California Business Lawyer Blog

The stock market gives many Americans a chance to have a small ownership share in publicly traded companies. Stock holders, as partial owners of the company, share in the company's profit and loss. However, they often have little, if any, say in the business decisions of the company and they have no control over the everyday operations of the company. Instead, it is the company's Board of Directors that is charged with the decision making responsibility and operational control says California Business Attorney Steven C. Peck.

Over the years, the courts have been in the often difficult position of having to decide if a company's Board of Directors acted appropriately in certain situations. The courts have been reluctant to second guess the business decisions of Boards of Directors, even if those decisions are disastrous. However, the courts have recognized that Boards of Directors have certain duties or responsibilities to company shareholders. Those duties are called the Board's fiduciary duties and include the duty of care and the duty of loyalty. indicates California Business lawyer Steven C. Peck.

The Duty of Care
Each publicly traded company's Board of Directors has a duty of care to its shareholders. That means that in making business decisions the Board must exercise reasonable care in the decisions that it makes for the company. Reasonable care has two elements. First, the Board must be acting in good faith for the benefit of the company. They must believe that the actions they are taking are in the company's best interest. Second, they must believe that the actions are in the best interest of the company based on a reasonable investigation of the options available. In other words, they must carefully consider the available options within the time and financial constraints presented before they make a decision or take a particular action on behalf of the company.

The Duty of Loyalty
In addition to the duty of care, the Board of Directors owes a duty of loyalty to company shareholders. That means that the Board of Directors must be loyal to the company and its shareholders and act in their best interest. The Board and its individual members may not act in their own best interest or engage in self-dealing while making decisions or taking actions on behalf of the company. The duty of loyalty is sometimes known as the business judgment rule because the Board is required to make its judgments in the best interest of the business.
Shareholders must remember, however, that even if the Board of Directors strictly adheres to both of its fiduciary duties of care and loyalty, business decisions may still be made that hurt that company. That is because many business decisions are inherently risky. The courts recognize this risk and do not engage in the business of second guessing business decisions that were carefully made in what was honestly believed to be the company's best interest. That said Boards of Directors are in unique positions of trust. They must, therefore, carefully exercise their duties of care and loyalty in their furtherance of their business goals. Then the shareholders, the Board members and the business will be protected.

Continue reading "The Duty of Care and the Duty of Loyalty: Basic Business Law Principles" »

The important principles of letters of intent and term sheets are not dissimilar to the standards you learned in high school. Both letters of intent and term sheets are essentially outlines of a contract that is yet to be drafted by the parties. They provide the most important parts of the agreement between the parties in much the same way that an outline of a research paper provided you with a guide to your final paper.
What are Letters of Intent and Term Sheets?
Letters of intent and term sheets are very similar. Both documents outline an agreement that two or more parties expect to make. A letter of intent, as the name implies, is written in the form of a letter whereas a term sheet is more often a list of the important parts of the anticipated contract or agreement.
Generally, letters of intent and term sheets are used for one of a few purposes including:
To clarify complex terms that will later be included in a contract;
To provide notice that the parties are officially negotiating with one another; or
To provide certain safeguards in case the negotiating parties do not end up entering a contract.
Often, business letters of intent are used when one party intends to acquire another party, when two or more parties intend to merge or when two or more parties intend to embark on a joint venture. Forms are available online to draft letters of intent and term sheets and these documents do not usually require formal execution in the presence of witnesses.
Since letters of intent and term sheets are, by definition, written before a formal and binding contract has been executed, many of the elements included in the letter of intent or term sheet are not binding on the parties. The terms that explain what the parties anticipate agreeing to or hope to achieve are not binding, for example. However, terms that relate to the negotiations themselves are usually binding and one party may sue another and recover damages if those terms are breached.
The legally binding terms may include:
· non-disclosure agreements to prevent parties from sharing confidential information with third parties;
· a covenant to negotiate in good faith; and
· exclusive rights to negotiate that prevent parties from negotiating with other parties while they are negotiating with each other.
What Happens After Letters of Intent and Term Sheets Have Been Written?
After a letter of intent or term sheet has been written, the parties still have a lot of work to do. A contract must still be negotiated and properly executed in accordance with state law in order for the agreement of the parties to be binding. Letters of intent and term sheets are not substitutes for contracts. Letters of intent and terms sheets provide the benefit of providing clarity to mutual understandings in the often complex world of business negotiations but it is important to remember that they are limited in that they do not fully reflect enforceable agreements between the parties.

