Contemporaneous exchange for new value is very much like a COD transaction. For this defense, you give something of value to the debtor (e.g., goods; services), but at the same time you give this value to the debtor – and because you and the debtor have previously so agreed – the debtor immediately (contemporaneously) remits payment to you. That immediate payment may otherwise fall within the definition of preference payment, but you do not have to return it because it was a contemporaneous exchange for the new value you provided to the debtor.

As you can see from our series, if you receive a demand to return an alleged preference payment, it is always advisable to have a bankruptcy attorney look at your facts and circumstances. A Virginia creditors’ rights lawyer will do an analysis of whether the payment falls within the definition of preference, and even if it does, whether you have a valid defense to paying it back. Often, such an analysis can reduce, if not completely eliminate, what payments have to be returned to the debtor.

Related articles

• Bankruptcy Preference Claim Can Be An Unwelcome Surprise (vabizlawyers.com)
• Preference Claims Defense Number 1 (vabizlawyers.com)
• Preference Claims Defense Number 2 (vabizlawyers.com)

RichmondBizSense.com covered the news this morning and the leading organization for retailers, the Virginia Retail Merchants Association, identified the issue a few weeks back. But it appears the budget writers had this element in place well before those responsible for collecting and remitting the taxes became aware of it.

Lobbying is a research-intensive activity. The level of scrutiny required to catch this change might have been time-consuming, but it beats playing catch up. I’ll be giving the budget some attention in my legislative wrap up in our YouTube report, slated for later this month.

What else might have been missed during the budget debate, if anything?

Subsequent new value is in the nature of a set off, and is meant to encourage creditors to continue to deal with a company that may be close to filing bankruptcy. The defense says that if, after you receive a payment that otherwise qualifies as a preference, you give new “value” to the debtor, you essentially get to deduct the new value from the preference payment.

For example, say you receive a payment of $50,000 from a debtor, and that payment otherwise falls within the definition of preference payment as discussed in our prior posts. But then, after you receive that payment, you give new goods or services to the debtor, and these new goods or services also have a value of $50,000. This “subsequent new value” would protect the prior $50,000 preference payment, and you would not have to return the $50,000 already paid.

In the next post, we’ll examine another one of these defenses so your company can be prepared if you are contacted by a trustee wanting a return of payment. If you get confronted with a preference claim, you should contact a Virginia creditors’ rights lawyer who can explain your rights.

An ordinary course payment is, essentially, when there was nothing at all unusual or out of the ordinary pertaining to the payment at issue. For example, prior to the look back preference period, a debtor always pays invoices from a creditor within 30 days of receipt of the invoice. Likewise, for all payments made within the preference look back period, the debtor also pays invoices within 30 days of receipt. Because there is nothing different, or out of the ordinary, with the payments in the preference period, when compared to payments outside of the preference period, the creditor has a defense to the preference claim. This makes perfect sense, since the public policy here is to prevent a debtor from, in fact, favoring or preferring certain creditors over other creditors.

In the next post, we’ll examine another one of these defenses so you can be ready if a trustee wanting a return of payment reaches out to your company. If you are party to a preference claim, you should contact a Virginia creditors’ rights lawyer who can explain your rights.

If you have questions about Chapter 7 or any other bankruptcy matter, please contact a Virginia bankruptcy lawyer for information.

United States Supreme Court (Photo credit: Wikipedia)

On May 29, 2012, the United States Supreme Court decided Radlax Gateway Hotel, LLC v. Amalgamated Bank, ruling that secured creditors cannot be denied the right to credit-bid on the sale of property or assets in the context of a Chapter 11 bankruptcy plan of reorganization. The Chapter 11 debtors were the owners of the Radisson Hotel at Los Angeles International Airport, along with adjacent structures. The lenders possessed a blanket lien on all of the debtors’ assets to secure the loan. Due to mounting construction costs, the debtors were forced to file a voluntary petition for relief under Chapter 11 of the Bankruptcy Code.

The Radlax debtors proposed to dissolve the entity and sell substantially all of its assets pursuant to bankruptcy sale and bid procedures. The sale proceeds would be used to fund the plan, primarily by repaying the bank. However, under the proposed auction procedures, the secured lender would not be allowed to place a credit-bid. Instead, the secured lender would be forced to bid in cash. In anticipation of the lender’s objection, the debtors sought to obtain confirmation of the plan under the cramdown provisions of the Bankruptcy Code. The Seventh Circuit Court of Appeals held that the lenders must be allowed to credit-bid. Conversely, in recent years, other lower courts, including the Third Circuit, allowed or upheld the confirmation of plans which denied the lender the right to credit-bid.

