Category Archives: Contract Law

7 Provisions that Should be in Every Construction Contract

Have you ever read through a contract and afterwards wondered to yourself what you just read?

Contracts are often rife with boilerplate provisions that usually have little or no significance to the average person. The common response is that this is a bunch of legal jargon—that’s why I hired a lawyer.

The lawyer is supposed to take care of those things and interpret that language to make sure the other side isn’t pulling a fast one on me. Although many of these provisions are seemingly useless, some of them might have a significant impact if there is a dispute and the parties wind up in litigation.

For those individuals looking to better understand some of those alleged boilerplate provisions, we’ve put together a list of common contractual provisions, specifically geared towards assisting parties to construction contracts.

We’ve attempted to explain these provisions, including why they might be important and what each provision ultimately attempts to accomplish.

The following is a table of contents in the event that you would like to skip to a certain provision:

Force Majeure Clause (Act of God)

Force majeure is derived from the French language, meaning “superior force.” This typically refers to an event that is not typically anticipated and is not under the control of either party.  Sometimes these events are referred to as acts of God.  Although denominated “acts of God,” these acts include natural disasters like tsunamis, floods, hurricanes, and tornados, but they also can include human intervention such as strikes, riots, fires, wars, and the like.

A force majeure clause can often absolve the parties from their contractual obligations in the event that an Act of God occurs.  Accordingly, it is often wise to include the same in your contract to prevent an inequitable outcome.

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No Third Party Beneficiaries

A third party beneficiary is a person who is not a party to the contract at issue, but the contract will benefit said person either intentionally or incidentally.  A no third party beneficiary provision precludes any third parties from coming in and asserting rights in the contract and/or enforcing provisions against the parties named in the contract.

Typically the parties do not intend to benefit a third party and if they do, the parties they will expressly include such language in the contract.  The third party beneficiary is typically referred to as an intended third party beneficiary under such circumstances.  However, in certain situations, Missouri courts will find that an incidental third party beneficiary has certain rights that flow from the contract.

In order to avoid this unwanted outcome (or if it is wanted, then you should include an express provision in the contract), the attorneys drafting the contract should include a provision prohibiting the rights of any third party beneficiary.

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Liquidated Damages Clause

“Liquidated damages are a measure of compensation which, at the time of contracting, the parties agree shall represent damages in a case of breach.” Paragon Grp., Inc. v. Ampleman,878 S.W.2d 878, 880 (Mo. App. E.D. 1994).

A liquidated damages clause is particularly important in the construction industry and thus is found quite often in construction contracts.

However, in order for the liquidated damages clause to be enforceable, there are a number of different elements that must be satisfied.

To enforce a liquidated damages provision in Missouri, the claimant must first show some harm. “In Missouri, before triggering a liquidated damages provision, our courts have ‘consistently’ held that the party requesting enforcement of the liquidated damages provision ‘must show at least some actual harm or damage caused by the breach.’” Arcese v. Daniel Schmitt & Co. (Mo. App., 2016)(citing Grand Bissell Towers, Inc., 657 S.W.2d at 379; see also Phillips v. Mo. TLC, LLC, 468 S.W.3d 398, 400 (Mo. App. S.D. 2015) (“While it is not necessary to actually prove damages in the same amount as stated in a liquidated damages provision, we have reasoned that without evidence of damages, a liquidated damages clause actually becomes a penalty and is unenforceable.”) (internal citations and quotation marks omitted).

“Although proof of a precise dollar amount is unnecessary, ‘it nevertheless must be shown that some harm or damage, in fact, occurred.” Arcese v. Daniel Schmitt & Co. (Mo. App., 2016) (quoting Valentine’s, Inc. v. Ngo, 251 S.W.3d 352, 355 (Mo. App. S.D. 2008) (quoting Goldberg, 672 S.W.2d at 179).

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What is a Penalty Clause in the Liquidated Damages Context?

“[A] penalty [clause] is not a measure of compensation for contract breach, but rather, a punishment for default or a security for actual damages sustained due to non-performance which incorporates the idea of punishment.” Arcese v. Daniel Schmitt & Co. (Mo. App., 2016)(quoting Goldberg v. Charlie’s Chevrolet, Inc., 672 S.W.2d 177, 179 (Mo. App. E.D. 1984); see also Star Dev. Corp. v. Urgent Care Assocs., Inc., 429 S.W.3d 487, 491 (Mo. App. W.D. 2014).

“Ordinarily, ‘penalty clauses’ are disguised as liquidated damages clauses. The mere branding of a provision in a contract as one of ‘liquidated damages’ does not, however, make it so. If, in fact, said provision is a penalty, the labeling of the clause is of no consequence. Accordingly, the import of construing purported liquidated damages provisions cannot be overstated, in that, generally, liquidated damages clauses are valid and enforceable, whereas “penalty clauses” are invalid and unenforceable.” Arcese v. Daniel Schmitt & Co. (Mo. App., 2016)(internal citations omitted).

“In Missouri, we have adopted the rules of the Restatement of Contracts for determining whether a liquidated damages clause is in fact a penalty. See, e.g., Corrigan Company Mechanical Contractors v. Fleischer, 423 S.W.2d 209, 213-214 (Mo.App.1967).

These rules are: ‘(1) An agreement, made in advance of breach, fixing the damages therefor, is not enforceable as a contract and does not affect the damages recoverable for the breach, unless (a) the amount so fixed is a reasonable forecast of just compensation for the harm that is caused by the breach, and (b) the harm that is caused by the breach is one that is incapable or very difficult of accurate estimation.’ Restatement of Contracts § 339 (1932).” Grand Bissell Towers, Inc. v. Joan Gagnon Enterprises, Inc., 657 S.W.2d 378, 379 (Mo. App. E.D., 1983).

