California Business Lawyer Blog

Liquidated damages (also referred to as liquidated and ascertained damages) are damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach (e.g., late performance).

When damages are not predetermined/assessed in advance, then the amount recoverable is said to be 'at large' (to be agreed or determined by a court or tribunal in the event of breach) says California Business Attorney Steven C. Peck.

At common law, a liquidated damages clause will not be enforced if its purpose is to punish the wrongdoer/party in breach rather than to compensate the injured party (in which case it is referred to as a penal or penalty clause). One reason for this is that the enforcement of the term would, in effect, require an equitable order of specific performance. However, courts sitting in equity will seek to achieve a fair result and will not enforce a term that will lead to the unjust enrichment of the enforcing party.

In order for a liquidated damages clause to be upheld, two conditions must be met. First, the amount of the damages identified must roughly approximate the damages likely to fall upon the party seeking the benefit of the term. Second, the damages must be sufficiently certain at the time the contract is made that such a clause will likely save both parties the future difficulty of estimating damages. Damages that are sufficiently uncertain may be referred to as unliquidated damages, and may be so categorized because they are not mathematically calculable or are subject to a contingency which makes the amount of damages uncertain.

Continue reading "How Does A Business Determine Liquidated Damages?" »

Every business should protect proprietary information when dealing with independent contractors, vendors and other businesses. The best way to do this is to use a non-disclosure agreement, often referred to as an "NDA."

What is an NDA?

An NDA is an agreement between two parties to protect confidential information disclosed in a business transaction. The proprietary information can include business methods, finances, client lists, and anything that isn't already readily available in the public arena. If a party subsequently breaches the NDA, the injured party can sue for damages, an injunction against further disclosure and attorney's fees.

Directional NDA

In many situations, only one party requires the protection provided by an NDA. If you invent a new product, you are going to need an NDA from manufacturers, distributors, etc., before you discuss the product with them. While this may seem like common sense, most businesses fail to carry the thought through to their daily activities.

Practically every business hires independent contractors, but they rarely obtain NDAs prior to disclosing information to the contractors. For example, do you use third parties to create or maintain your websites? Did you obtain NDAs from any of them? If not, what's to keep that party from using your business methods on other sites? A directional NDA can keep this from occurring.

Mutual NDA

As the name suggest, a mutual NDA allows two parties to protect confidential information. The mutual NDA is typically used when two businesses are negotiating a joint venture. Each party must disclose enough information to make the negotiations viable, but neither wants that information made public if the negotiations fail. If negotiations go well, additional non-disclosure information will be incorporated into the joint venture agreement to protect additional information revealed during the joint venture.

Refusing to Sign an NDA

Alarms and warning lights should go off if a party refuses to sign your NDA. Unless they can provide a very compelling reason for the refusal, you should walk away from the business relationship.

When an NDA isn't really an NDA

Just because a document is titled, "Non-Disclosure Agreement", does not mean it provides you with protection. You should ALWAYS read the language of an NDA because the document may establish that you are WAIVING all confidentiality rights. The waiver might be very direct and read something like, "The disclosure of information pursuant to this Agreement shall not be considered confidential." Alternatively, the language may be more indirect and read, "The parties acknowledge and agree that all information exchanged pursuant to this agreement has previously been established in public forums." Regardless, the "reverse NDAs" strip you of protection and should not be signed.

Continue reading "The Business of Obtaining Non-Disclosure Agreements For Your Business" »

There are times when a Business partner may decide that it is time to leave the partnership. Many times the Business partnership agreement will include details about how this is handled. The agreement may require that the Business partner first offer the remaining Business partners a buyout option, allowing them an opportunity to purchase his or her share/interest in the partnership before he or she tries to sell that share to some third-party says Woodland Hills, California Business Attorney Steven C. Peck.

If the Business partnership agreement is silent on the issue of what happens when a partner leaves, most states' partnership laws cover the issue. You should be very careful in this situation because the laws differ from state to state - however, in many states, the law says that the partnership automatically ends when any partner leaves.

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Your company needs a buy-sell agreement because change is constant,
and your relationship with your fellow shareholders will change. Shareholders bicker, lose interest in the business, go away, die, get divorced, get run over by trucks, etc.

Sometimes a shareholder gets a better job and stops putting time into your company. He's now a freeloader, and you don't want him to enjoy the benefits of your hard work in building up the business.
Sometimes a shareholder is such a malcontent that you must be rid of him. Or a shareholder might get divorced, in which case you don't want his spouse to take over his shares and become your partner. Or a shareholder might go bankrupt, and you need to protect the business from his creditors. In all these cases, the company needs a structure for the orderly and fair removal of shareholders.

The Economic Divorce. Enter the buy-sell agreement. When changes among the shareholders put yourcompany in danger, the buy-sell agreement forces a fair resolution. I call this the economic divorce - if the company cannot survive a particular shareholder, the buy-sell agreement gets you a divorce on terms that are fair to everyone.

Death. If a shareholder dies, the company buys his shares from his estate. This is fair to the surviving family because they usually want money, not shares in an illiquid small business. This is fair to the company because you don't want the deceased shareholder's spouse or son to show up and announce himself as your new partner. Usually you pay a death buy-back in one lump-sum using the proceeds of life insurance.

Disability. Similar to death (except without the finality) if a shareholder becomes disabled, the company buys his shares. The company can pay a disability buy-back using a promissory note.