The United States Supreme Court, Justice Antonin Scalia writing for the majority, unanimously affirmed the lower court, holding that the debtors cannot obtain confirmation of a Chapter 11 cramdown plan that provides for the sale of collateral free and clear of the secured lender’s lien, but does not permit the lender to credit-bid at the sale. The decision is important for secured creditors involved in chapter 11 bankruptcy proceedings for several reasons, including: (a) it provides more control over the destiny of the collateral used to secure the secured party’s agreement; (b) it avoids the additional hurdles imposed by a cash bid requirement and (c) when it comes to the treatment of a secured creditor, it impacts the debtor/creditor balance by limiting the options of the debtor seeking to sell property free and clear of liens.

Creditors in a bankruptcy proceeding who have questions about the classification, treatment or protection of claims would be well-advised to contact a Virginia creditors’ rights attorney specializing in this area of the law.

Related articles

• Supreme Court Upholds Secured Creditor’s Right to Credit Bid (corporaterestructuringreview.com)
• SCOTUS Ruling Contrary to 3rd Cir. Credit Bidding Decision (blogs.findlaw.com)

Well, the difficult answer is that in certain circumstances the Bankruptcy Code does require that some payments the debtor made before filing bankruptcy have to be returned to the debtor.  It sounds crazy, but the reason or public policy for this law is to ensure that all similarly situated creditors receive equal treatment when a bankruptcy is filed.  Without such a law, a debtor could, prior to filing bankruptcy, “prefer” certain creditors by paying certain debts, yet not paying others.  In the resulting bankruptcy case, the creditors who got paid are much better off than those who did not get paid.  To prevent this disparity, Congress included in the Bankruptcy Code the law about preference payments.  11 U.S.C § 547. 

Fortunately, there are several circumstances in which you do not have to return payments received prior to a bankruptcy filing.  The Bankruptcy Code has a very specific and detailed definition of what a “preference payment” is.  The Bankruptcy Code defines a preference as:

1. a transfer of an interest of the debtor in property; 
2. to or for the benefit of a creditor; 
3. for or on account of an antecedent (pre-existing) debt; 
4. made within 90 days of the bankruptcy filing (or within 1-year if the transfer was to an insider); 
5. made while the debtor was insolvent; and 
6. which allows the creditor to receive more than it would have received if the payment had not been made, and the claim was paid through the bankruptcy process.

 Although the definition is intentionally broad, if any of these elements are missing, the payment received is not a preference payment, and thus does not have to be returned.  Because of the public policy behind this law, there is no requirement of “intent” for any of the elements.  But, each element must proven by a preponderance of the evidence, although there is a presumption of insolvency in the 90 days before the bankruptcy filing.

 Even if the particular payment or payments fall within the statutory definition of preference, the Bankruptcy Code offers certain defenses, or circumstances in which the payment nevertheless does not have to be returned.  The three most common defenses are: 1) ordinary course; 2) subsequent new value; and 3) contemporaneous exchange for new value.

In future posts, we’ll examine the particulars of these defenses so you can be prepared if someone wanting a return of payment reaches out to your company. If you are party to such a claim, you should get the advice of a Virginia creditors’ rights lawyer who can explain your rights.

The JOBS Act has the potential to dramatically change this equation. Here’s how it works. Securities laws include statutory exemptions from costly registration requirements that otherwise generally apply to any sale of securities. The principal exemptions are found in Section 3 and Section 4 of the Securities Act. Under Section 4, the SEC created Regulation D, which permits the sale of securities without registration provided that the Company does not use any public media to solicit investors. For the last 30 years, Regulation D has been the principal tool for entrepreneurs raising capital prior to an IPO. The problem with Regulation D has been finding qualified investors given the prohibition on public solicitation. Securities sold under Regulation D were also considered “restricted” and therefore not easily resold. This tended to make investors much more cautious and thereby limited the market for company seeking capital.

In contrast, Regulation A, created by the SEC under Section 3 of the Securities Act, has always allowed public solicitation of investors, and does not restrict resale, but requires the preparation and filing of a simplified registration statement prior to sale of any securities. However, under Regulation A, prior to the JOBS Act, a company was limited to selling no more than $5 million of securities every 12 months.

The problem with Regulation A was that, even with the reduced regulatory burden, the $5 million limitation made compliance with Regulation A too costly in relation to the amount of money available. Now, under the JOBS Act, the $5 million limit imposed by Section 3 has been expanded to $50 million. That’s a big change.

Under Section 3, as revised by the JOBS Act, entrepreneurs now have an exemption with the following characteristics:

(1) $50 million maximum offering size,
(2) simplified registration statements,
(3) public solicitations of interest to “test the waters”
(4) no restrictions on resale of securities, and
(5) no requirement for audited financial statements prior to the offering.

