Most contracts involve a signature of some sort—you have to sign your name or provide an electronic signature, provide a personal identification number, or click “Accept”. These are all purposeful acts and constitute active agreement to a contract. But it’s also possible to passively agree to a contract, for which you don’t really need to do anything purposeful.

Som contracts (particularly for internet services) only require that a person use the service, regardless of whether any notice of the agreement has been provided. (Usually you can find notice in the Terms of Use for a web site or service, but you often don’t need to actively agree to them.) Take, for example, the following provision from the Terms of Service from Google Maps:

By downloading, installing, or using the Google Earth software, accessing or using the Google Maps service, or accessing or using any of the content available within the Products, you agree to be bound by the following….

When you navigate to Google Maps, there is no window that pops up requiring you to agree to the terms of service—either once, or every time you use it. But according to the Google Maps Terms of Service, simply accessing or using Google Maps binds you to the entire Terms of Service.

Legally, this is considered acceptance by performance, and all that is needed to accept the offer of one party is to perform according to the offer. Depending on the circumstances, full performance may not be needed for the acceptance to be valid; simply beginning to perform will be enough to be considered acceptance (thereby creating a binding contract).

What this means for casual web surfers is that it doesn’t matter if there is no requirement to accept terms of service for a web service; often, simply using the web service binds you to the terms of service because you are “performing” according to the offer extended by the service. So keep this in mind when using services on the web, or anywhere else. It’s not hard to be bound by a contract—even when you don’t know about it.

(photo: http://www.flickr.com/photos/freemind/)

You probably already know why people hate contracts, but a colleague of mine dropped something on my desk this morning and I couldn’t help but share it with my adoring fan (or perhaps “fans”).

Here is a paragraph he re-wrote for a contract of which he was to be a part (so it was in his interest for it to be comprehendible):

(1) E retains all right, title and interest (subject to the license granted herein) in and to any and all content, inventions, articles, reports, summaries, headers, reviews, categories, documents, works of authorship, designs, know-how, ideas and information made or conceived or reduced to practice, in whole or in part, by Expert before the term of this Agreement in connection with the Services (collectively, “Content”) provided by E under this Agreement. (2) H retains all right, title and interest (including all intellectual property rights throughout the world and, for clarity, any content created by H as a result of interviewing E) relating to any and all content, inventions, articles, reports, summaries, headers, reviews, categories, documents, works of authorship, designs, know-how, ideas and information made or conceived or reduced to practice, in whole or in part, by H. (3) E hereby grants to H, and H accepts, an exclusive, worldwide, assignable, sub licensable (through multiple tiers), royalty-free, perpetual, irrevocable license to display, publish, use, reproduce, distribute, transmit, enhance, modify, create derivatives of, provide user access to, and otherwise exploit, in every manner and medium now or hereafter known, the Content and any updates or derivatives that E has previously and may from time to time provide to H. (4) E will assist H, at H’s expense, to further perfect such license and to maintain, enforce and defend any rights licensed. (Notes: Sentence numbers were added for ease of reference during the rest of this post.)

OOF! Does anyone (other than the lawyers) know what that means? You could probably figure it out if you had enough free time, but if it was presented to you as part of a larger contract and you were supposed to sign it on the spot, would you know what you were signing? Probably not.

Consequently, my colleague translated it into language that a normal person could understand. Here is his version of Sentence 1:

E retains all right to any and all content made in whole or in part by E before the term of this Agreement in connection with the Services provided by E under this Agreement.

That still reads a bit like legalese, but at least you can comprehend it! Let’s look at his translation of Sentence 2:

H retains all right relating to any and all content made in whole or in part by H.

That’s pretty straightforward—if H made it, it’s H’s property. Period. Here’s Sentence 3:

E hereby grants to H and exclusive (yet assignable) license to reproduce, distribute, or modify in every manner the content that E may provide to H.

That, too, makes a lot of sense. (Sentence 4 was unmodified.)

So that enormous, incomprehensible paragraph above? It just says that E and H are going to work on something together and that while they are working together, H gets to use anything E provides to H, H gets to keep its own material, and H can’t use material E produced before they started working together. And that’s pretty much it.

