California Business Lawyer Blog

What exactly is a surety bond and why should small business owners care?
A lot of people like to sum up a surety bond as insurance, but in reality, surety bonds are a financial guarantee. They are a part of the insurance industry but they serve as a financial guarantee for the obligee (or person requiring the bond which is usually the state)

How do I know if my business/start-up needs a bond?
Almost every small business is required or can utilize a surety bond in some way. For instance, many states require a sales tax bond for stores to operate. Almost every business that requires a license to operate in the state will be required to post a surety bond. Some of the more common industries include car dealers, mortgage brokers, and even insurance brokers. If you aren't required to post a bond to operate, many companies look into getting a fidelity bond or a dishonesty bond which protect the owner against employee theft.

How do I obtain one?
Most of the time, it's a simple process. If the bond required is $25,000 or less, often just submitting an application is all that is necessary. With the application process there is a credit check and depending on how the credit check comes back, they may or may not need to submit and any sort of financial data or bank letter of credit. For most people with a good credit background, they only need to submit an application and they will be on their way with a bond in hand. This process usually takes anywhere from 24 to 48 hours. If there is a cosigner, letter of credit or collateral needed, or you want to do a premium financing surety bond then the process will usually take a little longer to complete.

One thing to consider before you get a surety bond that will save you time in the long run is that when you first submit an application, if there is another partner (or anyone with more than 10% share) in the company, they also need to be underwritten on the bond. So if there are three partners, there need to be three applications with three signatures.

What do surety bonds cost?
The cost is determined by examining the credit of the person needing the bond and what type of bond it is. A person with good credit will normally get standard rates that can range anywhere from .05% to 5% of the full bond amount. If the person has sub-standard credit, then they normally have to pay anywhere from 5% to 15% of the total bond amount.

Do I have to get a new one every year?
Most license and permit bonds are required to be renewed every year. There are thousands of types so it really depends on the specific bond that your company needs and the requirements that the obligee puts on the bond.

This guest post was written by Kevin Kaiser of Surety Bonds .com[link:http://www.suretybonds.com]. If you want to learn more about how surety bonds are involved in small business check out our podcast with David B. Willis on Texas Small Business Law[link:http://davidwillislaw.com/texassmallbusinesslaw/surety-bonds-for-small-businesses/] or visit the Surety Bond Education Center[link:http://www.suretybonds.com/edu/].

Many Americans experience a time when their financial obligations become overwhelming and they are unable to pay all of their outstanding obligations on time. A debtor who defaults on a secured loan may face the threat of property repossession. A creditor can repossess property only if the creditor has a valid security interest in that property and if the creditor follows the proper legal procedures for repossessing the property says California Business Lawyer Steven C. Peck.

The specific laws regarding property repossession vary from state to state but generally include:

· The Creditor Must Have a Valid Security Interest in the Property: that means that the security interest must have been created in compliance with all state laws. In order to enforce a security interest, the creditor must not only enter a binding loan contract creating the security interest but also file, or record, the security interest with the state in order to retain a priority interest in the secured property.

· You Must be in Default on the Loan or Fail to Pay the Accelerated Loan: your loan document explains when you are in default on the loan and when the creditor may demand that you pay the remainder of the loan. If you have been making your regular payments on time then you are likely not in default on the loan and the creditor probably does not have the right to repossess your property.

· You Must be Given Notice and the Right to Cure: most states require creditors to provide notice to debtors prior to repossessing property. The notice usually contains the legal authority the creditor has to repossess the property. It also provides debtors with a certain amount of time to pay the loan and any outstanding fees or penalties. If the debtor pays his or her obligations within that time then the creditor loses the right to repossess the property. However, if the debtor does not pay his or her obligations by the date contained in the letter then the creditor has the legal right to repossess the property.

· The Creditor may not disturb the peace : a creditor has the right to repossess property, without a court order, but only if it can be done without breaching the peace. That means that the creditor may not force entry to your home, intimidate you, or do anything unlawful to obtain custody of the property. For example, if a creditor is repossessing your car then the creditor may take possession of the car that is parked in a parking lot or your driveway but may not break into a locked garage to get the car. If the car, of other property, is out of reach and the debtor refuses entry then the creditor would need to seek assistance of the court to obtain the property.
If the creditor violates any of your rights then the property repossession may have occurred illegally and you may have the right to compensation.

