Mahalo.

-RKH

09.04.12

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

I know many of you reading this may be like, why is that a big deal? It is a big deal because generally the process to secure licensing rights to use copyrighted material or a trademark is expensive and can be extremely time-consuming. However, this article by IGN.com, a site that focuses on mostly video games and other entertainment, interviewed the creators of Wreck-it Ralph. Be aware that characters in video games, cartoons, comic books, etc . . . sometimes have been both registered trademarked and copyrighted, as a strategy to create multiple layers of intellectual property (IP) protection.

I think there is a valuable lesson for business owners who do advertising, graphic design and content creation, and social media marketing in this quote:

But as the film started taking shape, rights issues eventually became a factor. “We went out and met with people in person, which I think is the key,” said Spencer. “When people came in for E3, we would actually meet with all of the companies and talk about the movie. From the very beginning we said, ‘We want to be authentic to your character. What we would like to do is put in an approval process where you look at our animation and you say that we’re being true to the character.’” As the creators noted, most companies were all for it.

Now, later in the article the creators do note there were some arduous processes, like double-checking with Nintendo if it’s characters were being represented accurately, but the lesson is clear ASK and TALK to the IP owner about what you want to do. This is the art of the sale and business deal, and I think authenticity goes a long way.

I have noticed recently many people are flocking to Slideshare to put up their presentations. I wonder, as I look through these well put together presentations, whether or not the people got the IP owner’s permission to use their images, logos, etc . . . . Did you talk to them? I realize it is easier to COPY and PASTE, but I will let you in on a little secret it is also easy to COPY and PASTE a CEASE and DESIST letter with a demand for damages.

So let me be clear, today’s post, as all my post have been, is filled with general legal information.  Nothing here in this post is specific advice, your situation should be reviewed with an attorney, and when it comes to considering a lawsuit they can render specific advice to your situation to allow you to think about the pros and cons of such an action.

Does the Breaching Party Even Have Money? Do you have the Time and Money?

One of the first considerations for a lawsuit is it even worth the time for you to pursue a suit?  If the other side did not perform because they are having financial troubles they may be heading to bankruptcy, which means they have bigger headaches to concern themselves than performing under your contract.  In addition, consider that if they are going to enter bankruptcy your contract will not be valid.

Your business (in blue) has a series of contracts with your duties, such as having to pay or deliver goods/services (in red) with your rights, such as to collect payment or receive goods/services (in black), from other businesses (in gray). Remember contracts are promises exchanged for each other (which includes rights and duties) among the parties.

As I have done at some of my speaking events, consider the business a box and that box is held up by a series of strings. Those strings are contracts. When a business enters bankruptcy only special creditors will be able to collect (i.e. the strings remain attached to the box). All the other strings are cut. So typically, in your small B2B contracts you are not in the habit of secured financing, therefore it is likely you will be able to collect anything from your now bankrupt breaching party.

So let’s just use your business, let’s say you are bankrupt. So what generally happens is the court will “cut the strings” you are protected from people you owe money, unless they are a secured creditor. So as you can see the obligation to pay out is cut, and the party you breached again (if unsecured) would not be able to collect payment. So you can see how a breach of contract claim may not be worthwhile pursuing.

In addition, consider the amount of time and money you are expanding for the value of the breached contract? This infographic on Mashable shows how valuable your time is and consider that in a lawsuit: a) you will be dealing with attorneys; b) you may have to produce documents for evidence; and c) you have to be a witness.  All of this takes time and money.

Finally, consider that your situation may be one can be heard by a Small Claims Court. In Hawaii, Small claims are handled in an informal process, where people with small claims can turn to this court for claims valued under $5,000.00 and counter-claims (counter lawsuit) for $25,000.00.  For more information click here.

What does the Contract Say?

Ok, so you determined they got enough cash/assets for you to grab in winning a suit and you have the time and willpower to go after them.  What next? Before you even get there, your attorney is going to ask to see the contract.  Why?  Well, take a look at my Boilerplate Blurbs (as well as if you have attended my talk on Basics of Contract Law), and you will see large time place of suit, how much you can recover, what type of laws govern, etc . . . are already built into the contract.  Therefore, if you pursue in the wrong venue your claim main be dismissed.

Things to consider for a breach of contract lawsuit: (1) READ the “Miscellaneous” provisions you may found to pursuit a suit you have to fly to Texas; (2) do you have the time/energy to pursuit a suit on a small amount of money; (3) what kind of money do you have, what kind of money does your opponent have; and (4) would they sue you back?

Therefore, do not take these clauses lightly. The “Miscellaneous” provisions become the important ones in a breach of contract lawsuit or when one side is considering using a threat of a lawsuit to get the other side to perform. While, I cannot stress enough that an attorney should draft and at least review your agreements – I understand with small business owners and startups that may be too costly.  I still say you should get something in writing, consider turning to Docracy or other sites to have a starting basis for your agreements. In the end, it is better to have something reduced to writing rather than it being a “he said, she said” matter.

