We will be presenting some legal discussions each Tuesday morning to give business owners some information in hopes that they can succeed and avoid various legal pitfalls. The Law Offices of Barton Morris invite business owners to schedule a free consultation where we will discuss your business, business contracts, partnership agreement, or operating agreement, to determine areas where you could benefit from an attorney’s attention.
Today, we begin with an old maxim, “An Ounce of Prevention Is Worth a Pound of Cure.” This holds true when it comes to legal preparation versus facing the consequences of a lawsuit or lost profits.
Starting a business involves lots of moving pieces and many expenses before the first dollar is made. Perhaps this explains why many businesses are started without the assistance of an attorney. Undeniably, some businesses succeed without legal help. However, the cost of not having an attorney at the outset can be dramatically greater when an issue arises later. Whether a business owner decided to save some money by using contracts they found on the internet or chose to handle a matter themselves until they found themself in too deep, the money they saved initially is minimal compared to the cost when that contract had to be enforced.
We have seen many examples of businesses calling us after a mistake was made and having to spend substantially more time and money fixing the problem. We share a couple of examples with you in hopes that you will be proactive and schedule some time to talk with us before there is a problem.
Real-Life Example #1
A woman called me to review a petroleum supply agreement for her new gas station. She wanted to know if there were any terms of which she should be concerned. After reading through 70+ pages of a contract and making notes on the more troubling portions, I came to the end where it was dated two days prior to my review. Next to the date was my client’s signature. I asked her if she had sent her signature to the petroleum company, and she said that she had. She believed that she could revoke her signature within 3 days without penalty. No, she could not. Instead, she had agreed to some rather egregious terms, including (1) pre-paying for all petroleum deliveries at least 5 days before any delivery would be made, (2) use of the supplier’s credit card machine, which included terms that all credit card payments would route to the supplier, who would pay the gas station owner 75% of those funds 30-days later, (3) a 10-year term, (4) minimum sales quotas, (5) consent judgment in an amount at least in the amount of the minimum quotas for the entire 10-year term, (6) lease terms for the 10-years that increased annually, and (7) a personal guaranty.
Needless to say, my client was disappointed to learn that she had already bound herself to these terms. Upon receiving the keys, she discovered that much of the merchandise in the minimart was expired. My client was unable to pre-pay for the petroleum and had limited inventory to generate funds. She defaulted on the first month’s rent and the initial minimum quota for petroleum. The supply declared the agreement in default and accelerated the entire 10-year quotas in the third month of the contract. They sued her for over $12M. If only she would have called me before she signed the contract.
Real-Life Example #2
A business asked me to help enforce a non-competition clause that a former employee was violating. Indeed, the employee had left her employer and gone to work for a competitor across the street. When we reviewed the contract, we learned that the employer had gotten it off the internet, from a “legal contracts” type service for free. While the employer was in Troy, Michigan, the employee lived in Royal Oak, Michigan, and the competitor was also in Troy, Michigan; their contract had agreed to enforce the non-competition clause in Tennessee. Being that the contract was not valid and that suing the former employee for a violation of their “non-compete” agreement would no longer be a viable option, The employer was left to see his former employee take clients to their new employer due to their use of a free, poorly drafted contract, using a provision from another state.
Unfortunately, these are daily examples of the type of calls I receive. It is the reason why it inspired The Law Offices of Barton Morris to begin a weekly LinkedIn LIVE broadcast every Tuesday at 10:00 a.m. called “The Risk Mitigator: Legal Insights for Entrepreneurs.”
In the era of “do-it-yourself,” there is a clear and ever-present risk of these types of situations happening to entrepreneurs. It is always highly recommended that you consult with an attorney in various stages of your business, and as you read from our real-life examples, the consequences of not doing so could be considered great.