Divorce. The divorcing shareholder buys out his spouse's entire community property interest in the company's shares. This is done in the divorce proceedings.

Disputes. Sometimes two shareholders just can't get along. To deal with this situation, you use"shotgun" procedures. This means that, between the two warring shareholders, the first shareholder offers to buy out the second shareholder, and the second shareholder has the choice, either be bought out or turn around and buy out the first shareholder on identical terms (i.e. I cut, you choose). Either way, a price is fixed for the buy-out, and one of the warring shareholders leaves the business.

Bankruptcy; Bad Transfers. If a shareholder transfers shares in violation of the shareholders agreement or goes bankrupt, the company can purchase all of his shares to keep the shares away from his creditors. This serves an asset-protection function.

Buy-out Price. The buy-out price is crucial. A high buy-out price gives the exiting shareholder a windfall. A low buy-out price is unfair and leads to litigation. The trick is finding a procedure that ensures a fair price - for example, using a neutral appraisal process to fix a price.

Variation for a Real Estate Venture. As a final note, for some businesses, instead of a traditional buy-sell, it's easier just to liquidate the entire business. This can be true where a business does not have goodwill. For example, the value in most real estate ventures is the real estate. There is neither goodwill value in the venture nor sentimental value in the real estate. With this in mind, if the shareholders can't get along, it's easy to liquidate the assets, distribute the profits and let the shareholders go their separate ways. This is pure economic divorce.

Continue reading "What items Should One Consider When Drafting the Business Buy-Sell Agreement?" »

A business is built on a series of interwoven agreements and relationships. Small business owners often trust that their personal relationships are strong enough to ensure that agreements will be honored. But a well-written contract not only helps enforce these agreements, it can also strengthen vital relationships.

What is a contract?

In simple terms, a contract is a legally enforceable agreement. The precise conditions that create an enforceable contract vary from state to state. But, a few basic elements must be present.

First, a contract must be something both parties have agreed to. Typically, this occurs when one party makes an offer or a counter offer, and the other party accepts that offer. Second, both parties must exchange something of value. A promise to do something, or not to do something, is sufficient. Third, the terms of the agreement must be sufficiently definite for a court to determine what the parties have agreed to.

Contracts can be written or oral, formal or informal. The best contracts are ones that explain what each party has agreed to do in plain language.

Why written contracts?

While oral contracts are enforceable, there are many reasons not to rely on them. First, every state requires that certain types of contracts be in writing to be enforceable. These requirements vary from state to state, and include both the obvious (contracts for the purchase of land) and the innocuous (contracts guaranteeing the debts of a third party). If you're dealing with an important agreement, it's best to make sure you've complied with the law by getting something signed and in writing.

Second, while it might seem counterintuitive, a written contract actually helps parties stay out of court. Most business disputes arise out of a disagreement about what the parties agreed to do, not one party simply refusing to do what it promised. Taking time to put an agreement in writing will help avoid misunderstandings that can lead to disputes and lawsuits.

What should be in a written contract?

Each contract is as unique as the underlying business relationship. However, every contract should cover a few key points. A contract for the purchase or sale of goods should usually contain terms like the parties involved, the time and place of delivery, the time and method of payment, the product description and the unit price. Cliff Ennico, small business author and lawyer, suggests business owners make sure certain elements are clear in their contracts: who is doing what and when; what are parties not going to do; how much is being charged; and, when payment is due.

Continue reading "A Well Written Contract Will Strenghten and Reinforce Business Relationships" »

In a general partnership, each partner has the ability to take actions which can legally bind the partnership and, thus, the other partners themselves (even if those other partners have not been consulted or given their approval). In other words, each partner has full authority to exercise management and control of the partnership. When owners do not want to have control fully and equally shared like this, they can change the management structure through the terms of the partnership agreement. However, there are certain duties and obligations that cannot be changed. For example, in all partnerships, the individual partners are always entitled to all information about the business, such as financial information, details about transactions, etc. Similarly, because there is a fiduciary relationship between the partners, they always owe the other partners a duty of good faith, a duty of loyalty, and a duty of fairness in dealing with transactions relating to the partnership (in other words - you can't screw over your partners).

As for the actual details about controlling and running a partnership, things can generally be as simple as you want them to be. While all partners in a general partnership (and all general partners in a limited partnership) have equal ability to conduct business, the major decisions are usually made by having the partners vote. While the votes may be based on the number of partners, most partnerships instead base them on partnership interests. Thus, if there are five partners, but one has a 60% interest in the partnership, he is essentially the controlling partner of the business. However, instead of this so-called "owner management," the partners can adopt a structure more like a corporation, appointing a managing partner or a president, vice-president, etc.

Partnerships do not generally have to hold any form of regular meetings, like corporations. Thus, the partners can simply hold meetings when and if they feel there are important things to discuss or vote on. Similarly, unlike corporations, partnerships generally do not have to file any annual reports with the state, listing the details of the business. As a result, there are not really any business documents which a partnership should maintain aside from those which it decides are useful and necessary for running a business. However, while not necessary, partnerships should consider keeping a partner ledger.

Continue reading "How Are General Partnerships Controlled and Managed?" »

It is an unfortunate fact of life: if you are in business today, you are going to have disputes. They may be contract disputes with suppliers or they may be claims made by your customers. They may be contract disputes or banking disputes. They may very well be disputes with your employees.
Many things can be done to avoid such problems, but this article is intended to deal with the methods in which those disputes can be handled.