Continue reading "The Threat of Repossession Upon the Default on a Loan: Valid Security Interests" »

On the eve of the second of three major trials, one of the largest business lawsuits in Michigan history has settled for $500 million.

Livonia-based Valassis Communications, Inc. reached an agreement to settle its outstanding lawsuits against News America Marketing (NAM), a division of Rupert Murdoch's News Corp.

U.S. District Court, Eastern District of Michigan Judge Arthur Tarnow OK'd the agreement, which would have prevented a Feb. 2 trial in asserting violations of the Sherman Act. If Valassis had prevailed in this suit -- as it did in a $300 million July 23, 2009, trial asserting unfair competition and tortious interference -- the damages would have been trebled.

Besides paying Valassis $500 million, NAM also will enter into a 10-year shared mail distribution agreement with Valassis Direct Mail, a Valassis subsidiary. In addition, the judge will issue a permanent injunction related to certain business practices at issue in the lawsuits, and Valassis also will drop a pending state court case in California.

"It has become evident to our legal advisors from pre-trial proceedings over the past couple of weeks that significant risks were developing in presenting this case to a jury," said News Corp. Deputy Chairman, President and Chief Operating Officer Chase Carey in a statement. "That ... led us to believe it was in the best interests of the Company and its stockholders to agree to a settlement."

Valassis asserted that, over a six-year period, NAM tried to monopolize the free-standing coupon insert (FSI) market. Valassis contended that, by 2006, NAM had more than 60 percent of the FSI market, and did so by illegally bundling deals on its FSIs with its other consumer marketing division, in-store and point-of-purchase media.

Continue reading "$500 Million Business Lawsuit Resolved" »

Depositions are an important part of the legal process. A deposition is testimony taken under oath that is taken outside of a courtroom for discovery purposes. Depositions can be used to gather information about a case and the testimony gained during a deposition may be admissible in court during litigation. Depositions are allowed in state and federal cases. The Califoria rules for depositions are found in Section 2025.010 et seq. of the California Code of Civil Procedure.
What to Know Before Your Deposition
There are several important things to know before you are deposed including says California Business lawyer Steven C. Peck.:
You are Entitled to Notice: if you are represented by counsel then adequate written notice will be provided to your attorney. If you are unwilling to testify then you may be served with a subpoena compelling your compliance with the deposition request. Notice must be provided to all other parties to the lawsuit and include the name of the person to be deposed and the time and location of the deposition.
You will be Testifying Under Oath: that means that you may be tried for perjury if your testimony is not truthful about a material matter of the case.
You have the Right to be Represented by an Attorney: during your deposition.
What to Expect When You Enter a Deposition
Depositions are typically conducted in a conference room or other meeting place and not inside the courtroom. You should expect that, at a minimum, an attorney for each party to the case and a person authorized to take oaths who is known for deposition purposes as an officer. Your testimony will be recorded and often transcribed.
Your deposition will start with the officer stating for the record the officer's name and business address and the date, time and location of the deposition. Then the officer will ask you to take an oath, similar to the one that you take when testifying in court, to ensure that your testimony is truthful. The officer will also identify everyone in the room during the deposition.
After those preliminary matters have been satisfied, the party who requested the deposition will start asking you questions. Your attorney, or an attorney for another party to the lawsuit, has the right to make an objection to any questions asked of you. Generally, you will be required to answer the question despite the objection but your answer may be inadmissible in court if a judge finds the objection to be valid.
At the completion of the deposition, the officer will note the official end time of the deposition for the record. The federal rules limit each deposition to one seven hour day. The party taking the deposition must petition the court if more time is needed for the deposition.
Once the deposition transcript is complete, you will have thirty days to review and to make any necessary changes.
If you have received notice of a deposition then it is important to consult with your attorney prior to the day of the deposition. The California business attorneys at Steven Peck's Premier Legal (www.premierlegal.org) will help you prepare for the deposition and explain in more detail how depositions work.

Breach of contract is a legal concept in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance says California Business lawyer Steven C. Peck.

Minor breaches
A minor breach, a partial breach or an immaterial breach, occurs when the non-breaching party is unentitled to an order for performance of its obligations, but only to collect the actual amount of their damages. For example, suppose a homeowner hires a contractor to install new plumbing and insists that the pipes, which will ultimately be sealed behind the walls, be red. The contractor instead uses blue pipes that function just as well. Although the contractor breached the literal terms of the contract, the homeowner can only recover the amount of his damages. Generally, this means the difference in value between the red pipe and the blue pipe. Since the pipes are identical value, the difference is zero; therefore, there are no damages and the homeowner receives nothing.

