Contract Gotchas

Business Law Notes

Fall 2006 Edition



By M. Blen Gee, Jr.


Contract provisions allowing for the award of attorneys fees, especially in contracts governed by the law of another state. In North Carolina, contract provisions allowing for the award of attorneys fees generally are limited to 15% of the outstanding balance owed (including accrued interest). Not so in other states. It is entirely possible to have an award of attorney’s fees against you in another state which substantially exceeds the amount of money involved in the lawsuit.

Contract clause requiring a written objection within a specified number of days. The clause may say that you have waived any objections if you do not timely respond. Or, that you have accepted the goods, contract performance , etc. as is. A failure to timely respond can put you in a very difficult negotiating position or even result in an adverse judgment in a lawsuit.

Automatic renewals. Automatic renewals can be great if you are happy with your contractual relationship, costs and service. However, they can be awful if service has been poor and much too expensive and you have missed the deadline for giving a “notice of nonrenewal.”

Indemnification provisions. Have you ever seen contract language that looks like this?

GOOD GUYS, LLC agrees to indemnify BAD GUYS INVESTMENT GROUP, INC. (the “BAD GUYS”) and the BAD GUYS’s directors, officers, and employees from any liability, claim of liability, expense, causes of action, loss, or damage whatsoever for any injury, including death, to any person or property in connection with GOOD GUYS, LLC’s or the BAD GUYS’s performance under this Agreement. The obligation undertaken above shall expressly include, without limitation, indemnification against injuries, sickness, disease (including occupational disease whenever occurring), or death of GOOD GUYS, LLC’s employees in any way connected with or resulting from the sole, joint, or comparative negligence of the BAD GUYS, or of its directors, officers, agents, or employees, whether acting jointly or severally.

Would you understand that you are contractually committed to pay for the negligent acts of the BAD GUYS?! If you cannot get this provision removed or modified, check with your insurance broker – your commercial general liability policy may provide coverage for this “assumed liability.” Or, coverage may be available for an additional premium.

A contract that incorporates another form by reference. Suppose the contract says “This Agreement shall be considered an addendum to form B1.3.1 Gobl D. G000k, which is incorporated herein by reference as though set out in full.”What have you just agreed to? What have you given up? Unless you or your lawyer has read form B1.3.1 Gobl D. G000k, you do not know!

HELPFUL HINT: Ask early in the negotiating process to see the contract you will be expected to sign. Bank loan documents, construction contracts, real estate leases, equipment leases, and software licenses are some examples.


By M. Blen Gee, Jr.

A March 2006 amendment to the Patriot Act has extended wiretapping authority to antitrust criminal investigations, raising the possibility that corporate board rooms and trade association meetings are now subject to wiretaps and electronic eavesdropping to the same extent as mobsters and drug lords have been in the past.

Prior to the passage of S. 443, enacted as part of the USA Patriot Improvement and Reauthorization Act of 2005 (signed into law on March 9, 2006), antitrust investigators were typically allowed to conduct wiretaps or electronic eavesdropping only when one party in the conversation consented to being recorded. Under the amendment, a wiretap, electronic eavesdropping and similar surveillance can be conducted without the consent of any of the persons involved.

The procedures for obtaining a warrant will be identical to investigations of racketeering, narcotics and some 150 other criminal offenses. An application must he made under oath to a U.S. District Court setting out specific details of the need for the electronic surveillance, the nature of the suspected offense, and the identity of the persons to be monitored. The court ‘s order allowing electronic surveillance is valid for 30 days but can be extended.


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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