There may be occasions where you simply have no input into the method of dispute resolution. There may be no contract in which you can make a choice, or no invoice in which you can insert a dispute resolution requirement. However, where the choice is yours, your basic options are to go to court and litigate, or to choose the alternative dispute resolution of arbitration. Both of those methods of resolution could include a side trip known as mediation, which is a good place to start.

MEDIATION
Irrespective of whether your ultimate dispute resolution may be litigation or arbitration, you may choose to include in your contracts an obligation to mediate before the matter is allowed to proceed. Mediation has become a cottage industry in the last 15 years, as many lawyers have chosen to emphasize their positions as mediators, rather than advocates, and many retired judges have set up shop as mediators.

Mediation is nothing more complicated than having a third party getting involved in your dispute, receiving information from both parties, and then sitting down to talk separately with each party in an effort to find some middle ground in which a settlement of the issues is possible. Mediators emphasize to the participants:

•The cost of arbitrating or litigating their claims;
•The uncertainly of that resolution; and
•The time and effort it will cost both sides to proceed past mediation.
With that framework, a mediator uses his or her training and skills to find a solution that both parties can live with, if not be excited about.

Most people would be amazed at the percentage of success rate enjoyed by mediators in finding a solution to often difficult and complicated issues. In addition to a skilled mediator, a successful outcome is going to depend, to a large degree, on both sides being willing to:

•Listen;
•Continue to engage in the process;
•Keep in mind the cost benefit ratios of moving on in the dispute process; and
•Put aside the "principal" involved.
ARBITRATION

If mediation does not resolve your issues, the alternative is to "try" your lawsuit. You can do that either in the traditional way in front of a court and a jury, or you can put your case before an arbitrator selected by the parties or one selected by the American Arbitration Association ("AAA"). The AAA is a national organization that provides qualified arbitrators (and for that matter mediators) in each jurisdiction and handles the administrative aspects of moving your dispute along to a final arbitration. Once the parties "try" their case to an arbitrator and that arbitrator gives a decision, it is virtually impossible to successfully appeal the result absent fraud on the arbitrator's part. The courts will generally reject an appeal from an arbitration award absent such fraud, and not even a clear error of law or fact by an arbitrator will cause a court to intervene.

The advantages of arbitration are:

•It is quicker than getting entangled in the legal system;
•More likely to result in a final resolution without any prospect of further appeals; and
•The usual "discovery period" provided for in litigation which involves the parties sending questions back and forth to be answered under oath, the parties demanding document exchanges, and the parties taking depositions of witnesses ahead of time, are for the most part reduced or eliminated in the arbitration system.
Offsetting those savings, are the costs of the arbitrator who charges on an hourly basis, and the costs of an organization such as the AAA. Those costs are generally split between the parties. Despite the administrative costs that exist in arbitration and not in litigation, everyone would agree that arbitration is quicker and less expensive than a traditional court setting.

COURTROOM TRIAL
Why then, do you ask, would anyone choose not to arbitrate? Probably because some of the advantages in arbitration turn to disadvantages in certain disputes. If your issues are extremely complicated and you have a concern that it is going to be impossible for an arbitrator to understand the complete story unless you have the opportunity to utilize all of the discovery techniques that are unquestionably available in litigation, you may choose a courtroom setting. In addition, many people believe that arbitrators may choose to "cut the baby in half" more often than a judge or jury would.

Trying your case to a court and a jury does give you the advantage of obtaining fuller disclosures through the discovery process. It also has some disadvantage, including the likelihood that no one on the jury is going to have the background, experience, education, and training of an arbitrator. Many lawyers believe that trying a very complicated piece of litigation to a jury is a major gamble and their client would be better off selecting an arbitrator with background in the industry in question.

Your attorney can help you make a decision about which of your contracts or agreements might prudently include an alternative dispute resolution provision mediation and/or arbitration as a method of resolving your issues depending on the amount of money involved, the complexity of the issues, and the collective view of what makes the most sense in your circumstances.

Continue reading "Business Dispute Resolution" »

One of the biggest advantages to forming a company as an LLC is that, much like C corporations, the owners/members are not personally liable for most losses or debts of the company itself. Thus, there is so-called limited liability and the owners can only, generally, lose whatever money has been invested in the LLC, and nothing more. However, personal liability can attach in certain instances, such as where an owner tries to defraud company creditors or do some other illegal act - in these cases, a court may apply alter ego liability. Similarly, limited liability does not protect an owner for acts taken outside of his or her capacity as a company owner/employee. For example, if an LLC takes out a $500,000 loan and one of its members personally guarantees the loan, the bank could go after that member's personal assets, despite limited liability. Of course, if a co-owner is the one who has committed some bad deed making them personally liable, you would not be personally liable just for being another co-owner, as long as you did nothing wrong (this differs from a partnership, where you are personally liable for your partners' wrong-doings).

fiduciary duty is a legal or ethical relationship of confidence or trust between two or more parties, most commonly a fiduciary and a principal. One party, for example a corporate trust company or the trust department of a bank, holds a fiduciary relation or acts in a fiduciary capacity to another, such as one whose funds are entrusted to it for investment. In a fiduciary relation one person, in a position of vulnerability, justifiably reposes confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in some matter. In such a relation good conscience requires one to act at all times for the sole benefit and interests of another, with loyalty to those interests.

"A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence." says California Business Attorney Steven C. Peck.

A fiduciary duty[ is the highest standard of care at either equity or law. A fiduciary is expected to be extremely loyal to the person to whom he owes the duty (the "principal"): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents.

