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Posted On: October 30, 2008

The Phillies Are World Champions

If you're a regular reader of my Delaware Business Lawyer blog, you know that I've missed writing any articles for the last week. The reason is simple. The Phillies have been in the playoffs and the world series, and I was fortunate to be at every one of these home games. What an experience.

And despite the exhaustion from late nights, the rain, the cold, and the excitement at the ball park, tomorrow I'll be back at Citizens Bank Park which is where the Phillies' parade will end and where there will be a tremendous ceremony.

Please bear with me. Things will return to normal next week.

081029_PHILS_JL_03.jpg

Posted by Charles Snyderman | | Email This Post

Posted In: In The News

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Posted On: October 20, 2008

Collecting Attorney's Fees in Delaware

As a Delaware business attorney, I've filed a lot of debt collection lawsuits over the years to recover money owed to my clients. More often than not, my client is the one who has to pay my attorney's fee even though he wins the case. There's a reasonable explanation for this. Simply stated, my client didn't bother to get the other party to agree up front to reimburse attorney's fees if my client has to sue to recover what's owed.

The reason why it's necessary to have the contract address attorney's fees is because of the general rule in Delaware that the losing party will not be ordered to pay the winning party's attorney's fees unless the payment of these fees is authorized by a Delaware statute or by a contract between the parties.

You're a Delaware business owner. A customer wants to obtain your services or buy your merchandise. You negotiate terms, including price. You tell the customer that one of the terms you want is an agreement that if he doesn't pay your bill and you have to sue him to obtain payment, he will reimburse you for the attorney's fees you incur.

If the customer refuses to agree to pay your attorney's fee, what message is he sending you? Is he already thinking that he may not pay your bill? On the other hand, if he knows he's going to pay you on time, why would he be afraid to agree to pay your attorney's fees? And if does refuse, why would you want to do business with someone who's letting you know there may be a problem with payment?

If you want to make sure your customer has to reimburse you for the attorney's fees you incur if you have to sue the customer for payment, it's best to hire an experienced Delaware attorney to write this language into your agreement. If you don't use written agreements, there are still ways to provide for attorney's fees. For example, if your customer accepts your services after he receives your written proposal or fee schedule that contains attorney's fees language, it can be argued that by accepting your services, your customer agreed to the terms on your documents even though there was no formal agreement and even though nothing was signed.

Posted by Charles Snyderman | | Email This Post

Posted In: Debt Collection

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Posted On: October 18, 2008

Delaware Contracts and the Statute of Frauds

As a Delaware business attorney, one of the questions I get asked a lot is whether an oral contract can be enforced. The short answer, not surprisingly, is “it depends on the facts.” The governing rule is known as the “Statute of Frauds.” Maybe you’ve heard of it.

Under the Delaware Statute of Frauds, a contract that requires more than 1 year for performance is not enforceable unless there’s evidence of a written agreement. On the other hand, if there’s any possibility of performing the contract within1 year, then the contract is enforceable even though there’s nothing in writing.

Delaware’s Statute of Frauds also applies to contracts for the sale of real estate. Simply stated, an oral agreement to purchase real estate in Delaware has to be in writing; otherwise it’s not enforceable. There is, however, an exception to this rule. An oral contract to purchase real estate can be enforced in Court if there’s been “part performance” of the contract.

In order to constitute part performance, the act has to be something that would not have been done unless there was in fact a contract. In Delaware, the Courts have found that the following acts can be considered part performance:

1. Making partial payment or full payment of the purchase price
2. Performing services that were agreed to be exchanged for the land
3. Making valuable improvements to the land

The reason why part performance is accepted as a substitute for a written agreement is that
acts such as those listed above provide substantial evidence that a contract actually exists, and this evidence protects against fraud which is the purpose of the Statute of Frauds.

Posted by Charles Snyderman | | Email This Post

Posted In: Contracts

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Posted On: October 13, 2008

Written Contracts and Oral Promises in Delaware

In an earlier article entitled “Contract Boilerplate - This is The Entire Agreement ...” I wrote about what happens when one of the parties to a written contract asks the Court to hear evidence of an oral statement that was made during the negotiations. As a Delaware business attorney, I’ve represented clients in Court where this very issue has come up.

