Posts Tagged litigation
Boring Blog
Posted by Christine Branstad in Business Law, Business Records, Corperations, Liability on May 13th, 2011
The UCC is only exciting when you are in a dispute. Read this boring blog and avoid the excitement.
Article 9 of the Iowa UCC (Iowa Code Section 554.9101 et seq.) governs the purchase and sale of goods and related secured interests. This blog will deal with protecting a business during an initial transaction. My next blog will deal with placing the public on notice of a security interest.
Bill’s Bakery Supplies is an equipment wholesaler.
Joe Smith is CEO (and sole employee) of Smith’s Confectionary Inc.
Smith purchases equipment from Bill’s. If Smith cannot pay, how can Bill’s recoup the unpaid balance?
Often, security agreements arise where an item is sold on account (six months same as cash) or a loan is received for the purchase of an item (bank loan for a car), and the purchaser is allowed to pay off the balance over a period of time. A seller may want to retain certain rights to the goods until paid in full.[1]
Smith pays 10 percent of the total price, signs the purchase agreement, and takes the equipment. Bill’s Bakery Supplies may be entitled to full payment on the account, but has it retained a security interest in the goods?
Likely no. In Iowa, an agreement to sell goods alone is not enough for a security interest to attach to the goods. Iowa Code Section 554.9203 provides that for a valid security agreement there must be:
(1) value given;
(2) a right in the collateral that the debtor can transfer to the secured party; and
(3) a signed security agreement with a description of the collateral or the collateral in possession of the secured party.
This means Bill’s no longer has an interest in the goods sold and, essentially, has an unsecured open account.
If your business wishes to keep a secured interest after sale, create an agreement that:
(1) specifies that a security interest is held by the seller;
(2) is signed by the purchaser; and
(3) includes a detailed description of the goods (e.g. serial number, make, and model).
[1] (Author’s Note: The UCC refers to a security agreement in this situation as a Purchase Money Security Interest, where the entity which gave the funds to the person to procure the good/s has a security interest in the goods as collateral.)
Mediation in Business
Posted by Christine Branstad in Business Law, litigation, mediation on August 6th, 2010
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Most of my business clients see mediation as the thing you do when you are almost at the end of litigation.
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.”
Avoid litigators – Don’t Destroy That Document
Posted by Christine Branstad in Business Law, Business Records, Corperations, Liability, litigation, Starting a Business on October 7th, 2009
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.
Business owners regularly tell me they keep records for seven years because it is “the law.” The magic seven-year rule may be a tax guideline, but it is a business and legal myth.
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.