If the liquidated damages provision is not drafted properly, it will be subject to attack and may not hold up in court.  Accordingly, a well-versed attorney should draft any liquidated damages clause to ensure that it will withstand scrutiny if attacked by the opposing party. To the contrary, if you are defending a claim or offset based on liquidated damages, please contact one of our attorneys to learn about your legal rights.

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Counterparts (Facsimile Signing)

A counterpart signature provision is typically used as a convenience when the parties are not in the same physical location, oftentimes a counterpart facsimile provision specifically permits and validates the signing of the contract in counterparts that are faxed to the other party to the contract.

This provision may only provide a small benefit that may never matter for all practical purposes. However, if one of the parties puts the authenticity of the contract or signatures in question, the counterparts facsimile signing provision may serve as an additional safeguard to prevent any questions regarding the validity of the signatures.

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Interpretation & Headings of Contract

This clause basically states that the headings have no bearing on the content contained thereunder, and the contract should be interpreted based on the language in the body.

From a practical standpoint, most courts will not take into consideration the headings in determining the intent of the parties, as questions of ambiguity are resolved based on the parties’ meeting of the minds (their intent).  Thus, the headings should not matter when a court interprets the same.

However, if the opposing party is arguing that the heading’s title affects the interpretation, a court could adopt such argument and agree that the headings are also language in the contract.  Because the headings also are language in the contract, said language could have a bearing on the contract’s interpretation.

Thus, instead of leaving things to chance, the simple inclusion of an interpretation and headings of contract provision could prevent an improper interpretation of the terms contained in your agreement.

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Severance Provision

The severance provision usually looks something like this:

The provisions of this Agreement are severable. If any portion, provision, or part of this Agreement is found to be, determined, held, or adjudicated to be invalid, unenforceable, or void for any reason whatsoever, any such portion, provision or part shall be severed from the remaining portions, provisions or parts of this Agreement and shall not affect the validity or enforceability of any remaining portions, provisions, or parts.

As one may infer from the foregoing provision, the purpose of the severance provision is to ensure that the contract is not rendered null and void in its entirety due to one invalid or unenforceable provision.  Judges have tremendous power to interpret and make a determination regarding the terms and conditions of a contract.  If a judge decides that one provision is not enforceable, it should not wholly invalidate the contract.

For that reason, a severance provision should be included in every contract.

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Choice of Law or Forum Selection Clause

A choice of law provision designates the jurisdiction or the substantive law that governs the contract.  Also, using a forum selection clause the parties can choose the forum where the case will be resolved.  As a caveat, this provision may be superseded by a statute in certain limited circumstances such as when a consumer transaction is involved.

Consumer statutes, like the Fair Debt Collection Practices Act (“FDCPA”), protect the consumer from selecting a venue that will frustrate their ability to defend their rights in the event a dispute arises.  Accordingly, the statute makes the proper venue the county where the contract is consummated. Any deviation from this venue could be deemed a violation of the FDCPA. However, the case law defining such FDCPA violations is mixed and very gray.  Thus, you are always advised to consult with an experienced consumer protection attorney to determine whether your contract is safe with respect to the stringent FDCPA protections.

Any companies drafting a contract should choose the jurisdiction of their state law, which is Missouri for the vast majority of the readers of this article. Choosing the substantive law of your home state (or the state of your lawyer) would allow your company to have an upper hand because your lawyer should be well-apprised as to the substantive law of that particular state.  Further, if you choose the venue in which your lawyer is located, you will have another advantage as your lawyer will be familiar with the procedural process, and hopefully the judges, in such venue.

Accordingly, it is well-advised to include a jurisdiction and forum selection clause in every construction contract.

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Alternative Dispute Resolution Clause

This can be a lifesaver provision against a consumer.  Under alternative dispute resolution (“ADR”) or arbitration, the consumer waives their right to a jury usually, and in such a case, the risk and cost of the litigation is much less.  This gives the consumer much less leverage, especially in the construction context because a claim based on violations of the Missouri Merchandising Practices Act (“MMPA”) is probably in play.

When a consumer brings an MMPA claim the ante is raised because the MMPA (statute) allows the judge to award attorney’s fees in the event that the trier of fact finds that the contractor violated the MMPA.  Because a jury could rule in either party’s favor and because of the substantial risk involved, many contractors are forced into settling the matter, instead of the possible alternative of: betting the business on winning the litigation.

If the case proceeds through alternative dispute resolution, there are much less formalities and the rules of procedure (and rules of evidence) are limited to allow an expedited disposition of the case.  For that reason, ADR is often more economical and reduces certain ploys used by plaintiffs’ attorneys to create settlement leverage by capitalizing on the slow, and sometimes over formal, judicial process.

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Time is of the Essence

In a construction contract, a time is of the essence provision makes the completion of duties and the timing of the contractual obligations material to the laboring party’s performance. In the event the laboring party does not complete the performance, the party is in breach of contract or will be subject to liquidated damages (if such a clause is contained in the contract).

Because parties will often lose money if a project is not completed timely (due to lost business opportunities, lost profits from non-use of the facilities, etc.), the contract, especially in the construction industry, should include a time is of the essence provision.  For those parties who stand to potentially lose money because of a time is of the essence provision (general contractors and subcontractors), you may wish to negotiate such clauses out of the contract.  This must be addressed prior to execution of the contract.

In any event, these provisions can be critically important and can be very costly to the parties if they are inserted or deleted from the contract, depending on the factual scenario.

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Indemnity Provision

An indemnity provision is when one party in the contract agrees to pay for or answer for liability incurred by another.  It’s basically another way of saying that the party who is to indemnify is to reimburse the other for any expenses that are incurred (based on whatever the triggering event is).