Continue reading "Letters of Intent: Basic Principles" »

The California Supreme court in American Motorcycle v. Superior Court (1978) 20 Cal. 3d 578 reviewed the common-law right of an injured party to recover damages sustained as a result of an indivisible injury under the joint and several doctrine as codified in California Civil CodeSection 1714.

The basic tenet is that an injured party has the right to full recovery of all damages from each responaible party. The doctrine ensures that the injured party receives adequate compensation for its injuries, even if one or more of the responsible parties do not have the financial resources to pay for their share of the liability.

Continue reading "Joint and Several Liability: Basic California Business Law Concepts" »

Many of us have one, or two or maybe even three.

We get them to build credit, or earn points for vacations, but the rates and terms for many credit cards are soon changing.

Credit cards can either be your best friend, or your worst nightmare.

But if you keep an eye out, some new changes could prove to be more friendly.

Card holders beware, 22 new changes for your accounts will go into effect on February 22nd, 2010.

"Credit card companies cannot charge you a late fee unless you're 60 days or more delinquent, you usually only have 14 days to pay that bill, that will be extended to 21 days, due dates must remain the same every month, they will not allow you to go over your credit card limit." Says California Business Attorney Steven C. Peck.

The new laws are meant to protect both consumers and lenders.

Especially the debt stricken college aged student who has an average of $3100 worth of debt.

Among the many changes, new restrictions could determine how companies solicit to students, and just who can sign up for a credit card.

"If you are under the age of 21, you will have "If you are under the age of 21, you will have to have a parent or legal guardian's co-signature in order to get a credit card. For parents or guardians out there though, that info will also on your credit report, so you have to be careful about that." Says Peck.

Perhaps the most notable change involves your interest rate. Your credit card company now has 45 days to notify you of a rate change and why it's changing.

"You will somewhere in the wording of the letter they send you, you will either have the option to either call or write a letter to opt out of that rate increase. Once you opt out of that, your rate will go back down but your access to that card will close." Says California Business Lawyer Steven C. Peck.

From clearer wording on bills to other stricter rules and regulations, some think the changes will make the decision between cash or credit a little easier.

"You shouldn't over draw you account, that's just going to cost you a lot of money, they have all kinds of penalties. So, probably have a place where they actually stop and say no- it would help people prevent getting themselves in too deep." Says Los Angeles Business Attorney Peck.

Continue reading "New Credit Cards Changes Go Into Effect on February 22, 2010" »

In Donohue v. Quick Collect, Inc., Case No. 09-35183 (9th Cir. Jan. 13, 2010), the Ninth Circuit interpreted two sections of the Fair Debt Collection Practices Act ("FDCPA") and held that a collections agency did not violate the FDCPA because the original payment terms between the appellant and her dental practice did not constitute a forbearance agreement under Washington State law. Additionally, the court held that the collections agency did not violate the FDCPA when it mislabeled the interest owed on the debt. The court found that the overall amount owed by the appellant was correct and, therefore, the mislabeled interest was not "materially false." indicates California Collection Attorney Steven C. Peck.
The appellant filed a class action lawsuit that asserted that the collections agency, which was trying to collect a debt owed by the appellant to a dental practice, violated the FDCPA by charging a usurious rate of interest and by violating the FDCPA's prohibition against the use of false, deceptive, or misleading statements in connection with collecting a debt by "misrepresenting the amount of interest" that the appellant owed. The Eastern District of Washington ruled in favor of the collections agency on cross summary judgment motions, finding that the collections agency had not violated the FDCPA states California Business Law Attorney Steven C. Peck.

The two FDCPA provisions that were at issue in this case are 15 U.S.C. §§ 1692e and 1692f. Section 1692e(2) prohibits "[t]he false representation of...the character, amount or legal status of any debt." Section 1692f prohibits a debt collector from using "unfair or unconscionable means to collect or attempt to collect any debt." "The collection of any amount...unless such amount is expressly authorized by the agreement creating the debt or permitted by law" is a violation of § 1692f(1). Both sections are analyzed objectively. The relevant question in examining both sections of the FDCPA is whether "the least sophisticated debtor would likely be misled by a communication." Guerreor v. RJM Acquisitions LLC, 449 F.3d 926, 934 (9th Cir. 2007) (internal quotation marks omitted).