Continue reading "The Fiduciary Relationship of Confidence or Trust" »

Embarking on a new business venture emboldens many entrepreneurs. With a solid business plan and capital assured, opening a new business promises new freedom. Simultaneously, many new businesses owners also feel somewhat overwhelmed. The key for initial success is careful planning.

Choosing the best organizational strategy for a new business creates long-lasting consequences. The choice should optimize ease of operation, protect personal assets, and remain affordable. Owners may consider an assortment of options. Each option includes a full complement of advantages and disadvantages.

The assistance of a skilled business lawyer provides new owners with keen professional insight and a ready source of expert answers for all legal questions. For example, a new owner may consider a sole proprietorship. In the most basic sense, a sole proprietorship is easy to maintain. Yet it provides little protection from personal liability and potential claims.

Operating a business as an individual may initially seem economical since you don't need to spend as much money setting it up. However, the long-term costs of selecting a sole proprietorship can be substantial. Sole proprietors have unlimited personal liability for business actives and the actions of all employees. In addition, tax-planning options are limited.

Multiple owners often consider a simple general partnership because of affordability since it does not require registration. Income earned by a partnership passes through to individual partners according to an agreement. Drafting a partnership agreement quickly becomes complex when partners desire to alter equal distribution of income, joint and several liability, or management authority. The best way to avoid future complications is to discuss agreement options with a competent commercial lawyer.

Corporations remain highly popular because of ironclad protection of personal assets and operational flexibility. A board of directors may delegate authority as needed and change profit distribution at will. Tax planning options and benefits also expand when using a corporation. Because of extensive regulation, consider the assistance of a commercial lawyer whose expertise is essential for legal compliance and maintaining all available benefits.

Limited partnerships include at least one general partner and additionally allow an unlimited number of limited partners. Frequently, a corporation becomes the general partner and individuals contribute capital for business formation. Limited partners are responsible up to but no more than the extent of their registered capital investment but have no management authority. New business owners may find this high degree of flexibility useful while limiting personal responsibility for business liability.

Limited liability companies are distinctly different from limited partnerships. A limited liability company passes income through similarly to a general partnership, but also insulates owners from liability similar to a corporation. The IRS does not consider a limited liability company as a taxable entity because of the pass-through feature. Frequently, with careful planning, a limited liability company may combine the best features of a general partnership and corporate protection while avoiding many disadvantages of both entities.

The advice and assistance of a business lawyer is vital when forming a limited liability company. In a few situations, a lawyer is not necessary to start a business, nevertheless, the prudent choice is to begin the operation all new businesses properly from day one. The risk of loss from legal noncompliance is simply too great. A single mistake could void all benefits and expose owners to unlimited liability and asset loss.

While limited liability protects the owners, directors and officers of a corporation, they may still be personally liable in situation where they have severely mismanaged the corporation.

However, it is very rare for directors to be found personally liable because of the business judgment rule. This rule basically says that a director will not be held personally liable for a bad decision as long as he or she was acting in good faith, was diligent in learning information relative to that decision and was not personally interested in the underlying transaction. This rule therefore provides a broad amount of protection to corporate directors.

Continue reading "The Business Judgment Rule" »

Arbitration, a form of alternative dispute resolution (ADR), is a legal technique for the resolution of disputes outside the courts, wherein the parties to a dispute refer it to one or more persons (the "arbitrators", "arbiters" or "arbitral tribunal"), by whose decision (the "award") they agree to be bound. It is a settlement technique in which a third party reviews the case and imposes a decision that is legally binding for both sides. Other forms of ADR include mediation (a form of settlement negotiation facilitated by a neutral third party) and non-binding resolution by experts. Arbitration is most commonly used for the resolution of commercial disputes, particularly in the context of international commercial transactions. The use of arbitration is far more controversial in consumer and employment matters, where arbitration is not voluntary but is instead imposed on consumers or employees through fine-print contracts, denying individuals their right to access the courts says California Business Attorney Steven C. Peck.

Arbitration can be either voluntary or mandatory and can be either binding or non-binding. Non-binding arbitration is, on the surface, similar to mediation. However, the principal distinction is that whereas a mediator will try to help the parties find a middle ground on which to compromise, the (non-binding) arbitrator remains totally removed from the settlement process and will only give a determination of liability and, if appropriate, an indication of the quantum of damages payable.

Arbitration is a proceeding in which a dispute is resolved by an impartial adjudicator whose decision the parties to the dispute have agreed will be final and binding.

Advantages and disadvantages:
Parties often seek to resolve their disputes through arbitration because of a number of perceived potential advantages over judicial proceedings:

When the subject matter of the dispute is highly technical, arbitrators with an appropriate degree of expertise can be appointed (as one cannot "choose the judge" in litigation)
arbitration is often faster than litigation in court
arbitration can be cheaper and more flexible for businesses
arbitral proceedings and an arbitral award are generally non-public, and can be made confidential because of the provisions of the New York Convention 1958, arbitration awards are generally easier to enforce in other nations than court judgments
in most legal systems, there are very limited avenues for appeal of an arbitral award

