Understanding What’s in the Contract Boilerplate

In the age of the word processor, most contracts are assembled from forms or using a contract one of the parties has used before. Very often at the end of these previous agreements or forms, some boilerplate provisions are included. Sometimes these provisions are a good fit for the new agreement and other times they are not.  If you understand the purpose behind the most used boilerplate provisions, you will be in a better position to make an informed decision about whether they should be included in the contracts you are using or are considering entering into.  Below are brief explanations of some of the most-used and important boilerplate provisions.

Governing Law / Choice of Law

Governing Law or Choice of Law provisions determine what law will be used to resolve a contract dispute. This could be relevant to you if the particular contract’s subject matter would be treated more favorably under one state’s laws over another state’s laws. Generally, the state referenced in this term relates to where the contract will be performed or to the location of the parties to the contract.  If the state referenced is not the state where you reside, find out why that state has been chosen. If you don’t get a clear answer that satisfies you, request that governing law be changed to the State of Texas.  If the contract is to be performed in Texas, having the law of a different state apply to a dispute can add unnecessary cost and uncertainty to resolving the dispute.

Venue / Forum Selection 

Venue or Forum Selection clauses deal with where a suit to resolve a contract dispute may be filed. For example, many contracts drafted for Denton County businesses set the venue in Denton County, where the businesses are located. Although venue provisions are not always enforceable, generally this means that anyone who files a claim based on the contract must file it in Denton County. Venue clauses can impact you negatively when they require you to litigate in a county or state where your business is not located.  Locating and retaining attorneys may be more difficult, and travel to and from the selected forum can greatly increase the costs of the litigation.    

Arbitration

Arbitration clauses take contract disputes out of court and into an arbitration. Arbitration clauses waive your right to a jury or bench trial. Arbitration can be faster and less expensive than filing a claim in state or federal court, but this is often not the case.  Arbitration decisions remain private, and arbitration clauses may place limits on traditional aspects of litigation, such as discovery. Unless your contract involves highly technical, industry specific terms and expertise, generally the benefits of arbitration are not outweighed by the negatives including increased costs and a very limited ability to appeal a bad decision.

Costs / Attorney’s Fees

Costs and Attorney’s Fees clauses are a way to shift fees to one party to the contract or both parties to the contract. Costs can add up during a dispute, so it’s important to know by whom the fees will be paid if they are incurred. In some cases, the party who claims breach of an agreement can be awarded attorney’s fees, and generally the party defending against the alleged breach of the agreement cannot recover its fees.  However, this can be changed by contract.  Most contract provisions dealing with attorney’s fees allow the prevailing party to recover its attorney’s fees.  For this reason, generally a prevailing party provision puts the party defending the suit in a better position than they would be in otherwise.

Assignment

An Assignment clause can either allow you to, or prevent you from, assigning your rights under the contract to another party. This could come into play in a contractor / subcontractor situation. Let’s say you contract with a commercial business to install new flooring, but wish to subcontract that work out to one of your crews. If an Assignment clause in the contract prevents you from assigning the work, you may breach the contract if you give the work to your subcontractor. If you have plans to assign your rights and responsibilities under the contract to another entity, be sure this clause allows for it.

Entire Agreement / Merger Clause 

An Entire Agreement or Merger clause states that the contract is the complete agreement between the parties. The clause is intended to prevent either side from arguing there are any oral or other written agreements that modify or amend the contract. This clause is important to a contract because without it, a party may claim that a conversation modified the terms of the agreement, and in case of a dispute, each party would be able to present evidence of that conversation. In practice, such a provision only limits evidence of conversations before the written agreement was entered into.  For this reason, if there are any promises that were made orally before the written agreement is made, be sure they are included in the written agreement.  Otherwise, those promises may end up being unenforceable.

Force Majeure

A Force Majeure clause indicates the events that will excuse performance under a contract. Standard force majeure events may include labor strikes, acts of war, and extreme weather events. Such events should be extremely unlikely to occur. These clauses can be tricky, because parties may insert events that aren’t really force majeure events as a preventative measure against events they can and should reasonably anticipate could impede or prevent the party’s performance.  If you see a force majeure clause, carefully read any provisions that define the term.  It may be more or less expansive than you really intend.

Severability

A Severability clause allows parts of an agreement to be enforced even when some of the agreement terms are found to be unenforceable.  While the intent of these provisions is to prevent the contract from being unenforceable for “technical” reasons (i.e. being found enforceable because some minor part of the agreement is unenforceable), these provisions rarely come into play, and can lead to unintended consequences.  For example, they can operate to make an agreement enforceable even when an important promise that benefits you is found unenforceable.

Time is of the Essence Clause

Generally, when a contract calls for a specific time for performance, the performance due will still be considered timely if performance occurs reasonably soon after the specified time. Many contracts deal with time sensitive matters.  When a contract specifies “time is of the essence,” the general rule is changed.  Therefore, if time is specified for performance, failure to comply exactly will be a breach of contract. Construction contracts, where missed deadlines can have severe repercussions, often include time is of the essence provisions.

Indemnification Clause

An indemnification clause deserves your careful attention. Indemnification clauses are used to protect one party from the actions or negligence of another party or make one party responsible for the other parties’ actions.  Indemnification clauses typically provide that the first party will pay any attorney’s fees and damages a second party may have to pay as a result of the first party’s actions, but they can also be used to make the first party responsible for attorney’s fees and costs resulting from the second party’s actions.  Because you cannot control others’ actions, it is important to include this clause when you are performing work jointly with other businesses.  Indemnification clauses are very common in service contracts, especially when there are contractors and subcontractors performing the work together. Indemnification clauses often contain arcane wording and are written in run-on sentences. Read and re-read them until you are sure you understand whose actions you will and will not be responsible for.