The Ninth Circuit affirmed the lower court's decision that the collections agency had not violated §§ 1692e and 1692f by charging more than 12% annual interest in contravention of Washington usury law. Washington law prohibits charging more than 12% annual interest "for the loan or forbearance of any money, goods, or things in action." Wash. Rev. Code § 19.52.020. The Ninth Circuit found that the 90-day "grace period" in the original payment agreement between the appellant and her dental office was not a forbearance agreement.

The court relied on the Washington State Supreme Court's definition of forbearance under Washington law, which defined it as "a contractual obligation of a lender or creditor to refrain, during a given period of time, from requiring the borrower to pay a loan or debt then due and payable." Whitaker v. Spiegel Inc., 623 P.2d 1147, 1152 (Wash. 1981). Based on that definition, the Ninth Circuit determined that the dental office's payment arrangement was not a forbearance because the dental office had no contractual obligation to "refrain, during a given period of time, from requiring [appellant] to pay a loan or debt then due and payable." Id. (emphasis added). Instead, the payment was "due to be paid in full within ninety (90) days of service." The dental office did not agree to forbear and, therefore, the court concluded that the collections agency did not charge usurious interest in either the complaint or demand letter says California Business Lawyer Steven C. Peck.

The Ninth Circuit also concluded that the collections agency's complaint against the appellant did not violate the FDCPA because it did not contain a false, deceptive, or misleading representation. The complaint stated that the Appellant owed an interest payment of $32.89 calculated by applying 12% annual interest to the principal owed. It turned out that the $32.89 was actually made up of two components: $24.07 in pre-assignment finance charges assessed by the dental office and calculated at the rate of 1.5% per month, and $8.82 in post-assignment interest calculated at an annual rate of 12%. The Court also noted that the complaint contained the correct principal owed and the total non-principal amount owed was also correct affirms Los Angeles Business Attorney Steven C. Peck.

Continue reading "Ninth Circuit Interprets Fair Debt Collection Act" »

Severly commonly used methods of valuing closely held companies and professional practices have developed over the years. These methods are widely used by appraisers and others who are responsible for estimating fair market value indicates California Business Attorney Steven C. Peck. Although some of these methods may not be suitable for buy-sell agreements, business law attorneys should have at least some familiarity with the procedures.

Before using any partiuclar valuation method, an appraiser is required to make a study of the economics of the particular industry of which the company is a part, the company's competitive market position, the economic environment of the market served, the experience and capability of management and the assembled work force, the company's financial position and earnings record, and other pertinent factors says California Business Lawyer Steven C. Peck.

Continue reading "Methods of Valuation of Closely Held Companies and Professional Practices" »

It's time to pay the piper.

The first credit card bills from Christmas are beginning to roll in. For some people, it will be a shock.

But instead of panicking, use this year's first credit card bills to diagnose your debt and choose your best option for paying it off says California Business Attorney Steven C. peck.

You'll get some help from the second set of provisions that take effect Feb. 22 as part of the landmark Credit Card Accountability Responsibility and Disclosure Act of 2009 indicates California Business lawyer Steven C. Peck.

The federal law includes restrictions on over-the-limit fees, the marketing of credit cards to adults younger than 21 and dramatic changes in how issuers can impose interest rate increases states Los Angelels Business Attorney Peck..

A key provision that takes effect next month will change credit card statements significantly by requiring issuers to provide new, clearer and timelier disclosures of account terms and costs before and after an account is opened.

Pay attention to one key feature: Statements now will include details warning consumers about the high costs of making only the minimum payment.

"It's a good thing to show people that paying just the minimum payment due has consequences," said Nick Bourke, project manager of the Pew Safe Credit Cards Project, which aims to identify industry trends and help policymakers protect consumers. "People can really have a clearer understanding of what it costs to use credit card debt that they will pay over time."

All of a sudden that $1,000 TV will look like it costs $2,000 - and it will, if you make only minimum payments as the interest piles up.