Some of the disadvantages include:
Arbitration may become highly complex
Arbitration may be subject to pressures from powerful law firms representing the stronger and wealthier party
Arbitration agreements are sometimes contained in ancillary agreements, or in small print in other agreements, and consumers and employees sometimes do not know in advance that they have agreed to mandatory binding pre-dispute arbitration by purchasing a product or taking a job
if the arbitration is mandatory and binding, the parties waive their rights to access the courts and to have a judge or jury decide the case
in some arbitration agreements, the parties are required to pay for the arbitrators, which adds an additional layer of legal cost that can be prohibitive, especially in small consumer disputes
in some arbitration agreements and systems, the recovery of attorneys' fees is unavailable, making it difficult or impossible for consumers or employees to get legal representation; however most arbitration codes and agreements provide for the same relief that could be granted in court
if the arbitrator or the arbitration forum depends on the corporation for repeat business, there may be an inherent incentive to rule against the consumer or employee
there are very limited avenues for appeal, which means that an erroneous decision cannot be easily overturned. Although usually thought to be speedier, when there are multiple arbitrators on the panel, juggling their schedules for hearing dates in long cases can lead to delays.

In some legal systems, arbitral awards have fewer enforcement options than judgments; although in the United States arbitration awards are enforced in the same manner as court judgments and have the same effect.

Unlike court judgments, arbitration awards themselves are not directly enforceable. A party seeking to enforce an arbitration award must resort to judicial remedies, called an action to "confirm" an award although grounds for attacking an arbitration award in court are limited, efforts to confirm the award can be fiercely fought, thus necessitating huge legal expenses that negate the perceived economic incentive to arbitrate the dispute in the first place.

Continue reading "Arbitration A Technique For The Resolution of Legal Disputes Outside The Courthouse" »

When it comes to operating and managing your company, business law attorneys can help ensure that all your actions are done in a legal manner -- in recruiting or terminating personnel or high-ranking officers, when entering a deal, or in buying or merging with another firm.

However, finding the right legal mind to handle your business dealings is not that easy, as it may seem. Just when you think that you have found the right one for the job, they may place your company in a bad light by letting you sign an anomalous deal.

The Basic Considerations

Before hiring corporate counsels, you first need to consider the following factors:

1. Integrity - Initially, you want to work with someone who has proven himself or herself in the legal arena. Check their service record. Have they been handling cases for five, ten, twenty years, or are they fresh from law school?

2. Expertise - In what area are they specializing in? Corporate law? Incorporation? Recruitment and termination?

3. Track Record - Of course, you want to hire someone who is capable of winning cases. No matter how impressive their credentials are but if they are not capable of producing favorable outcomes, then it is useless hiring them.

4. Experience - "When the going gets tough, the tough gets going," as they say. More or less, finding experienced attorneys will help bail you out of a tight situation. You may want to hire someone who knows his or her way around and well versed with business law.

How can You Benefit from Your Business Law Attorneys

In general, business law professionals can give the protection that your company needs. They can help you win cases and offer solutions when you find yourself in a tight fix.

Being in a legal battle can be time consuming and costly. If the case carries on for a long time, it may even drain whatever resources you have left. Business attorneys can help you negotiate your way out of possible class suits. Likewise, they can provide measures to prevent the risk of being sued.

Contact Steven Peck's Premier Legal toll free at 866.999.9085 to talk to an experienced California Business Attorney and visit us on-line at www.premierlegal.org.

Continue reading "Business Law Attorneys Can Help Keep Your Business Running Smoothly" »

A standard form contract (sometimes referred to as an adhesion contract or boilerplate contract) is a contract between two parties that does not allow for negotiation, i.e. take it or leave it. It is often a contract that is entered into between unequal bargaining partners, such as when an individual customer is given a contract by the salesperson of a multinational corporation. The customer is in no position to renegotiate the standard terms of the contract and the company's representative usually does not have the authorization to do so. While adhesion contracts, in and of themselves, are not illegal per se, there exists a very real possibility for unconscionability.

Theoretical issues
There is some debate on a theoretical level whether, and to what extent, courts should enforce standard form contracts. On one hand, they undeniably fulfill an important role of promoting economic efficiency. Standard form contracting reduces transaction costs substantially by precluding the need for buyers and sellers of goods and services to negotiate the many details of a sale contract each time the product is sold. On the other hand, there is the potential for inefficient, and even unjust, terms to be accepted by signatories to these contracts. Such terms might be seen as unjust if they allow the seller to avoid all liability or unilaterally modify terms or terminate the contract.These terms often come in the form of, but are not limited to, forum selection clauses and mandatory arbitration clauses, which can limit or foreclose a party's access to the courts; and also liquidated damages clauses, which set a limit to the amount that can be recovered or require a party to pay a specific amount. They might be inefficient if they place the risk of a negative outcome, such as defective manufacturing, on the buyer who is not in the best position to take precautions. There are a number of reasons why such terms might be accepted:

Standard form contracts are rarely read
Lengthy boilerplate terms are often in fine print and written in complicated legal language which often seems irrelevant. The prospect of a buyer finding any useful information from reading such terms is correspondingly low. Even if such information is discovered, the consumer is in no position to bargain as the contract is presented on a "take it or leave it" basis. Coupled with the often large amount of time needed to read the terms, the expected payoff from reading the contract is low and few people would be expected to read it. Sometimes a standard form contract may literally be dispensed from a vending machine to drivers sitting in line to enter a parking garage, which means that stopping to read the contract risks provoking road rage staqtes California Business Law Attorney Steven C. Peck.