Friends Don’t Let Friends Write Bad Contracts

Personally, I think people should be able to read and understand their contracts. And although the translations of those sentences above don’t quite provide the same exact rights and duties, they are darn close, probably without any actionable difference if the agreement is contested.

So if you need a contract written or need to sign one, find a lawyer who will actually help you translate it into a piece of understandable writing. You are far more likely to have a negotiated agreement (as opposed to an adhesion contract, which is not negotiated) signed if the parties can both understand what it says.

(photo: http://www.flickr.com/photos/mindaugasdanys/3766009204/)

Okay—Lisa Kudrow isn’t really addressing contract modification here, but she is at the center of a great example of contract modification.

Ms. Kudrow is the star of an online show called Web Therapy, which has completed 3 seasons, with Showtime picking it up as well. According to Diane Charles—one of the creators of Web Therapy—Ms. Kudrow’s contract initially stated that she would not do any endorsements. “In Lisa’s contract, she had made it clear she did not want to go near a Lexus,” said Charles. “She wasn’t going to do an endorsement.”

But by the second season when we were renewing the option, she agreed that it might be kind of nice if the car could make a minimal appearance in the series. We talked with her about how it would work. She agreed as long as it was organically integrated.

(Source: hollywoodreporter.com)

So what’s my point? As long as all parties to a contract agree, a contract can be modified in any way (so long as it’s not illegal). Ms. Kudrow’s contract stated that she would not do any endorsements on Web Therapy, but once she got a couple seasons in, she had changed her mind and was willing to alter the contract in a way that benefitted the other party (the producers of the show). Technically, they could have just agreed to the modification orally, but since most contracts have a provision stating that modifications must be in writing, the endorsement modification was made in writing (changing the terms when her contract was renewed).

The real key to modifying a contract is to ensure that all the parties to the contract agree, and that the modification and intent of the parties at the time of the modification is clear. So in an addendum to a contract, it is usually pretty clear that (a) it is meant to modify the contract to which it is attached, (b) the parties all have the same expectations of the modification as spelled out in the addendum, and (c) all the parties agree with it (as evidenced by their signatures on the addendum). It’s a little less clear whether a modification was intended—and if so, what was intended—when language on a contract is crossed out or added right on the contract, and a few initials are thrown in the margin of the page. Modifications of the latter sort tend to be informal and not provide sufficient context for why the modification is being made. This can lead to disputes later on, with each party trying to show the circumstances of the modification and why those circumstances support their interpretations. But it’s always hard to recreate scenarios like that, so it is always better to make a contract modification explicit, and preferably to hire someone to do it for you.

To recap: Any contract can be modified by almost any other agreement, but it is the method of modification that is really important. Probably the most solid way to modify a contract is to re-write the contract with the new terms inserted and then have all the parties sign the new agreement. That way there can really be no question as to what the modification applies to and whether it was intended. A good alternative to a re-write is an addendum that notes it applies to a specific contract or specific provision within a specific contract. Whatever method of modification you choose, though, please make sure it is in writing. Although an oral modification is legally valid, it is almost impossible to prove, so it should be written and signed.

Any questions?

Have you ever had an experience with contract modifications that went really well or really poorly? Have you signed a Change Order on construction or remodeling? Do you have a contract with your employer that gets renewed from time to time? Have you ever changed a payment plan on a loan or credit card? These are all contract modifications, and I would love to hear about your experiences. Please tell us your story in the comments below.

(photo: http://www.flickr.com/photos/spacepleb/)

On October 5, 2011, David Cassidy sued Sony (among others) for his share of 40 years of Profits from the Partridge Family. The suit alleges that Sony and the other defendants “have been perpetrating a scam,” having only been paid approximately $5,000 for royalties on Partridge Family merchandise. Although it may seem strange now, The Partridge Family was incredibly popular when it aired from 1970 to 1974, spawning “board games, magazines, coloring books, paperbacks, posters, pillow cases, toy guitars, dollars [what?], lunch boxes, beach towels, pencil cases, comic books, children’s clothing, and music.”