Here's an example from Consumer Credit Counseling Service:

If you had a $1,000 credit card balance at a 17 percent annual percentage rate and you made just the $15 minimum monthly payment, it would take a little more than 17 years to pay off the card. And the total payback, including principal and interest, would be $3,082.

But if you paid just $5 more, or $20 a month, it would take seven years and four months to pay off the card at a total cost of $1,750.

That's a savings of $1,332 and 10 years.

To further help cardholders chart their way out of debt, the credit card law requires statements to show the monthly payment required to pay off the existing balance in 36 months. It will also show the total cost of payments and interest.

Here's a rule of thumb If you can make your minimum payment, plus 20 percent of that minimum each month, you can probably pay off your debt in three to five years without outside help.

The key is that you must make a dent in the principal, not just pay enough to make the interest payment.

"If you can't pay back your credit cards in three years or less, you probably need to get outside help," said Detweiler, co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights. "It's going to be hard to stick with a payment plan longer than three years. Life happens, the car breaks down, the kids need braces, the house needs repairs."

If you're having trouble paying your credit card bills or anticipate having difficulty, get help now.

"A lot of times we wait too long to get help with our debt," said Detweiler, credit adviser for Credit.com. "The longer you wait, the fewer options you have."

Continue reading "The Credit Card Accountability Responsibility and Disclosure Act " »

About 25 percent of homeowners who received trial loan modifications through President Barack Obama's main foreclosure prevention plan are failing to keep up with their new reduced payments says California Business Lawyer Steven C. Peck.

At least 196,000 borrowers have missed some or all of their required payments, according to comments Treasury officials made on a conference call today and calculations from government data. An additional 115,000 homeowners who started trial repayment plans last year have either dropped out or been kicked out of Obama's Home Affordable Modification Program, indicates California Business Attorney Steven C. Peck.

"None of these programs have really been a success," said Vivek Sriram, a mortgage strategist for RBC Capital Markets in New York. "With the high unemployment rate, it's tough to solve the problem because these people will redefault even if their loan terms are fixed."

The U.S. has shed 7.2 million jobs since the recession began in December 2007, with almost half those losses occurring after Obama took office in January 2009. The mortgage program, which Obama said would target as many as 4 million Americans struggling to hold onto their homes, has successfully modified 66,465 loans as of Dec. 31, according to data released today by the Treasury indicates Los Angeles Business Attorney Steven C. Peck.

At Wells Fargo & Co., about 14 percent of the customers who make one payment in the trial modification phase don't end up making all three to qualify for a permanent reduction, said Mike Heid, co- president of Wells Fargo Home Mortgage in San Francisco.

"About half of the customers who end up making all three payments end up in a permanent modification," Heid said. "Another 25 percent are just not eligible."

Changing the Program

Michael Barr, the assistant Treasury secretary for financial institutions, said the government is considering changes to improve the program's performance, such as permanently cutting outstanding loan balances where borrowers owe more than the property is worth.

"We are in the process of reviewing that now as we have been continually through the program," Barr said on the conference call. "You have to be very careful not to design a program that would change people's behavior across the country in a destabilizing way."

Obama has set aside $75 billion to subsidize lenders that successfully modify troubled loans by reducing interest rates, extending loan repayments, deferring principle payments for as long as five years and adjusting other mortgage terms.

GMAC Mortgage Inc. remained the leader in successful loan modifications, completing 9,872 permanent payment plans as of Dec. 31, the Treasury said in its report today. Wells Fargo finished 8,424 modifications, while JPMorgan Chase & Co. made 7,139 permanent, the report shows. Bank of America Corp., the largest U.S. mortgage company, completed 3,183 modifications.

'Improved Pace'

Borrowers with permanent repayment plans have had their monthly mortgage payments drop by an average of 39 percent at Wells Fargo, Heid said. The company has modified 350,000 loans outside of the Home Affordable Modification Program, or HAMP.

So far, 787,231 trial modifications had been started in the Obama program through December, up from about 697,000 in November, according to the department. Permanently reduced payment plans more than doubled from 31,382 in November. The Treasury began disclosing last month how many trial revisions had been made permanent to publicly push lenders to work harder.

