy a download of an Elmore Leonard novel for $12. Later—also, in violation of your employment contract—you hook your iPod to the work computer and accept Apple’s offer to sell you an application that makes gastrointestinal sound effects (a bargain at only 99¢). Your Legal Companion 2 On the way home from work, you stop at the gym and renew your membership, agreeing to the gym’s new terms of service and arranging to have the gym charge your credit card every month. Then, you accept the supermarket’s offer to sell you a salmon dinner and apple juice for $12. By using your new credit card for these transactions, you accept the credit card company’s offer to extend credit on the terms provided in its consumer contract. Because it’s the first day of the month, you make sure to drop off the rent check; by doing so, you renew your month-to- month rental contract with your landlord. Finally, you click to accept Amazon.com’s offer to sell you a download of Toy Story 3, and you sit at home happily watching Buzz Lightyear. See what we mean? Our days are built on a series of transactions. Almost every waking hour, we are constantly entering into, enjoying the benefits of, and possibly even violating, contracts. And that’s just in our personal lives: Those who run or manage businesses deal with contracts all the time, in their relationships with employees, contractors, vendors, commercial landlords, banks, utilities, insurance companies, and, of course, customers and clients. Every contract we accept, whether for business or pleasure, is connected to other supply and service contracts, employment agreements, leases, real estate sales, debt agreements, insurance contracts, and the like. We all live and operate within a massive web of contractual relationships. Who needs to know about contracts? There may have been a time when small businesses could avoid learning much about contracts, because commerce was based on a handshake, lawyers were more affordable, or transactions were just simpler. But, alas, those days are long gone. In today’s world, every business (and many consumers) could use some help understanding the language and rules of contracts—and few want (or can afford) to pay a lawyer $250 an hour for this information. This book is intended for the thousands of nonlawyers who must prepare, review, explain, or abide by contracts every day—from the parking attendants who have to explain the contract painted on the wall at the parking garage to the landlord who has to decide what to include in a lease agreement to the small business owner who needs to understand the fine print in a new rider to the company’s liability insurance policy. [...]... example, if the leasing company repossessed the ATM machine and then immediately leased it to someone else, the amount it earned from the new rental should have been offset from the amount owed by the first customer Otherwise, the ATM company is getting paid twice for use of the same machine A court will also decline to enforce an acceleration clause if the parties have an honest dispute about the amount... following the initial term, upon written agreement of the parties The parties must mutually inform each other of their intention to renew the Agreement no later than June 1 of each year in which the Agreement is set to terminate Describing without restating the amendment Using this approach, the changes are described This is often shorter but requires the parties to check against the existing text of the. .. Rule of the last antecedent: U.S Constitution No person except a natural born Citizen, or a Citizen of the United States, at the time of the Adoption of this Constitution, shall be eligible to the Office of President … The qualifying phrase in this sample is “at the time of the Adoption of this Constitution.” The last antecedent is “a Citizen of the United States.” If the rule were not applied and the. .. accept something other than what’s promised in the contract—for example, the seller of a car agrees to accept less money because the brakes need to be replaced— then the parties have reached an “accord.” When the buyer pays the lesser amount and the seller accepts it, that’s “satisfaction.” So, an accord and satisfaction is when the parties agree to an alternative 6 accretion way to perform the deal An... trade secrets) The company’s shell—its corporate or LLC ownership—remains in place with the same owners, even though there is no business to run anymore, as a practical matter This is the deal of choice for the purchase of a sole proprietorship or a partnership because the business has no “shell” to speak of: Once the assets are gone, there’s no structure left to worry about Which is better? There are two... you be sure the addendum is binding? Because an addendum is attached after the signature page, parties often initial each page of the addendum to guarantee that it will be considered part of the agreement Another (or complementary) approach is to include the words “incorporated by reference the first time an addendum is mentioned in a contract (for example, The parties shall abide by the delivery... employee of the other party for any purpose When an agent can bind the principal (“actual authority”) The agent’s power to enter into contracts and make promises that the principal must keep usually happens in one of two ways: • By contract The agent and principal sign an agency contract, establishing the agency’s power to bind the principal • By law Either a statute or case law establishes the relationship... back under the indemnity clause The contractor argued that the indemnity clause was meant to insure only against harm to third parties, not to the utility itself The words “third party” didn’t appear in the contract, but other evidence of trade practices by the parties proved that the contractor’s interpretation was correct The California Supreme Court ruled in favor of the contractor stating that evidence... grace period before the acceleration clause kicks in During the grace (or “cure”) period, the borrower has the chance to make up missed payments If the borrower is unable to bring the payments current, then the lender can demand full payment and start foreclosure proceedings or work with the borrower to avoid foreclosure An acceleration clause in a mortgage may be triggered by other events besides... contract for a secured transaction Completing the amendment Here’s how to complete the sample amendment shown below: • Introductory paragraph Type your name or the name of your company and the other side’s name (an individual or a company) • Describe the amendment(s) Type in the amendments to the existing contract using any one of the three methods described above • The concluding paragraph This paragraph . repossessed the ATM machine and then immediately leased it to someone else, the amount it earned from the new rental should have been offset from the amount owed by the first customer. Otherwise, the. before the acceleration clause kicks in. During the grace (or “cure”) period, the borrower has the chance to make up missed payments. If the borrower is unable to bring the payments current, then. the same owners, even though there is no business to run anymore, as a practical matter. This is the deal of choice for the purchase of a sole proprietorship or a partnership because the business