BOILERPLATE BLURB: ENTIRE AGREEMENT; INTEGRATION; MERGER.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

What is the Entire Agreement (aka Integration aka Merger) Clause?

The entire agreement or integration clause basically states that anything not in or a part of the written agreement, is not a part of the agreement.  It is premised upon the parol evidence rule, which is a rule that prevents a party to a written contract from presenting outside evidence that contradicts or adds to the written terms in the agreement.  Basically, you can't say the final agreement is wrong because you had discussed something different in letters, conversations, or side agreements prior to the final agreement.

Why do we have it?

At a certain point, you either have a deal or not, and while some people prefer handshakes, their attorneys feel that having something in writing is better.  Now, imagine, if we allowed parties that were in dispute of a contract continually bring in evidence that undermined the final written agreement.  It would kind of make settling on the terms of the agreement pointless, wouldn't it?  So, we limit the understanding of the agreement to what is reduced to writing, bolstered by this clause.

Generic Example

This Agreement sets forth the entire agreement of the parties and supersedes all prior or contemporaneous writings, negotiations, and discussions with respect to the subject matter hereof.  Neither party has relied upon any such prior or contempraneous communications.

Example of a an Entire Agreement Clause in a Consultant Agreement

This Agreement represents the entire understanding between the parties with respect to the subject matter contained in it and supersedes all other written or oral agreements made by or on behalf of Consultant or Client.

Example of Integration Clause in an Employee Agreement

This agreement constitutes the entire agreement of the parties relating to the subject matter of this agreement and supersedes all other oral or written agreements or policies relating thereto, except that this agreement does not supersede or limit the Employee's rights under any benefit plan.

What about changing the terms of the Agreement?

Well, that's what the Amendment clause is for, and that is for another post!

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Boilerplate Blurb: Assignment.

Assignment Clauses

Generally, in contract law land contracts are freely assignable (meaning they can be transferred).  However, if an agreement possess a restrictive or anti-assignment clause it will prevent this transferring of the agreement.

Thus (anti)-assignment clauses determines whether rights, obligations and duties under an agreement may be transferred in whole in or part to another, and under what conditions. Under U.S. law, contractual rights are freely assignable or delegable, unless prescribed or limited by agreement.

The clause frequently overlaps with “successors and assign” or “parties in interest” clauses that controls whether successors or assignees can assume the rights and obligations under the contract.  Some of the frequently asked questions you should ask yourself about the deal you are doing in regards to the opposite party are the following:

  • Do you want the the ability to delegate tasks in the agreement?
  • Do you want the ability to assign something of value stemming from the contract, such as revenue?
  • Do you want the ability to assign all rights under the agreement to another company that may acquire your business? (remember assignability makes it easier to transfer, thus giving you more options, meaning more value)
  • Do you want to give the other party the ability to assign the agreement? Do you want them to always be responsible to you, even if the agreement is assigned (do you want them to remain on the "hook")?
  • Do you want the party to specifically do the work or can they use sub-contractors?

Some examples:

Here is a simple assignment clause that makes it so that Person X, must get the written consent from Party A to assign the rights or obligations of the agreement.  It may show up in an independent contractor agreement where Person X is providing services to Company A:

This agreement or any of the rights or obligations thereunder shall not be assigned in whole or in part by Person X without the prior written consent of the Company A.

Here is an example of a clause that restricts the licensee (person receiving the license) to that one license, and they will not be do transfer it to anyone else without the permission of the licensor.  This is typically a clause used in intellectual property or grants of the right to use something, so consider software, logos, grants of access to things, etc . . . . It is in this way a licensor can make "more" single-holder licenses by restricting transfer, and forcing those that want the item in question by entering licensing agreements.

The right of Licensee to hold and use the property of Licensor pursuant to this Agreement is restricted solely to Licensee and shall not be assigned, transferred, sublicensed, encumbered, or subject to any security interest without the written authorization of Licensor. Any attempted assignment will be void and of no effect.

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*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Boilerplate Blurb: Severability.

Well, it's been a while for a Boilerplate Blurb, but here is one that cuts to the chase (pun intended). The severability (aka savings) clause is used to keep a contract and its various provisions intact if parts of it are deemed illegal or unenforceable in a court.  Why? With written agreements being so long today, and business deals operating as ongoing transactions it is clear that sometimes something once was legal when first drafted may become illegal or unenforceable as time goes on.  However, is that one reason to throw out the whole contract?  Probably not.  Therefore, a severability clause will be used to save parts of the agreement even if other provisions are rendered inoperable, and they read something like this:

If any provision of this Agreement is declared invalid by a court of proper jurisdiction, the provision is affected only to the extent of the invalidity, so that the remainder of that provision and all remaining provisions of this Agreement will continue in full force and effect.

However, sometimes some parts of a contract are so essential the purpose of the contract that if they are voided the severability clause states that the whole contract should be voided.  Finally, it should be noted in many legal jurisdictions, such a clause shall not be applied if it fundamentally alters the contract.

Since it is legislative season here in Hawaii, you should also know that when drafting legislation we attorneys like to use a severability clauses to save laws should the be deemed unconstitutional. This represents another facet of the interplay between the judicial and legislative branches.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Boilerplate Blurb: Counterparts.

So Boilerplate Blurb is back! . . . well, on a non-regular basis, but I will try and give you business owners the riveting details of those Miscellaneous Provisions sections of your 80 to a 100-paged agreements. Today's provision is the Counterparts provision.

What does it Look Like?

Generally, it looks something like the following:

Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same agreement.

What does it Do?