In short, Reg A has a whole new beat. We Jammin?

Related articles

• New law makes it easier for businesses to raise cash (virginiabusiness.com)
• How the JOBS Act Changes Investment Banking (axialmarket.com)
• JOBS Act Lowers Barriers to Investment in New Businesses (blogs.cbh.com)

The 2012 honorees include Ann Neil Cosby of Sands Anderson PC, Richmond (also Deputy County Attorney for Caroline County and author of the Virginia Environmental Law Blog)

The honorees will be celebrated at a gala luncheon on May 10th at the Richmond Marriott in downtown Richmond. The “Influential Woman of the Year” for 2012, to be voted on by the 2012 honorees themselves, will be announced at this luncheon.

Our Transactions Team at Sands Anderson relys on Ann Neil for her expertise in identifying and solving environmental issues that can kill transactions. She is an indespensible part of our enviornmental law practice and her expertise has contributed in helping our Transaction attorneys who are working with real estate and enviornmental issues.

Congratulations to Ann Neil!

I am all for fighting off cyber-attacks and terrorism, but when Ron Paul, Barack Obama and the ACLU are all aligned against a bill, we have to ask ourselves whether we are moving in the right direction.

This all may be much ado about nothing if, as promised, President Obama vetoes CISPA (assuming it gets through the Senate), but if the bill should find itself on the President’s desk, and he should change his mind for any reason, (it is an election year after all – wouldn’t want to look soft on cyber-threats) it will be too late to kill it at that point.

So let’s look at what the bill does, and try to determine whether we should be concerned.

CISPA is drafted to allow the government to share information about “cyber threats” with commercial companies. So far so good – but do we need an act for that? Wouldn’t you expect your government to warn you if you were about to be attacked? You don’t have to be a Pearl Harbor or 9/11 conspiracy theorist to wonder why this would require special legislation. One possible reason is that some of the information that might be shared, might have been obtained through technical means that the government would otherwise rather not be made public – or even hinted at. In other words, they would tell you but … you know how it goes.

The flip side is that companies who have confidential information that might suggest the possibility of a cyber threat would now be allowed and “encouraged” to share that information with the government. Again, at first glance, you again might ask – what’s the big deal – shouldn’t Bank of America tell the FBI if, for example, they detect a sophisticated threat? Certainly they should – but they should do so without violating laws already on the books to protect the privacy of your information. CISPA, however, would grant corporations legal immunity for sharing information if it fits within the definition of a cyber threat scenario as defined by CISPA.

OK – now we get it. Under CISPA, Corporations and Government, in the name of protecting us all from cyber attack, could, with immunity, violate our privacy wholesale by sharing all kinds of data that we have come to think of as legally protected. Do you really think, for example, that a major corporation will take the time to carefully anonymize terabytes of information if, instead, it can just claim immunity under CISPA and turn it over to the government in bulk? I can hear the senate hearings now:

Committee Chairman: “Mrs. Smith, when your bank released all of its private customer transactional data to the government in response to the threat of a foreign government sponsored hacking campaign, what precautions did you take to preserve the privacy of your account holders?”

Witness Smith: “Well Senator, under the circumstances, which seemed pretty serious, we thought the better approach was to simply turn it all over and cooperate as much as possible.”

Chair: “Weren’t you concerned that your customers or even perhaps another government entity might sue or prosecute you for such a wholesale violation of privacy laws?”

Smith: “Uhhh – actually, no, not really, because, er, um, I mean, well, our attorneys advised us that we had immunity under CISPA, so we thought it best to just release the information.”

Chair: “But of course, the threat turned out to be non-existent, isn’t that correct?”

Smith: “Yes Senator, but at the time it seemed quite real.”

Chair: “And has the government then deleted all of that information, since it no longer seems relevant to national security or any threat to our commercial systems?”

Smith: “Well, Senator, I would have no way of knowing that.”

Chair: “Thank you, Mrs. Smith.”

That’s what worries me. Does it worry you, too?

Related articles

• Mozilla Takes a Stand Against The Cyber Intelligence Sharing and Protection Act (CISPA) (connectyourhome.com)

Ancient marriage contract - Image via Wikipedia

As attorneys, we sometimes get asked this broad open-ended question in a variety of contexts. Often the answer is equally broad, such as “It depends”. Let’s take just one example of how this question recently came up. I represent a number of clients who provide various consulting services. Just like attorneys, they need to enter into agreements with their clients to define the scope of work, deliverables, charges for their services, and the other critical parameters of the engagement.