Contractual indemnity is when the parties expressly agree to the same in the contract.  Equitable or non-contractual indemnity is when Missouri courts find that one party, based on principles of equity, ought to pay for the other party’s liability.

For contractual indemnity provisions, Missouri courts have “recognize[d] that indemnity contracts are of two kinds, those against loss and those against liability. Burns & McDonnell Engineering Co., Inc. v. Torson Const. Co., Inc., 834 S.W.2d 755 (Mo. App.W.D., 1992) (citing Superintendent of Ins. v. Livestock Mkt. Ins. Agency, Inc., 709 S.W.2d 897, 903 (Mo.App.1986)).

“In either case, the cause of action accrues when the covenant is breached.” Burns & McDonnell Engineering Co., Inc. v. Torson Const. Co., Inc., 834 S.W.2d 755 (Mo. App.W.D., 1992) (citing Superintendent of Ins. v. Livestock Mkt. Ins. Agency, Inc., 709 S.W.2d 897, 903 (Mo.App.1986)).

  • Indemnity against loss accrues when the indemnitee sustains actual loss.

This contemplates actual payment by the indemnitee for the obligation which the party has been found liable. Ruysser v. Smith, 293 S.W.2d 930, 933-34 (Mo.1956); Moberly v. Leonard, 339 Mo. 79199 S.W.2d 58, 63 (1936).

  • Indemnity against liability accrues as soon as liability occurs, and no actual loss need be shown.

Indemnity against liability “cannot accrue until an indemnitee’s liability has become ‘fixed and established.’” Burns & McDonnell Engineering Co., Inc., 834 S.W.2d at 758; see Moberly, 99 S.W.2d at 63.

The mere assertion of a claim against the indemnitee does not “fix and establish” liability, but only subjects the party to potential liability to be determined with the outcome of the lawsuit. Therefore, a cause of action for indemnity against liability cannot accrue until the claim against the indemnitee is completely resolved. Only then is the party’s liability “fixed and established.” Burns & McDonnell Engineering Co., Inc. v. Torson Const. Co., Inc., 834 S.W.2d 755 (Mo. App.W.D., 1992).

According to the foregoing Missouri law, the drafter of an indemnity contract or even a simple indemnification provision within a different contract should consider the objective of the parties, and for what specific situations they would like indemnification.

Some contracts are a combination and have clauses that indemnify against loss and liability. A more specific description of a clause that is intermixed as such is described and articulated in the Burns & McDonnell case:

“[T]he contract provides that Torson will indemnify and hold Burns harmless against all “‘damages, losses and expenses, including attorney’s fees.’” Id.

“This language contemplates indemnification for ‘loss.’ The contract also agrees to indemnify and hold Burns harmless against all “claims.” The use of the word ‘claims,’ while not expressly so designating, indemnifies Burns from any liability which it might incur.” Id.

“The word ‘liability’ is a broad legal term and includes ‘almost every character of hazard or responsibility, absolute, contingent or likely’; and the “condition of being actually or potentially subject to an obligation.” Black’s Law Dictionary 823 (5th ed. 1979). The term also applies to ‘unliquidated claim[s].’ Id. As used in indemnity contracts, the term ‘claim’ has been interpreted as referring to indemnity against liability.” Id.

“A third party claim for indemnity may be filed before the [claim] accrues, in order to accommodate and facilitate the whole litigation between the parties.” Burns & McDonnell Engineering Co., Inc., 834 S.W.2d at 758; see also Bond Diamond Co. v. Wilson, 325 S.W.2d 63, 66 (Mo.App.1959); Rule 55.32(f).

Accordingly, the specific language used in the indemnity contract or provision can make a significant difference in the rights of the parties and when the lawsuit can be filed.  This could make a difference as to whether the party can even invoke the indemnification provision.  Therefore, it is well-advised that any person searching for an indemnity contract or an agreement containing such a provision, should contact an attorney experienced with drafting and litigating indemnity provisions.

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Conclusion

To sum up this article, every construction contract should have certain provisions in order to safeguard the parties and to ensure that the other provisions in the contract function as they should.

The following are the 7 clauses that should be in every contract:

  1. Force Majeure Clause (Act of God)
  2. No Third Party Beneficiaries
  3. Counterparts (Facsimile Signing)
  4. Interpretation & Headings of Contract
  5. Severance Provision
  6. Choice of Law or Forum Selection Clause
  7. Time is of the Essence

While a contract can be valid and binding without these clauses, in a case where there is a close call or the contract is under heavy scrutiny, these provisions might make the difference between protecting and losing your rights under the contract.

That’s why it is important to consult with a knowledgeable attorney and retain him/her to draft your contract to assure that your legal rights are protected.

If you know of any contractual provisions that should be in a construction contract, or in any contract for that matter, please let us know in the comments section.

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41 Contracts Our Attorneys Draft, Review, and Litigate

Types of Contracts in Missouri

Our attorneys are experienced in handling a variety of different matters relating to contracts.

To give our clients an idea of how we can assist them with their contract needs, we have prepared a list of the contractual agreements that we have litigated or prepared for clients in the past.

We’ve also attempted to give a general description of the various agreements, so our clients and any viewer of this website will be informed regarding the types of agreements that are at their disposal.

Our attorneys are on call to answer questions about any of the agreements set forth below, and we’d be happy to draft any of these agreements or another document that is suited for your particular situation.


Acquisition Agreements

Acquisition is the gaining of wealth or control over new assets or things.  Any time that a business or assets of a business are acquired, the purchaser and/or seller would be well-advised to consider an acquisition agreement.

An acquisition agreement sets forth the terms of the transactions to eliminate uncertainty amongst the buyer and seller and facilitates the fluidity of the sale/purchase.  Many questions arise when business or commercial entities make purchases including the price, the payment terms, financing, and minor details governing the acquisition.

