Ohio Practical Business Law : Columbus Ohio Business Lawyer & Attorney : Teri Rasmussen : Plunkett Cooney Law Firm : Commercial Law, Creditors, Business Formation : Columbus, Central Ohio

As I wind up my teaching of introductory Business Law to Capital University undergraduates this summer, it seemed a good time to review some key points to keep in mind about contracts when we're all out there in the business world.

     1.  Contracts don't have to be in writing to be valid and enforceable.  As I've explained to my students, a contract can even be implied from the actions of the parties at times.  And except for (A) the sale/purchase of real estate or (B) the sale of "goods"  of more than $500 (yes I know that would apply to almost any "good" of any consequence), an oral contract or "handshake" deal works just fine and IS enforceable. 

     2.  It's better if you DO put a contract in writing. Aside from the obvious benefit of having an objective reference upon which to rely later as to what in fact WAS agreed, its very existence can prevent testimony about what was supposedly said orally on the side.  The parol evidence rule prevents testimony of any prior or contemporaneous oral conversations.  In the case of the sake of goods subject to Article 2 of the Uniform Commercial Code (UCC), this rule is relaxed somewhat to allow information about the prior course of dealing between the parties, but even here, a written contract can certainly narrow the issues if there is a dispute later.    

     3.  A contract does not have to be a single document.  A series of correspondence, conversations, exchange of purchase order forms, or even voicemail or email can be enough to cement a deal, whether you know it or not.  So if you want to be sure you don't have a contract until you're ready to have one, say so. 

     4.  Precise language is best.  And by precise language, I do NOT necessarily mean use of "legal" terms, especially if you are not a lawyer and may not fully understand what those terms mean.  What  I am talking about here is making sure everything is spelled out EXACTLY as you envision it happening.  If there is a key part of the contract to you, make sure appropriate and adequate definitions are included to be sure you and the other party are on the same page.  DO NOT JUST ASSUME YOU BOTH MEAN THE SAME THING. Spelling out the consequences of a breach of the contract is often appropriate - this might take the form of liqudated damages or an explicit right to specific performance.  Are there any important excuses for nonperformance?

     5.  If you do not want to be bound until you get financing, your lawyer looks over and/or prepares a written agreement, or some similar contingency, then say so.  One way to do this is to write "Term Sheet" at the top of the page, jot down the essential business terms - including quantity, price, what's being sold (and any special level of quality etc.) - and put something along the lines of "This is not a binding contract until [whatever your contingency is, i.e. both parties have signed a written agreement]" at the bottom. of the page.

• For other information about contracts, visit my Contract Essentials post.
• You can also visit my post about the Jay Leno -Conan O'Brien - NBC dispute and how it illustrates contract law alive and at work in the "real world".

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Although the whole Leno-Conan-NBC mess appears to have now been settled by the parties, it's well worth looking more closely at the contractual issues involved which influenced the terms of that settlement.  For a great overview of the legal issues involved, visit Conan the Contractarian at the ContractsProf Blog.  And of course, some legal issues remain unanswered.  I'd like to start by recognizing what seemed to me to be the most cogent legal analysis of the situation.  Then in the Part 2 which will be my next post, I have some of my own observations about what is truly an excellent example of what contract law really is and how it actually works in  "real life".

Which is probably why I want to start with a practical "Everyman" take on what the restr of us can take from the entire fiasco, then move on to a more academic and scholarly analysis, followed by a pragmatic application of those foundational principles, and finished with a chaser of  a business oriented "brass knuckles" approach to determining who had the "leverage" to make the rules of contract law really work for them.  So here goes..........      

The Leno Deal,,, Be Careful What You Wish For >>>> David Willis of the Texas Small Business Law blog takes a stab at some important lessons the rest of us can take from the gigantic contract mess now facing NBC.  His important points:

• The terms of the contracts with the hosts do not meet the terms of the contracts with the affiliates.  A company's contracts can be interdependent.  Change the terms of  one and it can also affect what happens in other contractual relationships.  In simple terms, NBC didn't really think about the influence of the affiliates when it moved Jay and is now paying the price.
• Firing an employee with a contract can be expensive.  "The lesson for business owners is be careful of what you contract for because contracts are binding obligations and they can limit the decisions you can make."  
• Take advantage of the opportunity to maximize or limit your damages. 