In a fast-paced business environment, where the engagements may be brief and relatively inexpensive, the thought of preparing written documents, let alone turning them over to attorneys to negotiate is not only distasteful, it’s just impractical. Fortunately, I offered a solution. I simply said, why not put your standard contract terms on your website so that your clients can review them and click to agree, just as they do when they sign-up for various products and services over the web. “Is that legal? Would it be binding? Can we do that?” Answer: Of course it is, and of course you can.

Written documents signed in ink, increasingly, are anachronisms. Sometimes there is ceremonial value in exchanging written documents between the parties, but in all but a very few situations, this is not necessary to complete a contract. Yes, if you are recording a mortgage, you need a fully executed notarized form acceptable to the clerk in the county where the property is located. There are other exceptions as well, but for the vast majority of contracts between businesses, there is no legal requirement that the document be printed on paper and signed in ink.

The elements of the contract can be present without these physical embodiments. To create a binding contract you need the following elements:

1. Offer
2. Acceptance
3. A meeting of the minds
4. Legal subject matter
5. Consideration
6. Mutuality
7. Legally competent parties

Note, paper and ink are not listed. The document and the signature merely provide evidence of the existence of those critical elements.

For some time now there have been acknowledged methods for establishing all of the elements of contract through electronic communications. Hundreds of billions of dollars travel around the world everyday on the basis of electronic contracts. The key then, in creating electronic contracts between small businesses, is to be clear and unambiguous. Fortunately, tools and conventions have arisen that make this process relatively simple. One approach is the code which prohibits the user from advancing to the next page until they check a box indicating that they have read and accepted the terms and conditions. Of course it doesn’t really check whether they have read the conditions, but if they checked the box, they are generally going to be held to the contract to the same effect as if they had read it, since they had the opportunity to and simply waived it. This approach can be useful for getting customers to agree to standard terms and conditions.

However when the contract calls for specific customized language describing duties, payments and deliverables, it may be necessary to exchange e-mails with documents embedded in them or attached to them. These e-mails may also refer to standard terms and conditions which are available on a website and those terms and conditions will then become part of the contract once the parties signify their acceptance to the deal. In virtually all states, courts will enforce agreements made via e-mail if the necessary elements of the contract, listed above, are clearly set out in the e-mail, or a series of e-mails culminating in a clear acceptance of those terms by both parties.

Now, before you run off assuming that all this means you don’t need attorneys to draft your contracts, let me remind you that there is more to contracts then simply proving the existence of an agreement. All of the cautions that I have raised in prior posts on the subject of boilerplate and do-it-yourself contracts still apply. The good news, however, is that in today’s electronic communications environment, the speed and efficiency with which we can create binding legal agreements is catching up with the needs of business.

One can even hope that, having dispensed with the archaic implements of paper and ink, businesses will use the electronic approach to properly document more of their business transactions than they did when the prospect of “getting a lawyer to write it up” was enough to cause both sides to just shake hands and hope for the best.

How often are you agreeing to contract terms on a website, for example, and you don’t sign even the first piece of paper? Think that is any less binding?

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And now, for something completely different:

I ride my bike to work, whenever possible – preferably 5 days/week. I can take the short route which is only about a mile, or I can take a longer route, which is closer to 4 miles, and more scenic. Either way, if I drive, the car barely gets warmed up, so it’s hardly worth it. I used to commute 10 miles each way, but since I moved, I don’t have to do that, but I enjoyed that route too. Occasionally, people ask me why I do this and they usually assume I have some larger motivation. Mainly, though, I do it because I enjoy it and I think its good for me, physically and mentally.

There is, however, a very strong case for promoting bike commuting as a mainstream transportation mode. I recently wrote an op-ed piece in the Washington Post on the benefits of cycling, and how they should be welcomed regardless of party affiliation. For more, you can check out this, this or this.

The gist is: The economic benefits of cycling — not just for cyclists, but for the community at large, are staggering. Lower health-care costs benefit all of us. Having fewer cars on the road, especially at peak hours, reduces the need for expensive new roads and parking lots, and it means fewer deaths and injuries from vehicle-related accidents. Bike infrastructure projects create jobs too – more than 11 jobs per million dollars vs. 8 jobs per million for highway projects.
A safe bike-commuting environment can help people get to work even if they don’t have a car or can’t drive for any reason.

In Richmond, some 18 percent of households can’t afford a car, and 60 percent of households share a single car among several adults. Bikes can help them get and keep jobs. Right now, biking and walking make up 12 percent of all trips in the United States and cost about 2 percent of transportation dollars.

I’m not suggesting everyone can or should bike to work – it’s a matter of personal choice. But it seems to me that anyone who wants to should be able to do so in safety and without having to take elaborate detours or ride on sidewalks just to avoid becoming a traffic statistic.