It allows the agreement to be executed in several, identical, copies.  Basically, Person A is on the Big Island and Person B is on Kauai and both have come to an agreement for some business deal.  Rather than have them travel for an intersland flight to be at one location to sign the document, they can sign the "same" document on their own islands.  Together, there two "copies" will be taken as one agreement, so long as the terms are identical.

Why Have it?

In our modern era, it is not unlikely that the parties of an agreement are scattered all over the place.  If the signature is representing their will to be bound by the agreement it would be foolish just because of an incomplete Signature Page that there was no contract formed.  Finally, while it is very common to have two parties to a deal, sometimes there are multi-party transactions or deals and rather than have someone with one printed copy run after people for signatures, say 51 of them, or even 8 different people, a counterparts clause makes it easier for each individual party to sign in a place of their convenience and also retain a copy for their records.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

NOTICE: RELAUNCHING OF WEBSITE - WWW.HAWAIIESQUIRE.COM

UPDATE: WEBSITE RELAUNCHED (9/4/2012)

So to all my clients, readers, and friends, thanks for bearing with me on the delay! I wanted to get this new site to you as soon as possible, but have been swamped with work! Very grateful to have new clients who are understanding and work with me on helping their business objectives become realities.  So a lot of new content and features on this site, as opposed to my old site.  Please look around and get a feel for the site, especially if you are a small business owner or entrepreneur I would like you to have this become a resource and tool for you as you consider the legal aspects that touch upon your trade or industry.

As always, I am appreciative of meeting new clients and remember the initial consultation is always free up to an hour, and I am happy to meet with you in-person, talk to you over the phone, or type up a thoughtful email.

Please enjoy my new website and its content.

Mahalo.

-RKH

P.S. Some functions and features are disabled at this point and will be rolled out later. Also pardon some of the graphical errors, as I am also my own graphic designer for a lot of the pictures you see on the site. Bear with me as I fix the kinks.

--END OF UPDATE--

-- PRIOR POST BEGINS--

(8/9/12)

Dear clients, readers, and friends I am letting you know that starting next week I will begin migrating content from www.hawaiiesquire.wordpress.com to www.hawaiiesquire.com. This represents a disruption in my posting schedule and you will not see new content from me on both sites (old and new) for 2 weeks.

While I realize that may seem simple, I assure you that my friends in the tech community have long advised that I do this and my awesome IT and web management crew are working hard to do it as soon as possible. Expect to see a better user experience, which means more resources and content to be useful for small business and startup owners.

In the meantime, please continue following me on Facebook, Twitter, and Linkedin, as I will be doing frequent updates through those social media avenues - I will be doing another speaking event soon, so please follow, as it will be a good one.

Finally, I would like to say that wordpress.com has been a great home to my website and blog for over a year. I highly recommend those of you starting a business to do a blog and a website if you are not savvy enough, and start here, as they make it easy and accessible. It has definitely made my practice better and gives me a unique voice in the crowded field of legal services.

So I will see you all soon again and please favorite, bookmark, subscribe, or just write a note to yourself to in the future go to www.hawaiiesquire.com.

Mahalo!

-RKH

--END OF POST--

Another Word on Agents, Employees, and Independent Contractors

Yesterday's post was primarily about an agent’s authority to enter into contracts with another party.  As many of you know, as a small business or startup owner there are advantages to using an independent contractor over hiring an employee.  I will not go into the tax details or compliance issues here, as I do a seminar that goes into that in-depth.  In addition, I covered some of those issues in a prior post. What I did want to mention today is this: while all employees are agents, not all agents are employees.  Some agents may be independent contractors.  Finally, agents that are not employees do necessarily have to be independent contractors.

Why is this important?  The manner of the relationship is important when things go wrong, such as when there is injury or accident.  Your independent contractor agreement may not fully reflect the independence of your independent contract and you may be liable for the problems they caused.  Where is one of the places the law looks to see what dictates who is responsible in these situation?

Your agreement. Consider having an attorney or an expert review the provisions that deal with liability, duties, and responsibilities shifting.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Draw the Law: You, Your Contracts, and Other People – Using Agents

Last week I talked about the exception to the necessary consideration you need to form a contract, reliance.  Today, I will focus on dealing with agents in the context of contracts.

 Agents – Can Only Enter Contracts with a Principal’s Permission

Agents in contract law are people who enter agreements on behalf of another, called the principal.   Most everyone has met or been an agent at some point of their life.  Employees are agent and their principal is the employer.  I bring this up because when you hire your first employee give some thought into how they will be interacting with customers, clients, suppliers, vendors, and other business people.

When Can an Agent Bind the Principal to a Contract?

It depends on the authority given to them by the principal.  An agent can only act as far as the authority given to them by the principal.  An action beyond their authority is unauthorized.  Thus an agent who is only authorized to purchase 3 computers exceeds their granted authority when he buys 5 computers.

Is the Principal Bound to a Contract made by their Agent when the Agent Exceeded their Authority?

First of all, it is important to understand that when an agent enters a contract, you sue the principal not the agent if something goes wrong.  In the situation of a contract that was unauthorized we need to see there was apparent authority.  In the above example, it is clear the agent had the authority to buy 3 of the 5 computers. However, does the principal have to pay for the other 2?

Under the rule of apparent authority, if the seller reasonably does not understand the agent exceeded their authority the principal is bound on the contract.  If the seller had reason to know, then the principal is released from the contract.

How would you know? For example, if the computer seller sells computers to Computer Purchasing Agent Alex of Principal Piko Powers Partnership on a weekly basis it is safe to assume they would not question the purchase.  However, if Uncle Adam came into the computer store and said he for Piko, the computer seller should question his authority.

