News & Resources

 

Advance Waivers Unenforceable

Posted on September 3, 2010

Most of us have seen one, even signed one.  The Little League asked for one before your child could play; the high school football coach sent one home with your son; your recreational softball league wants every member of every team to sign one.

Yet waivers of injury claims signed prior to the occurrence of an accident are unenforceable in Virginia, as in most other states.

Why, then, are waivers such standard items?

  1. Many people mistakenly believe the waivers are valid.  Thus, when an injury occurs, a negligent party may be spared from a potentially good claim.
  2. Waivers can still be helpful in proving that the signing party understood and assumed a known risk of an activity (e.g., a baseball player struck by a pitch), in cases where an injury occurs without fault.
  3. Businesses and others may hope one day to craft a perfect document that courts will uphold.

The first reason is sometimes effective, even if somewhat underhanded.  The second requires careful drafting and an absence of negligence to work.  But the Virginia Supreme Court has so far slammed the door on the third reason, by repeatedly reaffirming its historic position that pre-injury waivers violate public policy.  The court fears that a change in the precedents in this area might lessen the incentives provided by the legal system to take prudent steps to prevent injuries where possible.

It must be stressed, however, that only waivers signed before the injury occurred are void.  Post-injury releases have always been enforceable and remain so today.

Attorneys:
K. Ruppert Beirne
David G. Browne
Brad Marrs

Posted in Personal Injury, Personal Representation

Contract Drafting: The Ounce of Prevention

Posted on August 27, 2010

Many of us can recall the old TV commercial featuring a mechanic performing major engine repairs to a car, who chastised that the costly damage could have been prevented by the regular purchase of a low priced oil filter.  “You can pay me now,” he warned, “or pay me later.”

Lawyering and auto repair may not share much in common, but in this there is some similarity.  The fact is, many of our most involved commercial litigation cases could have been avoided with some “preventive maintenance” up front.  And it pains us to see clients embroiled in costly and time-consuming trials which could have been averted for the price of some advance review and drafting of documentation.

All too often, commercial litigation is caused by one side or the other misunderstanding the ramifications of a transaction, and failing to plan ahead through thorough contract negotiations.  For example, we have seen a developer go through several days of arbitration seeking rulings on the interpretation of a contract drawn on a form not intended for the type of arrangement the developer had intended with his general contractor.  We have seen clients effectively deprived of remedies because pursuit of breaching parties would have imposed untenable travel burdens or litigation expenses.  And repeatedly, we see creditors cringe over their inability to recover interest or attorney’s fees from defaulting debtors.

All of these situations can be prevented through sound contract drafting.  At Meyer, Goergen & Marrs, we are equipped to help you through any necessary litigation.  But it is also our job, as we see it, to help you avoid any unnecessary litigation.  Generally, this can be accomplished in two ways:

  • If you are dealing in a series of similar transactions, such as the establishment of customer credit accounts, we can help you to develop contract forms tailored for your use on a day-to-day basis.
  • For separable transactions, we can provide rapid turnaround on review of proposed contract documents, and we can assist you with spotting potential problem areas or negotiating more favorable terms.  Such service becomes more essential as the importance of a particular deal increases.

Among the questions you need to ask yourself before entering into any business contract are:

  • If a dispute arises, am I more likely to be the party suing or being sued?  Your answer will influence your choices from various options for contract clauses setting the location of any courts which might resolve the dispute, waiving or retaining the right to a jury trial, forcing arbitration, or imposing an obligation to reimburse legal expenses.
  • If I have to sue, what remedies will I need?  Contracts can help pave the way for special remedies like injunctions, rights of set-off, seizure of collateral, or rights against third parties.
  • If I get sued, what is my exposure?  In Virginia, clauses limiting the damages a non-breaching party may recover are generally enforceable.  Provisions for liquidated damages, on the other hand, are closely scrutinized and almost always require a lawyer’s helping hand at the drafting stage to survive a later court challenge.