According to David Cassidy’s Complaint (which you can get here as a PDF), he was only paid $5,000 for merchandise royalties even though his contract from 1971 stipulated that he would get 15% of net merchandising revenues for the use of his image, voice, or likeness. He was to receive no more than 7.5% of net merchandising revenues for items on which other members of the cast appeared in addition. Page 11c of the contract seems to belie that assertion as true. That said, there is some potentially troubling language elsewhere in Paragraph 9 of the contract—the paragraph which contains the royalties percentages.

In the first paragraph of Paragraph 9, the contract states that “The rights granted pursuant to this Paragraph 9 shall continue during the term of your employment hereunder until the expiration of the first run telecasting of pictures (including Summer reruns).” The defendants to this suit are likely going to argue that the royalties were paid during Mr. Cassidy’s term of employment per the contract, and that statutes of limitations limit any other attempt by him to recover. My take on this is that even though those two arguments may be legally sound on the face of things, that the contract itself is unconscionable with regard to the time limit on payment of royalties to Mr. Cassidy.

What are all these terms I’m throwing around all of a sudden?

The Statute of Limitations is a statutory law written by a state or federal legislature, which governs how long after an even a lawsuit can be brought to recover or prosecute on that event. In Minnesota, the statute of limitations for a breach of contract is six years. So if you wait to bring a breach of contract claim in Minnesota until 7 years after the breach, you could find that your case is thrown out for violating the statute of limitations.

The purpose of having statutes of limitations is mainly to ensure that claims and cases are brought when the evidence is still fresh. So in some cases, where there is an ongoing offense or breach, each episode of the breach can be treated as separate, and have its own separate statute of limitations clock running. In a situation like Mr. Cassidy’s—where he is bringing claims for as far back as 35 years ago—it’s possible that the court would look at those claims and only allow him to make claims on those breaches that had occurred within the 6 years prior to filing the lawsuit. Each state has its own rules and procedures on these situations, so you should definitely check with an attorney if you think this may apply to you.

If the statute of limitations is a problem for Mr. Cassidy, then asserting unconscionability could be beneficial. A contract is unconscionable when its terms are excessively unfair to one party. This is usually asserted against the party that wrote the contract, since it had control over writing the agreement. Unconscionability is more likely when there is a significant power differential between the parties, such as when Sony is negotiating a contract with a single performer.

Generally unconscionable contracts are unenforceable, but in this situation, where Mr. Cassidy is asserting that the studio has deprived him of what should have been his under the contract, the court could decide to strike the limiting provision from Paragraph 9 and award Mr. Cassidy back payments on those merchandising royalties. This assumes that a court would find the studio’s contractual provision limiting the right to royalties to while the show was airing to be unconscionable, which it might not. I would argue that the studio kept receiving revenue from the use of Mr. Cassidy’s likeness even after the show was no longer producing new episodes, and that Mr. Cassidy should be entitled to royalties from that revenue, but that is an issue for the court to determine.

It will be interesting to see the outcome of this suit. Mr. Cassidy clearly has a claim that is reasonable on its face, but whether it can survive the statute of limitations argument is unclear to me. If so, will the court allow the claim for the entire 35 years, or only the past 6? If it’s only the last 6 years, is there really that much net revenue from Partridge Family merchandise sold in that period of time? That’s not likely, so a determination on the statute of limitations question could determine the rest of the case.

What do you think should happen in this situation? What does your gut tell you? Do you think your gut and the law line up? Tell us in the comments.

(photo:http://www.flickr.com/photos/davedehetre/)

In 2010, a woman named Ronni Chasen was terribly murdered in Palm Springs, California. In response to her killing, Harold Matzner offered a $100,000 reward for information “leading to the arrest and conviction of the person responsible for the murder.” But when someone provided a tip to the police confirming that one of their suspects was the murderer, the originator of the tip didn’t receive the money. Why?

The suspect killed himself when police arrived at his door.

Even though a lawsuit has been filed regarding the reward, Mr. Matzner argues that he cannot give the reward to the informant, because the suspect died rather than being arrested and convicted.

The obvious question is whether the offeree (the informant) successfully acted to fulfill the contract, or if the offeror (Mr. Matzner) is justified in stating that the contract’s terms were not fulfilled. Does it matter if the suspect would have been arrested and convicted?

