Archive for category litigation
How Many in a Baker’s Dozen?
Industry practices and specific relationships may create unwritten contractual terms that bind the parties. This blog has more legal analysis than usual, but read on. Really.
Iowa’s Uniform Commercial Code (UCC) governs transactions in goods. Iowa’s UCC section 554.1303 addresses three principles that may supplement or amend contracts:
* course of performance,
* course of dealing, and
* usage of trade.
Course of Performance: This addresses conduct between the parties in a current contract when:
(a) the agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and
(b) the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection. To better understand Course of Performance read ABC Metals & Recycling Co., Inc. v. Highland Computer Forms Inc. which is a case involving claims about amounts paid for paper. A contract provision provided the price for the paper was on a particular website. After the contract was formed, the website shut down, but the information became available on another website. The second site was used by both parties. The five year use of the second website became a determining Course of Performance.
Course of Dealing: Your prior dealings with a party may create a Course of Dealing, which is an understanding that becomes part of a future contract, even if not specifically stated. To better understand Course of Dealing read St. Ansgar Mills Inc. v. Streit which is a case involving a hog farmer who regularly ordered feed corn from the mill. The mill would either send order confirmations to Streit for signature, or hold the orders for Streit’s signature. Often, turnaround for signatures was a month or greater. The hog farmer called in two orders for future delivery of corn; the mill held the confirmations for a signature. When the farmer returned more than one month later, the price of corn had significantly dropped. The farmer refused to sign the order, stating that the written confirmation had not been delivered within a reasonable time. The Iowa Supreme Court considered prior orders showing Course of Dealing where significant time passed between oral purchase orders and delivery of written confirmations.
Usage of Trade: Some industries work with such similar goods that industry-wide standards and practices develop. To better understand Usage of Trade read C-Thru Container Corp. v. Midland Mfg. Co. which involves a contract between a manufacturer of bottles and a buyer. The manufacture asserted that the buyer did not order a sufficient amount. The buyer asserted that the manufacture did not provide samples to assure a suitable product. The Iowa Supreme Court found that the buyer was allowed to provide evidence of trade practice and could argue that the industry has a standard of providing samples prior to orders.
What does this mean for your business?
1) Know how other businesses handle similar contracts. (Especially if you are venturing into a new industry.)
2) If you want to deviate from a common business practice, get written agreement.
3) Define your business relationships in the same way that you define the actual terms of a contract, with attention to clarity.
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Mediation can be a cost-savings tool if used early when a dispute is still minor.
Times to use mediation early:
1) You have a good business relationship that you would like to save
2) You suspect the other party “doesn’t get it”
3) The other party says you “don’t get it”
4) The best solution involves something other than just money
A mediator may help you find resolution while you can still afford it. You may use mediation to resolve issues with suppliers, contractors, employee and customers.
Find a great mediator the same way you find a great lawyer:
a) Ask trusted advisors
b) Research credentials
c) Interview more than one and make comparisons
Getting to the solution may be easier if you have someone who specializes in facilitating calm meaningful negotiation. As Abraham Lincoln said, “Discourage litigation. Persuade your neighbors to compromise whenever you can.”
My posts deal with avoiding litigation. My last post addressed the benefit of putting business dealings in writing. Once you put something in writing, the next logical determination is how long to save that document.
Prior to going Enron on your corporate records, take a look at the IRS’s Starting a Business and Keeping Records. The Record-keeping section addresses records for taxes. To address concern about potential lawsuits, work with your attorney to design a record retention plan. Be sure the plan covers paper records and electronic data. Once you have a record retention (and destruction) plan, integrate that plan into your business processes.
What if you don’t follow the plan?
Under Iowa law [Iowa Civil Jury Instructions contain a model instruction] if a jury concludes you intentionally destroyed or failed to produce evidence, it can assume that evidence would have been unfavorable to you. The jury may see the missing evidence as the :”smoking gun.” A saved receipt may nail your case down; a prematurely destroyed receipt may become a nail in the coffin. Well kept records may be more productive than winning lawsuits; they may convince opposing parties not to sue you in the first place.
How do you devise and regularly apply a sound plan to avoid problems?
In Iowa, most oral contracts have a five-year statute of limitations [section 614.1] to enforce a contract (or to be sued for a breach). Depending on your business, you may wish to retain supporting documents for five years after the contract ends.
In Iowa, most written contracts have a 10-year statute of limitations [section 614.1]. Does your record retention plan keep the contract for 10 years after performance of the contract ends? How long do you keep record of payments made or received? Should you keep emails about the contract?
Under Iowa law, as a designer, manufacturer, distributor or seller of a product, can you be sued 10 or 20 years after production and multiple re-sales if the product causes damage? What are the time limits or Statutes of Repose [614.1(2A)] for such claims? What if your product is a Web-based application? How long must you keep the records of product testing? Of use? Was your product sold with warnings or safety devices, or for a Web-based application, was a warning included with installation or initialization? Do you have records that show your product was altered?
Although the questions are complex, setting consistent policy will make later involvement in litigation less likely or, at least, less painful.
Record retention is important. Failure can subject you to legal presumptions that could end your business. Find out the factors that affect your particular business. Implement a record retention and destruction policy. Put it in writing. Stick to it.
Or wait until you have a problem. Then come see me.