Access to the full terms may be difficult or impossible before acceptance
Often the document being signed is not the full contract; the purchaser is told that the rest of the terms are in another location. This reduces the likelihood of the terms being read and in some situations, such as software license agreements, can only be read after they have been notionally accepted by purchasing the good and opening the box. These contracts are typically not enforced, since common law dictates that all terms of a contract must be disclosed before the contract is executed.

Boilerplate terms are not salient
The most important terms to purchasers of a good are generally the price and the quality, which are generally understood before the contract of adhesion is signed. Terms relating to events which have very small probabilities of occurring or which refer to particular statutes or legal rules do not seem important to the purchaser. This further lowers the chance of such terms being read and also means they are likely to be ignored even if they are read.

There May Be Social Pressure To Sign
Standard form contracts are signed at a point when the main details of the transaction have either been negotiated or explained. Social pressure to conclude the bargain at that point may come from a number of sources. The salesperson may imply that the purchaser is being unreasonable if they read or question the terms, saying that they are "just something the lawyers want us to do" or that they are wasting their time reading them. If the purchaser is at the front of a queue (for example at an airport car rental desk) there is additional pressure to sign quickly. Finally, if there has been negotiation over price or particular details, then concessions given by the salesperson may be seen as a gift which socially obliges the purchaser to respond by being co-operative and concluding the transaction.

Standard form contracts may exploit unequal power relations
If the good which is being sold using a contract of adhesion is one which is essential or very important for the purchaser to buy (such as a rental property or a needed medical item) then the purchaser might feel they have no choice but to accept the terms. This problem may be mitigated if there are many suppliers of the good who can potentially offer different terms indicates Los Angeles Business Attorney Steven C. Peck.

Some contend that in a competitive market, consumers have the ability to shop around for the supplier who offers them the most favorable terms and are consequently able to avoid injustice. However, in the case of credit cards (and other oligopolies), for example, the consumer while having the ability to shop around may still have access to only form contracts with like terms and no opportunity for negotiation. Also, as noted, many people do not read or understand the terms so there might be very little incentive for a firm to offer favorable conditions as they would gain only a small amount of business from doing so. Even if this is the case, it is argued by some that only a small percentage of buyers need to actively read standard form contracts for it to be worthwhile for firms to offer better terms if that group is able to influence a larger number of people by affecting the firm's reputation.

Another factor which might mitigate the effects of competition on the content of contracts of adhesion is that, in practice, standard form contracts are usually drafted by lawyers instructed to construct them so as to minimize the firm's liability, not necessarily to implement managers' competitive decisions. Sometimes the contracts are written by an industry body and distributed to firms in that industry, increasing homogeneity of the contracts and reducing consumer's ability to shop around.

Common Law Status
As a general rule, the common law treats standard form contracts as any other contract. Signature or some other objective manifestation of intent to be legally bound will bind the signor to the contract whether or not they read or understood the terms. The reality of standard form contracting, however, means that many common law jurisdictions have developed special rules with respect to them. In general, courts will interpret standard form contracts contra proferentem (literally 'against the proffering person') but specific treatment varies between jurisdiction says California Business Attorney Steven C. Peck.

Standard form contracts are generally enforceable in the United States. The Uniform Commercial Code which is followed in most American states has specific provisions relating to standard form contracts for the sale or lease of goods. Furthermore, standard form contracts will be subject to special scrutiny if they are found to be contracts of adhesion.

Appellant tenants contend that the trial court erred when it denied their motion for contractual attorneys' fees arising from an action brought against them and later voluntarily dismissed by respondent landlords. Relying on Santisas v. Goodin (1998) 17 Cal.4th 599, the tenants say the case falls outside the bar set out in Civil Code section 1717, subdivision (b)(2), on contractual attorneys' fees in voluntarily dismissed cases because the action contained noncontract claims covered by the fee clause. We disagree. The trial court correctly held that all the claims in the action were claims on the contract--the parties' lease--since none of those claims, however styled, could have been established in any way except by proof of a breach of the lease. The judgment is affirmed.

FACTUAL AND PROCEDURAL HISTORIES
James and Sharon Norris, the landlords, leased commercial property in 2003 to Oliverio Herrera and George Thomas, the tenants. In 2006, the landlords filed a complaint against the tenants in superior court. The complaint alleged that the tenants had stopped using the property and had sublet it or assigned the lease to third parties in violation of the no-sublet and no-assignment clauses in the lease. The complaint alleged six additional breaches of the lease: (1) placement of large signs on the property in violation of a covenant not to alter, add to, or improve the property without consent; (2) painting of the building in violation of the same covenant; (3) operation of an unlicensed business in violation of a provision prohibiting illegal activities; (4) failure to maintain insurance in violation of a covenant requiring the tenants to maintain insurance; (5) failure to maintain the property in a good and safe condition in violation of a covenant requiring this; and (6) failure to maintain equipment on the property in good and working condition in violation of a covenant requiring this be done.

On the basis of these alleged breaches of the lease, the complaint included three causes of action. The first, titled ejectment, stated that the tenants were withholding possession of the property despite the landlords' demands that they vacate because of their breaches of the lease. On this cause of action, the landlords prayed for a decree that they were entitled to possession; a writ of execution directing the sheriff to remove the tenants; and damages. The second cause of action, titled declaratory relief, asked the court for a declaration that the tenants breached the lease; that the lease, including a purchase option, was of no further effect; and that the tenants were in possession unlawfully because of their breaches. The third, titled quiet title, stated that the landlords sought to quiet title to the property in their favor on the ground that the tenants had breached the lease. On this cause of action, the landlords prayed for a judgment that they were the sole owners of the property; a decree that the landlords would retain all money paid to them by the tenants; restitution of the property to the landlords; and damages. The tenants filed a cross-complaint claiming they attempted to exercise the purchase option but the landlords refused, and in doing so breached the lease.