The clauses of the contract, your resources (time and money), and their resources (money), and the possibility of suing you back (remember nonpayment may be grounds for a breach by you) are all things you need to consider before suing. An attorney can help you discuss the pros and cons of pursuing a suit. These are not things to take lightly and are a harsh reality of doing business.  You may one day also find yourself in a breach of contract suit situation. Therefore, it’s always good to have an attorney to reach for when building your business as you are bound to make mistakes. Your local bar has a reference resource, and you can find Hawaii’s at this link.

As lawsuits are lengthy affairs, this post is broken into two parts.  So come back next week and I will discuss the type of damages that come under a breach of contract lawsuit, other types of remedies, and a few other things to consider.

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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.

Hey everyone, sorry for the week delay, but the talk on Basics of Contract Law was fun and went well with Docracy. I hope to do this talk again in the future, as it is clear a lot small business owners, startups, and freelancers do not have a firm grasp of what they are getting into in business deals.

Bottomline: You are NOT a consumer, so you do not have the same protections as consumers do when you are a business owner.

Next, thing, I have a talk tomorrow night (August 1st) at the ING Direct Café in Waikiki from 6-7pm. This talk is on Business Entity Formation, and will mainly focus on the differences between LLCs and Corporations. So come learn the pros and cons, and what might be appropriate for your business. This talk is free.

Today’s Draw the Law: Using ADR to Remedy Your Contract Breaches

We all know how costly lawsuits can be, and sometimes the value of the contract is just not worth going toward that direction. Therefore, many times the best way to resolve the breach is to talk it out, but sometimes you are too close to the deal. You need a third-person to look at the situation and come to a decision or help resolve the dispute. This is where alternative dispute resolution (ADR) steps in.

Arbitration is similar to a court proceeding, as it is adversarial and the arbitrator makes a decision (like a judge); mediation is more concerned about asking questions to define the problem and having the parties sit down and find a solution.

There are two types of ADR: (1) mediation; and (2) arbitration. They are NOT the same process. In addition, you can put in an ADR clause in your contract to determine what the procedure is in a dispute. It can be one or the other, it can be both, or it can be neither. This is a negotiation matter.

Mediation: No Judging, Just Identifying the Problem

Mediation is less about blame and more about figuring out what the problem is and possible solutions. This tends to be more constructive, but only effective if both parties are willing to sit down for mediation, which is not always the case for breach of contract situations.

In mediation, a mediator does not act like a judge. Nor are they the lawyer for either side. All they do is help both sides resolve disagreement by identifying and defining the items you disagree with. The goal here is cooperation through informal and problem-solving processes, and is NOT adversarial. Generally, this is suitable for divorces and neighbor-to-neighbor disputes, but can work out situations among business partners, customers, and misunderstandings that need clarification.

If you are curious for more information and our in the State of Hawaii, go visit the Mediation Center of the Pacific‘s site by clicking here.

Arbitration: Informal Court

Before you even get to trial in a lawsuit there are a lot of pre-trial motions, evidence-gathering, etc . . . procedures. Sometimes it can be close a year before you even get to the trial portion and because of this lawsuits are costly (time and money wise). Arbitration, acts like a faster version of court, condensing things that may take months into an abbreviated period.

Arbitration functions like an informal court proceeding. On the one hand it is more formal than mediation, but less formal than going to court. It is usually faster and cheaper than a lawsuit because it eliminates many of the processes of formal litigation and trial work. Everything is sped up.  Typically, the arbitrator is a former judge, but has extensive knowledge in your trade and industry.  They will take in witnesses and evidence, and then issue a written decision. More often than not this decision is binding on the two parties; if you lose in arbitration, you may not be able to go to court even if you disagree with the outcome. Usually, to be binding, you and the other party has put in the ADR clause that arbitration will be binding.

Last Word: Partnership Agreements, Operating Agreements, and Bylaws are Contracts!

I think one thing I want this post to impart, and the fact that I did a Basics on Contract Law talk and have a Business Entity Formation talk coming up is that people who join together to start a business is that the internal document that guides the arrangement, whether a partnership agreement, operating agreement, or the bylaws, they are contracts.

Why is this important? Because many times the owners of a business get into arguments or disagree, and sometimes there is a breach of the internal agreement. At that point you have to ask yourself: Do you want to sue your business partner?

Sometimes, the answer is yes, but sometimes the answer is ADR is the better solution and remember you can always use ADR clauses or agreements to force everyone into this less costly route than a suit. You may save money and your business venture.

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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.

Join me at the Greenhouse Innovation Hub with startup Docracy next week Wed., July 25th from 6-7pm.