When you consider how little of the transportation budget goes to meet the needs of this healthy and practical means of getting to work, fairness and common sense would seem to demand that we address the needs to cyclists in planning our streets and intersections, and accord the bicycle, one of the most elegant and efficient inventions ever devised by man, its rightful place on the roads, which we all pay for with our taxes, whether we drive, ride or walk.

How did you get to work today? Now, wouldn’t you feel better on a bike?

Of course this stuff is hard to read! So is quantum physics, but that’s because quantum physics is, in fact, hard, no matter how well you write it (even for quantum physicists). Contracts, however, should be easy to read – clear declarative sentences organized into paragraphs arranged in a logical order.

Contracts are like computer programs. They set some initial conditions (names of parties, date, etc.). Then they list a series of basic directions and “if…then” statements which, if properly thought through, should cover most any eventuality governed by the agreement. That’s what computer code does.

You can run computer code on a computer processor and you will know pretty quickly if the code runs smoothly or if it hangs. The problem with contract language is that for now, there is no contract processor to run the code, except the gray matter of the reader, who may be a judge, another attorney, or just a contract party.

Here are some tricks I use to make sense of contracts.

If you have the electronic file (in Word or something similar), do these simple “search and replace” operations. Your altered contract may not read perfectly, but it will be improved and more understandable.

After this, your contract will be shorter and reading it may seem less daunting. More importantly, it will be dramatically clearer and more understandable. I actually have a software tool that will do all of this automatically in one pass, which is very helpful.

All of these legalisms have crept into the language of contracts over the years, and now most lawyers just accept them, and even feel uncomfortable without them. Some actually think that adding them is chargeable work. This does not make them necessary or even helpful. In many cases, they are just crutches for sloppy drafting, which is often a symptom of sloppy thinking.

In particular, I despise “For the avoidance of doubt……” followed by anything. I was taught that a good drafter says things once and says them clearly. If you have to repeat it, you need to rewrite it. “For the avoidance of doubt” is the legal equivalent of “I mean, you know, it’s like, blah, blah, blah……..right?” Repetition of the same idea with different wording merely opens up cracks for ambiguity to seep into the contract. If litigators get a hold of that language, they will pry those cracks open with industrial strength jackhammer arguments and corrosive cross-examination leaving your “iron clad” agreement in a pile of rusty rivets and crumbling boilerplate. It’s worth knowing that an infamous case not so long ago turned on the presence or absence of a comma, and millions were at stake. Clarity matters.

So, if you have to read a contract, you can either mentally make these adjustments, or let your word processor do it for you – either way, you will find the contract much more understandable and less soporific. Your eyelid muscles will thank you. And of course, it goes without saying, (but I will say it anyway, for the avoidance of doubt ), you can send me or any of our Virginia business attorneys your contracts and we will be happy to interpret them for you!

Image by NobMouse via Flickr

In previous posts we’ve dealt with “boilerplate” clauses such as waiver, jurisdiction and venue, and integration. Today we will talk about two related clauses: the “assignment” clause and the “binding effect” clause. Both of these clauses relate to the question of who may enforce a contract at a later date.

Let’s start with binding effect. The binding effect clause typically reads something like this:

Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the heirs, personal representatives, successors, and assigns of the parties.

It almost seems redundant. Why would you need a paragraph saying that the contract is binding? After all it’s a contract right? Well not so fast. Judge Richard Posner, a noted federal judge and scholar on the topic of contracts recently decided a case in which he explained why not every document which expresses a mutual understanding is or should be enforceable as a contract, especially when that document includes language that specifically disclaims the intent to form a contract. Judge Posner is known for his clear and direct writing and you can read that case here. 

It’s worth noting that the converse is not necessarily true. Just because you say something is a contract, does not make it a contract if it is missing the essential elements such as offer, acceptance, mutuality, consideration (meaning exchange of value) and a legal purpose. Those are all topics for entire first-year Law school contracts course, but it is sufficient for this topic to note that it is easier to disclaim the existence of a contract than to create one. However, if you include a “binding effect clause” you certainly have reinforced the idea that you intend the document to be binding to some extent.

So what does the “binding effect” clause really do? It simply defines the parties to whom the benefits and burdens of the contract apply. Under common law, with some exceptions, a contract is an intangible right that can be freely transferred. One of those exceptions, however, is for personal service contracts. When you contract with someone for their personal services, they may not simply sell that contract and transfer their obligation to another party with whom you have had no prior contact. In the same way, if you are performing an obligation under a contract for a specific person, you may not want to continue to have that obligation if the original party substitutes a new one for any reason. But the most likely application of the binding effect language is when an individual party dies, or becomes disabled, or when a business is sold. In those cases it is critical for the other party to know whether it can expect a contract to survive.

