Kenneth Carroll: Corporate Contracts

Corporate contracts are entered into between someone who is authorized to do business on behalf of the corporation. The corporate business structure is a separate and distinct entity from its shareholders. The corporation elects a board of directors who oversee the significant business decisions. The board of directors then appoints officers to oversee the daily operations of the business. State laws allow corporations to enter into legally binding contracts; therefore, those corporations will have a duty to perform under the contract or else it may be liable for breach of contract. If the corporation does in fact breach the contract, it will face a potential lawsuit from the injured party, and could in fact be forced to either perform under the terms of the contract or pay damages to the injured party for the breach. Shareholders usually cannot be held personally liable for corporate contracts. However, exceptions do exist here, particularly if a shareholder comingles corporate and personal assets or commits fraud.

Forum Selection

The Utah Court upholds the validity of forum selection provisions in contracts, so long as it is fair and allows both parties to decide where and how to address a legal dispute. Furthermore, the by-laws can be amended many times throughout the life of the corporation to change the process for certain business areas. The Constitution usually doesn’t permit any states to adopt a forum selection statute that hinders someone’s right to sue in neighboring states or in federal court. However, several states, have amended their laws to allow businesses to include forum selection clauses in the company’s state of incorporation. Such information is to be included in the company’s bylaws. Some corporations have even adopted bylaw provisions that indicate that once a shareholder has purchased stock from the business, the shareholder has consented to personal jurisdiction in the forum in which the business identified in its bylaws. Therefore, if the shareholder subsequently brings a suit in another jurisdiction not approved by the company, then the company can certainly communicate that the forum chosen is not the appropriate forum for the legal dispute to be heard. Regarding legal disputes brought by shareholders against a corporation, Delaware courts have begun specifying that a corporation cannot choose a forum that might be known for providing little recovery to its shareholders, substantial fees for plaintiffs, and a release of claims. With that said, the State does in fact allow corporations to include forum selection clauses in their corporations that require all potential plaintiffs to bring a suit in that particular jurisdiction. While this benefits the corporation, it also benefits the courts in Utah, as it promotes self-interest of the local bar. Furthermore, the Commerce Clause might even provide specific grounds for when a neighboring state can refuse to enforce the forum-terms. Before a court decides to hear a legal dispute, it should determine whether the entire dispute would be efficient if heard in that forum. For internal affairs disputes, i.e. disputes between an employee or stakeholder of the corporation and the business, the forum of the corporation’s in-home statement will suffice. Similarly, for representative suits, such as class action lawsuits, most courts allow for a forum clause to prevent several lawsuits being brought in various jurisdictions.

Common Terms Used in Corporate Contracts

There are some common terms that are used in corporate contracts, and it is important for those entering into a contract with a corporation to be mindful of such terms. These include:

• R.F.P., which stands for request for proposal. This is a document that companies utilize to obtain bids from vendors who might be interested in doing work with the other party

• D.B.E., which stands for Disadvantaged Business Enterprise. This is a designation that a disadvantaged business can receive on a federal level. The requirement is that the business must have some sort of social or economic disadvantage.

• W.B.E., which stands for Women Business Enterprise. This is a specific designation that someone can earn through the Women’s Business Enterprise National Council, which is a certifier of women-owned businesses.

A corporation is a separate entity from its shareholder owners, who elect a board of directors to make large-scale, directional decisions for the corporation. The board then appoints officers to carry out the daily management of the business, including entering into routine business contracts. All states have varying laws governing the rights and duties of corporations operating within their borders. State statutes permit corporations to freely enter into binding contracts. A corporation, like an individual, has a legal duty to fulfill its contractual promises or face a possible lawsuit. A corporation may also file a breach of contract claim if its counter-party to a contract breaks his agreement. Shareholders generally are not personally liable for corporate contracts. Limited exceptions exist, as when a shareholder commingles corporate and personal funds or commits fraud.