Conclusion

Lastly and, perhaps most importantly, keep these two things in mind. First “boilerplate” is as enforceable as the rest of the contract. Thus, “boilerplate” should not be understood to mean unimportant.  Second, there isn’t really any such thing as boilerplate any more. Historically, the term boilerplate came from the similarity in appearance between curved metal plates used on water boilers and the curved metal pieces that were circulated to printing presses to allow ads and other repetitive material to be printed over and over.  Once these plates were produced, they were fixed.  Word processors don’t function this way.  What we call boilerplate can be and often is modified when it is re-used.   This means that, for example, the “Attorney’s Fees” section in the contract you see today may not say the same as a similar provision you read last year.  For both these reasons, give the boilerplate in the contracts you see the attention it deserves.  Read it and try to understand it.  If you can’t understand it, ask questions or change it.  Contracts are intended to reflect the contracting parties’ intentions.  If you don’t understand any part of a contract, it is not likely to reflect your intentions.

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You can’t take it with you, but it has to go somewhere

We all know you can’t take it with you when you die, but you can take steps to ensure “it” goes were you think it should; otherwise, Texas law will decide for you. Ownership of some assets, such as life insurance proceeds and funds in bank accounts, may transfer to a designated beneficiary upon death. The property a person leaves behind is his estate. What follows is a general description of what may happen to a person’s estate after he departs and before it is distributed to his distributees.

The contents and value of an estate may change after death. Estates receive income and pay debts incurred by the deceased or his estate. Common income sources include rent owed to the deceased and dividend payments. Insurance premiums to insure estate property and funeral expenses are common estate debts.

In many cases, a personal representative must be appointed by a court to manage the estate’s affairs until it is closed. The personal representative figuratively steps into the shoes of the deceased and is tasked with such things as gathering the estate’s property and keeping it safe, filing a final tax return for the deceased, filing estate tax returns, paying debts, selling estate property, notifying estate creditors and beneficiaries, filing an inventory of the estate’s assets, and ultimately making distributions. A personal representative may have to account for all property that came through the estate while she is in charge. In carrying out her duties, the personal representative should never comingle estate assets with her own and should open a bank account solely for estate transactions.

A personal representative is either independent or dependent. An independent representative has autonomy to carry out her work with very little court oversight. Alternatively, a dependent represetative is closely supervised by the court that appointed him. Dependents must get court approval to purchase or sell property, pay most debts, make distributions, etc. Whether an administration is independent or dependent depends on the circumstances surrounding the estate and whether the deceased left a valid will.

A will may be offered for probate within four years of the testator’s date of death. The person who offers a will for probate is referred to as an applicant. To probate a will and have a personal representative appointed, the applicant’s attorney must file an application and the will with the proper court, provide certain notices, and present evidence at a hearing to substantiate the application. Most wills name a personal representative and do not require her to post a bond or file a final accounting. Wills that waive these requirements reduce costs to the estate. Once a will is admitted to probate, its directives may be carried out.

Alternatively, when a person dies intestate (without a valid will), different rules apply. The application process is similar but requires more steps and is usually more expensive. An attorney ad litem must search for missing or unknown heirs, additional witness must be called to testify in support of the application, and the personal representative is usually required to post a bond and file an accounting. Intestate administrations are also more likely to be dependent.

Intestate distributions to the devisees are governed by statute, not the wishes of the deceased. The Texas Legislature has considered multiple family structures in determining how estate property gets distributed. The right to receive distributions is based on marital status and degree of consanguinity to the departed. For example, if a married person dies leaving Wife and their two children, Wife inherits the community property and separate property is divide among Wife and the children, but no one else would inherit. If the two children were not Wife’s children, then the children inherit ½ of the community property and Wife the other ½.  When someone dies without children or a spouse, their parents and siblings inherit. If there are no living parents or siblings, more distant relatives will inherit. If no heirs are found, an estate will ultimately go to the state. These statutes do not account for friends or more distant relatives who may be the natural object of the deceased’s affection. For example, a niece or neighbor who cared for mom during the year prior to her death. The statutes are ridged and may not allow the deceased’s wishes to be carried out.

This article does not discuss every way in which an estate may be distributed. Regardless of whether we depart with a will or die intestate, our property will ultimately go somewhere. To benefit those you love and to ensure your wishes are carried out, it is best to consult with an estate planning attorney and make a plan.

Ryan Webster can be reached at rwebster@dentonlaw.com and www.dentonlaw.com.

Premises Liability

Of prime importance to property owners and occupiers (tenants) is liability for damages to persons or property which occur on the owner’s or occupier’s property. Ownership or control of the premises upon which the damages occurred by itself will not create liability for the owner or occupier.  There also must exist a duty from the owner or occupier to the damaged person or property.  Also, control may be established through a showing of actual control or a right to control the area in which the damage occurred.  The control must relate to the activity that caused the injury complained of before a duty will exist.  Areas beyond the limits of an owner’s or occupier’s control will not establish such a duty.

Chapter 95 of the Texas Civil Practices & Remedies Code governs damage claims accruing on or after September 1, 1996, arising from negligent construction activities. A thorough discussion of that Chapter is well beyond the scope of this article.