The rationale behind apparent authority is that the principal is in the better position to control their agent.  Secondly, an agent who exceeds their authority gives the principal a cause of action against the agent.

Last Word on Agents, Contracts, and Duty

An agent has the duty to put their principal’s interest ahead of their own.  Therefore, an agent cannot make personal gain or profit beyond what the principal and agent agreed to in an agency agreement.  Where does this concept frequently get violated?  When the agent sees a better business opportunity with a third-party, thus they never enter into a contract on behalf of the principal.  Instead they supplant the principal and “steal” the contract and make it their own.  This will also give rise to a cause of action by the principal against the agent.

As a small business and startup owner you always need help, but just be aware of what others are doing on your behalf.  You don’t want to find yourself stuck with extra inventory and equipment and the bill to pay for it.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Know Your Legalese: Promissory Estoppel

Yesterday, I talked about detrimental reliance, which is known to lawyers as promissory estoppel. The reason why lawyers call detrimental reliance by that weird-looking term, promissory estoppel, has to do with the way the lawsuit works operationally in court.  In a typical breach of contract, the nonbreaching party sues for damages under the contract that the breaching party fulfilled to do its obligation.  The nonbreaching party has to prove there was a contract and that to have a contract good consideration needed to be a part of it. In the case of detrimental reliance there is no consideration.  It is just a promise that one party relied on.  Therefore, in a a standard breach of contract suit the nonbreaching party would lose the case.  However, this is where promissory estoppel steps in.  A party that has reasonably relied to their detriment can assert promissory estoppel as the basis of a cause of action for damages.  It operates by estopping the promisor from denying the existence of a contract due to lack of consideration.

Basically, in an employment type of situation it goes like this, "Hey, you cannot say there wasn't a contract. I moved across the ocean to work here because of what you promised."  Even though the speaker, gave no consideration to the prospective employer, he is saying that due to a promise he changed his position (he moved).

*That it is why, in my opinion, promissory estoppel is a contract-like situation because there is no consideration. We are using a legal device (promissory estoppel/detrimental reliance) to enforce a promise where no consideration has been given between the parties, only a promise.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Draw the Law: Reliance, the Exception to Contract Consideration

So for the past couple of weeks I spent talking about how consideration is the cornerstone of contracts and what is good consideration.  Now, in typical lawyer fashion I am going to tell you that there is a situation where you will have a contract-like situation without consideration.  Another words, an exception.  That exception is known as reliance.

Why did you say Contract-like?

First, remember that consideration is a two-way street.  Both parties in a contract MUST give good consideration for a contract to be formed.  In Contracts law, all law students learn that there are contracts, and then there are situations that look like contracts.  One of these contract-like situations is promissory estoppel.  As I don’t want to confuse you with legalese in this post I will refer to it by its other name, detrimental reliance.

What is Detrimental Reliance?

It is when one party reasonably relies on the other party’s promise to their detriment.  Detriment in this situation is when the promisor reasonably expects to induce an action or forbearance from the promisee, and there is actual action and or forbearance by the promisee.  In other words, the promisee has had to have a change in position.

I am sure you have no clue what I just said, so it is time for an example and pictures:

Example: Construction Projects and Subcontractor Bids

Let’s say a subcontractor (S) submits a bid of $7,100 to a general contractor (GC) trying to secure a public works construction project.  The general contractor uses this bid to prepare his own final bid.  The general contractor is awarded the job.

The following day the subcontractor tells the general contractor that it had underestimated the cost and refused to perform the job for less than $15,000. The general contractor then hires another subcontractor (AS) to do the work for $11,000.

The general contractor sues the original subcontractor for the difference between $11,000 and $7,100.  The main argument is that the general contractor relied on the offer by the subcontractor.

In this situation, the general contractor relied on a promise, there had been no consideration exchanged from the original subcontractor to the general contractor.  However, the general contractor changed his position based on the subcontractor’s bid (he made the final bid with it calculated into the cost).  In this case, a court would award the general contractor the difference of $3,900 as the damage done to the general contractor for detrimentally relying on the subcontractor’s promise.

Last Word: Real World Reliance

Reliance is not some kind of legal fairy-tale that lawyers come up with just to tell you stories.  While it is an old English law concept, it still has very real world consequences.  It has been used successfully in option contracts, employment agreements, franchise arrangements, and as you just saw in construction projects with subcontractor bids.  The example is actually based on a real case.

Detrimental reliance frequently comes up in the situation of employment law;  the typical situation is where the HR person makes a lot of assurances and promises to prospective employee.  However, for whatever reason the job never materializes, but the employee has quit their previous job, moved, and other changes to their life.  Angry and frustrated they usually sue the company that offered them the job or made them certain promises with the claim being detrimental reliance.

Many times lawyers will advise their employer-clients (as well as marketers) not to make promises that they cannot or do not intend to keep, especially in those situations where the other side is going forward with its plans based on those promises.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Draw the Law: Consideration is the Cornerstone of Contracts, Part II

So last week I started talking about consideration. Consideration is the basis of a contract and without it there is no contract. So today’s post focuses on what is good consideration, and then applies it to a complex agreement that many businesses face when dealing with litigation.

What is Good Consideration: Illusion, Value, and Obligation

One party may not hold an unqualified right to ditch out on their side of promise. This is similar to an idea of a gift, where one party is receiving the benefit for nothing; the promises exchanged cannot be illusory.   Without the agreement to promise to do something there would be no bargaining, and there would be no way to enforce the promise against the one who bailed out on the contract.  In addition, the illusion of paying at an underestimated value to avoid sales tax is illegal.  This brings me to my next point about the value of the consideration.

