Advance Payment, Indemnification, and the Single-Member LLC

The Colorado statues provide that an limited liability company (LLC) member is entitled to be reimbursed for expenses incurred for the company. LLCs can also provide their members, managers, officers, employees, agents, and so on with indemnification for liabilities they incur for the company. While there are limits to the indemnification that can be provided, because LLCs are contractual entities, the indemnification generally has to be granted within the Operating Agreement.

The first thing to keep in mind is that this […]

Read More

Indemnification versus Defense Obligations

Indemnification is the obligation to pay another for a future liability that might arise. When included in a commercial contract, this usually includes coverage of liability in the form of actual damages or losses such as having to pay a third party. In addition, such provisions often include coverage for liability in the form of defense costs, i.e., the cost of dealing with a third party claim even if there is no ultimate liability to the third party. Notably, in […]

Read More

A Third Way Written Contracts Keep Business Growth on Track

A third way written contracts keep business growth on track is helping to screen customers and partners. Sometimes proposed that having no contract is actually a sign of trust and a good relationship. This may be true in some situations, but not frequently. In fact, a customer or business who shies away from making written commitments to do what they otherwise say they will do is probably someone to avoid because there is a disconnect somewhere. If the trust is […]

Read More

A Second Way Written Contracts Keep Business Growth on Track

A second way a written contract can keep business growth on track is by creating certainty, stability, and predictability. Business growth runs on efficiency. Profit margins exist because the costs of operation are less than the revenue being generated. It is often hard enough for businesses to create profit margins when things are running smoothly. Errors, uncertainty, instability, and confusion in relationships with customers cost a business time and money and will reduce its margins. Written contracts minimize the risk […]

Read More

Terms Limiting Waiver of a Contract’s Terms

A second fundamental way to limit “inadvertent” change of a contractual relationship is to limit the situations in which the conduct of the business can be interpreted as a waiver of the terms of a contract. The most common term will specify that a business’s decision not to enforce terms of a contract in one situation cannot be used as evidence of a waiver of those terms in another situation.

This kind of term essentially provides a party with flexibility […]

Read More

Terms Limiting the Amendment of a Contract

One fundamental way to limit “inadvertent” amendment of a contract is to specify in the contract how an amendment can take place. The most common term will specify that there can be no amendment to the agreement unless it is in writing and signed by the parties.

This sort of term does two things: First, such a term forces the parties to make sure that the original agreement is something they can live with if they are unable to amend […]

Read More

Why use a Term in a Contract Limiting Amendment or the Waiver of its Terms?

Parties are free to modify their original agreement after it is made. A contract may be explained or supplemented by new agreements or the course of dealing. These modifications are at least amendments, and in some cases can completely preempt the old agreement.

Amendment of a contract takes place after the agreement. An amendment, like the original contract, occurs when the parties make a subsequent agreement. Unless the contract specifies that amendments can only be made a specific way (e.g., in […]

Read More

Negligent or Fraudulent Misrepresentation in the Formation of a Contract

There is a big difference between what happens before a contract is formed, and what happens afterwards. A lot of what happens before a contract is formed can be eliminated from later consideration by the inclusion of an integration clause. As discussed in previous posts, an integration clause specifies that the contract is the final, complete, and exclusive statement of the agreement.

An integration clause works to prevent a party to a contract from asserting that the parties made additional […]

Read More

When to Use an Integration Clause

In putting together a written contract, it is generally best to put all of the agreement terms into the contract and use an integration clause to prevent the application of any terms not in the contract. This puts the obligation on the parties to each make sure the written agreement actually lists everything important to them, and to accept that what is excluded will not apply. Such a process encourages communication and notice and supports the value of the agreement. […]

Read More

Parol Evidence

Evidence of what was discussed or negotiated that is outside of a written contract is called parol evidence. In a dispute, parol evidence is generally excluded from consideration. The point during the dispute is to hold the parties accountable to what they actually intended in the written contract. However, if the terms in the contract are ambiguous, i.e., the terms are capable of being reasonably interpreted in more than one way, a court or arbitrator may consider parol evidence to […]

Read More