In addition to control, an owner’s or occupier’s duty to a party will be determined by the legal status of that party. A party may be considered a trespasser, licensee or invitee.  A “trespasser” is someone who has no legal right to be on the property.  A “licensee” is a person who is present on the property with the permission of the owner or occupier, but for whom the owner or occupier has no business relationship.  A licensee is present on the property for his or her benefit only, and not that of the owner or occupier.  On the other hand, an “invitee” has a present business relationship with the owner or occupier and is present on the property for the mutual benefit of both parties.  A licensee or invitee may become a trespasser if his or her occupancy exceeds the scope of the rights granted to them.

Typically, owners and occupiers owe trespassers no duties other than to not injure them willfully, wantonly or through gross negligence. This has been the common law rule in Texas for many years, and has been codified in Section 75.007(b) of the Texas Civil Practices & Remedies Code.  For licensees, owners and occupiers owe the same duties that are owed to trespassers, and the additional duty to use ordinary care to make reasonably safe and adequately warn of dangerous conditions of which the owner or occupier is aware, but the licensee is not.  Actual instead of constructive knowledge of the dangerous condition by the owner or occupier is required.  Owners and occupiers are additionally responsible to invitees for their active negligence.  With respect to agricultural or recreational activities, Chapter 75 of the Texas Civil Practices & Remedies Code provides special protections to land owners engaged in such activities.

Texas courts have divided invitees into 2 categories: “public invitees” and “business visitors”. Public invitees are people who enter premises which are generally open to the public, such as governmental facilities and parks.  A business or merchant impliedly is “inviting” the public into its place of business.  Contractors, employees, and public servants are distinct categories of invitees.  By way of the invitation to the public, all entrants into those premises expect to be in a safe environment.  As such, owners and occupiers owe invitees the duty to exercise ordinary care to keep the premises reasonably safe, including the duty to inspect and discover latent defects, make safe any defects, or warn the invitees of the same.  For invitees, an owner or occupier is charged with any actual or constructive knowledge of the condition of the premises (i.e., conditions that the owner or occupier should have known of regardless of actual knowledge), and has a duty to make sure their invitees are reasonably safe from any such dangerous conditions or adequately warn the invitee of such conditions.

Even where a duty exists on an owner or occupier to provide a safe premises, liability will only occur where the breach of such duty proximately causes damages to the third party. Proximate cause is made up of two separate elements.  The first being “cause in fact”, which means that the negligent act or omission was a substantial reason that the injury occurred and without which, the injury would not have occurred.  The second element is “foreseeability”, which means that an ordinary and reasonably prudent person (which my first year contract law professor described as “Ward Cleaver”—Baby Boomers and Gen-Xers will understand) should have anticipated that such act or omission would result in such damage or injury.  These rules are general in nature, and several special situations have modified versions of these rules.  For example, premises liability relating to children, disabled persons, elevators and escalators, sporting events, and animals, each have modified rules relating to liability to the premises owner or occupier.

Under certain circumstances, an owner or occupier may be responsible for acts of third parties. The same rules as above apply for a third party act as for the owner’s or occupier’s direct negligence.  There must be a duty, a breach of that duty, and such breach proximately caused the injured party’s damages.  Most premises liability situations involving third parties are determined by proximate cause.  However, a third party’s act or omission may be a superseding act, breaking the chain of causation between the premises owner’s or occupier’s conduct.  A “superseding act” is an outside force that intervenes in a chain of events to cause an outcome that otherwise would not have occurred.  A superseding act can relieve an owner or occupier from liability relating to that act.

The criminal act of a third party is a common type of superseding act which may prevent the owner or occupier from becoming liable for an injury occurring on the premises. However, there are situations where an owner or occupier has been held responsible even where the criminal acts of a third party were involved.  In situations where such conduct is foreseeable and unreasonable, courts have imposed liability on the premises owner or occupier.

Employers have a duty to provide a safe workplace for its employees. Owners and occupiers have a duty to follow laws and ordinances which relate to safety of the premises, and the failure to follow such laws and ordinances may be considered to be per-se negligence.  Where an area or place has had so much criminal activity that has resulted in damage or injury to persons in and around such area, a premises owner or occupier may have a duty to protect its invitees against such dangers.  Note, however, that employers typically do not have a duty to warn an employee of conditions that are commonly known or already appreciated by the employee.  Of course, such duties will necessarily be affected by whether Worker’s Compensation insurance exists or not.

The principles underlying premises liability are in most instances purely fact driven. The analysis can be complicated, particularly when there may be more than one cause of the damage or injury or a superseding act.  Owners and occupiers of real property should always take advantage of liability insurance which will cover any negligence found against such owner or occupier, as well as provide the owner or occupier with a defense (attorney) against the prosecution of such claims.

Scott Alagood is board certified in Commercial and Residential Real Estate Law by the Texas Board of Legal Specialization and can be reached at alagood@dentonlaw.com or http://www.dentonlaw.com.

 

Educate Yourself about Builder’s Risk Insurance

 

Almost every homeowner insures their home. A typical homeowner’s policy protects against fire, hail, theft, and other common perils. However, a typical homeowner’s policy covers completed structures. Therefore, if you plan to build or have built a custom home or other significant structure, you will need to make sure you have insurance that provides coverage during the construction process.

Builder’s risk insurance is a special type of property insurance for the construction process. Generally, builder’s risk insurance is coverage that protects a person’s or organization’s insurable interest in materials, fixtures and equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered loss.” Usually written for a specific project, builders risks policies will cover “named perils” of loss caused by external causes (such as fire or hail), but also may cover property damage caused by acts of third parties (theft or vandalism). Most builders risk policies are written on an “all risk” basis, meaning that the policy will cover all risks of property damage unless the cause is specifically excluded. Such policies may be referred to as ARBR (all risk builders risk) or CAR (construction all risks policies). In addition, contractors will sometimes obtain builders risk “floater” policies that are not project specific, but that will cover, subject perhaps to lower limits than a project-specific builders risk policy, property damage at any project undertaken by the insured contractor.