Ordinarily, acquisition agreements deal with acquiring equity or wholly purchasing other companies.  A number of the important negotiating points deal with closing conditions, indemnity, disclosure of liabilities, and other points that greatly affect the value of the acquisition.

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Agent or Agency Agreements

An Agency Agreement typically sets forth the role and duties of an agent to a principal.  There are numerous situations when this type of agreement may be necessary, but it is frequently seen in the real estate context as described in the brokerage agreement section.  However, it is not limited to this context.  Agency agreements are common throughout all industries.  In fact, any time that a third party (agent) is acting on behalf of a principal, there is usually some type of agency relationship.  An agency agreement is a way to memorialize that and expressly grant or limit powers which the agent has.  It is also important because it defines the duties and obligations of the agent to the principal and vice versa.

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Amendments or Modifications to a Contract

Amendments or modifications to a contract are pretty self-explanatory.  A change order would be a more specific example of an amendment or modification to a contract.  Also, in real estate transactions, the parties will often amend the contract to add conditions precedent to the sale or contingencies which make the contract dependent on a certain occurrence.  One specific example would be the contingency that the buyer has to sell their own house before the contract is binding on both parties.  Our attorneys are experienced in drafting various types of modifications or additions/deletions to contracts, and we are prepared to assist you with your situation.  Please contact one of our attorneys if you need help amending or revising a contract that doesn’t exactly fit your situation.

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Asset Purchase Agreements

Asset Purchase Agreements are a type of acquisition agreement as described above.  As most people are aware, assets are those things of value owned by a company like cash, equipment, inventory, real estate, accounts receivable, and the goodwill of the company.

When dealing with asset purchase agreements in their simplest form, it usually governs the acquisition of equity and/or stock in a company.  Many of the considerations deal with an overview of the financials of the company (assets) that the prospective buyer is looking to acquire.

The solvency of the company is obviously a major factor.  However, solvency can be described in two different ways: (1) the company cannot pay debts as they come due or (2) the liabilities of the company outweigh the assets.

The type of insolvency sometimes is of no import to investors as the purchaser/investor believes that s/he can turn the business around with a new marketing or operations model or an injection of financing will give the company the necessary cash to continue operations in order for it to realize profits from an earlier investment.  In a similar but nuanced viewpoint, some investors merely want to use the acquisition for a limited purpose as a certain product line owned by the company warrants the purchasing of the entire company.

For more information regarding asset purchase agreements see the description under Acquisition Agreements.

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Bill of Sale

A bill of sale is usually a document that evidences a transaction of personal property between two parties.  Oftentimes a bill of sale is incredibly simple.  Sometimes it conveys title, but not in every scenario. One of the most common situations where individuals will encounter a bill of sale is in the purchase or sale of a motor vehicle.  It should be noted that in Missouri and Kansas a bill of sale does not convey title.  Instead, the title of the vehicle must be assigned to the purchaser. The bill of sale merely evidences the details of the transaction (and typically serves to satisfy the statute of frauds requirement for a sale of goods over $500).

The department of revenue for each state usually has a form that can be used as the bill of sale, which contains the basic details of the transaction including make, model, and year of the vehicle as well as the mileage and other details relevant to the transaction.

In the event that you need a bill of sale for a specific situation our lawyers can prepare numerous types of bills of sale specifically customized for your situation.

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Broker-Carrier Agreements

A broker-carrier agreement usually deals with the transportation of employees or other individuals or personal property by a broker.  In this case the broker acts as the carrier for the principal in which the broker agrees to transport and the principal or the owner agrees to make payment for the broker providing logistics and/or actual physical transportation services.

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Broker (Real Estate) Agreements

Most individuals have dealt with broker real estate agreements.  A lot of times these will be called an Exclusive Limited Agent Buyer’s Agreement or Exclusive Limited Agent Seller’s Agreement.  These are just fancy names that set forth the real estate agent’s commissions, duties to, and rights against the client (purchaser or seller, depending on the principal). Real Estate broker agreements are probably the most common, but broker agreements are not strictly limited to such context.

Really, any situation where a broker or agent is acting as an intermediary creates a broker arrangement.  In such a case, the parties should consider defining their rights and duties toward each other to avoid falling at the whim of Missouri’s statutory scheme, which may not reflect what the parties intended to be the agreement.

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Business Contracts

Business Contracts come in all shapes and sizes.  Business contract is such a general description of a contract that it could really refer to anything.  Throughout this webpage, there are numerous contracts that relate to the business context.  Thus, business contract can only be defined generally as a contract that governs some type of operation, action, or transaction that arises out of, relates to, or refers to a business or commercial context.

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Change Order

A Change Order is basically a change or a modification to an original contract.  Change orders can be for the extension or reduction of time, the increase or decrease in the cost of certain items, increasing or decreasing the scope of the work, value engineering, may account for delay days or extra work requested by the owner.

A change order does not have well-defined requirements.  It must be supported by consideration as other contracts, but apart from the basic contractual requirements, change orders may come in any shape or form.  In fact, there is case law in Missouri that allows a contractor to recover on the basis of equity if extra work is performed by agreement but the change order was never reduced to writing (even if the original contract requires all change orders to be in a signed writing).

Change orders are most frequently seen in the construction industry.  Owners often avail the the reduction in price due to limited mobilization and overhead (contractors are already out on the project, so they can perform additional work for a more economical price).  One of the most common contexts where we see change orders that cause problems is when there is a remediation project for fire, water or mold damage, and the homeowner wants an addition or extra work performed on their homes.

Many times the homeowner does not realize the incredible expense that additional construction work will cost and refuses to pay.  On the other hand, some contractors take advantage of the homeowner and charge exorbitant rates.  In any case, litigation is quite common in such scenarios.