Material breach
A material breach is any failure to perform that permits the other party to the contract to either compel performance, or collect damages because of the breach. If the contractor in the above example had been instructed to use copper pipes, and instead used iron pipes which would not last as long as the copper pipes would have, the homeowner can recover the cost of actually correcting the breach - taking out the iron pipes and replacing them with copper pipes indicated California Business attorney Steven C. Peck.

The Restatement (Second) of Contracts lists the following criteria to determine whether a specific failure constitutes a breach:

In determining whether a failure to render or to offer performance is material, the following circumstances are significant: (a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

Fundamental breach
A fundamental breach (or repudiatory breach) is a breach so fundamental that it permits the aggrieved party to terminate performance of the contract, in addition to entitling that party to sue for damages.

Anticipatory breach
A breach by anticipatory repudiation (or simply anticipatory breach) is an unequivocal indication that the party will not perform when performance is due, or a situation in which future non-performance is inevitable. An anticipatory breach gives the non-breaching party the option to treat such a breach as immediate, and, if repudiatory, to terminate the contract and sue for damages (without waiting for the breach to actually take place).

Limits on Remedies and Damages
Typically, the judicial remedy for breach of contract is monetary damages. See damages. Where the failure to perform cannot be adequately redressed by money damage, the court may enter an equity decree awarding an injunction or specific performance.

The aggrieved person has a duty to mitigate or reduce damages by reasonable means. Liquidated Damages may be limited to a specific amount. In the United States, punitive damages are generally not awarded for breach of contract but may be awarded for other causes of action in a lawsuit. Limitation of Liability (Exculpatory) clauses. [Private agreement is permissible.] [Invalid when public interest is involved and there is willful conduct or gross negligence.

Contact Steven Peck's Premier Legal toll free at 1.866.999.9085 to talk to an experienced california business lawyer and visit us on-line at www.premierlegal.org.

Civil procedure students everywhere may be able to thank the U.S. Supreme Court if it rules as expected and holds that, for purposes of diversity jurisdiction, a corporation's home place of business is in the state where its headquarters is located.

The headquarters test is simpler than the rule established by the San Francisco-based 9th U.S. Circuit Court of Appeals that looks to the state where a company's people and property are located. In oral arguments yesterday, Justice Anthony M. Kennedy worried that the 9th Circuit rule could stump some lawyers, the National Law Journal reports.

"Not all diversity suits have major law firms in them" that could handle the calculations to determine a company's citizenship under the "complex tests" of the 9th and other circuits, he said.

The National Law Journal and Dow Jones newswires both reported that the justices appeared likely to reject the 9th Circuit test. The National Law Journal put it this way: "For a corporation, the U.S. Supreme Court's axiom may soon be: Home is where the headquarters is."

Corporate lawyers are also likely to like such a decision, since it would allow more lawsuits to be tried in federal court based on diversity jurisdiction, rather than more plaintiff-friendly state courts, according to the NLJ.

In the case before the Supreme Court, lawyers representing Hertz employees in a wage-and-hour suit are arguing that the company's principal place of business is in California, where more of its business activities take place, even though its headquarters is in New Jersey.

Chief Justice John G. Roberts Jr. asked where Starbucks' principal place of business would be located under the 9th Circuit test. The coffee company was founded in Seattle, but the lawyer for the Hertz plaintiffs said the answer was California, since it has so many employees there.

Continue reading "Diversity Jurisdiction: Look to the Company's Headquarters State" »

Any shareholder who is sued for receiving an improper distribution may implead all other shareholders who received a distribution with the knowledge of the facts of any such impropriety. The shareholder may proceed by filing a cross-complaint in that action or by filing an independent action.

Under the California Unifrom Fraudulent Transfer Act, a creditor can have a fraudulent distribution set aside even if the receiving shareholder has no knowledge of the impropriety. Thus an innocent shareholder might have to return payment for shares sold under a buy-sell agreement if the distribution violated the Uniform Fraudulent Transfer Act.

The sale of shares by a controlling shareholder or member of a control group at an excessive price to transfer control or permit a control group to remain in control may cause the shareholder or member to be liable to the corporation for the amount paid for the shares.