Sorry, there will be no Draw the Law, as I work on finalizing the talk and closing a business deal.  Today’s post, was supposed to be on alternative dispute resolution in a breach of contract situation, but guess what?

I will be talking about that tomorrow at The Greenhouse Innovation Hub, I will be discussing ADR, what is a contract, answering your questions, and I along with Docracy, the NYC startup trying to make using legal agreements user-friendly, will be using sample agreements to walk you through basic contract law.

The information is as follows:

• When: Tomorrow, July 25th
• Where: The Greenhouse Innovation Hub (685 Auahi St., down in Kaka’ako)
• Time: 6:00 – 7:00 p.m. (please come promptly, as Docracy will be streaming live from New York)
• Cost: $10.00 for basic legal information on contracts for small business owners and freelancers.

Hope to see you there!

-RKH

August 1st – I will be holding my Business Entity Formation Talk from 6:00 – 7:00 pm. Come learn the differences between the entities at ING Direct Cafe.

Speaking Events with Me: Contracts and Business Entity Formation

Join me at the Greenhouse Innovation Hub with startup Docracy next week Wed., July 25th from 6-7pm.

First, is my Basic Contract Law Talk with Docracy. This will be held at The Greenhouse Innovation Hub from 6 – 7p.m. next week Wednesday, July 25^th. Docracy is a startup providing open legal documents, with free e-signing. Their goal is to help take the mystery and fear out of legal agreements.  The goal with the workshop is a mixture of presentation and interactivity using documents provided by Docracy and helpful information to business owners when it comes to contract law.  If you are interested please find more information by clicking here.

The second is my Business Entity Formation talk, which will be done at the ING Direct Café found in Waikiki, on August 1^st, also from 6 – 7 p.m.  This talk is being done for the Honolulu Chinese Jaycees, but is open for the entire public. So come learn the difference between LLCs and corporations, and what the right entity for you might be.  Feel free to contact me for more information on these talks and future ones.

Self-Help, Deny Them Payment

So last week, I said you might want to consider talking things out.  When one side shuts down, tempers usually explode and one-side immediately wants to go to a lawsuit. Generally, speaking talking things out and coming up with a new agreement (albeit not the original one) is less costly.  Another approach you may take, and this is with caution, is that if you are the person paying for the goods or services, you may refuse to pay for lack of goods or services.  The problem with this method is that by not paying, depending on the circumstances, you may be breaching the contract as well. IF YOU BREACH THE CONTRACT YOU MAY LOSE CERTAIN RIGHTS OR CLAIMS. That’s why this option is cautioned, and generally you should speak to your attorney to figure out if this is a path you might want to consider. I will talk about checks, credit cards, and briefly of PayPal.

Stopping Payment with Checks

(1) you open a bank account; (2) you use a check to pay; (3) the other party accepts payment; (4) the deposit the check to their bank; (5) their bank requests payment from your bank; (6) your bank pays them from your account.

Yes, I realize that checks are quickly becoming a relic of the past, but a large portion of small businesses starting up still accept and use checks before they set-up other forms of payment.  This is as simple as calling up your bank and telling them to not pay out on the check from your account IF the transfer has not already been made.  Generally, when you set-up a bank account your bank and you have a contractual relationship, and the person you are trying to deny payment to also has a relationship with the bank that is trying to collect.  Therefore, the bank has an obligation to pay out on checks you authorize and also stop payment on checks you no longer okay.

Same process as before, but the breakdown comes when you dispute payment. So When you decide to self-help, step (4) and tell your bank to stop payment, when the other side’s bank tries to claim funds from your account due to the deposited check, your bank will refuse the request.

What you don’t want to do is empty your bank account, why? Consider, the fact that the bank is not a mind reader. However, you are a small business owner sending out tons of checks.  Consider for a moment that you, yourself receive tons of checks and different times, do you cash all those checks immediately? Probably not, you wait for a certain scheduled date and take all the checks down.  So given that, do you think you bank knows, which checks it should pay and not pay? Probably not.

Credit Cards

So if you are a small business owner, you may be using your personal credit card to pay for things.  Depending on the rights you have, as under contract with the credit card company, you may have your company not pay regarding the goods in dispute.  Recognize, that your customers may consider the same tactic.

Notice that I said personal credit cards, consumers generally have more protection than businesses as I have mentioned in prior posts.  The same goes for credit cards, there are personal ones and business ones. Check what you have, as you may far fewer rights on your business one than your personal one.

The credit card relationship works differently. (1) you form a contractual relationship with your credit card company (ccc); (2) you pay with card; (3) the person accepts; (4) the ccc receives the charge; (5) accepts; (6) charges you for that amount OR alternate (6) you dispute the goods or services, and the credit card company pulls that payment.