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Confidential Disclosure Agreements (CDA)

A Confidential Disclosure Agreement  or CDA or Confidential Agreement (CA) is one party’s promise to refrain from disclosing information that is confidential to the other party, such as trade secrets, classified information, or proprietary information.

In many situations where the company deals with sensitive or confidential information that is critical to the success of the company, the employment agreement will include a clause or even a separate contract that pertains to confidential disclosure or non-disclosure agreements. Confidential disclosure agreement is a close relative to the non-disclosure agreement, or even a twin, depending on the language used.

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Construction Contracts

Construction Contracts come in all shapes and sizes.  Depending on the type of project, owner requirements, or general contractor capabilities, a contract specifically catered to the situation may be necessary.

The following are a number of different types of contracts which may be used on a construction project and can be prepared by our attorneys for your use.

1.      Unit Price Contracts

2.      Lump Sum or Fixed Price Contract

3.      Cost-Plus Contracts

4.      Time and Material Contracts

5.      Incentive Contracts

6.      Guaranteed Maximum Price Contracts

7.      Percentage of Construction Contracts

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Contract for Building & Sale of Residential Property

A contract to build and sell real estate to be used as a residence is common when a consumer hires a general contractor to construct a home for them.  The home purchaser would be well-advised to have an attorney draft the contract, paying close attention to the terms contained therein as the purchase of a new home is a major decision.  One that can greatly affect the life of the home purchaser, and the purchaser should have recourse in the event that the builder does not perform the work as agreed upon by the parties.

Equally, a home builder should have a contract for the construction and sale of a residence prepared in a manner favorable to the builder.  This is critical for the builder because there are numerous responsibilities and duties that should be accounted for in the contract in order to clarify the parties’ responsibilities.

Any additional work for which the builder is not compensated is lost money for the builder. The purpose of a builder or general contractor that constructs homes is to make a profit and a valuable final product for the home purchaser.  However, to ensure that the builder stays in business, there must be some element of profitability.  If the duties are not well-defined, and the builder has to continue to perform extra work without compensation therefor, the builder is losing money. For that reason, the contractor should have a contract drafted to protect its/his/her interests.

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Deed of Trust

A deed of trust is the name for a mortgage in Missouri.  Despite the common misconception, on a technical level, a mortgage is not used in Missouri.  Instead, we use a deed of trust.

The way a deed of trust works is as follows: when a bank or financial institution gives a loan to a borrower, so the borrower can buy the house, the bank wants to be able to reduce its risk and ensure that it gets paid back on its loan.  Accordingly, the bank wants some type of collateral to secure the loan.  The house serves as the collateral for the loan.  The deed of trust evidences the bank’s security in the house.

In order for the bank to put third parties on notice (put all the world on notice as the treatises and legal textbooks like to say) that it has first dibs on the house (the house is collateral and the bank has priority), the bank files a deed of trust with the local recorder of deeds office. Thus, as a matter of course, a deed of trust usually is executed at the same time that the bank issues a promissory note (loan) in order to make sure that it takes priority as a creditor in the event that the borrower defaults on the note.

There are a number of other differences between a deed of trust and a mortgage.  However, for the sake of brevity and to stay focused, the differences between mortgages and deeds of trust are explained in more intimate detail on the real estate section of this website.

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Employment Agreement

Whether a worker has an employment agreement or not really depends on the type of work.  Given the fact that Missouri is an employment at will state, employers are not really incentivized to enter into contracts with their employees.

In certain limited circumstances to give the employees peace of mind or to create a sense of security, the employer will enter into an employment agreement for a certain term.  Many of these contracts are based on contingencies, which often relate to performance.

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Equipment Use Agreements

Equipment Use Agreements are essentially rental agreements.  Equipment is usually personal property, articles, or goods used for some commercial or business operation.  This does not mean that equipment use agreements are not present in consumer transactions.  However, typically these types of agreements are witnessed more frequently when a business enterprise is renting equipment to carry out some particular commercial purpose.  These agreements are important as they can be based on time of usage, fixed time periods, fixed prices, and/or a number of other hybrids or unique methods of pricing.

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Exclusive Limited Buyer’s Agreements

This type of agreement is typically seen in the context of a homebuyer-real estate agent relationship.  The real estate agent wants to ensure that his/her commission is set forth in writing, and the agreement also typically includes the statutory and fiduciary responsibilities and duties owed to the homebuyer.

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Forbearance Agreement

A forbearance agreement is typically the prolongation of payment on a loan or the foreclosure of a property.  Forbearance in general refers to a situation where one party foregoes its legal right.

According to studentaid.ed.gov, with a forbearance “you may be able to stop making [student loan] payments or reduce your monthly payment up to 12 months.” However, it should be noted that interest will continue to accrue during the time period that the loan is in forbearance.  These types of provisions may be negotiated out of forbearance agreements, by an industrious lawyer, but the flexibility of the agreement varies from situation to situation.

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Guaranty (Personal Guaranty)

A guaranty or sometimes referred to as a personal guaranty is when a person agrees to pay for the debt of another.  These are usually required to create security for the lending of money or other property.  Accordingly, these are most common when dealing with banks or financial institutions where the lending of money is involved.  Additionally, when companies have a line of credit, the banks offering the line of credit want to secure it with a personal guaranty from a member or shareholder of the corporate entity.  Similarly, when someone has poor credit the lender will often require a co-signer or a personal guarantor before agreeing to lend the money.

The word co-signer is used loosely in most contexts.  However, from a technical standpoint it can mean either personal guarantor or surety.  For most people, this does not make a difference, but looking at it technically, a surety usually has primary liability and upon default, a creditor can go after the surety without first pursuing the borrower.