The parties later reached an agreement on the exercise of the option, and the property was sold to the tenants. The complaint and cross-complaint were voluntarily dismissed.

The tenants filed a motion for $53,532.75 in attorneys' fees. They relied on an attorneys' fees clause in the lease:

"In case suit shall be brought for recovery of the premises, or for any sum due hereunder, or because of any act which may arise out of possession of the premises, by either party, the prevailing party shall be entitled to all costs incurred in connection with such action, including reasonable attorney's fees."
They cited Code of Civil Procedure section 1032, subdivision (a)(4), which defines "a defendant in whose favor a dismissal is entered" as a prevailing party for purposes of awarding costs, and Code of Civil Procedure section 1033.5, subdivision (a)(10), which allows attorneys' fees to be awarded as costs if authorized by contract.

The trial court issued an eight-page written order denying the request for fees. It relied on Civil Code section 1717. Subdivision (a) of this section provides for the enforcement of contractual attorneys' fees clauses by prevailing parties, but subdivision (b)(2) makes an exception for voluntarily dismissed cases: "Where an action has been voluntarily dismissed or dismissed pursuant to a settlement of the case, there shall be no prevailing party for purposes of this section." The court acknowledged that Santisas v. Goodin, supra, 17 Cal.4th at page 617, held that the Civil Code section 1717, subdivision (b)(2), exception does not apply if the action is not an action on the contract and the fee clause is broad enough to cover noncontract claims. In that situation, Code of Civil Procedure section 1021 authorizes--and Civil Code section 1717, subdivision (b)(2), does not bar--enforcement of the parties' fee-shifting agreement. The court concluded, however, that all the causes of action in the complaint were based on the contract and that the action was an action on the contract, so Civil Code section 1717, subdivision (b)(2), did bar a fee award. The tenants filed this appeal.

DISCUSSION
The tenants' argument on appeal is the same as the argument they made before the trial court: The landlords' claims are not contract claims, as ejectment is a tort theory, quiet title a real property theory, and declaratory relief an equitable remedy. The tenants contend that, regardless of the fact that all the landlords' claims were based on alleged breaches of the lease, each of those claims "sounds in" something other than contract in the abstract, and that is what matters. They argue that, because the Supreme Court stated that Civil Code section 1717 bars contractual attorneys' fees in voluntarily dismissed cases only with respect to "causes of action sounding in contract" (Santisas v. Goodin, supra, 17 Cal.4th at p. 617), our consideration must be limited to the labels attached to the causes of action in the complaint, and the fact that the only basis of liability alleged in the complaint for any of the causes of action is a breach of a contract is irrelevant. This is a question of law that we review de novo. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 799.)

The tenants' view that the labels control over the substance is not supported by authority or reason. The superior court refuted this view in a well-reasoned and detailed analysis. We adopt the following portion of it:

"We must determine if the three causes of action are contract or noncontract causes of action. There is no bright line rule for determining if an action is on the contract. Such a finding depends on the facts of each case.
"The complaint contains three causes of action: ejectment, declaratory relief and quiet title. There was no `breach of contract' cause of action alleged. However, this does not mean that the action is not on the contract.
"The court gives more weight to the substance of an action than to its form[;] therefore the court looks beyond the parties' characterization of whether an action is on a contract in determining whether the action is `on a contract' for purposes of CC §1717. See Boyd [v.] Oscar Fisher Co. (1989) 210 Cal.App.3d 368, 377. The court held that, in determining whether a party prevailed on the contract, `the court should consider the pleaded theories of recovery, the theories asserted and the evidence produced at trial, if any, and also any additional evidence submitted on the motion in order to identify the legal basis of the prevailing party's recovery.' Id.
"In applying the approach set out in Boyd the court finds that the three causes of action in the present case are all based on the contract. The suit fundamentally was based upon the lease, in that plaintiff sought redress for breaches of the lease. See Beeman [v.] Burling (1990) 216 Cal.App.3d 1586, 1608.
"Ejectment is a legal action to recover possession of real property wrongfully withheld from the plaintiff. Caperton [v.] Schmidt (1864) 26 Cal. 479[, 495]; McNulty [v.] Copp (1954) 125 Cal.App.2d 697[, 705-706, 708]. The gravamen of an ejectment action is frustration of the plaintiff's right to possession. B & B Sulfur Co. [v.] Kelley (1943) 61 Cal.App.2d 3[, 9].. . . In this case, the plaintiff was seeking to eject the defendant and recover the property under the lease agreement because of a breach. The cause of action is on the contract.
"The declaratory relief COA alleges a dispute under the lease. Under CCP §1060, any person interested under a contract or under a written instrument, excluding a trust or will, may seek declaratory relief and obtain a judicial declaration of respective rights and duties under the instrument. In this case, the cause of action for declaratory relief is based upon the lease agreement. In his claim for declaratory relief, the plaintiff is requesting that the court determine the parties' rights and duties under the lease. Such a claim is `on a contract' for purposes of section 1717. See Exxess Electronixx v. Heger Realty Corp. (1998) 64 Cal.App.4th 698, 707; City and County of San Francisco v. Union Pacific R.R. Co. (1996) 50 Cal.App.4th 987, 999-1000; Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1259.
"Also, the quiet title cause of action seeks to quiet title based upon a breach of the lease.. . . The court therefore finds that the cause of action is based on [the] contract.
"The action was voluntarily dismissed and there is no prevailing party on the contract for purposes of §1717. CC §1717 (b)(2); Santisas [v.] Goodin (1998) 17 Cal.4th 599[, 619]. Because there are no noncontract causes of action in this case, attorney's fees will not be awarded."
In sum, relief was sought for nothing but a set of alleged breaches of contract. The landlords sought an order ejecting the tenants from the property because they breached the lease; they sought a declaratory judgment that the tenants breached the lease; and they sought an order quieting title in their favor on the ground that the tenants breached the lease. In substance, the complaint alleged breaches of the lease and asked for remedies called ejectment, declaratory relief, and quiet title. The conclusion that this action, or any portion of it, was not an action on a contract would plainly not be correct.