Good News For Merchants and Retailers: Charging More for Accepting Credit Cards

That being said, a good piece of news for you merchants and retailers that accept credit card. A recent class-action suit was decided in favor of the retailers and merchants against the major credit card companies. What this means is you may in the future be able to charge more for people who choose to pay by credit card. You can read more here.

PayPal

Finally, as I know we live in the age of smartphones and electronic payment, what about PayPayl?  With PayPal it is very simple.  You can cancel any payment that has not been claimed yet.  However, it must be unclaimed. If it has been claims you are back to last week’s post and contacting the other side for a refund. For more information on the step-by-step process, click here.

Last Word: Stop and Consider What you are Doing When you Try to Stop Payment

Consider what you are doing when you try to stop payment. This definitely is shutting off communications, which is why you might want to try to talk to them first as last week post suggested. In addition, depending on the situation, you may be reducing chances of settling this, losing claims or rights (being breach yourself), and finally subjugate yourself to a debt collection action.  Therefore, even if talking is not working, this still may not be the best option, may be you need an outsider to talk to the other side, which will be the subject of next week’s post.

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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.

The Practical Approach: Re-Opening Communication

Generally, when people do not do as they promised, such as making it on time for delivery of goods or services, a break down in communications begins.  The side that did not receive what they requested or paid for becomes upset and the breaching side for one reason or another stops communicating.  Consider the most optimal outcome if this move is successful: a) you have rectified the breach; b) it was inexpensive, as it only cost you a little time to phone call, email, or send a letter; c) and you gained invaluable information about how the other side operates.

Understanding the Other Side

Talking to the other side may only cost you a email or phone call, but you also will find out why they breached the contract, may be it was need for more time or their suppliers did not deliver.

The breaching party may have had several reasons for the breach: 1) they may have needed more time; 2) their suppliers or vendors breached their contracts with them and did not deliver; 3) they had an emergency and chose to break your contract over a more valuable one; 4) or they bargained too low and wanted a higher price.

While, I understand that situations 3) and 4) may be unpalatable to you personally, the reality is that businesses do have to make calculations.  However, that does not mean you ignore how the breaching side conducted itself in this situation.  If you do renegotiate or continue to use their goods and services in may be important to up the controls in future contracts to prevent the same breach from happening.

Do I Need a Lawyer?

In this situation, you may be quite capable of renegotiating your contract. However, in some cases having a lawyer to negotiate on your behalf and getting the other side to stipulate to your demands due to their breach can be beneficial.  You have to judge for yourself the situation and temperament, but before you do anything you could always call your lawyer and get some ideas on how to go over and things to ask for.

You can always form a new contract, so long as both sides agree, it may prove helpful to have a lawyer draft this new contract (which is still less costly than a lawsuit).

If it is a sophisticated deal and you have proposed a new way to handle the deal it might require you to have something drafted a “new contract” to replace the old.  In legal terms, you have a situation that requires an accord and satisfaction, where the creditor is willing to accept a lesser amount due or new way of handling the transaction and the need to amend the original contract.

One Final Strategy for Negotiating: If You Can’t Get to Them, Go Over Them

Depending on who you are dealing with, let’s say they are the authorized regional supplier for the sale of canned meat in the islands, you may have a better time dealing with the corporate office who grants the supplier the authority.  You can try to convince the corporate office to punish or force the nonresponsive, breaching supplier back to the table.  It may be telling them that the supplier is damaging their brand in the region by breaking contracts or that they are not meeting the company’s standards. It just depends on the leverage and relationship between the supplier and the corporate office.

In today’s economy, where a lot of people resell or are authorized vendors on behalf of a larger corporate entity that has their own contracts, it may be good to bypass the breaching party and talk to the entity overseeing them to get them to perform.

If that does not work, you can always do what’s called “self-help”, which will be discussed next week.

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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.

Hello my fellow Americans that are reading this post (to my international friends, thank you for visiting on this momentous day for the United States of America).  Anyway, some legal scholars will always have differing opinions, but I do side with the group that says the Declaration of Independence is NOT a legal binding document.  It is NOT a contract.

Rather than wasting your day off with legal philosophy, just think of the act of the Declaration of Independence as a repudiation of a “contract” that is that the colonies had with the crown of England.  However, notice with normal contract law, that a court has the power to enforce or direct damages against the breaching party.

In our country’s great struggle for freedom and independence we repudiated our connection to a despotic king’s attempt to control our colonies.  The way to enforce this “contract” – through force of arms, i.e. the Revolutionary War.  However, as a legal document, the Supreme Court, does not find the Declaration of Independence as substantive law.

I think that this legal podcast explains the situation quite well. In short, our Constitution enshrines many of the sentiments of the Declaration of Independence, which is a binding legal document.  While, I am sure you probably want to discuss this more given the Supreme Court’s rulings from the past week, take a breath and enjoy your day and declare some freedom from the stress of the work week!

Happy 4th of July!