Let’s consider a case where one Delaware business owner sues another Delaware business owner for breach of contract. The written contract is, of course, admitted into evidence so the Court can see what the parties agreed to at the time they signed the contract. But what if one of the parties claims that he was promised something during the negotiations leading up to the contract, and that this promise was one of the main reasons why he entered into the contract?

Under these circumstances, the question for the Court to decide is whether that oral promise can be taken into consideration. In making this determination, the Court focuses on whether the written contract is clear and unambiguous, or whether it’s written in a way that’s subject to two or more reasonable interpretations. Applying what's called the "parol evidence rule," the Court will not allow the introduction into evidence of oral understandings or promises if the contract is clear and unambiguous.

I remember a case where a commercial tenant sued the landlord for more than $1 million because of a structural defect in the building that caused damage. Claiming that it was not responsible, the landlord tried to introduce evidence that when the lease was written, the tenant and the landlord had noticed a tilting wall, and they both agreed that the landlord would be responsible for the wall in case it needed to be fixed. What was written, however, was that the landlord would be responsible for "structural defects." Despite the landlord's argument that it's only obligation was to fix a tilting wall, the Court refused to consider any testimony about the wall because the language in the contract clearly and unambiguously provided that the landlord would be responsible for structural defects.

In Delaware, the fact that the parties don’t agree on how a contract should be interpreted doesn’t mean the contract is ambiguous. Instead, the Court will give the words in the contract their ordinary and usual meaning if the language is clear and unambiguous. The only time the Court will consider oral promises that are not contained in an unambiguous contract is where there was either fraud or misrepresentation.

Posted by Charles Snyderman | | Email This Post

Posted In: Contracts

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Posted On: October 9, 2008

The Delaware Court of Chancery - Wow!

As a Delaware business attorney for many years, one of the courts I appear in is the Delaware Court of Chancery. You may have read about this Court from time to time because a lot of lawsuits with national implications are filed in Delaware’s Court of Chancery. Recently, for example, a retirement fund known as County of York Employees Retirement Plan filed a lawsuit in our Chancery Court seeking to stop the sale of Merrill Lynch to Bank of America.

According to its website, "The Delaware Court of Chancery is widely recognized as the nation's preeminent forum for the determination of disputes involving the internal affairs of the thousands upon thousands of Delaware corporations and other business entities through which a vast amount of the world's commercial affairs is conducted. Its unique competence in and exposure to issues of business law are unmatched."

One of the things that makes the Court of Chancery interesting is that at the same time the Court is being asked to stop the $50 billion sale of Merrill Lynch, it’s also resolving disputes that pale by comparison in terms of national implications but which are just as important to the people involved. What kind of cases are these? Well, in the last few months, the Court of Chancery issued formal opinions dealing with:

(1) 2 partners who sold their restaurant and were fighting over how the proceeds of sale should be divided between them

(2) 1 neighbor sues another neighbor seeking an injunction requiring compliance with deed restrictions

(3) the alleged financial exploitation of a Vietnam veteran by a marijuana dealer with whom he shared a close friendship

The Court of Chancery is known as a court of equity. More on this in a future article.

Posted by Charles Snyderman | | Email This Post

Posted In: The Delaware Courts

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Posted On: October 5, 2008

Delaware Real Estate Attorney Fights Mortgage Fraud

As a part of my practice, I’m a Delaware real estate attorney. In light of what’s been going on with our economy, and all the blame that seems to have been placed on lenders giving mortgages to people who couldn’t afford the payments, I thought I’d tell you about a refinancing settlement I had a while back that’s a perfect example of what happened.

One of my clients who wanted to refinance his mortgage submitted an application to a mortgage broker. The mortgage broker’s job was to find a lender who would approve the loan. In no time at all, the loan was approved, and my client and his loan officer from the mortgage broker came to my office for settlement.

During the settlement, one of the documents my client had to sign was the final application for the loan. This is a routine document to sign, and it certifies that the information about my client that the broker submitted to the lender was true. As my client looked at the application, something jumped off the page. His income was grossly overstated. He simply didn’t make anywhere close to what the broker had put on the application.

