Useful Contract Provisions

Business Law Notes

Summer 2002 Edition

 

SURPRISE PACKAGES FROM THE JUSTICE SYSTEM VIA FEDERAL EXPRESS, UPS AND ORDINARY MAIL

By M. Blen Gee, Jr.

Most business people know that a visit from a deputy sheriff with a manilla envelope in his hand means that their company is about to be served with a lawsuit. A certified letter to the company could mean the same thing. Federal law suits may be served by anyone who is not a party to the lawsuit and is at least 18 years of age. This includes private process servers and U.S. marshals. Private process servers are also sometimes used to serve lawsuits that have been filed in other states.

However, most business people, and many lawyers, do not know that there are several other legally sufficient methods of service of process (official delivery of a lawsuit) which may catch you by surprise. Effective October 1, 2001, lawsuits filed in North Carolina courts may be served by Airborne Express, DHL Worldwide Express, Federal Express and United Parcel Service (UPS). A delivery by any of these services should be treated the same as a certified letter or a delivery from the Sheriff’s Department; it should be opened promptly to determine if it contains court documents which need to be delivered to your attorney.

Service of process in many legal proceedings may be by ordinary first-class mail. Some include:

  • Bankruptcy notices. This notice informs a creditor of the deadline for filing a proof of claim in the bankruptcy proceeding. A proof of claim not timely filed results in the claim will being lost. Also, a lawsuit within the bankruptcy proceeding (called an adversary proceeding) may be officially served by regular first-class mail. The failure to recognize that such a mailing is a lawsuit and promptly respond to it could result in the entry of a judgment against your company.
  • Class action notices. A class action is a form of litigation where a few named plaintiffs represent a large class of people or companies, with the entire class benefitting from any favorable result. Frequently these will have little or no impact on your company. However, occasionally a class-action may substantially benefit your company; or important rights may be lost if you fail to “opt out” of the designated class. Class action notices should be promptly reviewed and referred to counsel as appropriate.
  • Notice of commencement of a binding arbitration proceeding. Binding arbitration is a private, non-judicial dispute resolution procedure which can result in the entry of a judgment against your company. A notice of commencement of arbitration must be treated with the same seriousness as the commencement of a lawsuit.
  • Business practice pointer. Management should set up procedures for prompt review of documents received by certified mail, private deliver services such as FedEx and UPS and regular first-time class mail. Any communications relating to a court matter or arbitration should be promptly reviewed and, if appropriate, immediately transmitted to legal counsel.

TWO USEFUL CONTRACT PROVISIONS

By M. Blen Gee, Jr.

In North Carolina, attorneys’ fees are not normally awarded for a breach of contract unless the contract language permits it. The inclusion in your contracts, invoices, and similar documents of such a provision will allow you to collect attorneys fees equal to up to 15% of the entire amount owed to you.

Contracts should also provide for the payment of interest on past due balances. In North Carolina, if a contract is silent, interest will run at the rate of 8% from the date of breach of the contract. Your collections can be substantially improved by providing for a higher interest rate in the event of default. Many commercial lenders routinely include such provisions in their loan documents and enforce them in litigation.

For example, the following two sentences could be included in all your purchase orders, invoices and similar contract documents:

A SERVICE CHARGE of one and one half percent (1½%) per month [ANNUAL PERCENTAGE RATE of eighteen percent (18%)] will be assessed upon any amount not paid as provided above.

In the event we are required to place the collection of any amount due hereunder in the hands of an attorney, you agree to pay all charges, expenses, court costs and reasonable at torneys fees attributable to collection.

These contract provisions must to be included in the documents that are provided to the other party at the time that the contract is entered in order to be enforced.

In practice, these provisions can be very useful in the collection process and may help you reach more favorable settlements. For example, if you brought suit on a $10,000 claim and, after a year of litigation, settled for fifty cents on the dollar, you would receive $5,400 (half of the $10,000 claim and half of the $800 of accrued interest). But, if you have an attorney’s fee provision in your contract and a default interest rate of 18%, then you would receive $6,785 (half of the initial $10,000 claim, half of the $1,800 of accrued interest and half of the attorneys fees, which is 15% of the principal and accrued interest). The prospect of being assessed a high interest rate and attorney’s fees may lead to a debtor to be more reasonable in settlement negotiations.

 

About our Author:

 

M. Blen Gee, Jr. is an honors graduate of the University of North Carolina School of Law. His areas of concentration include business and corporate law, including sales of businesses; business litigation, including arbitration and mediation; franchise law; automobile dealer law; and insurance company insolvency. Mr. Gee has earned the highest peer-review rating for professional excellence and ethical standards by the national publication Martindale Hubbell.

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