In terms of a set amount, remember in our free market economy everything has value, but not all value is equal.  Due to the fact, that one man’s junk is another man’s treasure it is hard to say that there is a “correct” amount for consideration.  What is presumed is that people will only make agreements for things they consider worthwhile.  Consumers generally have the safety of courts protecting them from deals that “shock the conscience of the court.”  In addition many consumer protection laws prevent contracts of adhesion.  However, for you business owners, in a B2B sale, you are on your own; if you paid too much for a service or product consider it an expensive lesson.

Lastly, good consideration has to be a new obligation.  If a contract is already made, one party cannot use the prior obligation as the basis of a new agreement with the same party.

Example: Value and Taxes - If you choose to sell hand-crafted chopsticks for $0.60 a piece, and sell a 1,000 of them to a restaurant supply store that is your choice.  You can negotiate and sell it for $0.10 or $1.00 apiece. There is no right or wrong price for consideration. However, what is wrong is if you keep making sales for $600 and report sales of $500 just to avoid paying taxes.

Final Word: Accord and Satisfaction, Paying to be Free From Obligation

I mentioned last week that consideration can be refraining from doing something. For example, refraining from exercising the right to sue the opposing party that did not perform their obligated duty. In a dispute, where one side has not received its promise there is a breach of contract and the nonbreaching side has the right to sue. The side that broke the contract has an outstanding debt or obligation to the nonbreaching side.

This is where Accord and Satisfaction steps in; it is a concept of purchasing the release from a debt obligation.  The accord is the agreement to discharge the obligation and the satisfaction is the consideration.  Contractually, what happens is the side that broke the agreement agrees to pay money or settle the dispute, in exchange for the nonbreaching side to give-up its right to sue or drop the suit. This is done because the nonbreaching side does not want be sued and generally the debt-collecting side finds it less costly to collect a sum of money (albeit less than the actual value of the original contract) from the breaching side.

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*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Draw the Law: Consideration is the Cornerstone of Contracts, Part I

For the past couple of months I have talked about offer and acceptance, without either we do not get to a contract.  However, offer and acceptance can be viewed as the pre-formation phase to the contract. Remember it is the negotiating phase between two parties, until one side accepts there can be a series of offer and counteroffers, and there is no contract.  However, that is only one piece of the puzzle; at the very base of the negotiating is something or an action of value that the parties desire of each other, this is consideration.  Without consideration there is no contract.

What is Consideration?

Consideration is a bargained-for exchange, it can be for benefit or advantage or for detriment.  The key is that it is bargained-for and there is an exchange.  The basis for this in contract law is a concept called mutuality of obligation, which means both sides have to be committed to give or do something, or even refrain from doing something.

To put this into perspective, in a gift situation, the donor gives the donee something of value for no consideration whereas in a bargained-for exchange the offeree and offeror have promised something of value to each other or promised to do or not to do something.

Example: Consideration, Exchanging Benefit-Detriment

An uncle promises his nephew he will give him a certificate to use at the local shopping mall if the nephew gives him the fish he caught.  The uncle receives fish (benefit), but loses the certificate (detriment) whereas the nephew gains the certificate (benefit), but loses the fish (detriment).

Example 2: Consideration, Giving up the Right to Something

An uncle promises his nephew (who is of legal age) that for every year he refrains from drinking, he will receive a gift certificate.  The uncle’s consideration is giving gift certificates.  The nephew’s promise is not to do something that he is allowed to do, and this forbearance is his consideration.

Example 3: Gift, No Consideration

An uncle gives his nephew a certificate to use at the local shopping center.  The uncle has given something of value for no exchange of promise or anything of value from the nephew. This is not a contract, but a gift.

Final Word: Without Consideration, There is No Contract

It is important to determine whether or not that at the basis of a contract that there is valid consideration. Without consideration, there is no contract. In the next part of this discussion of consideration I will discuss what is and is not good consideration.  All of this taken together I will discuss the use of accord and satisfaction, a valuable contractual tool to deal with business disputes.

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*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Draw the Law: Conditions

Hey everyone, pardon the delay for this week’s Draw the Law.  Last week, rejection and counteroffer were discussed for Contract Law.  This week is important for those of you negotiating the terms and conditions of your agreements.

Are Terms and Conditions the Same?

No. I have had a lot of small business people assume when they see “Terms and Conditions” assume that the two words are the same.  They are not, and this one of those cases your attorney is not being redundant.  While, the terms are negotiated for what is a part of the deal, a condition is an event that must occur before either party is required to perform their promise.

Conditions in contracts land is the same way as what you remember in grammar school, it is those “if, then” statements. For example:

If you remember how conditional sentences work, then you will understand that this sentence is one.

Therefore, if a store owner requires supplies to be delivered by a specific date, and the supplier accepts that condition, the date of delivery is a condition of the contract.

Uncertainty and Conditions

Many times, conditions involve a degree of uncertainty, which are not under the control of the parties.  Nonetheless, the condition must be fulfilled in order for the contract to go forward.  With uncertainty at play, generally someone who is experienced in the trade or industry will come up with a contingency to deal with those kinds of issues.

Let’s use a store owner who sells poke bowls and fish bentos and a fisherman to illustrate this situation.  Fish prices fluctuate base on the fisherman’s catch, but the store owner generally has a static price for their poke bowls and bentos.  The fisherman knows that, so he sets a price, but says he can supply whatever fish he wants at that price.  Under this contract, both the fisherman and store owner are locked into that price.