My client brought this to the broker’s attention, and the broker told my client to sign the application any way because it was a no income verification loan. Realizing what was happening, I asked the broker a series of questions in front of my client which resulted in the broker saying that he was aware that the income reported on the application was not correct, but there was no reason to worry about it because the lender was not going to attempt to verify his income. My client said he was not comfortable with this, and I pointed out to my client that regardless of whether anyone checked it for accuracy, the lender was relying on the truth of the application in deciding whether to lend the money. I also pointed out that there was a paragraph below the signature line advising that there were civil and criminal penalties for making a false statement on the application. When the broker continued to encourage my client to sign the form, I informed him that my client and I were not about to help the broker commit a fraud on the mortgage lender, and that settlement was cancelled.

I wonder how many other mortgage loans this broker and others like him were involved in?

This story is just one of the reasons to make sure you have an experienced and honest Delaware real estate attorney when you go to settlement.

Posted by Charles Snyderman | | Email This Post

Posted In: In The News

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Posted On: October 2, 2008

Contract Boilerplate - This Is The Entire Agreement ...

As a Delaware Business attorney, whenever I'm asked to review a contract that's been written by another lawyer, an important part of my review is to carefully read the boilerplate provisions which appear at the end of the contract, and to make sure my client fully understands their meaning. "Boilerplate" provisions of a contract are standard provisions you might see word for word in most contracts regardless of what the contracts are about. Here are some examples of boilerplate provisions.

(1) "This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware."
(2) "Neither party may assign this Agreement without the prior written consent of the other party hereto."
(3) "This Agreement constitutes the entire agreement between the parties, and supersedes all prior agreements, representations and understandings of the parties, written or oral."

Let's focus on the 3rd paragraph. While it may look okay, you'd be surprised how many lawsuits are decided based on this language. What usually happens is that one of the parties to the contract decides to sue for breach of contract. To support his claim, he tries to introduce evidence of oral statements and even emails that were exchanged during the contract negotiations. The question is then raised whether the court can consider that evidence when the contract clearly and unambiguously states that the contract contains the entire agreement between the parties.

The way to avoid this issue from being raised is to make sure every oral and written statement you're relying on is written into the contract. In other words, to play it safe, assume that if it's not in the contract, it was never said.

Posted by Charles Snyderman | | Email This Post

Posted In: Contracts

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Posted On: October 1, 2008

Using Out-Of-State Assets To Satisfy A Delaware Judgment

As a Delaware Business attorney, once I’ve obtained a money judgment in Delaware on behalf of my client, the next step is to locate the debtor’s assets. In a previous article, I discussed the process for collecting on a Delaware judgment. But what if we learn that the defendant doesn't have assets in Delaware?

If the debtor owns significant assets in another state, or is working in another state, the usual procedure is to register the Delaware judgment in that other state. Let’s say, for example, the debtor owns real estate in Maryland. The courts in Maryland look at the Delaware judgment as a foreign judgment (a judgment from another state). Maryland, like many other states including Delaware, has adopted the Uniform Enforcement of Foreign Judgments Act. Under that Act, I can register with the court in Maryland an exemplified copy of the Delaware judgment, and it will have the same effect as if I had originally obtained the judgment in the Maryland courts.

Using the same example, once the Delaware judgment is registered in Maryland, the procedures available in Maryland for collecting on a judgment can be used. This includes “attachment” and “garnishment.” Attachment means that we ask the Sheriff’s office to levy on the debtor’s business equipment and real estate and to sell them at a public sale. Garnishment involves the Court seizing the debtor’s bank accounts, or requiring the debtor’s employer to deduct money from the debtor’s pay check. It also includes taking control of the debtor’s accounts receivable.

Collecting a judgment in another state is not always easy, but it can be done. Athough we sometimes have to schedule a sale of the defendant's assets, it's not unusual for the debtor to come up with the money just before the sale.

Posted by Charles Snyderman | | Email This Post

Posted In: Debt Collection

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