Which brings us to the assignment clause. An assignment clause might read something like this:

Assignment. Neither party shall assign any rights or obligations under this Agreement, which are personal to the parties, without the prior written consent of the other party, which consent shall not be unreasonably withheld. No assignment of this Agreement by the Company shall operate to release the Company from any of its obligations hereunder.

This clause sets limits on either party’s ability to transfer its rights and obligations. Some assignment clauses are very permissive, and some are very restrictive. Just as the binding effect clause deals with transfers caused by unexpected events, such as death, or sale of a business, the assignability clause is more focused on voluntary transfers of rights and obligations. In the assignment clause, either party may restrict the right of the other party to transfer its obligations and benefits. This is very important. For example, what if you enter into a contract with a business, and the contract requires you to provide confidential information about your business to the other party? If that party were then allowed to simply sell that contract to your competitor, your information would be compromised. That’s just one of many examples. Another is where you contract for the services of a specific person because of their expertise, connections, reputation or your pre-existing relationship. If that person could then simply sell the contract to a 3rd party with whom you had no prior dealings, you may not receive the benefit of your bargain.

So as I hope you can see, both the binding effect clause and the assignability clause can have critical implications for your business. However, the circumstances in which they matter are usually not presented immediately. If you sign a contract and everything goes well, the job is completed and payments made, then they really never come into play. It’s only after you are in contract with someone, and the unexpected happens that they become relevant, and often critical.

If you are tempted to try crafting your own contracts, beware of the pitfalls of removing or neglecting these boilerplate terms. How happy will you be with the apparent cost saving when you later have trouble keeping the other party to the agreement true to its requirements? If you have questions or comments, just note them below and one of our Virginia business lawyers will get back to you.

Related articles

• When Acceptance Is Not (thecontractanalyst.wordpress.com)

Don’t be so fast to discard it, or to assume that only lawyers care about the “fine print.” Let’s look at another term. Frequently, contracts will have a clause called a “no waiver” clause. This language says that just because a party waives its rights in one situation, does not imply or require them to waive those rights in another similar or even identical situation. You could say it’s protection against the “no good deed goes unpunished” rule.

In the absence of this clause, if a customer typically accepted late shipments, the vendor might try to claim that this “course of dealing” modified the written terms of the agreement, and that they were permitted to ship late without penalty anytime they wanted. Your behavior would have “waived” your contract terms. This argument would fail if the contract had a “no waiver” clause.

In future posts, we will continue our discussion of boilerplate contract clauses, such the venue and jurisdiction provisions. I’m sure you’re on the edge of your seat waiting, but in the meantime, you may want to be sure that your contracts have the standard boilerplate that you need. I’m going to recommend (big surprise) that yours be reviewed by an attorney to make sure that the boilerplate properly protects you. At least as much as the other party. Seriously – have your lawyer look at your agreements before you sign, or better yet, get them to help in preparing them. Don’t let something as simple as a “waiver” clause leave you high and dry.

Isn’t protecting your rights and those of your business a good reason to have a Virginia/North Carolina business lawyer look over the contracts you prepare yourself? Learn more about our service offerings at: www.sandsanderson.com/our-work/business-corporate.html

We greatly appreciate the trust and confidence Equity Concepts has placed in our Virginia business attorneys. What improvements are you making in your business client service? How are you providing added value to your professional relationships?

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In the last post we talked about boilerplate clauses, specifically, the “integration clause.”

There are lots of other boilerplate sections that might seem to just be boring and unnecessary text, something you might drop if you didn’t know why they exist. Let’s look at two more.

Example one is the jurisdiction and choice of law clause. The fundamental purpose of a contract is to be able to enforce your rights if there is a dispute. You might assume that you can sue on your contract in the city and state where you made the deal, but that might not be the case. If the other party is in another city or state, they may have asked their attorney to specify that all disputes be resolved in the courts of that city in that state. If they did, it’s also likely that they specified that their local state law would apply.

The contract that requires you to cross several time zones just to make your case is a lot less useful. If your contract requires you to sue in Nevada applying Nevada law and you’re in New Hampshire, it’s going to be a very expensive lawsuit. You’ll probably be hiring a new attorney in another state, who doesn’t know you or your business or anything about the deal. That’s not a good way to start a lawsuit. But the other side will certainly take that all into account in any settlement offer. They will know that your settlement calculations will be more favorable to them because your legal costs will be higher than if you sue in your home court. See how the boilerplate works?

The law of the other state may not be favorable to your case. Although the Uniform Commercial Code (UCC) has been enacted in all 50 states, the case law can vary significantly in the rules of interpretation of the Code. What’s more, there are large areas of law, like employment, that are not covered by the UCC. Some states are “employment at will”, others give employees greater rights to maintain their jobs. If you are preparing an employment agreement, you would certainly want to control whether a California court would interpret a noncompete clause or whether a Virginia court would. I bet the interpretations would be different.