The report reflected an "improved pace" for both trial and completed modification plans, said Phyllis Caldwell, who runs the Treasury's Homeownership Preservation Office.

The three-year housing slump has wiped out at least 28 percent of home values nationwide, government and industry data show. Almost 23 percent of homeowners in the third quarter owed more than their properties are worth, according to First American Core Logic, a real-estate data company in Santa Ana, California.

Fannie, Freddie

Turning around the U.S. housing market is one of Obama's top priorities, Lawrence Summers, the president's top economic adviser, told reporters yesterday. The administration has put off restructuring federally controlled mortgage-finance companies Fannie Mae and Freddie Mac while they are administering the mortgage- modification program.

"There's no question that the future structure of the housing market is going to have to be very different than the structure that led Fannie and Freddie to the point of conservatorship, but this is an issue that's going to play out over time," said Summers, director of the National Economic Council.

He said the Obama administration is "thinking hard" about the future of Fannie Mae and Freddie Mac, "but for now the primary focus has to be on making sure the system of housing finance" is effective.

Continue reading "Loan Modification Recipients Fail to Keep Up With Their Reduced Payments" »

Going-Concern Value:

Going-concern value is the additional element of value that attaches to tangible and intangible business property because it is part of an operating business, or a "going concern." The going concern is considered to have a product or service, the necessary assets in place, a work force, finances, operating procedures, and all other tangible and intangible assets needed to make the business viable says California Business Attorney Steven C. Peck.

Liquidation Value:

Liquidation value is the amount the owner would receive if the business were to be terminated and the assets sold off piecemeal. A business enterprise may sometimes have more value in liquidation than as a going concern, e.g., when its earning power is only marginal in comparison to the liquidated value of the assets. Appraisers make a distinction between market values in forced liquidation (implies a very limited time and usually a sale by auction or to a lot buyer) and market values in orderly liquidation (often 30 to 60 days) indicates Los Angeles Business Attorney Steven C. Peck.

Business Enterprise:

A business enterprise is a commercial, industrial, or service organization pursuing an economic activity. The business entity can be a sole propietorship, a partnership, limited liability company, or a corporation. The term includes all the firm's tangible and intangible assets and its liabilities says California Business Lawyer Peck. A common misconception is that a corporation's business is distinct from its current and fixed assets and is synonymous with intangilbe assets such as goodwill. Porperly construed, the term " business enterprise" encompasses current, fixed, and intangible assets; liabilities; and shareholders' equity Los Angeles Business Attorney Steven C. Peck states.

Continue reading "California Business Lawyer: Additional Valuation Terminology" »

The most widely accepted standard of value is "fair market value." This standard applies in all federal and state tax matters and has been adopted for most valuation purposes indicates Los Angeles Business Attorney Steven C. Peck.

In appraisal parlance, it is broadly stated to be the amount that is fair and equitable to the parties to a transaction. The common definition is the amount at which property would change hands between a willing seller and a willing buyer when neither is acting under compulsion and when both have reasonable knowledge of the relevant facts says California Business Attorney Peck.

Fair market value is almost universally accepted as the cash or cash-equivalent, price. The terms "market value", "cash value", and "investment value", often used in statutes and opinions, have usually been interpreted as equivalent to fair market value.

The distinction between fair market value for continued use and fair market value in liquidation (when the seller is under a compulsion to sell) should be considered in an appraisal; each requires its own valuation techniques.

Continue reading "The Concept of Fair Market Value" »

The California State Bar said it has now shut down the loan modification businesses of two men for allegedly lying to consumers about being supervised by attorneys. The bar, which acted with the Orange County Superior Court in this case, has worked with other state and local officials to crack down on companies promising homeowner aid but not delivering it. says California Business Lawyer Steven C. Peck.

The bar alleges Curtis Melone of Huntington Beach and Christopher Fox of Redondo Beach promised to help homeowners facing foreclosure keep their properties but did nothing.

An attorney for the men was not immediately available for comment.

They can argue their case at a hearing scheduled at 1:30 p.m. on January 14, 2010, in Department 31 of the Orange County Superior Court. Their operations were halted on Dec. 21.

The duo operated under the names Guardian Credit Services, Green Credit Solutions, Green Credit Services, Erickson Law Group, Green Credit Law and PacWest Funding. A Web search indicates the companies were based primarily in Foothill Ranch and Irvine.