Contract Law Issues in the Conan-NBC Affair and Conan NBC Contract Issues II >>>> Lawrence Cunningham of Concurring Opinions provides an excellent detailed and quite scholarly analysis of the many contractual issues raised by the NBC-Conan-Jay circus.  His overall assessment of the situation describes the situation found in most breach of contract circumstances:

Ongoing discussions between NBC and Conan illustrates the notion of bargaining in the shadow of the law, working out arrangements in light of known or probable legal claims and cosequences.  Non-legal forces of course are at work.  Conan's legal position, still incrementaly weaker to me.... may play a role in his decision to communicate directly to the public.  But his public relations gambit may also be deftly designed for other reasons [such as disaffecting viewers from NBC by paiting himself as the "guy in the white hat".] 

In NBC Did Breach Conan's Contract - Here's Why, Rachael Sklar focuses more informally on the various legal arguments as to whether Conan was contractually entitled to have his show start at 11:35 PM, concluding that he was.  Her analysis brings in many of the most treasured contract principles such as reliance and "spirit of the agreement" and is quite interesting in its description of various "facts" supporting her conclusion.  However you think things should have turned out, this account is well worth reading.

In Conan/Leno Madness: Parsing the Legal Ramifications, Conan/Leno Madness: The Legal Case for Conan, and Conan/Leno Madness: The Legal Case for NBC, the THR, Esq blog (aka The Hollywood Reporter) examines the strength of NBC's argument that because Conan's contract didn't specify a time slot, moving Conan to 12:05 would not be a breach of his contract.  Fascinating stuff.  Interesting "brass knuckle" approach to determining who has the leverage to make contract law principles work for them.  

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So here I am over the Memorial Day weekend, having already played a super round of golf, looking over the course materials for the Business Law I class I  am teaching undergraduates at Capital University's School of Management later this Summer.  And I realize that in addition to Contracts. Property, and Torts -- which I do sorta know, or at least remember -- I'm probably going to need to teach them a little about the concepts of principal and agent.  Which, if recollection serves me correctly, we spent all of about 15 minutes on when I was in law school.

One of the pitfalls of giving yourself a break from your blog (and all that Chrysler /GM bankruptcy nonsense) over a holiday weekend is that you're not exactly sure what to write about next.  So guess what?  Today we're going to explore the law of agency.

We've all heard about big-time "agents" representing superstar athletes in one sport or another with respect to negotiating their multi-million dollar contracts.  But as it turns out, ordinary mortals in the business world are constantly dealing with agency relationships of one kind or another as well.

Agency is primarily a contractual relationship in which the agent has agreed to represent the interests of another person -- known as the principal -- with respect to third parties.  It does not require, although it often does include, compensation of the agent for his efforts.  Agents owe a fiduciary duty to their principal  to exercise ordinary care and keep the principal in the loop on important issues. 

Officers and directors are agents of a corporation.  Professionals such as attorneys and CPAs  typically act as agents in providing their services to clients.  In addition, particular empoyees and even independent contractors can be or become agents.  Implied authority allows these individuals to undertake particular actions needed to carry out their dutes such as signing a particular document.

In addition, however, there can also be such a thing as implied agency.  This typically arises in connection with the conduct of, or relationship between, the two parties deemed to be principal and agent.  Here what is important is how third parties are reasonably likely to view the relationship.

With respect to contracts, a principal will be liable for anything to which the agent agreed so long as it is within the agent's actual or apparent authority.  In addition, if the principal accepts the benefits of the agreement the agent made, he or she will be said to have 'ratified" the contract.  On the flip side, the agent will not be held liable on these agreements as long as he acted within the scope of his authority. The key for the princiipal is to make clear where the authority of the agent ends, esepcially if it is not immediately obvious.