Example two is the “assignment” clause, another boilerplate clause that can dramatically affect your rights. This is not about homework. The assignment clause determines whether or not you or the other party can assign the benefits and obligations of your contract to a third party. Many contracts are designed to be assignable, and for commercial reasons, they have to be. Bank loans are a good example. On the other hand, if you contract with a company because of its specific expertise you may be disappointed to learn that they have assigned it to another company, whose standards are not as high. Sometimes it’s appropriate for one party to be allowed to assign its rights, while the other is restricted. The main point is that there is no single rule, and it’s always better to be clear in advance by using the proper boilerplate.

How will you be sure your contract protects your interests? Well, that’s what a good Virginia business lawyer is for (click here for more information). And all that boilerplate that some might think just increases your cost may eventually save your business, wouldn’t it?

So what is boilerplate anyway? The term originally meant exactly what it said. Boilerplate was standard, high-strength steel plate used to make boilers. Nothing fancy – just flat and strong to keep the boiler from exploding. Later, the term took on a meaning in the printing industry when blocks of text that were reused frequently were sometimes cast in steel as opposed to lead to make them more durable. Over the years, the word acquired a more general meaning, connoting anything highly standardized and commonplace. Lawyers adopted the term to refer to the language at the end of the contract that doesn’t seem to change very much from deal to deal.

It’s true that contract boilerplate language doesn’t change much, but the changes, while subtle, can be important. Boilerplate language is just as much part of the contract as the price, the delivery date or the description of the goods or services. What’s different about boilerplate is that it mostly matters when there’s a dispute. Of course, that’s when you really want the contract to be clear, unambiguous and, ideally, drafted in your favor.

Let’s look at one typical boilerplate term that most business people gloss over. It’s called the “integration clause.” The integration clause says that the written contract embodies all agreements of the parties with respect to the subject matter.

At first glance this seems obvious, and superfluous. Trust me, it’s not. The reason for this language is that, if it is not present, either side may be able to introduce evidence of subsequent agreements, side agreements, understandings, interpretations or other factors that could dramatically change the meaning of the agreement. If the language is present, then the person trying to prove something other than exactly what the agreement says has a high burden of proof. The only surefire way to prove that the terms of the agreement as written are not binding would be to have another written document amending the agreement and referring to it specifically. So the real purpose of this boilerplate clause is to enhance the certainty for both parties.

In this way, the language performs its boilerplate function exactly, holding the contract together despite pressures that might blow it apart. What common terms are you skipping over in your DIY contracts?

Virginia has topped the charts as the number one state in the nation for doing business according to CNBC.  When it awarded Virginia first place this year, CNBC remarked:  “we are starting to detect a pattern here.”  This is the second time that Virginia has run away with the award for top state for business since 2007 when CNBC started the awards.  Virginia has been either #1 or #2 every year since the awards began. 

 See the full survey results at  http://www.cnbc.com/id/41666602/

 This year, Virginia seized the top spot once again with the best overall score in the history of the CNBC study — 1,660 out of 2,500 points.  CNBC‘s Senior Correspondent, Scott Cohn quipped:  “we couldn’t have planned it this way, and if we could have, we might have mixed things up a bit.”   The annual study, measures all 50 states on 43 different metrics in ten key categories of overall business competitiveness.   They weight the categories based on how frequently the states themselves use them as selling points to attract business.   This method holds the states accountable to their own standards of performance and provides insight into the credibility of their sales pitch.

 The ten categories for selection criteria and weightings are:

 1.  Cost of Doing Business (350 points)

 2.  Workforce (350 points)

3.  Quality of Life (350 points)

 4.  Infrastructure & Transportation (325 points)

 5.  Economy (300 points)

 6.  Education (225 points)

 7.  Technology & Innovation (225 points)

 8.  Business Friendliness (200 points)

 9.  Access to Capital (100 points)

 10.  Cost of Living (50 points)

 According to CNBC Virginia is a perennial favorite because of its strategic location, friendly business climate and diverse economy. It moved back to the top this year thanks to marked improvements in a couple of key areas. 

Virginia’s tax burden improved considerably, helping the state move up five places to number 21 in the all-important “Cost of Doing Business Category.”  In the “Education Category,” a critically important factor for businesses looking for an educated and motivated workforce, Virginia jumped seven points to number 6, reflecting the Commonwealth’s efforts initiated in 2009 to reduce class sizes.

Virginia did what it does best each year in the study:  it shows a solid all-around performance by finishing in the top 10 in a number of key categories.  In 2011 it finished in the top 10 in five categories (“Infrastructure & Transportation” at number 10, “Economy” at number 8, 6th place in “Education,” 2nd in “Business Friendliness” and 10th in “Access to Capital”).