Although coverage is often purchased by the custom builder or general contractor, property owners should purchase this coverage or contract with the builder or general contractor to be a named insured in the policy. Many times, proof of builder’s risk coverage is necessary to comply with local city, county, and state building codes. If you are the owner of the property and are commissioning new construction, you are the one most likely to suffer if construction is delayed because the builders risk policy was not in place. Further, some in the construction industry believe that it is the property owner who should have the builder’s risk policy because they have already paid for the improvements to their land, and if the builder receives the funds directly from a claim, theoretically, they could abscond with that benefit. Therefore, it is far safer for the property owner to obtain the builder’s risk policy, because they already own the building, even while it is under construction. If something happens to the under-construction project, then they should be the beneficiary and control how the funds are spent.

Although commonly written as an all risk policy, common exclusions significantly limit what “all” means. By far, the most significant limit on builder’s risk coverage is flawed workmanship. If your builders risk policy includes a faulty workmanship exclusion, you may need additional insurance coverage to protect you from this specific risk. Some insurance companies offer an endorsement to remove the common faulty workmanship exclusion. Every owner should inquire about this option and purchase this coverage if it is available. If such coverage is not available, then other options include performance bonds and/or well-drafted warranties in your construction contract. Always be aware, a contract is only as good as the person you contract with. If you have the world’s best warranty and you make it with a contractor who is broke and changes his business name once a year, it’s not worth the paper it is written on. One exception to this rule (at least as to the ability to perform) is insurance. Insurance is a highly regulated industry. Part of what that regulation makes certain of is that insurance companies have the funds available to pay the claims made on their policies. Especially in Texas, there is nothing that ensures a contractor can or will stand behind his construction warranty.

Other common exclusions from builder’s risk policies include earthquakes and floods. In Texas, earthquakes are extremely unlikely, but flooding is not. Fortunately, FEMA maintains and updates flood maps regularly used for identifying suitable construction sites. Generally, if you are building outside of the 100 year flood plain, flooding will not be an issue. In most cities and counties in Texas, you are required to obtain a construction permit, one of the conditions of which, is that you are not building in the 100 year flood plain. In lieu of or in addition to checking the FEMA maps yourself, your construction contract with your general contractor should include that they are required to obtain all necessary permits. If you are building in an unincorporated area outside of Denton County, I recommend you check with the FEMA map yourself.

Finally, be aware there are many soft costs that may not be covered by builder’s risk coverage. A soft cost is money you lose during the time it takes to move forward with your project after a covered loss. Soft costs may include additional insurance premiums, legal fees, and construction loan interest. Some policies will include soft costs, and some might not. If you discover that your builders risk insurance doesn’t cover soft costs, consult with your insurance agent about adding supplemental coverage.

 

 

 

Lawsuits – Not as Seen on TV

Often people’s perspectives of the litigation process are shaped by TV. Although the entertainment industry does a great job of entertaining us with legal drama, it is rarely accurate. One notable difference between TV and reality is that TV lawyers get hired by a client and try her case in a single episode, which may cover just a few days’ time. In reality, the process can take years. The cost vs. benefit, time, and stress of litigation are not shown on TV. These are important factors to consider when facing litigation.

This article offers a behind the scenes glimpse at the real civil litigation process. The statements in this article are not legal advice nor are they comprehensive or applicable to every case or every person.

In a civil lawsuit, there are at least two parties. The plaintiff is the party that brings the lawsuit. The defendant is the party being sued.

In certain types of cases, such as deceptive trade practices, the would-be plaintiff is supposed to send a written demand to the would-be defendant before filing a lawsuit. The demand usually summarizes the plaintiff’s legal and factual allegations and requests the desired relief. A party may have up to sixty days to respond to a demand. If the parties cannot resolve their dispute informally, filing suit is usually the next step.

The document that is filed to initiate a lawsuit in Texas courts is called a petition. In preparing a petition, lawyers may spend hours or weeks gathering information about the facts of the case and researching applicable law. The defendant must be served with the petition before the case can proceed. After a defendant is served, he must file an answer or another applicable response with the court clerk by the applicable deadline. If the defendant fails to timely respond, the plaintiff may take a default judgment — meaning she wins because the defendant failed to timely participate.

After the defendant answers, the parties usually engage in discovery. The discovery process allows each party to gather information that is relevant to the case from the other party and from nonparties. Parties may discover information that provides a basis to bring new claims, which in turn may allow for additional discovery. Discovery disputes sometimes arise, involving the relevance of the information sought, protecting confidential information (e.g. trade secrets, etc.) and other issues. Discovery is one of the most time-consuming phases of litigation — taking months or even years to complete.

During the course of a lawsuit, there may be numerous motions filed on a variety of issues. Each motion and hearing may take days, weeks, or months to prepare and present.

Although settlement is rarely featured in legal shows, most cases are resolved through the mediation process or by informal settlement talks between attorneys. Lawsuits settle at all stages of the litigation process.

If a case does not settle before its trial date, a judge or jury will decide the case (subject to appeal). Getting to trial usually takes a year or more. This is due in part to allow lawyers time to develop and evaluate their case; courts being backed up because there are not enough of them to handle the influx of cases filed; and the scheduling issues that have to be worked out among the parties, attorneys, courts, and witnesses.