Now, let’s say the owner gets very cheap and picky. He wants an exotic fish for his prized bentos.  The fisherman is experienced, but is unsure if he can supply the said fish.  Therefore, the fisherman states that he will sell the exotic fish, contingent on if he can catch them.  This condition gives the fisherman an escape, should he be unable to catch the fish.  There would be no obligation to perform because the condition has not been met.

As a negotiation or pricing strategy, the fishermen may offer other fish at a reduced price to the store owner, should he be unable to catch the exotic fish.

For you Law Students or Legalese Geeks

For those of you who are really into technical legal writing, understand that there are types of conditions as well. There is a condition precedent and a condition subsequent.

A condition precedent is an event that must occur before any contractual duty arises. Thus, with the case of the fishermen he will only sale if he catches the fish.

A condition subsequent marks the end to one's legal rights or duties.  This is often explained with the case of providing a music hall for a musical performance, where the music hall burned down frustrating the purpose of the contract. Therefore, the music hall owners ended their obligation to provide a hall to the performer when it burned down.

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*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

BTW Legalese: Parties that end in "or" or "ee"

By the way, you may have noticed, contract law there are a lot of terms that describe the parties involved that end with “or” or “ee”. For example, offeror and offeree from this week’s Draw the Law.  If you see this in a long legal document you can immediately recognize the relationship of the parties involved. The ”or” person is the originating person of the action.  It starts with them, and then ends with the “ee” person.  Like’s take the example of offerror and offeree.  The offeror is the one making the offer, whereas the offeree is receiving the offer.

This works for other relationships like in an assignment, where there is the assignor, the one assigning property or interest rights in something, and the assignee, the one receiving the property or interest rights.  Some relationships, do not necessarily follow this categorization, as you will see below (i.e. trustor and trustee).

Consider the following pairs:

  • Offeror/offeree - offeror makes an offer to the offeree
  • Payor/payee - the payor makes payment to the payee (i.e. the payee is the one who endorses a received check)
  • Lessor/lessee - the lessor leases property (or the right to use property) to the lessee
  • Licensor/licensee - the licensor grants a license of the right to use something (IP) to the licensee
  • Assignor/assignee - the assignor transfers rights or property to the assignee (via an assignment)
  • Grantor/grantee - the grantor grants title in real property to the grantee
  • donor/donee - the donor donates (gifts something) to the donee)
  • *Settlor (trustor)/trustee - the settlor creates the trust, which the trustee holds and manages for the benefit of the trust's beneficiaries

Draw the Law: Rejection and Counteroffer

Last week I talked about what happens when you accept, but as we all know in negotiations that is not how it works.  Sometimes you just don’t think the deal is good enough, so what do you do?

Reject the Offer

In this case we finally arrived at a concept in contract law that I think makes sense to the layperson as it does to the attorney. Rejection equals “no.” When the offeree rejects the offer it is dead.  The offeree cannot accept the offer once the rejection is made.

Timing, Strikes Back

A rejection is effective when it is receive by the offeror.  Why does that matter?  Remember the mailbox rule from last week?   So acceptance is valid when sent.  Well, notice that rejection is by receipt and acceptance is by sending.  Therefore, what typically happens is that an offeree rejects by mail, has a second mind, and then calls or emails their acceptance.   This is a valid way to form a contract so long as the acceptance was received prior to the rejection.

Counteroffer the Offer

If an offer is “no” then a counteroffer is “no, but”.  How does contracts law perceive this interaction?  Basically, what happens is a rejection is packaged with a new offer, and now the roles have reversed between the original offeror and offeree:  when making a counteroffer the offeree becomes the offeror, and the offeror becomes the offeree.  The same rules still apply, even though the roles have reversed.  There are no new rules that apply in this reversed situation, it is treated as a new iteration of offer and acceptance.

When a Question is Just a Question: Inquiries are Not a Rejection or Counteroffer

Sometimes in the bargaining process, the offeree is not rejecting the offer, nor are they counter offering.  They are in limbo land.  They are trying to gather more information.   This typically comes in the form of a simple question: “are you flexible on the price?”

Example:  Counteroffer

Seller: I will sell you these jars of crack seed for $20.00 a jar. Buyer: No, how about I buy them for $15.00 a jar.

Example: Inquiry

Seller: I will sell you these jars of crack seed for $20.00 a jar. Buyer: That is kind of steep, are you willing to be flexible on that price?

Thanks for reading today’s Draw the Law, check out my talk tomorrow night (Wed. March 7, 2012) at The Greenhouse Innovation Hub if you are curious about Social Media and the Law.  It is great for small business owners, startups, social media marketers, and those just curious about how the law affects our usage of social media.  It starts at 6:00 p.m. and costs $20.00 (materials included).  For more information click here.

Thanks and see you next week where we talk about conditions placed in a contract.

If you enjoyed this post be sure to “Subscribe” today!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Boilerplate Blurb and Draw the Law: Tying it Together, Using a Memorandum of Understanding

Remember my post on Memorandums of Understanding? Well, yesterday I discussed Acceptance. Now, let’s bring the two concepts together to help you understand how a memorandum of understanding fits in contract law.

An Agreement to Agree

Letters of Intent (LOI) and Memorandums of Understanding (MOU) are usually not contracts (remember contracts are defined by words or actions, so these two types of documents can be a contract depending on the language).

Why are they not contracts?  Well, generally the language in them is broad and there is only an indication of what the terms might be, as they are still being negotiated.  Therefore, there is only an understanding between the two parties that they would like to agree.  Remember without assent, there is no acceptance, and without acceptance there is no contract.  With LOIs and MOUs there is even a question of what is the offer?