In general, many people make the mistake of assuming that the “standard boilerplate” is not really important to a deal.  To the contrary, you should expect contract clauses to be enforced in virtually all cases, whether those clauses were negotiated or merely preprinted.  The time to act to protect yourself from unfair terms or sharp dealing is before you sign on the dotted line.

Attorneys:
David Browne
Brad Marrs
Scott Simmons
Patricia Wood
Bernie Meyer

Posted in Business Law, Commercial Law, Contract Disputes

Merchant’s Reply Doctrine Cuts Both Ways

Posted on August 19, 2010

Most businesses know to be wary of credit applications or agreements which may include provisions for high rates of interest or other pro-creditor terms — indeed, well-run businesses know to use such forms themselves.

What surprises many businesses is the fact that high rates of interest can be assessed in some cases, even if no written agreement is ever signed.  This is due to a section of the Uniform Commercial Code, in effect in Virginia, which establishes what is known as the “merchant’s reply doctrine”.

In transactions limited to sales of goods between businesses accustomed to dealing in goods of the kind being sold, provisions written on packing slips, invoices, or other written acknowledgments can become a part of the parties’ contract.  The burden is on the business receiving the written notice to advise the other party that the term is unacceptable.

If the business receiving the notice fails to object, the other party is entitled to assume that its standard terms are acceptable.  This puts the burden of reply on any “merchant” receiving such notices.

The merchant’s reply doctrine has been used to obtain awards of interest at rates as high as 36% in commercial collections and even in mechanic’s lien litigation.  Attorney’s fee awards may also be granted without a signed contract, based upon the UCC section.

Yet it must be borne in mind that the merchant’s reply doctrine is a double-edged sword.  The same businesses which use the law to their advantage when selling goods to their wholesale customers may find that their own suppliers include credit terms on shipping acknowledgments and invoices.  The key is to read the fine print and object, preferably in writing, when an unacceptable provision is spotted.

Attorneys:
Brad Marrs
Patricia Wood

Posted in Business Law, Commercial Law, Contract Disputes

“Pay when Paid” Clauses Not Absolute

Posted on August 16, 2010

The bane of the commercial subcontractor’s accounts receivable is the “pay when paid” clause — once an inventive addition to a few general contractors’ forms, now the norm in form subcontracts offered on major projects.

The “pay when paid” clause provides that, notwithstanding any other contract provision, the general contractor need not make payment to the subcontractor until the project owner has paid the general.  This essentially passes the risk of a cash flow pinch from the general to the subcontractor.

The question on most subcontractors’ lips:  how enforceable are these clauses?

The short answer is that they are in fact enforceable between the parties, as are virtually all freely signed contracts’ clauses.  A “pay when paid” clause establishes a contingency to the general contractor’s obligation to make payment, and the Virginia Supreme Court has consistently upheld such payment contingencies.

But subcontractors and suppliers should still be on the lookout for abuses of the “pay when paid” clause.  Chief among these is the attitude that “pay when paid” is an industry standard that can be followed even when there is no express contractual provision.  This attitude is nothing more than a mistaken view of the law, resorted to when the general would like to postpone payment without adequate excuse.

Secondly, like any contract contingency, a “pay when paid” clause will not avail the general contractor if the reason for the owner’s nonpayment is the general’s fault.  And since fault on the part of any subcontractor is generally imputed to the general, if one subcontractor’s poor performance is holding up payment from the owner, the general will not be able to stave off efforts by blameless subs to recover payment.  Instead, the burden falls upon the general to remediate the guilty sub’s work and to recoup all losses from the guilty party alone.

Finally, all subs should know that the deadlines established by the mechanic’s lien statute and by applicable payment bonds are not extended by “pay when paid” clauses.  Liens and bond claims may be filed even if the general is properly entitled to withhold payment.  Courts are split, however, on whether the sub may actually enforce a bond claim or mechanic’s lien to the point of obtaining payment.  Some courts will allow the sub to retain the security of a lien or bond claim, but not to override the payment contingency entirely.

Attorneys:
David Browne
Brad Marrs
Bernie Meyer
Scott Simmons

Posted in Commercial Law, Contractors

How Binding is a Contractor’s Bid?