Binding a Corporation

A corporate contract generally is only binding if it is signed by the proper parties within the company. Corporate officers typically have authority to enter garden-variety contracts on behalf of their corporations. Utah requires signatures from two corporate authorities to enter a corporate agreement. If a corporation is owned and operated by one individual, she should sign the contract twice and identify her different corporate roles. Contracts are legally binding agreements that are an important part of doing business. Although the kinds of business contracts are numerous, they are typically divided into four categories: leases, sales-related agreements, employment-related agreements and general business contracts. Contracts are legally binding agreements that are an important part of doing business. Although the kinds of business contracts are numerous, they are typically divided into four categories: leases, sales-related agreements, employment-related agreements and general business contracts.

Handling a Wide Range of Contract Disputes

A contract is like the DNA of the business world. Contracts define a business relationship and form the structure upon which a partnership, corporation and business relationship is built. A contract is at the core of commercial organizations, and a contract violation is a significant part of a civil litigation practice. Even though contracts are written by lawyers, not all of them are well written. Many clients come to the firm as either the plaintiff or the defendant with breach of contract issues related to ambiguous language, definitions, assertions or even timelines. The firm can create a finely-crafted contract, but is more frequently involved in litigation when there is a contract dispute. In some instances, the firm’s attorneys will seek to convince the court that contract language or terms are unambiguous and that a ruling is possible. If the contract language or terms are ambiguous, the firm will seek to convince the court of the intent of the parties and examine performance after signing. The situation that led up to contract, the standard definitions used in the contract and the intent of the contract is all factors that are presented to the court. Depositions are an important aspect of determining intent. The attorneys make certain that witnesses are properly prepared for deposition.

Types of contracts

A contract can be anything from a formal written document to a purely verbal promise. For example, a contract could be made simply because of a handshake deal to do a job where the only thing in writing is a quote on the back of an envelope. Whatever its form, if you agree to provide a service to someone for money, you have entered into a contract. You are promising to do a job for the person and the person is promising to pay you for it.

Types of contracts can include:

• Written contracts

• Verbal contracts

• Standard form contracts

• Period contracts.

Written contracts

Written contracts provide more certainty for both parties than verbal contracts. They clearly set out the details of what was agreed. Matters such as materials, timeframes, payments and a procedure to follow in the event of a dispute, can all be set out in a contract. A written contract helps to minimize risks as it is much safer to have something in writing than to rely on someone’s word. A written contract will give you more certainty and minimize your business risks by making the agreement clear from the outset.

Benefits of a written contract

A written contract can:

• Provide proof of what was agreed between you and the person.

• Help to prevent misunderstandings or disputes by making the agreement clear from the outset.

• Give you security and peace of mind by knowing you have work, for how long and what you will be paid.

• Clarify your status as an independent contractor by stating that the contract is a ‘services contract’ and not an ’employment contract’. This will not override a ‘sham’ contract, but a court will take the statement into account if there is any uncertainty about the nature of the relationship.

• Reduce the risk of a dispute by detailing payments, timeframes and work to be performed under the contract.

• Set out how a dispute over payments or performance will be resolved.

• Set out how the contract can be varied.

• Serve as a record of what was agreed.

• Specify how either party can end the contract before the work is completed.

Risks of not having a written contract

When a contract is not in writing, you are exposing yourself and your business to a number of risks including:

• The risk that you or the person misunderstood an important part of the agreement, such as how much was to be paid for the job or what work was to be carried out.

• The risk that you will have a dispute with the person over what was agreed because you are both relying on memory.

• The risk that a court won’t enforce the contract because you may not be able to prove the existence of the contract or its terms.

It’s always better to have your contract in writing, no matter how small the job is. Any contract with a person that involves a significant risk to your business should always be carefully considered and put in writing. This is advisable even if it means delaying the start of the work. A written contract is essential:

• When the contract price is large enough to make or break your business if you don’t get paid.

• Where there are quality requirements, specifications or specific materials that must be used.

