Spross & Associates, PLLC

Double Negatives in Contracts

I realized today that I have a pet peeve in contracts related to double negatives.  Legal agreements are already hard to understand and seldom in plain English.  It makes it even worse when there are double negatives in the middle of a run on sentence.  For instance I just read this, "the website is not unsuitable".  How about, "the website is suitable"?

I would love to see attorneys go with more plain language.

Great Startup Lawyers

I really like these guys' list of great startup lawyers, especially the Austin one!  Giff Constable also posts some very important things to consider when thinking about the type of lawyer to work with.

I am also a fan of this article title "How to Work with Lawyers at a Startup."  When thinking about how to meet and work with your attorney, this article gives some very good advice.

Blog Post Legal Topics

I am looking for topics that people want to hear about.  If you have any thoughts on small quick hit topics that you would like to know more about, let me know and I'll see what I can do.

Contract Rescission

Does anyone remember the traveling door to door salesmen of the 1940s and 1950s?  I don’t, but I’ve read about them.  To counter the forceful selling pressure of someone at your door, many states enacted cooling off statutes that were designed to allow someone to rescind a contract within 72 hours of “buying”.  Interestingly, I have now run across people attempting to use this tactic to rescind commercial contracts between two business entities.  It is not a valid tactic in my opinion and as a business, you are within your right to uphold the contract and not allow the rescission.  I do not think courts have taken up the issue, but I certainly do not think a court will allow rescission between two commercial entities because the sale was over the internet and did not take place “at the seller’s place of business”.

Inc. 500

Congratulations to two of my clients, Adlucent and Headspring Systems for making the Inc. 500.  They are two of ten companies in Austin on the list.  These are both great companies and great to work with.  Keep up the amazing work!

Keeping Your Company Name

There was an interesting article in the Austin American Statesman about an attorney that is registering assumed names for her client (where she is the president of the client) using names of existing restaurants.

 

http://www.statesman.com/search/content/business/stories/other/2009/08/06/0806brees.html

 

They then send a demand type letter to the company that has been using the name saying they will “sell” it back to them for $20,000.  Don’t be taken in by something like this.  If someone has been using the name in commerce they have acquired common law trademark rights to the exclusion of other similarly confusing names in the local area. The fact that someone files an assumed name certificate either at the state or county level is nothing by a recording function.  The county certainly does not perform any kind of search on the name.  They just stamp it as recorded for the $12.00 filing fee.

Mutual Waiver Provision in Contracts

I am not sure where this came from, but in the last month or so I have seen more one way waiver provisions in contracts than I have seen in the last 5 years.  Make sure a waiver provision is mutual unless there is a defendable reason not to make it so.  And if there is no reason, then when you are caught on it, just give in.  Don't use the "it's standard" argument.  

For anyone that is wondering, the waiver provision in an agreement is the provision that says any waiver of any provision of an agreement must be in writing.

Releases in Employment Separation Agreements

One of the things that people don’t think about when they are putting together or executing Employment Separation Agreements as part of their employment is whether or not anything should be excluded from the release.  Employment releases are very broad and cover EVERYTHING, but what if the employee was an officer?  Most Bylaws and other corporate governance documents have an indemnification obligation on the part of the company for actions by the officer/employee in their role as an employee.  Normally, an individual is not named in a lawsuit against a company; however, there are times when the individual does get named (shareholder suits for instance). 

 

If an employee is signing an Employment Separation Agreement, I would suggest that there should be a carve-out for “indemnification obligations that arise pursuant to the Bylaws [or any other agreement that gives the employee indemnification]”.  If this is not carved-out from the release, there is a very good argument that the employee has released any indemnification claim.

What About 50/50 Ownership?

I get the question all the time about what to do about 50/50 ownership in entities.  My first answer is “Don’t have 50/50 ownership,” but many times that just doesn’t work.  So now you have 50/50 and you have to figure out what to do if the two “partners” don’t agree.  I’ve been using a two phase approach. 

First, if the issue is not really that important, you cannot agree, but either answer would be okay for the business, you can use a coin flip.  The winner of the coin flip decides.  I like to only have this provision apply if both parties agree to the coin flip.

Second, if the parties don’t agree to the coin flip, there are a couple of things you can do.  You could just wind up the company (not a great answer) or you can appoint business consultants to make a decision.  I like for each of the principals to appoint a business consultant and then those two consultants mutually appoint a third consultant.  Then, those consultants make a decision.  The consultants can be anyone and I don’t like to put any restrictions on who those consultants can be.

Below is a sample provision that could be used.

"Notwithstanding anything to the contrary contained in this Agreement, in the event Principal #1 and Principal #2 are the sole owners and Principal #1 and Principal #2 cannot agree on a course of action that is to be determined by the Members, upon mutual agreement, Principal #1 and Principal #2 agree to flip a coin to decide how to proceed.  In the event Principal #1 and Principal #2 do not mutually agree to flip a coin, Principal #1 shall choose one independent business person and Principal #2 shall choose a second independent business person, and the two business persons so chosen shall appoint a third person who shall cast the deciding vote on the issue giving rise to the deadlock."

Mutual Indemnification

Many agreements have indemnification provisions.  Most of the time the indemnification only protects the party that created the agreement.  You must think carefully about just "making the indemnification mutual".  Many times that does not make sense.  Just making it mutual does not take into account the things that might come up that require indemnification.  For instance, if the indemnification is for "breach of warranties", but one of the parties has not provided any warranties, making it "mutual" is irrelevant. 

One of the most common things that I see is a warranty that has a "knowledge" qualifier and then indemnification is for breach of warranty as opposed to for claims of intellectual property infringement.  If you are the party receiving the technology, you have a hole in your protection for potential third party liability if you just made the indemnification mutual.