The High-touch Legal Services® Blog…for Startups!

© 2009-2014 Dana H. Shultz, Attorney at Law

Who Is Bound by a Pre-incorporation Contract?

Logo for Avvo, where Dana Shultz answered a pre-incorporation contract questionThis post about entering into a pre-incorporation contract is based on a question I answered on Avvo. See Can I legally speak as my company in things like terms & conditions if I have not officially registered the company yet?

The term “pre-incorporation contract” properly should apply only to corporations, because that is the only type of business entity that is incorporated. Other types of business entities, such as limited liability companies (LLCs), are formed, rather than incorporated. However, as is discussed below, a pre-formation contract (in California, at least) is treated like a pre-incorporation contract. See 02 Development, LLC v. 607 South Park, LLC . (more…)

Can Parties Enter Into a Perpetual Contract?

Logo for Quora, where Dana Shultz answered a question about entering into a perpetual contractThis post is about whether parties may enter into a perpetual contract (one that never ends).

It is adapted from my answer to a question on Quora. See Is it possible to structure a contract with no end date?

It turns out the the answer depends, to some extent, on which state’s law applies. (more…)

Good Faith and Fair Dealing – Part of Every California Contract

Logo of Baskin-Robbins, party to case about implied covenant of good faith and fair dealingThis post discusses and explains the covenant of good faith and fair dealing.

For decades, courts have held that this covenant is implied in every California contract.

Purpose of Good Faith and Fair Dealing

In 1942, the California Supreme Court stated that “in every contract there exists an implied covenant of good faith and fair dealing.” The intent of this covenant is that “neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract“. (Universal Sales Corporation v. California Press Manufacturing – emphasis added.) (more…)

Under RULLCA Operating Agreements Have Limits

California State Flag, symbolizing this post about RULLCA operating agreementsAt the beginning of this year, the California Revised Uniform Limited Liability Company Act (RULLCA) took effect. (See RULLCA Brings New LLC Laws to California in 2014.) This post discusses how under RULLCA operating agreements for LLCs have a wide variety of limits.

RULLCA operating agreements‘ limits are addressed in Corporations Code Section 17701.10. Unfortunately, that section’s discussion of mandatory provisions is pretty difficult to understand for the following reasons. (more…)

How to Perfect an Intellectual Property Security Interest

COpyright Office Document Cover Sheet - can be used to record an intellectual property security interest

Copyright Office Document Cover Sheet

Last week I explained what a security interest is and how it can be perfected, i.e., made effective against third parties. (See What is a Security Interest, and Why Should I Care?) This post discusses how to perfect an intellectual property security interest.

To recap, a security interest is an interest in an asset (the “collateral”) intended to secure performance of an obligation. Typically, that obligation is payment of a debt. Perfection typically consists of filing, with one of more secretaries of state, documents that identify the debtor, the creditor and the collateral. (more…)

What is a Security Interest, and Why Should I Care?

Form UCC-1, which is used to perfect a security interest

Form UCC-1

This post explains what a security interest is, how it is used, and why it is significant.

A security interest is an interest in an asset that is intended to secure performance of an obligation. Typically, the obligation that is secured is payment of a debt.

Terminology: The person who owes money is called the debtor. The person to whom money is owed is the creditor.

Many of us grant a security interest when we buy a house. In exchange for providing money for the purchase, the lender receives a mortgage (or, in California, a deed of trust). This is a type of security interest. (more…)

Consumer Non-disparagement Clauses Nixed in California

Yelp logo, symbolizing prohibition of consumer non-disparagement clauses under California lawEarlier this month, Governor Brown approved California Assembly Bill No. 2365. This bill added Civil Code Section 1670.8, which prohibits non-disparagement clauses in consumer contracts.

Statute Prohibits Non-disparagement Clauses

Core protections are set forth in Subsection (a) of that statute. (more…)

LLCs: Why an Operating Agreement is Important

Logo for Quora, where Dana Shultz discussed why an operating agreement is importantThis post discusses why an operating agreement is important for every limited liability company (LLC). It expands upon an answer I provided on Quora several months ago. (See In simple terms, why are operating agreements important?)

An operating agreement is an agreement among the members of an LLC. It addresses relations among the members and how the LLC will conduct its affairs. (more…)

Browsewrap Agreements Must Be Brought to Users’ Attention

Seal of the Ninth Circuit Court of Appeals, which decided a case about browsewrap agreementsIn Online Terms can be Binding, even if You don’t have to Click!, I compared the enforceability of clickwrap and browsewrap agreements. This post discusses Nguyen v. Barnes & Noble, in which the U.S. Court of Appeals for the Ninth Circuit recently examined notice requirements for browsewrap agreements to be enforced.

Plaintiff Nguyen filed a class action lawsuit against Barnes & Noble because it had cancelled his online order for a Hewlett-Packard Touchpad tablet computer. (more…)

What Does Non-binding Mean and Why Should I Care?

Photo of an arm chained to a wall, symbolizing binding vs. non-binding obligationsThis post discusses the meaning of non-binding with respect to a letter of intent (LOI) or a memorandum of understanding (MOU). (Non-binding has a similar meaning in other legal contexts, such as legislation or arbitration, but I will not discuss those contexts here.)

Although I will refer to solely an LOI in the remainder of this post, the following pertains to an MOU, as well.

The purpose of an LOI is to summarize the basic terms of a relationship into which the parties wish to enter. It also specifies that the parties will enter into negotiations to prepare a definitive agreement establishing that relationship. (more…)