So Why Use Them?

What they are great for is being used as a starting point for a formal contract to be drawn up at a latter date.  In particular, still evolving relationships and situations are good for LOIs and MOUs because both sides recognize the need to be flexible to figure out what they want in a formal agreement.  Furthermore, they know if the business deal does not come through there was no contract to sue each other over. Basically, it was an experiment.

Bottom line: Using LOIs/MOUs as the Basis for Future Agreement

Consider using a LOI or MOU in a situation where you and the other side do not know how the relationship will work.  You can experiment for a while and determine what the important terms will be.  From there you both can negotiate and settle upon a more formal agreement at a latter date.

If you enjoyed this post be sure to “Subscribe” today!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Draw the Law: Accepting an Offer

So last week's Draw the Law was all about what is an option, which was very much a part of the offer side of forming a contract. Today is all about acceptance.  I know it sounds easy, right? All you have to do is accept the offer and you are done, you have a contract! Yes, normally that is the case, but as with anything with the law accepting an offer is not always so straightforward.

What is Acceptance?

Lawyers have a very specific idea of what acceptance is in contract law.  An acceptance is the offeree’s voluntary, communicated asset to the terms and conditions of the offer.  What the heck is assent?  Assent is some kind of act or promise of agreement.  Therefore, generally, a valid acceptance will require that the offeree assents to every material term as what is in the offer (this will make more sense when discussing invoices and counteroffers).

Is there a Proper Way to Accept an Offer?

As with a lot of contract law there are no magic words. You need not say, “I hereby formally accept this agreement from this day henceforth,” or something else as ridiculous. You can say, “It’s a deal.” More importantly, you can send that via mail, e-mail, and fax – it’s so long as your acceptance is done through reasonable means.  The only method not allowed for acceptance is silence, BUT remember that actions can constitute acceptance. Thus you can be speechless, but accept the offeror’s offer by following what the terms were. Often times this leads to implied contracts (as opposed to expressed).

Example of an Implied Contract: Mistaken Invoice

Let's say you run a shave ice store.  Let's say that one day you receive a box of slippers and an invoice.  You did not order them.  Typically, you do not have to pay for things you did not order.  There is no contract at this point.

However, you are a shrewd business owner and see an opportunity. You unpack the slippers and display them in your store.  You advertise them as authentic slippers to go with your authentic shave ice to the tourists.

Now, there might be a contract. Why? Clearly, you have accepted the offer of the invoice price of the slipper.  Your actions indicated that you accepted what was sent by the misplaced order.  This is an implied contract, where it seems that whatever they offer was (the price of the slippers) you accepted by using them to sell.

Acceptance, Timing is Everything

Due to modern convenience we have forgotten about snail mail.  Yes, e-mail has made our lives easier (and yet complicated).  However, understand that acceptance is controlled by the mailbox rule, which states that: an offer is accepted by mail when you put the letter in the mailbox, NOT when it is received.

Why is this important? Because the mailbox rule also applies to e-mail acceptance. So once you hit “Send” there is no buyer’s remorse argument.  So long as you can show you typed in the correct e-mail address, your acceptance is effective when the e-mail is sent (even if it somehow winds up in the recipient’s spam or junk mail folder).  The true gravity of this rule is not felt until you realize that the offeror can revoke at any time, BUT cannot revoke once the offer has been accepted. There are many court cases where the offeree accepts the offer, but due to delay of receiving the acceptance the offeror invalidly revokes. The offeror must honor the acceptance.

Can you Change That?

Yes, you can control the terms of acceptance. You can direct the method of acceptance and define when acceptance is, the mailbox rule is a default rule, therefore when your document remains silent on these matters a court will rely on it in a contract dispute.

Bottom line: The Offeror controls the Method of Acceptance

Thus the use of options, specifying how acceptance is to be made are all in the offeror's court.  There is no contract until the offeror gets proper acceptance.  Therefore, time is always ticking (even if an option is taken out, as time is money) for the offeree to figure out what to do with an offer.  While they can accept, they can also reject it and counteroffer, and that is all a part of the negotiating process.  So come back next week for rejection and counteroffer.

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*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Draw the Law: What is an Option?

Last week, we started our great journey of contracts, which for a small business owner or startup you are actually entering many of them and you may not know it. For those of you readers that have read my blog and those that have attended my seminars I will repeat it until I die or they change the law, a contract is NOT a piece of paper. It is a promise or a series promises, and because of that a contract consists of numerous components. Currently, we are discussing offer and acceptance. Two key concepts that will lead to the formation of a contract. You can kind of consider them as parents. Last week’s post was on offers, and today’s post extends that concept out (literally) by discussing options

What is an Option?

An option is an agreement that needs consideration (i.e. money or something else of value) to hold an offer open for a certain period of time. You can consider it a mini-contract. It’s purpose is to hold open an offer and some valuable consideration (such as money) is given for that exchange of time. The time component also need not necessarily be tied to a specific date in time, BUT an event. To see how this concept works follow the example:

Let’s say you are in the market to buy a shave ice store. One day you see a store being sold for $20,000 in a prime location. However, you want to see if you can negotiate to get it for a lower price or get the owner to throw in more stuff for his asking price.

You then find out there is another store on the market, but it is not in a prime location. However, you feel that if you cannot negotiate with the first shave ice store owner you could be satisfied with the second one. So you go to the second shave ice store owner and pay an option of $800.00. This option states that in the event that the second store owner receives an offer in the next two months you have the right to match that offer. This is known as right of first refusal. In this way you can negotiate with the first store owner, knowing that you have a backup plan if the negotiations fall through.