However, when a creditor wishes to pursue a personal guarantor, typically the law requires that the creditor have made a good faith attempt, or exhaust its legal remedies, to collect against the original borrower.  These two variations are sometimes semantics as the language of the guaranty may account for the situation and make any co-signer primarily liable.

Guaranty agreements come in various shapes and sizes.  Below are a few examples of different types of personal guaranty agreements:

  1. Absolute
  2. Conditional
  3. Continuing
  4. General
  5. Specific
  6. Special

If you need a guaranty drafted, we have attorneys with experience litigating and preparing various types.

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Independent Contractor Agreement (ICA)

Independent Contractor Agreement is a contract that sets forth the duties of an independent contractor and clarifies the relationship between the hiring company and the contractor.  An independent contractor is typically hired by a person or entity to perform a designated task, but legally, the hiring person/entity does not have control over the independent contractor.

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Employee v. Independent Contractor

Missouri courts state the following to determine “the existence of the independent contractor relationship, the common law of agency right to control shall be applied. The common law of agency right to control test shall include but not be limited to: If the alleged employer retains the right to control the manner and means by which the results are to be accomplished, the individual who performs the service is an employee. If only the results are controlled, the individual performing the service is an independent contractor.” Fritts v. Williams, 992 S.W.2d 375 (Mo. App. S.D., 1999).

The independent contractor agreement merely lays out the responsibilities and duties of the contracted party.  Additionally, it may be the employer or hiring party’s opportunity to include certain risk allocating provisions such as an indemnity clause.  An indemnity clause is further defined below under the common contractual provisions section.

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Lease Agreement

A lease is probably one of the most common agreements that a real estate lawyer has to draft.  There are certain critical provisions that a landlord will want in a lease.  A number of those provisions, though seemingly minor, can make a huge difference when dealing with a troublesome tenant.

Generally described, a lease is when an owner of real property agrees to convey the right of use of the property in exchange for rent payments, usually in the form of cash, but may also be in-kind (something of value other than cash).

For information about Landlord-Tenant Law in Missouri follow the foregoing link. 

Regardless of whether a lease is for commercial or residential rental property, there are a number of provisions that should be included in the lease to ensure that your rights are protected—no matter whether you are the landlord or the tenant.

If you need a lease drafted or revised, we are more than happy to assist you.  Also, in the event that you need to enforce the provisions of a Missouri lease, or if you need to evict a non-paying tenant, please contact one of our landlord-tenant attorneys today.

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Master Services Agreements

A master services agreement or master service agreement is a contract between two parties who usually have an ongoing relationship.  The master agreement sets forth the common terms that the parties have agreed upon, and it can be used as the basic foundation for any future agreements.  Thus, the provisions of the master services agreement are usually incorporated by reference into any of the future agreements between the parties.

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Memorandum of Understanding (MOU)

A memorandum of understanding is sometimes referred to as a letter of intent.  A letter of intent is a statement reduced to writing which details the preliminary understanding of two or more parties who plan to enter into a contract.

Many sources state that a memorandum of understanding is not binding.  However, Missouri courts often treat these agreements as contracts, and in most of the cases in which a memorandum of understanding is discussed, such document involves a school, city, or other governmental entity.  In other limited circumstances, the parties used the memorandum of understanding to divide their interests in a business or form a partnership.

A letter of intent that is signed by high school football athletes, committing to a university, are bound by signing the letter of intent.  According to www.nationalletter.org, an athlete agrees to attend the academic institution for a period of one year in exchange for the institution granting a specified amount of financial aid.

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Mortgage

A mortgage was generally defined above under deed of trust.  In Missouri a deed of trust is used, but the counterpart of the deed of trust is the mortgage, which is used in states like Kansas, Iowa, and Oklahoma.

From a practical standpoint the difference is slight and is predominantly felt in the foreclosure process.  A mortgage requires a judicial foreclosure (use of the court process to effectuate a foreclosure), whereas a deed of trust allows for a non-judicial foreclosure (where the property can be sold on the courthouse steps.

The mortgage basically represents the lender’s security in its collateral (the house).  Once the promissory note is paid in full, the lender must file a release of mortgage with the recorder of deeds which extinguishes the mortgage.  In most states, there are statutes which penalize any lenders who do not timely file releases of mortgage.

If you need a mortgage drafted or a subordination agreement prepared, we can help you do so.

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Non-Compete Contracts

Non-Compete Contracts are not as typical as including a mere non-compete covenant into a contract.  Typically, when there is danger of usurping the business from an employer, the employer, in order to protect itself, includes a non-compete clause into the contract.  The non-compete clause prevents the party subjected to such clause from engaging in the same type of business in the same geographic region for a certain time period.  Missouri courts typically require.

Missouri does not look favorably at non-compete agreements:

Contracts in restraint of trade are unlawful in Missouri. Section 416.031 RSMo (1994).3 “A promise is in restraint of trade if its performance would limit competition in any business or restrict the promisor in the exercise of a gainful occupation.” RESTATEMENT (SECOND) OF CONTRACTS Section 186(2) (1981). “Every promise that relates to a business dealing or to a professional or other gainful occupation operates as a restraint in the sense that it restricts the promisor’s future activity.” Id., cmt. a. Restrictive covenants limiting individuals in the exercise or pursuit of their occupations are in restraint of trade. Sturgis Equip. Co., Inc. v. Falcon Indus. Sales Co., 930 S.W.2d 14, 16 (Mo.App. 1996). Post-employment restrictions are generally considered restraints of trade. House of Tools & Engineering, Inc. v. Price, 504 S.W.2d 157, 159 (Mo.App. 1973). Healthcare Services of Ozarks, Inc. v. Copeland, No. 26410 (MO 7/27/2005) (Mo, 2005).