Just before trial, courts may hear various pre-trial motions. Potential jurors are then let in the courtroom and a jury is selected. The lawyers then make their opening statements giving a roadway of the evidence they believe will be presented. After opening statements, each party may put on evidence through witnesses and exhibits (e.g. documents, photographs, and other tangible items). The parties rest after putting on their evidence. The judge reads the charge (instructions and questions) to the jury. The lawyers then make closing arguments. Following further instruction from the judge, the jury will then leave the courtroom to deliberate and answer the questions presented to them in the jury charge. The judge reads the jury’s verdict and converts it to a final judgment. That judgment becomes final if not timely appealed or otherwise successfully challenged.

In summary, TV shows start by revealing the client’s problem, skip the hard work, and end with a dramatic trial where the bad guy is exposed beyond all doubt. In reality, there is not a smoking gun in most cases—it’s more of a connect the dots to see the picture approach.

 

Ryan Webster can be reached at 940-891-0003 or www.dentonlaw.com.

 

Free Speech at Work

The NFL protests and our President’s reaction to them raise interesting issues about political speech and expression in the workplace.   In response to the President’s comments, many commentators seem to brush off the idea that someone can be fired for exercising their right to free speech.  But, are they right?  No doubt we are entitled to free speech under the First Amendment of the United States Constitution, but does that mean we are free to express our political views whenever or wherever we want, specifically where we work?  In Texas, the short answer is – probably not.

The vast majority of Texans work for private employers.  Generally, the United States Constitution protects Americans from government action.  Private employers are rarely government actors.  In one of his many dissenting opinions, Justice Scalia expressed this idea well when he wrote:  “This is a free country.  Every American has the right to express an opinion on issues of public significance.  In the private sector, of course, the exercise of that right may entail unpleasant consequences. Absent some contractual or statutory provision limiting its prerogatives, a private-sector employer may discipline or fire employees for speaking their minds.”

Like the United States Constitution, the Texas Constitution provides a free speech guarantee.  And, like the United States Constitution, courts have said that the protections of that free speech guarantee extend only to government actors.  The Texas Supreme Court has written that “the guarantees of the Texas Bill of Rights generally apply only against the government… Similar protections do not exist for action by private individuals.”

What does this mean for the average Texas employee? Can you engage in political protest during work events?  If your employer does not want you to engage in political speech, no you cannot.  Texas is an at-will employment state.  That means, unless you have a written agreement to the contrary, a private employer is free to terminate you for almost any reason or no reason at all.  The exceptions to this rule for medium size to large employers arise not out of the United States Constitution, but out of statutory protections such as Title VII of the Civil Right Act and similar enactments contained in the Texas Labor Code (Title VII and the mirroring Texas Labor Code provisions do not apply to small employers, i.e., those that employ 15 employees or less). Generally, these statutes protect employees from discrimination based on sex, religion, or national origin.  Employees cannot be discriminated against because of who they are or where they come from; they can be discriminated against for what they say.

In contrast to private employees, government employees do have some protections when they engage in political speech in the workplace.  If a government employee is terminated for exercising their right to free speech regarding political matters that decision must survive a balancing test that weighs the employee’s interest in commenting on matters of public concern against the employer’s interest in workplace efficiency and harmony.  Of course, the key distinguishing factor of between public and private employers is that the First Amendment applies to “government actors.”  While the private versus public employer distinction is usually easy to make, for private employers that contract with government entities, care should be taken to understand if their employment decisions can take on the character of government action and that the contracts entered into with the government entity do not extend free speech protections enjoyed by public employees to the private employer’s employees.

Interestingly, while most all political speech in the workplace is not protected, the Texas Elections Code does protect the ultimate expression of political speech  – the right to participate in certain political activities and, most importantly, the right to vote.  The following specific protections apply to the right to vote in Texas:

  1. An employer may not refuse to allow an employee to miss work to attend a political convention, or subject the employee to a penalty for attending.
  2. An employer may not refuse to allow an employee to miss work on Election Day to vote. However, if the polling times include two consecutive hours outside of the employee’s working hours, this provision does not apply.
  3. An employer cannot retaliate against an employee who has (1) voted a certain way or (2) refused to reveal how he or she voted. The employer cannot threaten or subject an employee to loss of wages, reduce their wages, or reduce any other benefit of employment.

Perhaps ironically, most Texans do not have the right to wear their political views on their sleeves at work, but they do enjoy the right to keep their politics to themselves. At least in Texas, the commentators who casually conclude political speech in the work place is protected should remember the wisdom of the Peanuts character Linus, “There are three things I have learned never to discuss with people [at work]…religion, politics, and the Great Pumpkin.”

Have I Formed a Contract?

What must happen to form a contract? Like the NFL’s catch rule, it’s not always clear. Most of us enter into contracts on a regular basis. We buy and sell goods and services; we make promises in exchange for things we want. This article addresses some of the fundamentals associated with forming a binding contract.

Generally, to create a contract one party must make an offer to another party, the other party must accept that offer, and something of value or perceived value must be exchanged. That something is called consideration.

The offer may be for a good, service, promise, etc. The offer must be reasonably certain. For example, John offers to sell Larry his horse, Hurricane, for $70,000. Unless John owns multiple horses named Hurricane, that statement is probably a sufficient offer. If John had not named a price, his offer would not be certain. Offers may be revoked before they are accepted. An offer will lapse if it is not accepted in the stated time or a reasonable time. A reasonable amount of time to accept an offer is dictated by the surrounding circumstances. A reasonable time to accept an offer to buy a perishable item is likely shorter than an offer for non-perishables.