Option Payment is Not Refundable

Generally, the payment for an option is not refundable. It’s not a down payment or a deposit. The payment for an option is what you give to keep the offer open. Sometimes an offeror will apply the payment for the option to the asking price. It just depends on negotiating.

A Word on Advertisements and Offers

I know you are probably thinking that many advertisements you see are options or at the very least offers. However, this should be a refresher for those of you who have stuck with Draw the Law for this past year. Starting a business means you have to advertise, and if you are a retailer or someone similar you generate interest by creating deals in advertisements. Does that make it an offer? Like all great things in the law, is it depends. However, generally speaking, an advertisement is not held to be an offer, rather courts interpret them as “an expression of intent to see.”

Now here comes the exception because in law we love to make exceptions within exceptions. If a merchant makes a written offer to trade in goods that the merchant regularly conducts business in and in the written offer it states that it will remain open for a set amount of time the merchant will be unable to revoke the offer during the time.

Therefore, if a slipper seller says in their written offer that you can buy a box of slippers for 50% off for the next 3 weeks. He cannot 2 weeks later revoke the offer. It must stay in effect for 1 week more. The offeree need not pay anything to keep the offer open.

Looking toward Next Week

Now that we have gone through offers, we are going to talk about the other side, acceptance. So I hope you accept my offer to come back and find out more about contract law!

If you enjoyed this post be sure to “Subscribe” today!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Draw the Law: What is an Offer?

Thank you for the great response from photographers and models to last week’s Draw the Law on Rights of Publicity and Copyright. Today we will return back to basic contract issues and we will begin the discussion of Offer and Acceptance. You can kind of think of offer and acceptance as giving birth to a contract baby. Without either you do not get a contract. With that being said, as with many things with the law, is not that simple. So, I will discuss offer today, options next week, acceptance the following, and wrap-up with rejection and counter-offer the first full week of March.

What is an Offer?

Operationally, an offer is made by an offeror to the offeree. The definition of an offer is: "an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed", which is the offeree. As many of you retailers, small business owners, and the like there are no magic words to an offer. It can be as simple as, “you will pay me $6.00 for each of these slippers.” There is no invitation to bargain or negotiate in that statement, only that if you want the slippers you must pay $6.00 for each one.

What are Requirements of a Valid Offer?

In order for the offer to be effective the offeree must receive it. In addition, it must be clear (1) who is making the offer; (2) what the subject matter is for the offer; (3) if it is related to good, what is the amount to be sold; and (4) what is the price of the offer.

Example in detail: Going back to the slippers offer. First, who are the parties? In an oral contract, where the two parties may be face-to-face that might be clear. However, if written many times the document will state the full name of the parties, and if they are a part of an organization its proper legal name and address.

The subject matter is the slippers. However, what if there were tons of slippers? Thus short descriptions, SKUs, and similar identifiers are used in a written contract to ensure that both sides know what is being talked about, which is easier for goods than services.

Let’s say when the offeror said “these slippers” he waved his arm at boxes of slippers, but really was thinking 1 crate. Thus, it would be good to state that it is for 1 box of slippers containing thirty slippers.

Finally, if it were the case it was 1 box of slippers at $6.00 each slipper, the final price would be $180.00. Once again, if this is a written, these are all things that should be spelled out for the offer to be valid.

How Long if an Offer Valid?

Not indefinitely, unless the offeree has an irrevocable option. The offeror is the master of the offer, they can leave the offer open as long or as short as they want. It can be a day or a year.  Unless, there is an option an offer expires when:

  1. the time to accept is over – which is either stated in the offer or a “reasonable” amount of time has passed; or
  2. the offeror cancels the offer; or
  3. the offeree rejects it; or
  4. the offeree makes a counteroffer; or
  5. the offeror dies or becomes incapacitated; or
  6. there is a change of law that makes the contract illegal or something destroys the subject matter.

Last Word: The Offer is only the Beginning

Generally, as most savvy businesspeople know, the offer is only the beginning before we even get to a contract. In terms of offers, while the offeror can revoke (cancel) the offer ay anytime before acceptance, the reality is that there are exceptions to any rule, which I will get to next week with options and an exception that applies to merchants.

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*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Draw the Law Special: Copyright and Rights of Publicity for Photographers and Models

Today’s Draw the Law is a special one, done as a shout-out to all my photographer friends. In particular, this post is for Dallas Nagata White and her great assistant/husband Ed White and their support from the local photographer community. Thus, I will be delving into a narrow subset of contract law with IP tossed in for good measure to create a montage post of rights of publicity, copyright, model releases, and licensing agreements to help out photographers and models sort through the law so they can go back to doing their art and furthering their careers.

The Context

Before getting to the law, let’s set-up the context for all these concepts. It is a typical scenario: photographer is hired to do a shoot, selects a model, takes pictures, then posts or publishes those pictures. In those simple steps, without written documentation, there can arise a lot of problems. Then we get into the fight between photographer, model, and possibly third parties that use those pictures.

Copyright: The Photographer is the Author

Without delving too deeply into copyright law (because a) it is apart of my talks and b) I will be returning to it at a later date) understand that the photographer is the copyright holder because they authored the picture. Specifically, a copyright is given to anyone who creates “original works of authorship.” Therefore, as soon the photographer takes pictures of guys in cartoonish outfits the photographer is the copyright holder of the photographs. Copyright, is as it sounds, the right to copy. Therefore, a photographer usually assigns or licenses that right to make copies to companies who then use those images for marketing campaigns and the like.