However, there are certain limited circumstances where Missouri courts have allowed them:

“there are two areas in which non-compete agreements may be enforceable. ‘A restrictive covenant in an employment agreement is only valid and enforceable if it is necessary to protect one of two well-defined interests, trade secrets and customer contacts, and if it is reasonable as to time and place.’” Healthcare Services of Ozarks, Inc. v. Copeland, No. 26410 (MO 7/27/2005) (Mo, 2005)(quoting in part Schmersahl, Treloar & Co., P.C. v. McHugh, 28 S.W.3d 345, 348 (Mo.App. 2000).

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Non-Disclosure Agreements  (NDA)

A non-disclosure agreement is one party’s agreement not to disclose trade secrets, innovative or sensitive information of a company.  These are typically signed by employees who work in industries where certain trade secrets carry significant value.

Non-disclosure agreements are also used in contexts where one person or entity is proposing a business plan, and said person or entity wishes to keep the information disclosed in the meeting confidential.  Hence non-disclosure agreements are sometimes referred to as confidential disclosure agreements.

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Operating Agreements

The Missouri Secretary of State defines operating agreement as: “an internal document (it is not filed with the Secretary of State or any other government agency) that establishes the rules and regulations for the conduct of the company’s business and affairs, and the rights, powers and duties of the company’s members, managers and employees. https://www.sos.mo.gov/business/outreach/startup_guide

Typically the operating agreement is responsible for defining:

  • The classes or groups of members and their rights and benefits;
  • Voting structure for company decisions;
  • Restrictions on transfer of membership interests;
  • Allocation of income and losses among the members; and
  • Tax elections for the company.

The above information is taken from the Missouri Secretary of State website discussing :  https://www.sos.mo.gov/business/outreach/startup_guide

An operating agreement is necessary and required by Missouri statute when forming a limited liability company (LLC).

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Partnership Agreements

Pursuant to R.S.Mo § 359.011, a partnership agreement is “any valid agreement, written or oral, of the partners as to the affairs of a limited partnership and the conduct of its business.”

In essence, a partnership agreement defines the rights and obligations of partners.  It does not necessarily limited to only two partners.  Often times more than two people or entities can become partners.  The type of relationship typically depends on the structure of the business.

In Missouri a partnership is defined, under R.S.Mo § 358.060, as “an association of two or more persons to carry on as co-owners a business for profit and includes, for all purposes of the laws of this state, a registered limited liability partnership”

Missouri statutory scheme allows individuals to form general partnerships, limited partnerships, limited liability partnerships, and limited liability limited partnerships.  These forms all have different statutory default rules that are generally set forth under Missouri Chapters 358 and 359.

Usually when individuals or entities are interested in forming a partnership, they would like to have their own terms in place in order to supersede the default rules laid out in Missouri statutes.

This objective can be accomplished by hiring one of our attorneys to draft a partnership agreement for you.  For further counsel regarding your rights in forming a partnership or to have one of our attorneys draft an agreement for you, please contact us.

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Prenuptial (or Antenuptial) Agreement

A prenuptial agreement or sometimes referred to as an antenuptial agreement is entered into prior to marriage and is designed to pre-plan the division of property and marital support upon the termination of the marriage.

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Professional Services Agreement (PSA)

A professional services agreement (PSA) is used to enter into a contract with a person or entity providing professional services, such as a consultant, an attorney, an accountant, or some other professional, which provides services.

The services agreement typically requires the non-consulting party to allow access to its company information, documentation, and/or facilities to allow the service provider to access and perform the designated tasks.  The professional services agreement essentially delineates the duties and responsibilities of each party and attempts to clarify any potential gray areas relating to the relationship.

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Promissory Note

A promissory note is a loan in which one party lends money to another in exchange for a promise to pay the other back, usually with a certain fixed interest rate.

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Power of Attorney

A power of attorney is a document that can come in all shapes and sizes.  Often we see a power of attorney drafted in the context of an estate plan.  In such a case, typically durable powers of attorney are drafted in order for the power of attorney (powers granted to the agent/attorney-in-fact) to survive mental incapacitation in the event that the principal (person who appoints someone as their attorney-in-fact) cannot make decisions for himself/herself.

In other instances, commonly seen in the real estate context, a husband or wife, who may not be able to attend the closing and will grant their spouse the authority to sign on their behalf in their absence.  Usually the power of attorney will be limited in time and scope.  For example, the limited power of attorney may only last until a few days after the closing is scheduled to occur.  Other times the length of time is a fixed duration.

With respect to limiting the powers of the attorney-in-fact, the power of attorney may limit the powers to signing, authorizing certain transactions, or limit the powers to only dealing with certain limited entities or persons.

The most common in the real estate context is stated above, but the most common in the estate planning context are powers of attorney for health care and powers of attorney for financial decisions.  If you need a power of attorney, our lawyers are more than happy to discuss what may be best for your situation, and we can assist with the drafting of the same.

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Purchase Order

A purchase order is a statement in writing which documents the purchase of goods but allows the purchaser to make payment at a later time.

A purchase order usually includes:

  • Type or name of product
  • Quantity purchased
  • General terms and conditions
  • Special terms and conditions (specific to that purchase)

In order for a purchase order to become a contract, the buyer must accept the purchase order and the terms thereof.

Transactions that involve a purchase order are typically governed by the Uniform Commercial Code as they involve the sale of goods.  The Uniform Commercial Code is applicable in Missouri as it has been adopted by all 50 states, the District of Columbia, and the various U.S. territories. Accordingly, Missouri case law, in interpreting the Uniform Commercial Code, will presumably hold that a buyer impliedly accepts the terms and conditions of a purchase order by merely accepting the goods and failing to reject within a certain specified amount of time.

Accordingly, it is important to read any purchase orders, including the fine print.  If you don’t understand the language set forth therein, please contact one of our attorneys to assist you with understanding your rights and duties under said agreement.