• Where there is some doubt that the person has enough money to pay you.

• When you must have certain types of insurance for the type of work you are doing.

• Where the contract contains essential terms, such as a critical date for the completion of the work before payment can be made.

• Where you or the person need to keep certain information confidential.

• When it is required by your insurance company for professional indemnity purposes.

• Where there is a legal obligation to have a written contract (eg. trade contracts for building work in Salt Lake City).

Oral contracts

Many independent contracting arrangements use verbal contracts, which only work well if there are no disputes. A handshake agreement may still be a contract and may (though often with difficulty) be enforced by a court. However, verbal contracts can lead to uncertainty about each party’s rights and obligations. A dispute may arise if you have nothing in writing explaining what you both agreed to do. Some agreements may be only partly verbal. For example, there may be supporting paperwork such as a quote or a list of specifications that also forms part of the contract. At the very least, you should write down the main points that you agreed with the person to avoid relying on memory. Keep any paperwork associated with the contract. The paperwork can later be used in discussions with the person to try to resolve a problem. If the dispute becomes serious, it may be used as evidence in court.

The most important thing is that each party clearly understands what work will be done, when it will be completed and how much will be paid for the work.

Examples of paperwork that may support a verbal contract

• emails

• quotes with relevant details

• lists of specifications and materials

• Notes about your discussion—for example, the basics of your contract written on the back of an envelope (whether signed by both of you or not).

If the contract is only partly written or the terms of the work are set out in a number of separate documents (e-mail, quote etc.), it is to your benefit to make sure that any formal agreement you are being asked to sign refers to or incorporates those documents. At the very least, make sure the contract does not contain a term to the effect that the formal document is the ‘entire agreement’.

Standard form contracts

A ‘standard form’ contract is a pre-prepared contract where most of the terms are set in advance and little or no negotiation between the parties occurs. Often, these are printed with only a few blank spaces for filling in information such as names, dates and signatures. Standard form contracts often include a lot of legal ‘fine print’ and terms that you may not understand. They tend to be one-sided documents that mostly benefit the person who prepared the contract (for example, by shifting as much risk as possible to the contractor). If you don’t understand the fine print or any other part of the contract, you should get advice. If you sign the contract, you will be required to comply with the fine print even if you didn’t actually read it.

Tips for standard form contracts

• Read every word before you sign: Read the fine print carefully and get advice about any terms you don’t understand before you sign. Once you sign a contract you are bound by all of its terms. If there is an indemnity clause, don’t sign until you understand the risks you are agreeing to accept if something goes wrong.

• Cross out any blank spaces: Don’t leave any spaces blank. If you don’t need to fill in a blank space, always cross it out so the contract can’t be changed after you sign it.

• Negotiate: You have the right to negotiate any contract before signing, including a standard form contract. But remember that both parties must agree to any changes and record them in the contract you sign. Your union or industry association or a lawyer can help you prepare for negotiations.

• Keep a copy: You should always have a copy of any contract you sign. It is best if you and the person sign two copies of the contract, so that you can both keep an original. If this isn’t possible, ask for a photocopy and check that it is an exact copy. Remember to keep your copy somewhere safe for future reference.

Period contracts

Some independent contractors and people use a ‘period contract’, which is a contract template that sets out the terms for a business relationship where the contractor is engaged to perform work from time to time. In the building and construction industry, these contracts are called ‘period trade contracts’. The contract template will apply each time the person offers work to the contractor and the contractor accepts it. This can occur when the contractor provides a quote and receives a work order from the person, or the parties might sign an addendum (an addition to the contract) that sets out the specific work to be done or result to be achieved. Once the work starts, the contract template and the work order or addendum will form the total contract for the specific work. Period contracts can work well for both parties. They allow for the flexibility of performing intermittent work over an agreed period. However, you should check the terms of the agreement to do each new job.

Free Consultation with a Corporate Contract Attorney

When you need legal help with a corporate contract lawyer in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.