Here's more from the bar:

After working with the California Department of Justice, the California Department of Real Estate and the Orange County District Attorney's Office, State Bar investigators and prosecutors seized client files, terminated phone and computer services and posted notices to clients and the public about the shutdown. All officers, principals and employees of the businesses were ordered to cease and desist from holding themselves out as attorneys.
Since last March, the State Bar has aggressively sought to stop loan modification fraud by lawyers and to shut down the offices of people offering foreclosure services who represent themselves as lawyers. Thirteen attorneys have resigned in the wake of investigations by the State Bar Task Force on Loan Modification and six businesses have been closed. says California Business Lawyer Steven C. Peck.
Section 6126.3 of the Business and Professions Code gives authority to a superior court, on its own motion or upon application of the State Bar, to assume jurisdiction of the business of a person who is not a lawyer. Assumption of a law practice by a Superior Court is based upon the court finding that a person has engaged in the practice of law without being an active member of the State Bar or otherwise authorized to practice in California and that the interest of a client or interested person or entity will be prejudiced if the court does not assume jurisdiction.

Continue reading "California State Bar Closes Down Loan Modification Businesses" »

Articles, statutes, and cases dealing with business valuation use a variety of terms for value including "fair market value", "intrinsic value", "fair value", "investment value", and "cash value".

"Fair Market Value" is the term which is most often used by business appraisers and tax statutes says California Business Attorney Steven C. Peck.

In the buy-sell agreement context, "value" is ordinarily equivalent to "price", although the two words are not necesarily synonymous.

Continue reading "Valuation Terminology Applicable to Corporations and Partnerships" »

An Limited Liability Company ("LLC") is dissolved and its affairs are wound up on the happening of any of the following events: (1) at the time specified in the articles; (2) on the happening of events specified in the articles or a written operating agreement; (3) by a vote of at least a majority in interest of members or a greater percentage, if required by the articles or operating agreement; (4) without contrary provision in the articles or operating agreement, on the death, withdrawal, resignation, explusion, bankruptcy, or dissolution of a member, unless the LLC is continued by a vote of all remaining members within 90 days; or (5) on entry of a decree of judicial dissolution says California Business Law Attorney Steven C. Peck.

Continue reading "The Dissolution of a Limited Liability Company in California" »

A contract intends to formalize an agreement between two or more parties, in relation to a particular subject. Contracts can cover an extremely broad range of matters, including the sale of goods or real property, the terms of employment or of an independent contractor relationship, the settlement of a dispute, and ownership of intellectual property developed as part of a work for hire.

The Elements of a Contract
Typically, in order to be enforceable, a contract must involve the following elements says California Business Attorney Steven C. Peck:

A "Meeting of the Minds" (Mutual Consent)
The parties to the contract have a mutual understanding of what the contract covers. For example, in a contract for the sale of a "mustang", the buyer thinks he will obtain a car and the seller believes he is contracting to sell a horse, there is no meeting of the minds and the contract will likely be held unenforceable.

Offer and Acceptance
The contract involves an offer (or more than one offer) to another party, who accepts the offer. For example, in a contract for the sale of a piano, the seller may offer the piano to the buyer for $1,000.00. The buyer's acceptance of that offer is a necessary part of creating a binding contract for the sale of the piano.

Please note that a counter-offer is not an acceptance, and will typically be treated as a rejection of the offer. For example, if the buyer counter-offers to purchase the piano for $800.00, that typically counts as a rejection of the original offer for sale. If the seller accepts the counter-offer, a contract may be completed. However, if the seller rejects the counter-offer, the buyer will not ordinarily be entitled to enforce the prior $1,000.00 price if the seller decides either to raise the price or to sell the piano to somebody else explains California Business Lawyer Steven C. Peck.

Mutual Consideration (The mutual exchange of something of value)
In order to be valid, the parties to a contract must exchange something of value. In the case of the sale of a piano, the buyer receives something of value in the form of the piano, and the seller receives money.