Rights of Publicity: What about the Models?

Here comes the fun part of the situation, while the photographer is the copyright holder of the photograph the model has right to their face, likeness, even images of their body and the sound of their voice. This is known as rights of publicity; Hawaii law states that, “every individual or personality has a property right in the use of the individual's or personality's name, voice, signature, and likeness.” (HRS 482P) Therefore, it is typical for models to sign a model release to allow their image to be used in a manner the photographer sees fit.

Model Release vs. Licensing Agreement: Power Struggle

While both rights of publicity and copyright can be licensed, assigned, etc . . . for simplicity sake for this post I am going to separate them into model release and licensing agreement. Typically, a photographer will want to get a model to sign off on as many things as they can in a model release. The model release works by releasing the models claims to the ability to enforce their rights of publicity claim as to their image. In the case of a famous model and/or photographer, their goal is to try to limit the use of their likeness/image and/or photos by others because they can get more money. A famous actor/model will read through a model release or may even have their own agreement to force a photographer to either pay a lot for a lot of usage out of their likeness or pay minimal for say a one-time use whereas an upcoming model will probably sign away a lot of rights to a famous photographer due to the chance of becoming noticed. At the end of the day it all boils down to negotiation or sometimes going with what is the standard practice of the industry.

Third-Parties and Our Digital World: Letting the Images Out into Cyberspace

This last part is what we see on a daily basis on the web, but typically it is where people also get confused. So what happens now that we have the Internet, social media, and smartphones? We share images, we edit them, change them, see something we like and snap a shot of them, then share them. So let’s say that photographer takes a picture of model, and then posts the image to a sharing site. A company sees the picture and likes it, takes it, then slaps it on its merchandise to sell them. Let’s say the sharing site has a Creative Commons licensing agreement. Therefore, photographer actually licenses the right to copy to the site, which in turn gives that right to other users. Thus the copyright holder (photographer) has licensed the right (to use the photo) to third parties (the company) through the sharing site (due to Creative Commons licensing agreement). However, do you see the hang up? The model has NOT given up their rights of publicity to the company. They have every right to control their image, especially in terms of commercial use. Thus, while the company may have licensed the copyright for the photograph it has not gotten the right to use the model’s image/likeness in conjunction with its goods.

Last Words

Copyright law is federal, whereas Rights of Publicity is a state law, and not all states have Rights of Publicity on the books. Finally, you may wish to consider giving public notice of ownership of publicity rights, which you can file with the state of Hawaii’s Department of Commerce and Consumer Affairs. Chapter 482P permits an assignee or transferee of publicity rights to make a publicity rights trade name registration. For all the foregoing reasons that is why my photography and model friends you should consider documenting your agreement regarding photos.

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*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Draw the Law: Contracts Part IV, Oral and Written Contracts

I finally come to a topic that many of you are familiar with, but probably still have questions or misconceptions about: oral contracts.

Are Oral Contracts Enforceable?

Yes, by the very nature of being a contract (remember from the prior weeks the definition of a contract) oral contracts are enforceable. The real problem comes from proving what the terms of the contract were because if you are depending on a court enforcing those terms remember it has to hear a whole series of he said, she said arguments.

Is it Dangerous to Ignore Oral Contracts?

Yes, most definitely. Even though they are harder to prove and enforce, a court will look to evidence where it is available. Mainly, this type of evidence is called course of conduct.

Example: Let’s say a content writer orally agrees to produce for website a blog post every 1st and 3rd Tuesday of the month with the website’s owner. The website owner agrees to pay the content writer $300.00 per month. They shake on it and for seven months the content writer meets these deadlines and the website owner pays. Let’s say for argument sake they do not e-mail each other or have any other piece of writing that evidences this agreement other than the postings and the website owner payments.

Now, let’s say after those seven months one of them does not perform as they promised. Either the content writer stops posting or the website owner stops paying. A lawsuit is filed and now a court must figure out if there is a contract.  This is where a course of conduct argument will be made to prove that a) there was a contract and b) every time the content writer wrote he got paid.

Now, back to the Real World . . .

Notice, that I excluded e-mails, receipts, payment stubs, and the like from the example. Even if the original contract was oral, generally speaking, we always have a lot of actions and pieces of evidence that show what the contours of the agreement were. It may never be precise, but that is where the court steps in to try and figure out what the contract was, but that is why attorneys insist on substantial agreements be in writing.

Bottom line: do you want to define your contract or do you want a court to do it for you? 

Are there Some Unenforceable Oral Contracts?

Yes, there are a series of contracts, due to their subject matter, that MUST be in writing. While it depends on what state you are there are the general categories of subjects that MUST be in writing and signed by the parties who are obligated to keep the promises:

  1. Guaranty is a when someone else promises to be liable for the debt if the original debtor fails to pay (this is what banks use to pierce an entity’s limited liability and get at an owner’s personal assets);
  2. A promise that cannot be fulfilled within a year of when the promise was made;
  3. Anything involving land, an interest in land (including leases), or sale of real estate;
  4. A promise for the sale of goods worth equal to or more than $500.00;
  5. Promises to be executed after death, such as in a will or trust;
  6. The promise to sell stocks and/or bonds.

Lawyers Drafting or Reviewing Contracts

Remember that attorneys are wordsmiths. We write for a living. Therefore, if you have a sophisticated transaction consider having a lawyer draft it or for you or at the very least you draft it and have them review it and point on things. Oral contracts may be fine in some situations, but in today’s modern economy that is becoming rare. See you next time!

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*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.