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

© 2009-2017 Dana H. Shultz, Attorney at Law

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…)

Negotiating Software Licenses – What Really Counts

Photo of shaking hands, which symbolizes negotiating software license agreementsThis post addresses the most important issues that are raised in negotiating software licenses.

I will assume that parties have agreed on pricing. (Otherwise, there is no point negotiating license terms!) In addition, I will ignore the lengthy legal “boilerplate” that appears in most software license agreements.

Four Critical Issues in Negotiating Software Licenses

In my experience, there are four issues that must be examined closely, and often result in much discussion, when negotiating software licenses. (more…)

Can I Save Money by Preparing a Contract for My Lawyer to Review?

Logo for Quora, where Dana Shultz answered a question about whether a client can save money by preparing a contract for lawyer reviewThis post is inspired by a Quora question that I answered. Q. Can I save money by preparing a contract for my lawyer to review?

A. No. Here is an explanation of why not.

Clients sometimes think that if they do the work to prepare the first draft of an agreement, they can save money because a lawyer will need less time to complete the agreement.

(more…)

Limitation of Liability and Confidentiality Provisions in Tech Contracts

Logo for Quora, where Dana Shultz abswered a question about limitation of liability

This post is based on a question about limitation of liability that I answered on Quora.

Q. Why do technology contracts often carve breach of confidentiality out of the limitation of liability?

A. I’m going to start by broadening the discussion, a bit.

First, the carve-outs typically modify both limitation of liability and limitation of damages. So, whereas an agreement might include provisions both limiting? the total (dollar) amount of liability and liability for consequential damages, such limitations will not apply to the carved-out subject matter.

(more…)

California Commissioned Employees Must Have a Written Employment Contract

Cover of the California Labor Code

Effective January 1, 2013, every employee in California who is compensated, entirely or partially, by commission must have a written employment contract that states the method by which commissions will be computed and paid.

Labor Code Section 2571(a) says:

By January 1, 2013, whenever an employer enters into a contract of employment with an employee for services to be rendered within this state and the contemplated method of payment of the employee involves commissions, the contract shall be in writing and shall set forth the method by which the commissions shall be computed and paid.

(more…)

What are “Best Efforts”?

Picture of a reservoir, symbolizing a case about a contractual obligation to use "best efforts"

Contracts sometimes require that a party use its “best efforts” to carry out its obligations. (This is in contrast to, for example, “commercially reasonable efforts”.) Last month, in California Pines Property Owners Assn. v. Pedotti, the California Court of Appeal for the Third District provided a definition of “best efforts”. (more…)

How Can I Make Sure I Receive My Full Royalty?

Curled paper tape from a calculator

Intellectual property license agreements often include a provision by which the licensor is paid a royalty that is calculated as a percentage of the revenue received by the licensee from licensed products. Given that licensees have a financial incentive to reduce the amount of revenue that is reported*, the prudent licensor includes an audit provision in the license agreement.

The audit provision typically:

  • Specifies the frequency and nature of audits that may be conducted;
  • Provides that the licensee will pay any underpayment amount that is discovered plus interest; and
  • Obligates the licensor to pay for the audit unless the underpayment exceeds X% of the royalty that was due, in which case the licensee must reimburse the licensor for the cost of the audit.

(more…)

Why Does the Other Party Want to Apply NY Law?

This post is based on a question that I answered on OnStartups. Q. I’m in the process of closing a deal with a new client, and the only sticking point is the choice of applicable law. I am located in state A, the client in state B. My contract says it will be governed by the law of state A. The client wants to change this to New York. Why? Would doing so open my company up to any unintended side effects/liabilities (e.g., taxes)?

(more…)

New Feature: Ridiculous Contract Provisions

Businessman wearing a dunce cap

With this post I am inaugurating a new feature that I expect will appear from time to time: Ridiculous contract provisions that I have run across. Today’s post is based on an agreement that I recently reviewed for a client.

The agreement provides standard terms and conditions by which a large utility in the Eastern United States works with its suppliers of products and services. The sentence in question says:

No change, amendment or modification of any of the provisions of this Contract will be binding unless in writing that identifies itself as an amendment to this Contract and that is issued by Company.

In other words, the Company apparently believes that the only requirement for an amendment should be that the Company issued it – irrespective of whether the supplier agrees to the change! Enough said….

Photo credit: iStockphoto

Dana H. Shultz, Attorney at Law  +1 510-547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.