Continue reading "Improper Distributions to Corporate Shareholders" »

A crucial issue for a closely held business that wishes to buy out one of its principal ownwrs is whether it will have the funds to do so. Because so few business have sufficient cash or other resources to fund a buyout, the seller usually must accept an installment payout and continue to share the risks of the future profitability of the business unless the business has provided for a fund to buy out the major owner.

There are essentially three methods for funding a buyout: borrowing from a party, setting up a shrinking fund or reserve, or acquiring insurance.

if the business has the borrowing capacity or available cash to fund a buy-sell agreement, the cost of life insurance should be comparted with the cost of borrowing money or using the company's own funds. Insurance contracts are extremely competiviely priced and usually very cost effective. However, there are many factors to consider in making a comparison, including the ages and health of the insureds, which might push premium rates to the point that other options should be seriously considered, and the fact that the insurace may never be collected should retirement occur before death.

Continue reading "Life Insurance Funding of Buy-Sell Agreements" »

A contract is a legally enforceable agreement between two or more parties. So, how do you enforce it if it is broken by one of the parties?

That depends on how exactly the party breaches the contract. A minor, or nonmaterial, breach of contract entitles the non-breaching party to actual damages suffered. Therefore, if your mechanic used a different brand of oil that was of at least the same quality as that named in your contract, then you likely would not have a material breach of contract. You did not suffer any damages and may have, in fact, received a better product.

If, however, a party significantly or materially breaches a contract then the other party is entitled to either force the breaching party to perform his or her responsibilities pursuant to the contract or to pay damages for the breach. In the example of an auto mechanic adding oil to your car, if the mechanic failed to put any oil into the engine after cleaning it and your car broke down as a result of that mistake then you have suffered damages from the mechanic's material breach of your contract and you are likely entitled to damages.

Here are some things to think about when deciding whether a party's breach was material:

The extent to which the breach has caused the nonbreaching party a denial of benefits under the contract which he or she reasonably relied upon;
Whether the injured party can be compensated for the breach;
The likelihood that the breaching party will correct his or her failure. (When considering this likelihood it is important to consider all past performances by the party as well as any reasonable assurances the party has provided);
How the breaching party's behavior comports with fair business and good faith;
Whether the breach was under the breaching party's control or whether the breach was due to outside influences.
If a party materially breaches a contract then non-breaching party can consider the contract to be terminated.

Ultimately, a material breach of contract is one that goes to the very core of the contract. If you hire a videographer, for example, to take a video of your wedding and that videographer forgets his video camera and instead shows up with a point and shoot camera then the videographer has materially breached the contract. You hired him to make a video of your wedding, an event that cannot be recreated, and he did not do that. Since the videographer materially breached the contract you can consider the contract void and refuse to pay him.

However, it is important to remember that a material breach is a legal term and if you have any doubts about whether a breach was in fact material then you should contact your attorney. Otherwise, if the breach is not in fact a material breach then any failure to perform your own obligations pursuant to the contract could make you liable for damages!

Continue reading "Enforcement of a Broken Contractual Agreement" »

Claim and Delivery is a provisional California Collection Law remedy that enables the plaintiff in an action for recover of specific, tangible personal proeprty in the defendant's possession to obtain possession of the property prior to judgment.

The Claim and Delivery procedure is most often used when the personal property sought is security for the repayment of a debt now in default. It is also used by California Collection lawyers to reclaim personal property which has been loaned, leased or bailed to another; or to obtain personal property which is the subject of a dispute over ownership.

Upon the filing of a complaint for Claim and Delivery the plaintiff shall seek a writ of possession as long as the plaintiff can show that it is more probable than not that he or she will ultimately obtain a judgment for the possesion of the personal property.

Continue reading "Claim and Delivery: An Action to Recover Specific Personal Property " »

The common count known as "book account" or "open book account" is based upon the indebtedness shown by a detailed statement kept by the creditor, which constitutes the principal record of one or more transactions between the creditor and the debtor.

Book account is defined in California Code of CivilProcedureSection 337a, must (1) arise form a contract or fiduciary relation, (2) show the debits and credits in connection with the relationship, (3) be entered in the regular course of business conducted by the creditor, and (4) be kept in a reasonably permanent form and manner (a) in a bound book, or (b) on a sheet or sheets fastened in a book or to backing, or (c) on a card or cards, or (5) be kept in other reasonably permanent form and manner.

Continue reading "California Collection Law: Common Counts Pleading - Book Account" »