Posted on August 16, 2010

Contrary to many contractors’ assumptions, a subcontractor’s bid to a general contractor is not binding in and of itself — even if the general contractor relies upon it in formulating its bid to the project owner.  Instead, the bid is merely an offer, which the general contractor must act to accept if it wishes to form an enforceable contract.

In short, there are no special rules of contract law applicable to construction bidding; the ordinary rules of offer and acceptance still apply.  An example comes from a case handled by Meyer, Goergen & Marrs on a subcontractor’s behalf, where the court permanently dismissed the general contractor’s action for nearly $150,000.00 in alleged losses.

A general contractor bidding for a construction project received a bid from our client subcontractor after the job was listed at the Builders’ Exchange.  The general used that, the lowest bid, in presenting its total bid package to the owner.  But importantly, the general never communicated to the sub that it had accepted its bid.  This is actually common practice, since the general does not wish to bind itself to the sub until it is sure it has the job.

After several weeks, the general sent the sub a letter which purported to award the subcontract.  But the letter also made reference to a detailed contract form enclosed with the letter, and the letter instructed that the sub had to sign and return the new contract form before work could begin.  The contract form contained numerous paragraphs setting forth additional rights in favor of general and obligations owed by the sub, which had never been previously discussed.

Well established contract law holds that a communication which purports to accept a prior offer, but which insists upon new or additional terms to the deal, is not actually an acceptance but a counter offer.  A counter offer is treated as the rejection of the prior offer and the concomitant presentation of a new offer.  Accordingly, we argued for the sub that the letter and contract, viewed together, constituted a counter offer.  The court agreed, and because the general could show no indication that its counter offer had ever been accepted, its case was dismissed.

General contractors typically do send form contracts, drafted heavily to their advantage, when “accepting” subcontractors’ bids on large commercial projects.  The lesson here is that a subcontractor who reviews the contractor’s form and does not like what he sees may be free to walk away from the project with impunity.  Similarly, if a contractor has already accepted a sub’s bid, it may be deemed in breach of contract if it refuses to allow a sub to proceed with work unless the sub renegotiates the deal by signing the form the contractor had its lawyer draft.

In short, strong arm tactics aside, the law in this area is not made by contractor practice.  The law is firmly established, and the courts will enforce the time-honored rules when disputes arise.

Attorneys:
David Browne
Brad Marrs
Bernie Meyer
Scott Simmons

Posted in Contractors, Personal Representation

New protections for tenants residing in foreclosed homes.

Posted on August 13, 2010

With the collapse of the housing market and stock markets during this “Great Recession,” Congress has passed a number of consumer protection related laws in the past two years.  One such law has fundamentally changed the regulations related to leases and foreclosure.  The long-standing law in most jurisdictions was that the rights of tenants under leases were extinguished by the foreclosure of a mortgage or deed of trust if their lease was later in time that the deed of trust.  Hence, tenants had to move out of a home that had been foreclosed upon, even if they had been abiding by the terms of the lease and making all required payments to their landlord.

With the drastic rise in the number of foreclosures nationwide, Congress passed the “Protecting Tenants at Foreclosure Act of 2009,” completely changing the rules for tenants.  Under this new act, regardless of when the lease in question was signed (either before or after the date of the subject mortgage or deed of trust), the tenants under that lease would be allowed to occupy the property after foreclosure under the following conditions.  If the purchaser at the foreclosure sale is a third party who intends to live in the foreclosed property as a primary residence, or if the tenant is occupying the property without a written lease in place, then the new owner may terminate the lease upon a ninety (90) day written notice to said tenant.  If, however, the purchaser of the property at the foreclosure auction is any other party, whether an investor or the financial institution holding the note on the property, then the tenant may continue to occupy the property under the terms of the lease for the remainder of the lease term.

This legislation has allowed leases that previously would have been extinguished by a foreclosure survive the foreclosure, and to thereby enforce the terms of those leases upon the new title holder for the remainder of the lease term.

For further questions regarding buying property at foreclosure auctions, or for any other real estate related questions, contact Bernie Meyer, Joe Perini or Joe Hall.

Posted in Real Estate