 Foreign and domestic enterprises should take note.  Virginia deserves to be on your short list for headquarters and operations in your future development plans.

Related articles

• Virginia Is For Lovers Of Free Enterprise Business (virginiavirtucon.wordpress.com)

It seems that internet and social media titans Google and Facebook have once again, to no one’s surprise, gotten themselves in some hot water with the FTC and some privacy watchdogs again. They just can’t seem to get the hang of this “privacy” thing. Hence the start of this post.

Google has settled with the FTC over a little faux pas concerning its fabulously fizzled BUZZ service. Trying to combine the best of Facebook and Twitter, they announced BUZZ with typical Google style and fanfare, and just to be hip, they phrased their sign up options thusly:

“Sweet! Check out Buzz”

Or

“Nah, go to my inbox”

Minor problem: The “Sweet!” option gave less than a full and transparent statement of the degree to which users’ information would become public. In essence, Buzz capitalizes on all those emails you never deleted, scanning them for connections that you have or might want to make, or something like that. In other words, they use your private information to build a public social network. I’m sure they studied the 2009 Facebook Privacy policy fiasco in detail, but apparently concluded that Google and BUZZ were somehow “different” as in not subject to the same rules and regulations as their competitors. When folks started to realize that their private information was being shared far more than the casual “Sweet – Check out Buzz” message indicated, they were less than amused, but then, as they dug further they discovered that checking the “Nah” box did not have the effect one might have expected either. Notwithstanding a clearly checked “Nah” box, Google dutifully went right ahead and collected all sorts of information about the non-subscribers, perhaps with the thought that they would be pleased to see all that information stored and ready to go once they finally decided to join the flood of ecstatic BUZZ users, now measuring in the hundreds, or even thousands.

For its thoughtful and condescending violation of its users’ privacy expectations, Google was invited to discuss their philosophy of privacy with the FTC in court, leading to a proposed consent order that requires Google to submit to rigorous FTC audits for the next 20 years.

Facebook’s latest gaffe was to introduce its facial recognition capability as an “Opt Out” feature in June. Described by PC Magazine as “Creepy” and “terrifying,” Facebook’s tool works in the background scanning and analyzing the 200 million or more pictures uploaded every day by its 600 million users. By comparing faces in the pictures in its database with pictures in which your friends have “tagged” you, or you have tagged yourself, Facebook develops an incredibly powerful capability to analyze your movements, your activities, and your associations. Of course, by participating in Facebook in the first place, you already give them a lot of raw material, but this new tool goes one step farther. And it’s a big step.

Even if you opt out, how can you know whether Mr. Zuckerman’s elves won’t continue to analyze your photos with this capability. Or, having opted out, what if being tagged in one photo with one “suspect” and in another with a different “suspect” might provide a link that law enforcement officials would just about do anything to know. Did I say ‘suspect”? Sorry – I meant “subject.” Facebook is not a government agency of course. But then, what, if any, new surveillance capability has not eventually been commandeered by law enforcement, with or without a warrant? I’m not sure I would want to count on Facebook not to give up the goods if the FBI or Homeland Security brought enough pressure to bear. In fact, their privacy policy pretty much makes it a foregone conclusion:

6. How We Share Information

 

 Facebook is about sharing information with others — friends and people in your communities — while providing you with privacy settings that you can use to restrict other users from accessing some of your information. We share your information with third parties when we believe the sharing is permitted by you, reasonably necessary to offer our services, or when legally required to do so. For example:

……..

To respond to legal requests and prevent harm. We may disclose information pursuant to subpoenas, court orders, or other requests (including criminal and civil matters) if we have a good faith belief that the response is required by law. This may include respecting requests from jurisdictions outside of the United States where we have a good faith belief that the response is required by law under the local laws in that jurisdiction, apply to users from that jurisdiction, and are consistent with generally accepted international standards. We may also share information when we have a good faith belief it is necessary to prevent fraud or other illegal activity, to prevent imminent bodily harm, or to protect ourselves and you from people violating our Statement of Rights and Responsibilities. This may include sharing information with other companies, lawyers, courts or other government entities.

Time will tell whether Facebook and Google use these powerful capabilities for good or evil, but they are here to stay, and growing everyday. Even if there is little you can do to block their intrusive reach, you owe it to yourself to actually read the privacy policies of Facebook and any other site to which you submit personal information.

How carefully are you reading the Terms of Service and Privacy Policies of the online sites you frequent?

Related articles

• The FTC’s Proposed Settlement With Google Over Buzz Privacy Breaches (ericgoldman.org)