While the validity of consideration may be subject to attack on the basis that it is illusory (e.g., one party receives only what the other party was already obligated to provide), or that there is a failure of consideration (e.g., the consideration received by one party is essentially worthless), these defenses will not let a party to a contract escape the consequences of bad negotiation. For example, if a seller enters into a contract to sell a piano for $100, and later gets an offer from somebody else for $1,000, the seller can't revoke the contract on the basis that the piano was worth a lot more than he bargained to receive.

Performance or Delivery
In order to be enforceable, the action contemplated by the contract must be completed. For example, if the purchaser of a piano pays the $1,000 purchase price, he can enforce the contract to require the delivery of the piano. However, unless the contract provides that delivery will occur before payment, the buyer may not be able to enforce the contract if he does not "perform" by paying the $1,000. Similarly, again depending upon the contract terms, the seller may not be able to enforce the contract without first delivering the piano.

In a typical "breach of contract" action, the party alleging the breach will recite that it performed all of its duties under the contract, whereas the other party failed to perform its duties or obligations indicates Los Angeles Business Lawyer Steven C. Peck.

Additionally, the following elements may factor into the enforceability of any contract:

Good Faith
It is implicit within all contracts that the parties are acting in good faith. For example, if the seller of a "mustang" knows that the buyer thinks he is purchasing a car, but secretly intends to sell the buyer a horse, the seller is not acting in good faith and the contract will not be enforceable.

No Violation of Public Policy
In order to be enforceable, a contract cannot violate "public policy". For example, if the subject matter of a contract is illegal, you cannot enforce the contract. A contract for the sale of illegal drugs, for example, violates public policy and is not enforceable.

Please note that public policy can shift. Traditionally, many states refused to honor gambling debts incurred in other jurisdictions on public policy grounds. However, as more and more states have permitted gambling within their own borders, that policy has mostly been abandoned and gambling debts from legal enterprises are now typically enforceable. (A "bookie" might not be able to enforce a debt arising from an illegal gambling enterprise, but a legal casino will now typically be able to enforce its debt.) Similarly, it used to be legal to sell "switchblade kits" through the U.S. mail, but that practice is now illegal. Contracts for the interstate sale of such kits were no longer enforceable following that change in the law.

Oral Contracts
There is an old joke that "an oral contract isn't worth the paper it's written on". That's a reference to the fact that it can be very difficult to prove that an oral contract exists. Absent proof of the terms of the contract, a party may be unable to enforce the contract or may be forced to settle for less than the original bargain. Thus, even when there is not an opportunity to draft up a formal contract, it is good practice to always make some sort of writing, signed by both parties, to memorialize the key terms of an agreement.

At the same time, under most circumstances, if the terms of an oral contract can be proved or are admitted by the other party, an oral contract is every bit as enforceable as one that is in writing. There are, however, "statute of fraud" laws which hold that some contracts cannot be enforced unless reduced to writing and signed by both parties. For more information on the Statute of Frauds, please see this associated article.

Please note that, although sometimes an oral contract is referred to as a "verbal contract", the term "oral" means "spoken" while the term "verbal" can also mean" in words". Under that definition, all contracts are technically "verbal". If you mean to refer to a contract that is not written, although most people will recognize what you mean by "verbal contract", for maximum clarity it is helpful to refer to it as an "oral contract

Continue reading "The Essential Elements of Understanding a Business Contract" »

Chrysler Group LLC will notify its 789 shuttered dealers that it is complying with a new federal law requiring arbitration for dealers who want to challenge the closings says California Business Attorney Steven C. Peck.

Chrysler said Sunday that the company is "complying with the law and will continue to do so," spokeswoman Kathy Graham said.

Chrysler sent letters required under the law on Dec. 23 giving Chrysler dealers the contact address for all correspondence during the arbitration process says California Business Lawyer Steven C. Peck.

Starting MondayJanuary 11, 2010, the 789 closed dealers "will receive an additional letter which gives information about the legislation, the arbitration process and criteria used overall to determine what contracts were rejected, as well as how it applied to the dealer individually." Peck Says.

But Chrysler hasn't given up its right to fight the measure in court.

"We have made no decision on whether or not to challenge the law, in the mean time we are complying with the legislation and dealers have been notified where to send correspondence concerning arbitration".

Contact Steven Peck's Premier Legal toll free at 1.866.999.9085 to talk to an experienced Los Angeles, California Business Attorney and visit us on-line at www.premierlegal.org.