In a perfect world, the suspect would not have killed himself and we would be able to determine how the case should turn out. But I think it’s likely that since the actual wording of the contract was not fulfilled that the informant will find himself without the $100,000 he expected. It doesn’t matter what would have happened when we know what actually happened—the suspect died before he could either be arrested or convicted. The terms of the contract were not fulfilled, so the money would not be awarded.

At the same time, I wonder whether the offer made by Mr. Matzner could ever be relied on to the same extent as most other publicly-made offers (such as advertisements). It’s likely the informant did everything in his power to fulfill the offer, and even if the suspect had not killed himself, a conviction is not guaranteed…regardless of whether the suspect actually killed Ms. Chasen. So was that offer made in bad faith? Was it made with the intention that no one would ever really be able to fulfill the conditions necessary to claim the reward?

If an offer is made with the intention to deceive, then it is generally invalid, and someone who attempts to fulfill it in good faith is likely to succeed on a claim to enforce the contract. But proving intent to deceive is generally difficult because it requires a party to show the intent with extrinsic evidence (i.e., evidence outside the contract).

Additionally, the qualifier of “leading to the arrest and conviction” of a person is common for rewards, and therefore not likely to be considered deceptive. Rather, that statement is likely to be considered very clear, and—although not entirely within the control of the offeree—it is probably necessary to limit the number of superfluous tips, which would actually hamper an investigation.

So unless it is clear that Mr. Matzner was attempting to deceive people and had no intention of paying the reward, I expect that the informant will not receive the $100,000 reward. Had he paid attention to the requirement at issue (“leading to the arrest and conviction” of the suspect), perhaps he would have been able to help ensure that qualification’s satisfaction, making him a more likely recipient of the $100,000.

What is your take on the situation? Do you think I got it right? Even if it’s the right legal conclusion, is it fair? Let me know in the comments.

(photo: http://www.flickr.com/photos/nostri-imago/)

My wife and I recently purchased a used car to replace one that was totaled in February. As part of the purchase of the car, a number of documents needed to be considered, reviewed, and signed. The main documents were the Purchase Agreement (PDF), and understanding of no verbal promises. A prominent condition of the Purchase Agreement was that as soon as we purchased the car it would be ours, any repairs would be our responsibility, and it was not returnable.

But in addition to signing those documents, we were presented with some documents that were provided to us specifically to represent the specifics of the car we were buying, the car’s features, and the condition of the car as of the time the dealership received it as a trade-in. Although these documents were not part of the Purchase Agreement, they could still be used as a reason for us to bring a breach of contract claim if the car didn’t work as we had expected.

Reasonable reliance is part of the formation of a contract; when a contract is executed all parties rely on the representations in the contract for their obligations to perform or refrain from action. If, after the contract is signed, one or both parties do not receive what they were expecting according to the contract, the contract can potentially be deemed void because of a mistake of fact (either intentionally or accidentally misrepresented by a party).

So even though our purchase of the car is final and we cannot rely on any oral promises made to us by the salespeople, if something goes terribly wrong with the car and we discover that the representations made to us by the additional documents were incorrect, we could potentially either have the repairs paid for by the dealer or have the contract rescinded (meaning that we could make it like the purchase of the car never occurred).

This is why it’s always important to keep copies of all the documents you receive when entering into a transaction. They show the understanding of the parties at the time the transaction occurred, and can be used to enforce that understanding if something goes awry.

Just like the given letters in the bonus round of Wheel of Fortune, there are provisions that are common to almost every commercial contract. You can pretty much assume that you will find most (or all) of the following provisions in any commercial or adhesion contract you encounter, and can instead focus your attention on the clauses that are unique to the contract. Knowing what these common provisions are should help you be more aware of what happens each time you sign a contract, and allow you to more effectively skim those blasted contract monstrosities, like the Hertz Rent-A-Car agreement.

UPDATE: These are not the only provisions you are likely to see in consumer contracts. I’ll post more of these in the future. For the sake of readability, I have limited this list to nine types of contract provision.

1. Limitation of Liability. Almost every contract has a section describing how the drafting party (not you) cannot be held responsible for any damages or injury to you or your property, for whatever reason, intentional or unintentional, and that you have no recourse if some damage or injury occurs. These provisions are not always enforceable, but they are always in the contract and should be considered enforceable if you are planning to sign the contract. It’s worth noting that some Limitation of Liability provisions also limit the maximum possible dollar amount to something absurdly small (like $50 in the case of Apple’s iTunes Terms and Conditions.)

