Monday, November 28, 2011

Joint and several liabilities.

If as a buyer you had a supplier parent company and a supplier subsidiary both sign an agreement, what do you have? The answer is you have a situation where each company is liable for their own performance and their own actions, Neither is liable for the other company’s performance or actions. As those two companies are legally separate, you would need to determine if the supplier subsidiary could meet all the obligations under the agreement on their own. If they can’t, you need to make sure that the parent company also is responsible for their performance and actions..

If they parent company was not a party to the agreement, the way you make them responsible to require them to provide a parent or company guarantee (which is discussed in another post).Since they are also a party to the agreement, you can do that by simply including a statement that the supplier parent and supplier subsidiary are jointly and severally liable under the agreement. By including a statement that they are jointly and severally liable what that means is both may be held individually liable for their own performance or actions. It also means that both would also be liable for the performance or actions of the other company. You might want a subsidiary to be severally liable for a parent company so you could bring an action in the location of the subsidiary rather than the location of the parent company. You want the parent company to be responsible for the performance and actions of the subsidiary as the parent company will have greater assets and resources to stand behind the contract commitments.

Do you always need to have the parties be jointly and severally liable? The answer to that would be the same as do you need to require a parent or company guarantee. If you are dealing with a subsidiary of substantial size with substantial assets where they should be reasonable able to cover any potential damages, you probably don’t need it. Many subsidiaries are just sales or sales and service companies with few assets.If you were going to conduct significant business through them you probably should have it.

A key point to remember is just because a company may be a subsidiary or have a supplier’s company name as part of their name, when you buy from that company and not the supplier parent, you do not have any privity of contract with the supplier. You cannot make any contract claims against the supplier unless you either get them to sign the agreement and they agree to be jointly and severally liable, or you get them to provide a parent or company guarantee.

If you learned from this post, think about how much more you could learn from the book.
The book is only US$24.95 plus shipping. The hot-link to is above the date.

Joint Drafting

In many jurisdictions, how a court interprets a contract will follow what is referred to as the rules of contract construction. One of the most common rules is that in the event of an inconsistency in the contract, that inconsistency will be held against the drafter of the agreement.

What happens when an agreement is heavily negotiated with both parties having drafted sections of the agreement? When someone else is also doing the drafting, you don’t want to have any inconsistencies in their language be held against you. To deal with this people include what is called a Joint Drafting provision.

A joint drafting provision is a very brief statement of intent by the parties. It will say that the agreement was jointly drafted by the parties and in the event of a dispute you do not want the court to follow the rule that inconsistencies will be held against the drafter. By inserting such a provision the court would follow the intent of the parties. Rather than find against the drafter, they would determine the intent of the parties and would interpret the contract and any inconsistencies in the contract according to that intent.

If you learned from this post, think about how much more you could learn from the book.
The book is only US$24.95 plus shipping. The hot-link to is above the date.

Jury trials

Why do companies include a waiver of jury trials in their contract terms?

In many jurisdictions a legal dispute that is taken to court will allow for a jury trial. The jury will decide upon both the fate of the parties and any damages that must be paid. When a company
includes a term in their agreement that has both parties waive their right to request a jury trial they are doing that for a reason. They want both the decision and the damages allowed to be based upon the facts and the law, not the potential emotions or prejudices of the potential jurors. For example in a suit between a small company and a large company, a jury or individual juror may emotionally want to side with the small business just like jurors like to side with injured individuals in suits against large insurance companies. They may relate more to the small business or even be an owner of a small business. They could have been laid-off or made redundant after a large business acquired the small company the work for.

While judges may have their own prejudices they still have to make the decision based upon the facts of the case and the law. Once the facts are established they need to apply the law in making their ruling. They know that if they make a wrong ruling based upon the law, the case will be appealed and the finding could be overturned. They also know that they should follow precedent in any award of damages.

Should you agree to a waiver of jury trials in your agreement? That’s something your legal people should tell you. In my years of negotiating contracts I only encountered one supplier that simply refused to agree to a waiver of a jury trial and that was at the direction of their president who was also the founder of the company. He felt that if he could testify before a jury he could convince them that his company was right and the other company was wrong.Whether he was right or not I don’t know. What I do know is that trials with juries traditionally take longer and cost more in legal fees.

If you learned from this post, think about how much more you could learn from the book.
The book is only US$24.95 plus shipping. The hot-link to is above the date.