When it comes to crimes or harm cause by negligent acts (called "torts" in the law biz), the agent is always liable for his own personal wrongdoing.  However, in many instances a principal may also find themselves held liable for the actions of the agent.  Perhaps most familar is the "vicarious liability" that employers have for activities of their employees while acting in the scope of their employment; this might include such commonplace things as a car accident injuring another person not employed by the company.  In addition the principal can be held directly liable, even when there is no employer-employee relationship, if it did not exercise proper care iin supervising the agent.

To me, the concepts of principal and agent, and the respective levels of liability we place on eachseem relatively intutive.  If the other side knows or should know a person is acting as an agent for someone else, then it makes sense to only hold the principal liable for any resulting contract. Of course when that part gets a little sticky to determine, the cases get a lot harder.  So this may be one of those easy to lear, hard to master concepts.

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We've all been taught that American business is built on the concept of competition and free enterprise.  At the same time, we all have a deep-rooted metaphysical sense of "fairness" which sets the outermost limits on where we are willing to let "pure" competition go.  Where that line goes is what "tortious interference" with business or contract is all about.  In essence a "tortious interference" claim is about saying that a competitor in the marketplace misused information or otherwise just went  "over the line"  when it came to the tactics used to solicit clients, obtain business that the complaining plaintiff believes should rightfully have been his, cause customers to stop patronizing another's business, or otherwise adversely affect the competitor's business and/or financial prospects.

The tort of "tortious interference", whether with "contract" or with "a business relationship", is one of the most common claims made in business disputes.  It is often seen in tandem with allegations of misappropriation of trade secrets, breach of confidentiality or non-compete provisions, or defamation claims.  The difference between the two flavors of tortious interference is that "tortious interference with CONTRACT" requires the wrongdoer to have impermissibly adversely affected an ACTUAL formal contract in place between the complaining plaintiff and another entity; "tortious interference with BUSINESS or BUSINESS RELATIONSHIP" is broader and includes intentional interference by the wrongdoer with business dealing of the complaining plaintiff with another entity which may not yet have resulted in a contractual relationship.

Tortious Interference with Contract.  In Ohio, the Ohio Supreme Court recognized the existence of a claim of tortious interference with contract in Kenty v. Transamerica Premium Ins. Co., 72 Ohio St.3d 415 (1995).  It joined a number of other states in adopting the definition set forth in the Restatement of the Law 2d, Torts:

One who intentionally and improperly intereres with the performance of a contract (except a contract to marry) between another and a third person by inducing or otherwise causing the third person not to perform the contract is subject to liability to the other for pecuniary loss resulting to the other from the failure of the third person to perform the contract.

To prevail on a claim alleging tortious interference with contract, you must show all of the following:

• the existence of a contract
• defendant's  knowledge that contract existed
• defendant wrongdoer's intentional interference and procurement of breach of contract
• defendant wrongdoer's lack of justification for his actions
• damages resulting from contract breach

 The contract interfered with can be express or implied.  It does not have to be a written agreement.

Tortious Interference with Business Relationship.  Ohio  law also recognizes claims for tortious interference with a business relatinship applicable when there may not have been a specific contractual relationship.  A&B-Abell Elevator Co. v. Columbus/Cent. Ohio Bldg. & Constr. Trades Council, 73 Ohio St.3d 1 (1995).  Here, one must show:

• existence of a business relationship
• defendant's knowledge of the business relationship
• defendant wrongdoer's intentional interference causing a breach or termination of the relationship
• damages resulting from wrongdoer's actions

In both cases, the wrongdoer must have acted intentionally and the interference must have been without justification.  To determine whether the defendant acted improperly, the Ohio Supreme Court set down the following factors in Fred Siegal Co,, L.P.A. v. Arter & Hadden, 85 Ohio St.3d 171 (1999):

• nature of the defendant's conduct
• defendant's motive
• business interests of the complaining plaintiff which were interfered with
• interests sought to be advanced by the defendant
• weighing of the social interests in protecting the defendant's freedom of action versus protecting the plaintiff's business and contractual interests
• proximity of defendant's actions to the alleged damages caused
• relations between the parties.

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