One of the best means for South Carolina businesses to better ensure the positive outcome of any transaction or business relationship is through the use of contractual rights, where businesses are “masters of their own destiny.” It is, therefore, advisable to have your important contracts drafted or reviewed by a competent business attorney. Turning to the law for help after a deal has been struck is an extremely poor substitute, if any substitute at all, for what might have been more easily addressed or avoided in the first place with a contract that was properly drafted and negotiated. As most transactional attorneys will tell you, “fix me” (after the fact, when matters have become contentious) is almost always a more costly request than is “help me” (before the fact). While the actual provisions to be included in any contract are best determined by competent legal counsel, the usefulness and applicability of the following types of contract provisions and issues should be considered by every South Carolina business.
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Is there an attorney’s fees clause in your business’ important contracts, stipulated that the other party to the contract must reimburse your company for its attorney’s fees and court costs in the event the other party breaches the contract?
If your business operates as a limited liability entity (e.g. a corporation or limited liability company), do its contracts use the official name of the business as a party to the contract, including its limited liability status designation (e.g. “Inc.,” “Corp.,” or “LLC”), as well as the signature and title of the individual signing the contracts (e.g. “President,” “Member,” or “Manager”)?
Are your contracts being approved by appropriate authority for both parties to the contract (e.g. the board or directors or an officer, if a corporation, or the members or managers, if a limited liability company)?
If you sell to consumers at a place
other than a regular place of business, such as in consumers' homes, at hotels, or at other temporary business locations, does your contract allow for the federal three-day cooling off period?
Do your business contracts contain personal guarantee clauses for the other party in his or her individual capacity when dealing with a corporation, limited liability company, or other limited liability entity?
A business should always consider having its important agreements reduced to writing. No matter what kind of business you are operating or thinking about starting, you are likely to have relationships with third parties. All of these relationships will work more smoothly and be on sounder legal footing if reduced to a written contract. Some contracts may be unenforceable if they are not in writing. For example, in certain instances, contracts for the sale of and interest in land, certain contracts that cannot be performed within one year, and contracts for the sale of goods between merchants in excess of five hundred dollars may not be enforceable if not in writing.
If your business does not use form contracts for routine transactions, it might wish to do so. Form contracts may be helpful for simple transactions that take place on a regular basis. Such contracts should be reviewed periodically.
3. Do your business contracts provide for disputes to be resolved in courts, through mediation, or arbitration in the city, county, or state where the business’ principal office is located. back to top
Your business might wish to ensure that its contracts provide for disputes to be resolved in courts, through mediation, or arbitration in the city, county, or state where the business’ principal office is located. These clauses are called choice of forum clauses. They are generally enforceable as long as the forum chosen has a relationship to the transaction. Your company may find it more convenient and less costly to litigate, mediate, or arbitrate all contract matters where its principle office is located.
4. Is there an attorney’s fees clause in your business’ important contracts, stipulated that the other party to the contract must reimburse your company for its attorney’s fees and court costs in the event the other party breaches the contract? back to top
Your business should always consider including an attorney’s fee clause in each contract. These may be effective to help collect the cost of hiring an attorney from the party that breaches the contract. Failing to have such a clause might result in the “Catch 22” of your business having a legitimate claim against a breaching party to a contract, but having to pay more in attorney’s fees and court costs than the claim may be worth. Such a clause may also encourage an out of court settlement, if the breaching party knows he, she, or it must also pay your attorney’s fees and court costs in the event you prevail in your law suit against such party.
In general, it is recommended that commercial contracts have a clause stating that amendments to the contract may only be made in writing. These clauses are useful to rebut the claim that the contract has been either supplemented or amended by verbal representations.
6. If your business operates as a limited liability entity (e.g. a corporation or limited liability company), do its contracts use the official name of the business as a party to the contract, including its limited liability status designation (e.g. “Inc.,” “Corp.,” or “LLC”), as well as the signature and title of the individual signing the contracts (e.g. “President,” “Member,” or “Manager”)? back to top
All contracts entered into by a limited liability entity (e.g. a corporation or limited liability company) should use the official name of the business as a party to the contract, including its limited liability status designation (e.g. “Inc.,” “Corp.,” or “LLC,” as appropriate), as well as the signature and title of the individual signing the contract on behalf of the entity (e.g. “President,” “Member,” or “Manager,” as appropriate). A limited liability entity will not receive limited liability protection if the other party signing the contract has not been put on notice (by the use of such limited liability designation) that it is dealing with a limited liability entity. The individual signing the contract should sign his or her name and specify his or her company title, as well as date the contract. Indicating the signatory’s title shows that he or she is not entering into the contact in his or her individual capacity, but rather is signing the contract on behalf of the limited liability entity as “President” for the corporation, or as “Member” or “Manager” for the limited liability company. By signing every contract on behalf of a limited liability entity, and not in his or her individual capacity, the signatory generally avoids personal liability for the entity’s obligations under the agreement, unless he or she also personally guarantees payment or some other obligation of the entity.
Sole proprietors generally sign contracts as the “Owner” and partners generally sign contracts as a “Partner.” Signatories for corporations and limited liability companies should not use these titles.
Your business might want to consider including an integration clause in its contracts. These clauses stipulate that the written contract is the entire agreement, so that other representations outside the “four-corners” of the document, such as verbal representations made during negotiations, are less likely to be used by a court in interpreting the contract.