The next step to forming a contract is accepting the offer. Acceptance must be communicated to the person who made the offer (or his agent), and acceptance must be clear and definite. So, if Larry tells Bob (who is not John’s agent) that he accepts John’s offer, has Larry actually accepted? No. Larry’s statement was not made to John. If Larry says to John, “I think I’d like to buy your horse”, Larry has expressed a desire to buy Hurricane but not a clear and definite acceptance of John’s offer. Communicating acceptance, however, does not necessarily require a person to sign a contract or say “I accept.” If upon hearing John’s offer, Larry handed John $70,000, that act would constitute acceptance and performance of Larry’s contractual obligation. If, instead, Larry says to John “I’ll pay you $60,000 for Hurricane”, Larry has rejected John’s offer and made his own offer (a counteroffer) to purchase Hurricane, which John can either accept or reject.

Usually, consideration must be exchanged or promised to create a contract. The consideration for John and Larry is money and a horse. Consideration consists of either a benefit to the promisor or a loss or detriment to the promisee. Consideration may be provided by or to someone who is not a party to the contract. Also, consideration is generally regarded as adequate, except when its inadequacy would “shock the conscience” or is inadequate as the result of fraud. In other words, bad deals are usually enforceable.

Under certain circumstances where consideration is not specified, but one party relies to his detriment on a promise made to him by another party, the promise may still be enforced. For example, John assures and reassures Larry that he is going to give him the rest of the $10,000 he needs to build a new barn for Hurricane. “I love Hurricane and don’t want him setting hoof in your old barn. I’ll give you the money”, says John. Larry, in relying on that promise, demolishes his old barn and starts construction on the new barn. John then informs Larry that he has decided not to give him the money. Larry may be able to enforce John’s promise of $10,000. However, if Larry did not believe that John would give him the $10,000 but demolished his barn and started building a new one anyway, there would be no reliance and no enforcement of John’s promise.

To form a contact, the parties must also have a mutual understanding of the subject matter of the contract and the essential terms. Under a scenario where Hurricane had died two weeks before John offered to sell him to Larry, John knew of Hurricane’s demise, but Larry didn’t. John and Larry don’t have a mutual understanding. Additionally, there is likely inadequate consideration and possible fraud in this example. Larry thinks he’s getting a living horse for $70,000 and John knows otherwise but doesn’t tell Larry.

Contracts can be oral, but some must be in writing and signed by the person to be charged with the promises (e.g., contracts to loan money and contracts for the purchase and sale of real estate). Contracts can be formed through an email or text message exchange if such satisfies the elements of a contract.

Contracts range in complexity and terms. If you need help preparing, reviewing, understanding, enforcing, or defending a contract, consult with an experienced and qualified attorney.

The Texas Timeshare Act

Timeshares have been and continue to be a popular method to secure affordable vacation destinations. For timeshare properties located in or offered for sale in Texas, Texas Property Code Chapter 221, also known as the “Texas Timeshare Act” (“Act”), governs and regulates  timeshare interests.  “Timeshare interests” are comprised of “estates”, “properties”, and “uses”.

A “timeshare estate” is any arrangement under which the purchaser receives a right to occupy a timeshare property along with an interest in real property. A “timeshare property” is one or more accommodations and any related amenities that are subject to the same timeshare instrument, and any other property rights that may co-exist.  An “accommodation” includes apartments, condominiums, cooperative units, hotel or motel rooms, cabins, lodges, or other private or commercial dwellings attached to real property.  An “amenity” includes any common areas, recreational facilities, or other common components of timeshare property.  A “timeshare use” is any arrangement which allows the purchaser the right to use timeshare property, but does not grant any other interest in such property.

It must be noted that any timeshare interest located outside of Texas is not subject to the Act’s provisions relating to the creation of the timeshare regime (subchapter B) and the rules relating to a timeshare owners’ association (subchapter I). So long as out-of-state timeshare interests are offered for sale in Texas, then the provisions of the Act relating to registration (subchapter C), disclosures and advertisements (subchapter D), cancellation and rescission rights (subchapter E), exchange programs (subchapter F), escrow deposits (subchapter G), deceptive trade practices (subchapter H), and the transfer or termination of timeshare interests (subchapter J), will apply.

Only timeshare properties in existence on or after August 26, 1985, are subject to the Act. There are also certain types of offerings and dispositions which are exempt from the Act.

If a timeshare property is subject to the Act, a person may not offer or dispose of a timeshare interest unless a timeshare plan is registered with the Texas Real Estate Commission. “Offer” means any advertisement, inducement, solicitation, or encouragement to attempt to cause a  purchase of a timeshare interest.  “Dispose” means a voluntary transfer of any legal or equitable timeshare interest.  Offering or disposing of a timeshare interest which has not been registered is a Class A misdemeanor.  However, it is permissible for a developer to accept a reservation and deposit from a prospective purchaser on an unregistered property and place the deposit in a segregated escrow account with an independent escrow agent, so long as such deposit is fully refundable upon request by the purchaser.

Any advertisement or promotion related to a timeshare interest offering must comply with the Contest and Gift Giveaway Act (Chapter 621 of the Texas Business & Commerce Code). Any advertisement must make it clear that it is soliciting purchasers of timeshare interests and anyone whose name is obtained during a promotion may be solicited, and must set forth the developer’s name and the name and address of any marketing company involved in the promotion, unless affiliated with the developer.  A developer must also provide a timeshare disclosure statement to any prospective purchaser before entering into a purchase agreement.  The required contents of a timeshare disclosure statement can be found in Section 221.032(b) of the Act.