The tenants contend that B & B Sulfur Co. v. Kelley, supra, 61 Cal.App.2d 3 supports their position. They point out that, although the court there had to consider the terms of a lease to decide the plaintiffs' ejectment claim, the claim nevertheless was "based on a . . . tort of defendants." (Id. at p. 6.) The case is easily distinguished. The defendants there were not parties to the lease; the complaint did not allege that they breached any lease; and the significance of the lease was simply that it gave the plaintiffs a right of possession against the defendants as trespassers. (Id. at pp. 5-6.) In this case, by contrast, the landlords' right of possession could be asserted against the tenants only if the tenants breached the lease. The tenants' breach was the only alleged basis of their liability.

The tenants also rely on Stout v. Turney (1978) 22 Cal.3d 718 and Lerner v. Ward (1993) 13 Cal.App.4th 155, in which fraud claims arising out of contractual relationships were held not to be claims upon a contract for purposes of awarding attorneys' fees under Civil Code section 1717. Neither case is helpful to the tenants. In both, the fraud claims were independent of any contract claims--i.e., they were claims that the defendants were liable for fraud whether they breached the parties' contract or not. (Stout v. Turney, supra, at pp. 721-722, 730; Lerner v. Ward, supra, at pp. 157, 158-159.) To prevail on the fraud claims, the plaintiffs did not have to prove breach of contract. All the claims in the present case did depend on proof of a breach of contract. The tenants' citation of McKenzie v. Kaiser-Aetna (1976) 55 Cal.App.3d 84 is similarly not helpful. There, the court held that a claim for negligent misrepresentation was not "on [the] contract" for purposes of Civil Code section 1717. Again, unlike here, the plaintiffs did not need to show a breach of the contract to prevail on the claim in question. (McKenzie v. Kaiser-Aetna, supra, at pp. 88-89.)

The tenants next argue that the landlords' suit was not an action on the contract to the extent that it sought other remedies than damages. They say that "[b]ecause [the landlords] elected the non-contract remedies, they must bear the consequences of their actions." The tenants' assumption is that only a claim for contract damages is a contract claim. Under this reasoning, a complaint consisting of a cause of action for breach of contract and a prayer for specific performance would not be an action on a contract. To state this view is to refute it. In their reply brief, the tenants acknowledge that an unlawful detainer action seeking an eviction order would also be an action on a contract. There is no authority for the idea that a lawsuit is a contract action only when the remedies sought are damages or an eviction order, however.

Finally, the tenants say the trial court, in its discussion of declaratory relief, should have relied on Persson v. Smart Inventions, Inc. (2005) 125 Cal.App.4th 1141 instead of the cases it cited. The tenants claim Persson "superseded" the cases on declaratory relief the trial court relied on, but we do not see how. In fact, the holding of Persson is not applicable to the present case at all. In Persson, the Court of Appeal held that a declaratory relief action was not an action on a contract for purposes of applying Civil Code section 1717. The suit in Persson, however, sought declaratory relief for fraud, deceit, negligent misrepresentation, securities fraud, and breach of fiduciary duty. Unlike in the present case, the complaint did not allege that the defendants breached a contract; proof of breach of a contract was not necessary to show liability. (Persson v. Smart Inventions, Inc., supra, at pp. 1174, fn. 23, 1149-1150.) Where, as here, the relief sought is a declaration that the defendants breached a contract, the claim is a contract claim. As the Court of Appeal stated in City and County of San Francisco v. Union Pacific R.R. Co., supra, 50 Cal.App.4th at page 1000, the contention that an action for declaratory relief to determine the rights of the parties under a contract is not an action on the contract is "patently absurd."

In their reply brief, the tenants argue for the first time that "a careful review of the complaint shows the gravamen of the case claims is actually trespass ab initio," which, if correct, arguably would mean that the tenants could have prevailed without showing a breach of the lease. We generally do not address arguments made for the first time in an appellant's reply brief. (Feitelberg v. Credit Suisse First Boston, LLC (2005) 134 Cal.App.4th 997, 1022; California Recreation Industries v. Kierstead (1988) 199 Cal.App.3d 203, 205, fn. 1.) Further, the tenants have not cited any authority for, or made any genuine argument supporting, the proposition that a complaint alleging breaches of a lease and praying for ejectment, declaratory relief, and quiet title is, in reality, a suit for trespass ab initio. We need not address a point that has been inadequately briefed. (Associated Builders & Contractors, Inc. v. San Francisco Airports Com. (1999) 21 Cal.4th 352, 366, fn. 2.)