You should look into having your company’s contracts include a severability clause. These clauses are helpful in the event that a court refuses to enforce part of the contract. If this happens, the clause allows the court to enforce the rest of the contract rather than find that the entire contract is unenforceable
Your business contracts might be substantially more useful if they include a clause requiring specific performance in the case of a breach by the other party to the contract. Specific performance generally allows a court to order actual performance of the contract by the breaching party instead of merely allowing for economic damages, where economic damages alone would be insufficient to make the damaged party whole under the agreement. For example, if someone agrees to sell a certain piece of land and the seller later refuses to perform, a court may order the seller to deliver title to that specific piece of land, rather than simply awarding economic damages to the breached party.
You may want to include in your business contracts a choice of law clause allowing you to choose which state’s law will govern the contract. Courts today generally allow contracting parties to choose which state’s law will govern the contracts as long as the state law chosen is reasonably related to the transaction.
11. Are your contracts being approved by appropriate authority for both parties to the contract (e.g. the board or directors or an officer, if a corporation, or the members or managers, if a limited liability company)? back to top
The business should ensure that all future contracts are approved by the appropriate authority (e.g. the board of directors, officers, or managers, if a corporation, or the members or managers, if a limited liability company). Generally, corporate officers and other managers have the power to enter into contracts that bind the corporation with regard to operations under their direction. Large or critically important contracts, however, may require board of director or shareholder approval, in the case of a corporation. In the case of a partnership, any general partner can bind the partnership to a contract if made in the partnership’s ordinary course of business. If the contract is not made in the ordinary course of business, a majority or more of the general partners should approve the contract, depending on the voting requirements in the partnership agreement. Similarly, in the case of a limited liability company, a member, if in a member-managed company, or a manager, if in a manager-managed company, can generally bind the company to a contract if made in the ordinary course of business. Otherwise, approval must be subject to a vote of the members or managers as set forth in the company’s operating agreement. However, other restrictions or grants of authority may in each case also apply. Appropriate authority therefore may need to be determined on a case by case basis
Your business contracts may need to contain waiver clauses. Contractual rights can be waived if action is not taken to enforce those rights. For example, if you are a party to a contract but you knowingly refuse to enforce rights under the contract while the other party is in breach, you may be held by a court to have waived your right to do so. A waiver clause in a contract generally states that the parties to the contract do not intend to waive their rights or that any past waiver of a party’s rights should not be construed as a waiver of future rights.
You should contemplate whether or not your business’ contracts should contain liquidated damages clauses if damages resulting from breach are difficult to calculate. A liquidated damages clause in a contract provides an agreed upon amount or method of calculating an amount to be paid in damages in case of a breach. Liquidated damages must generally be a reasonable estimate of future damages and not an amount which is otherwise punitive.
You may want to include clauses in your company’s contracts that prohibit their being assigned to other parties. The law generally allows parties to a contract the authority to assign their rights or duties. A prohibition of assignment clause prohibits the parties, or a specifically named party to the contract, from selling or assigning contractual rights or duties to other parties. Generally you will not want the other party to assign his rights or duties to third-parties. However, in certain instances, your business may in fact want the authority to transfer or assign contract rights or duties to third parties.
You should consider whether or not your company’s contracts should contain an arbitration and or mediation clause. Arbitration is essentially a forum selection clause. Parties to the contract agree that they will submit to the jurisdiction and judgment of a specified arbitrator rather than a court. Many companies use arbitration clauses in their contracts to avoid jury trials. A contract can state whether the arbitration will be binding or non-binding on the parties. Mediation will not provide a final judgment in the controversy. It is simply a method both parties agree to use to help them resolve problems with the assistance of a mediator. If parties cannot resolve their differences during the mediation, they are still free to pursue a remedy by filing a lawsuit.
16. If you sell to consumers at a place other than a regular place of business, such as in consumers' homes, at hotels, or at other temporary business locations, does your contract allow for the federal three-day cooling off period? back to top
If you sell to individuals at a place other than a regular place of business, such as in consumers' homes or at hotels or other temporary business locations, your contract may need to allow for the federal three-day cooling off period. The Federal Trade Commission's Cooling-Off Rule requires sellers, when selling at places other than their regular places of business, to inform buyers of their right to cancel the sale within three business days and receive a full refund when the purchase price is $25.00 or more. In addition, the seller must furnish the buyer with a summary of the buyer's cancellation rights, and two copies of an actual cancellation form. Certain exemptions apply to sellers of arts and crafts at fairs and sellers of automobiles at temporary places of business who have at least one permanent place of business. Still other exemptions exist.
17. Do your business contracts contain personal guarantee clauses for the other party in his or her individual capacity when dealing with a corporation, limited liability company, or other limited liability entity? back to top
If the other party to an agreement is a limited liability entity, whether a corporation or a limited liability company, your business may wish to require the signatories to the agreement (or other third parties) to personally guarantee payment under the agreement. Such a provision is commonly used where limited liability entities enter into leases, issue promissory notes, or obtain credit accounts with vendors. A person signing an agreement on behalf of a corporation or limited liability company generally has no personal liability for the debt of the corporation or limited liability company under the agreement, unless he or she otherwise personally guarantees payment of such debt.
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IMPORTANT DISCLAIMER: This checklist (in whole or part) is not an exhaustive list of legal issues applicable to any business. Its purpose is strictly educational. It is not intended to be construed as legal advice, or a substitute for legal advice, and should not be relied on without consulting a licensed attorney competent in business matters. The federal, state, and local laws and regulations on which this information was originally created are subject to change without notice. No warranty, whether express or implied, is made as to the frequency or timeliness of any corrections or updates to the information provided herein.
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