If the timeshare interest includes an exchange program, the party making the offer must also provide an exchange program disclosure statement. The details of the exchange program disclosure statement can be found at Section 221.033(d) of the Act.  An “exchange program” is any method, arrangement, or procedure for the voluntary exchange of timeshare interests between owners.  Typically the company administering an exchange program is not responsible for misrepresentations of the developer or for the denial of any exchange privileges.  So long as the developer’s contracts and sale documents have been approved by the Texas Real Estate Commission or a licensed Texas attorney, the developer may charge a reasonable fee for completing such forms, including the disclosure statements, purchase agreement, and closing documents.

Section 221.043(c) of the Act sets out the requirements for the timeshare purchase contract. The contract must advise the purchaser of his or her right to cancel the contract without penalty.  This right to cancel extends through the 5th day following the purchaser’s execution and receipt of the contract or the purchaser’s receipt of the timeshare disclosure statement, whichever is later.  The cancellation right cannot be waived.

Enforcement of the Act may be accomplished through the filing of an administrative complaint with the Texas Real Estate Commission or by private enforcement through the Courts. Several violations of the Act also constitute violations of the Texas Deceptive Trade Practices – Consumer Protection Act (Texas Business & Commerce Code Section 17.41 et. seq.).  Upon a finding of a material violation of the Act, the Texas Real Estate Commission may suspend or revoke a developer’s registration, place it on probation, issue a reprimand, impose an administrative penalty of up to $10,000.00, or take any other disciplinary action authorized by the Act.

Scott Alagood is Board Certified by the Texas Board of Legal Specialization in both Commercial and Residential Real Estate Law and may be reached at alagood@dentonlaw.com and www.dentonlaw.com.

 

 

A couple of months ago I wrote an article on the risks posed to business owners by work related accidents.  This month the article will be addressing the broader topic of work place injuries.  Specifically, injuries suffered by employees while on the job.  Texas, like most states, creates strong incentives for businesses to provide their employee’s coverage for work-related injuries by purchasing workers’ compensation insurance.  Workers’ compensation is a state-regulated insurance program that helps people with work-related injuries and illnesses.  Although providing worker’s compensation insurance is not mandated by the State of Texas, most employers in labor intensive business, such as construction or manufacturing, purchase worker’s compensation insurance.  However, the Texas workers’ compensation insurance system has been criticized as both expensive and ineffective.  For this reason, some employers have opted not to provide workers’ compensation insurance, and take on what can be significant litigation risks that arise when employees are injured on the job.

When determining a business’ potential liability for work place injuries, the first question to be asked is whether the business has workers’ compensation coverage.  If the answer is yes, then the risk and exposure is very low and primarily related to a potential increase in workers’ compensation premiums.  This is because the Texas Labor Code makes the recovery of workers’  compensation benefits the exclusive remedy for an employee covered by workers’ compensation insurance.  This means that generally injured employees and their families cannot sue an employer for damages arising out of a work place injury if the employee is covered by workers’ compensation insurance.  There are only one exception.  If the employer’s gross negligence was a cause of the employee’s injuries, then the employee or his surviving family (if the employee was fatally injured) can recover exemplary damages in addition to workers’ compensation benefits.

For employees injured on the job, workers’ compensation insurance provides payment for medical care for the treatment of their injuries; and, depending on the type and severity of the injury, workers’ compensation may also provide payments to replace some of an injured employee’s lost income, up to time and dollar limits set by law; compensation for burial expenses for employees killed on the job; and death benefits for dependents of employees killed on the job.  Benefits for lost wages are based on a percentage of the employee’s income.  If the injury is severe but does not result in death, the employee’s additional benefits are determined based on a medical exam and the application of a formula to the doctor’s determination of percentage of impairment.  Death benefits are determined based on a formula that takes into account the employee’s current earnings and his age at the time of death.

Employee rights groups have criticized the workers’ compensation system  arguing that it limits employees’ access to the doctors of their choosing and the benefit payments do not adequately compensate employees.  Employer friendly groups have complained the insurance in some industries is cost prohibitive.  Both employer and employee groups have complained that they system fails to effectively treat injuries so that the employee can return to work as soon as possible.  An additional risk associated with carrying workers’ compensation insurance for the employer is the potential for liability arising from what is referred to as workers’ compensation retaliation.  Workers’ compensation retaliation claims can arise if an employee is terminated when they have filed or are going to file a claim for workers’ compensation benefits.  Generally, Texas law does not allow employers to terminate an employee for having filed a claim for worker’s compensation benefits.  Because of these problems and risks, some businesses have decided not to participate in the workers’ compensation system.  These businesses are commonly referred to as non-subscribers.

Non-Subscribers are required by the State of Texas to file an annual notice with the Department of Justice, post notices in their personnel offices and workplaces that they do not provide workers’ compensation insurance, and tell each new employee in writing that they don’t have workers’ compensation insurance.  From a liability standpoint, non-subscribers  have increased exposure to lawsuits by injured employees.  Injured employees can sue non-subscribers over workplace injuries.  If they’re sued, non-subscribers can’t argue in court that the injured employee’s negligence caused the injury; another employee’s negligence caused the injury; or the injured employee knew about the danger and voluntarily accepted it.  Generally, injured employees seek to recover damages for lost wages, medical care, and pain and suffering.

Some non-subscribers mitigate the risk of employee suits by providing occupational insurance coverage and/or by providing health insurance and short term and long term disability coverage.  For some employers, these coverages would  have been provided anyway and/or can be obtained for a lower cost than worker’s compensation coverage.  When these coverages are in place, then can discourage lawsuits because the employee’s healthcare needs will be insured and, in the event of a lengthy work absence, there will be some wage replacement.  When the right benefits are in place, insurance can also be a more efficient method of recovering losses for the employee as well.  This is so because most attorneys who file suits against non-subscribers receive a fee of one-third to forty percent of any recovery.