2. Separability (or Severability). Separability/severability is the ability of the rest of the contract to remain in force even if individual clauses are deemed unenforceable. So if you entered into a contract to buy a car from someone, and one of the provisions of the contract stated that you promised to use the car to rob a bank, that clause could be eliminated because it is illegal—and therefore unenforceable—but the rest of the contract to buy the car could still be enforced.

3. Heirs, Successors, and Assigns. What? What are those? “Heirs, successors, and assigns” are people who might take over the contract in the future, and this is a way that the drafter can ensure that the contract will be honored regardless of who takes over the obligation. For the purposes of larger commercial contracts this is important in case a company is purchased or subsumed by another individual or company—the contractual rights and duties are still in force. For contracts with individuals, this provision is meant to allow the drafter to collect any obligation from someone related to the person who signed the contract.

4. Costs and Attorney Fees. It is generally understood that if one party breaches a contract in a way that requires the other party to incur costs or attorney’s fees to fix it, that those costs will be borne by the breaching party. Every credit card agreement has this provision in it in case an account requires a collections agency and/or attorney to collect the money from a cardholder. In those cases, the costs and attorney’s fees are rolled directly into the amount being collected or sued on.

5. Voluntary Agreement/Competency. As I have previously mentioned, a person needs to voluntarily enter into a contract for the agreement to be valid, and the person also needs to be considered competent–i.e., above 18 years of age and sane. Because two good defenses to the formation of a contract are incompetency and duress/coercion, it is likely that some sort of provision of this sort will be in the contract so if you challenge it later on one of those grounds, the drafter will be able to claim that you fraudulently misrepresented your capacity to enter into the contract in the first place and should therefore be bound to the agreement that was made.

6. Entire Agreement. To avoid later claims that the parties agreed on an addition to the contract (either orally or in writing), a clause is usually inserted stating that a contract represents the entire agreement and that no additional terms or conditions apply that are not included in the document. This is important for the safety of both parties, but you should therefore make sure that any oral promises are included in the contract to ensure they are part of the agreement.

7. Changes. Most adhesion contracts include a term allowing the drafter to unilaterally alter the contract at any point. Granted, the change in the contract must be approved by the other party, but often this occurs tacitly rather than actively. So when your credit card company decides to change your interest rate, so long as you do not dispute the change, close your account, and cease to use the card, you will have agreed to the change. This passive acceptance is common in consumer contracts, and should be expected in every large-scale contract you encounter.

8. Waiver and Indemnity. To provide extra protection for anyone connected to the drafting party, these clauses are often included and state that you will not hold anyone with ties to the drafting party responsible for any harm or damage that occurs during the execution of the agreement. A phrase to look for in these provisions is “hold harmless,” meaning that you will never accuse that person of wrongdoing in relation to the subject matter of the contract.

9. Disclaimer of Warranties. A warranty is an expectation that a product or service will provide the desired outcome or function, and it is something that most of us expect when we purchase or sign up for a product or service. Many contracts for goods and services, however, like to disclaim any warranties, meaning that if your product or service does not work the way you wanted it to (even if you were guaranteed its function by the company), that lack of function is not the company’s fault and they are not required to do anything about it. As a practical matter, many companies will attempt to fix problems with their products or services to keep their name in good standing, but they aren’t required to do so if there is a disclaimer of warranties in the contract. (In some jurisdictions disclaimers of warranties are not enforceable, but the contract usually provides for additional limitations on responsibility and damages in those jurisdictions.)

That’s a pretty good overview of the most common clauses you are likely to find in consumer contracts for goods and services, as well as many other contracts, settlement agreements, and the like. Read over them and get used to them so you can recognize them the next time you need to sign a contract. Even if you can’t do anything about them, it helps to know they are there.

Are there other common contractual clauses you have run into? Let me know so I can either update this list or put together a second list.

(photo: http://www.flickr.com/photos/santarosa)

Photo by extranoise

For all the time I spend on this site talking about being bound to a contract once it is signed, there are some times that even though you have signed a contract, you are not bound to it. The two situations I am going to go through today are Impossibility and Illegality.

Impossibility in contract law is not so much a matter of contracting to produce a squared circle (although that would likely qualify as impossible), but it involves changes of circumstance that make performance of the contractual duties impossible. If Jill pays Jack $100 to clean her car next weekend, but the car is stolen on Thursday, then it is impossible for Jack to clean the car and he would be excused from cleaning her car. Jill may have a claim to her $100 if she paid in advance, although those judgments are very fact-specific.

It’s important to note that in order for a contract to be impossible, it needs to be actually impossible, not just extremely difficult or costly. There is law on impracticability for those situations.

Illegality does not mean that the contract itself is illegal, but rather that the subject matter of the contract is illegal and the contract is automatically considered void and unenforceable. For instance, a court would never enforce a contract for a hit man to kill a target–either compensation for the hit man after completing the job and not getting paid, or specific performance if the hit man was paid but did not kill his mark. Murder is illegal, and any contract for committing murder is automatically void; it will not even be considered a contract and cannot be sued on based on breach of contract.

If you have other questions on contract concepts, drop me an email suggesting a future post. In the meantime, check out the Contract Basics section and see if it has already been addressed.

Photo by josef stuefer

Most of the contracts we sign are known as adhesion contracts. These are contracts one party writes entirely and the other party must accept without making changes. All of the contracts examined in Fine Print Friday are adhesion contracts, and even though consumers aren’t generally able to make changes to them, there are a few things you should know about them.

First, as with any agreement, there are ways to get out of an adhesion contract. If the person who signed it was not competent to enter the agreement, the terms are considered unconscionable, or it is illegal, the contract can be broken or declared void, and in some cases can be rescinded (meaning that the parties to the contract are actually put in the positions they occupied prior to the contract, with money being paid back and the like).

Also as with any contractual agreement, if there is not a valid legal reason for the contract being void, then the signers will be bound to its terms. This is particularly important to note when it comes to financial adhesion contracts, which often include provisions allowing for the financial service provider to alter the terms of the contract at any point, and saddle the consumer with all the costs of collection or disputes regarding the financial product. Most adhesion contracts also include mandatory binding arbitration clauses for any disputes, which tend to be bad news for the consumer.

The lesson to take away from this is that although you need to sign an adhesion contract to get a cell phone or a credit card or use Amazon.com or Facebook, it is good to at least skim them to see what you may be committing to, because you will be bound to their terms regardless of whether you had an opportunity to object to certain terms.

Yesterday, the Washington Post published an editorial regarding the current accusations being flung at incumbent Washington DC mayor Adrian M. Fenty, many of which have to do with allegations of rigged contracts. The contracts at issue mainly involve relatively small amounts of money for work on parks and recreation centers. The author picks up on an interesting contractual concept early in the editorial that is something with which we are all familiar, but very few of us could define: Undue Influence.

In contract law, undue influence is a concept that can be used by the non-influencing parties to void contracts in which they are involved. At its base, undue influence involves the concept of a person on one side of a deal using his or her power to force a person on the other to accept a contract. Typical situations in which undue influence appears include spouse-spouse, parent-child, priest-parishoner, lawyer-client, or doctor-patient, among others. In some cases, these involve fiduciary duties, while in others they may rely solely on the social power inherent in strong relationships. Whatever the situation, the party with less power can choose to void the contract based on undue influence, and undo as much of the transaction that has occurred since the contract was formed.

With regard to the Washington DC mayoral race, the potential for undue influence regards the fact that some of the contracts for parks and recreation centers went to friends of Mayor Fenty who work at firms that would undertake this work. There is no clear reason in articles detailing the controversy, however, that would give one reason to think undue influence is at work in this situation. From what I can tell, the friends of Mayor Fenty are simply friends who do not hold any extra power over him. That may mean that there is cronyism involved, but does not point to undue influence. For undue influence to be at work, those friends would need to hold some sort of actual power over Mayor Fenty, but that does not seem to be the case from the articles detailing the situation.

Undue influence can be a powerful tool for getting out of contracts that have been unfairly constructed, and should be considered in the case of any situation in which a person feels steamrolled by a person in a position of power over him or her. If you or someone you know thinks you may be in this sort of situation, please contact me to explore your options.

(Photo by humbertomoreno)