Texas is one of a minority of states that does not require employers to participate in a worker’s compensation insurance system.  Like all freedoms, this one involves a risk.  Therefore, a careful risk benefit analysis should be done by any employer who engages in a business where there are frequent or potentially catastrophic injuries.  If you need help weighing your options, more information about this topic is available on the Texas Department of Insurance webpage and from licensed agents who specialize in selling workers’ compensation insurance.

Over the past twenty to thirty years, alternative dispute resolution (commonly referred to as “ADR”) has played an increasingly important role in resolving most business disputes. To understand why and how ADR could be beneficial to your business when you find yourself faced with actual or potential litigation, you have to start by understanding what ADR is an alternative to. Simply put, it is an alternative to a fully developed lawsuit tried before a judge or jury. In the late 1980’s the Texas Legislature passed statutes officially sanctioning several types of ADR procedures and providing protections for those parties and professionals who chose to participate in them. The procedures officially sanctioned by Texas Statutes include mediation, mini-trial, moderated settlement conference, summary trial, and arbitration. More recently, a process generally referred to as collaborative law has become increasing popular, but primarily in divorce cases. Of these procedures, the most often utilized are mediation and arbitration followed, in my experience, in a distant third place by collaborative law.

Since it became officially sanctioned by the Legislature, mediation has become, by far, the most common form of ADR. This is largely because of its effectiveness. Judged from a trial court’s perspective, mediation is successful when a case is resolved and thus off the court’s docket. Measured this way, mediation is successful eighty to ninety percent of the time. Because of this overwhelming success rate, most courts require a mediation before they will permit a case to go to a jury trial.

Mediation is essentially a settlement meeting that the parties attend in person conducted by a neutral third party, typically a lawyer or retired judge who does not represent either party. The third party mediator has no authority to decide the dispute and whether the parties resolve the suit at the mediation depends completely upon the parties’ mutual agreement to do so. The benefits of mediation are many, but in my opinion, there are three primary benefits. The first of these is focus. Mediation forces the parties to set significant time aside to concentrate on the dispute. It is human nature to defer dealing with difficult problems and bad relationships. Litigation often arises out of one or both of these. Mediation forces the parties to focus on the dispute in spite of the unpleasantness of the task. Second, mediation forces the parties to at least hear a different perspective. Parties to disputes are usually able to better process the other party’s position when they have devoted an extended period of time to focus on the dispute. In litigation, the parties’ discussions and consideration of the dispute, and sometimes even an attorney’s, can become an echo chamber of only likeminded views. Day to day, you may hear what the other side is saying, but, consciously or not, you can quickly move on to other things without really considering or processing whether it has any merit. Mediation, particularly with a good mediator, can help the parties break free from their typically narrow, black and white view of what happened and who is responsible. Finally, because mediation is a forum for settling disputes, it forces the parties to consider what they want. Do they really want to continue with the litigation? Sometimes, the inertia of the decision to bring a lawsuit needs to be broken. Do they want to focus on trying to salvage a business relationship or attempt to maximize a recovery in the lawsuit? If available, do they want to consider alternatives to resolution that a court cannot provide? Surprisingly often, these questions have not been given the attention they deserve and mediation forces the parties to provide answers.

Arbitration differs significantly from mediation. Arbitration replaces the judge or jury with an arbitrator who will decide who wins and who loses in the dispute. Arbitration typically arises out of a prior agreement of the parties. For example, many real estate contracts contain clauses that require the parties to arbitrate any dispute arising from the agreement. Texas courts are extremely differential to such contractual provisions and will typically enforce them if either party requests it. Ten to fifteen years ago, arbitration was a favored forum for many large businesses. This trend has waned. When a dispute has limited scope or requires special expertise, arbitration can be beneficial for both parties. However, it has proven to be more costly than court supervised discovery and litigation. When you arbitrate, you have essentially decided to pay a private judge, and sometimes his court staff, instead of utilizing a court system which is taxpayer funded. In my opinion, when used by big business today, arbitration clauses are used to prevent disputes from being decided, specifically class action lawsuits rather than providing an alternative forum for their resolution. Before voluntarily agreeing to arbitrate, you should carefully consider the costs and anticipated benefits and, if possible, tailor the process to your specific dispute. For instance, using experts in a specialized or technical field to serve as arbitrators can be beneficial in the right circumstances.

Although the legislature sanctions mini-trials, moderated settlement conferences, and summary trials, there has been very limited use of these procedures in business or other litigation in Texas. This is likely a consequence of the success of the mediation process and the relative lack of benefits of these processes relative to the cost and risks associated with using them. Perhaps to fill this void or as a refinement on the idea behind these processes, collaborative law has emerged over the past decade. The collaborative process is party focused and is usually utilized before a lawsuit has been filed. The parties agree not to litigate while they are utilizing the process and the professionals, including lawyers, accountants, or other experts agree they will not participate in future litigation. In the business setting, the collaborative approach can have real utility where the parties have, or wish to have, an ongoing relationship and want to preserve and foster trust. Where there is little trust and no need or desire for an ongoing relationship, the benefits of the collaborative process won’t likely be sufficient to justify use of the process. An early mediation or settlement conference would likely produce the same results.

In business, disputes are evitable. We have an excellent civil justice system, which is the envy of the most of the world. However, as part of that process or separate from it, there are alternatives. When you are confronted with a dispute, I recommend you discuss and consider the alternatives with a lawyer qualified to handle your specific dispute.