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Real Estate Contracts

A majority of Missouri’s citizens will have reviewed and executed a real estate contract in their lifetime. Oftentimes the purchase of a home is the biggest decision in one’s life.  The real estate contract in chock full of legalese and boilerplate provisions, making it difficult to understand and know exactly what you’re getting yourself into with the home purchase.

However, usually when the real estate contract is supplied by a reputable real estate agent, the contract has been approved by the brokerage firm, and the use of which is required by said brokerage firm.  Accordingly, the terms of the contract are usually drafted to be fair for both the buyer and seller.

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Sale of Goods Contracts

Sale of goods contracts obviously deal with any transactions where the parties are buying or selling goods.  These transactions are governed by the Uniform Commercial Code, which applies in every state, the District of Columbia, and the U.S. territories, as briefly discussed above.

In certain situations, a sale of goods contract is required to be in writing signed by the party to be charged.  In the event, that the contract is not in writing and signed, the party attempting to defend the case may assert a defense called the statute of frauds.  This bars contracts for the sale of goods which equal or exceed $500.00.

The Missouri statute, which is applicable to this situation, section 400.2-201, states the following, in relevant part:

(1) Except as otherwise provided in this section a contract for the sale of goods for the price of five hundred dollars or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker.

Accordingly, it is important to make sure that your transaction, particularly when dealing with sales and purchases of goods, is in compliance with Missouri law.  One of our contract lawyers can assist you with drafting this type of agreement if you find yourself in that situation.

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Sales Commission Agreements

A sales commission agreement sets forth the commissions that an employer will pay the commissioned sales representative.  In a number of industries, especially in the financial industry, the sales commission agreement prevents a salesperson’s commission from becoming vested until a certain period of time passes or certain triggering event occurs.  For example, some companies will pay their sales representative on a monthly basis.

When the sale is made, the salesperson would receive his/her commission the following month.  However, the contract would require the sales representative to pay back any amount that is not vested in the event that the customer cancels the policy.  Usually the time period for vesting, which is included in the agreement, would take into consideration the amount of time the customer has to cancel or in which the right to revoke expires.

Salespersons should be aware of this and those companies, firms, and organizations employing a sales staff should ensure that their sales commission contracts contain clauses which account for any cancellation of policies or return of products if commission is distributed concurrently (or in close proximity thereto).

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Security Agreements

A security agreement is a document that represents a party’s interests in personal or real property. The agreement is considered “secured” because the return of payment is “secured” by some type of collateral.

For example, in some circumstances, the security agreement uses personal property as the collateral, such as a car.  Car dealerships usually would enter into a retail installment sales contract at that time, which would contain the financing terms as well as the language that would reflect the fact that the vehicle would be treated as the security.  The retail installment sales contract is the security agreement. In order to perfect the security agreement, a notation is put on the title that shows the lender’s interest in the vehicle.

When real property is used as security, typically the security agreement is called a deed of trust or mortgage.  As noted above in this article, in Missouri the security agreement used for homes is called the deed of trust.  This is entered into concurrently with the promissory note.  The lender is known as the mortgagee because the borrower is giving them a mortgage (deed of trust).  Thus, the borrower in that transaction, even when it involves a deed of trust, is known as the mortgagor.

The foregoing examples represent typical uses of a security agreement.  However, there are numerous types of security agreements. If you want to lend someone money, but you want to make sure that you are paid back on that loan, then you should consider securing the loan with some type of collateral.

Security agreements require that the document state:

  • It must state that there is a security interest;
  • It must describe the collateral; and
  • It must be signed by the borrower/debtor.

If you find yourself in a situation, where you want to lend money, and you need direction or a security agreement drafted, please contact one of our attorneys.

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Service Contract

A service contract is a broad name for an agreement which relates to the provision of services.  The services provided under the contract can range from strictly services, such as painting, landscaping, installation of electrical in a building, etc, to provision of services and materials, which could be the same type of contract, but would the owner would provide the materials in the former type of contract.

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Settlement Agreements

Any time parties are involved in a dispute, litigation, claims, or if they have any other theory of recovery against each other, the most efficient resolution is entering into a settlement agreement.  Presuming the attorney who drafts the settlement agreement properly prepares the same, any subsequent attempt at bringing a lawsuit would be barred by the settlement agreement.

In a typical settlement agreement the parties state the background of the dispute that gives rise to the settlement agreement, both parties usually deny any liability against themselves, and then the parties mutually waive future (and sometimes all) claims against each other.

The parties will also list out the terms of the settlement agreement, usually including the amount each party will be paying to the other, the terms of payment, and any other terms that would relate to dismissing the lawsuit.  Usually the settlement agreement will also include provisions which account for the default of any of the parties’ duties.

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Subordination Agreements

Our lawyers are well-versed in real property transactions and have dealt extensively with title companies, closing companies, and lenders. In certain situations, lenders will agree to make their loan junior to a new lender.  In these cases, a subordination agreement subordinates the senior loan to make it junior (typically to a new loan).

However, as a sidenote, it is not necessary that the loan is a newly originated loan as any loan can be subordinated so long as the lender or financial institution agrees to subordinate their loan.

After the subordination agreements are signed and notarized by the parties, they are usually filed in the recorder of deeds in the county in which the real property at issue is located.  The filing of the subordination agreement puts all the world on notice that the subordinated loan now takes a subordinate position to the other.

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Takeover Agreement

A takeover agreement is often used in the construction industry by and between a surety and a contractor.  When a contractor who purchased a bond defaults on their performance under a performance bond, the surety is then required to step in and the takeover agreement defines the duties and obligations of the surety to complete the performance of the original contract.  For the most part, the surety will typically hire another contractor to come in and complete the work and merely provides the financing.

As a sidenote, usually the defaulting contractor is required to indemnify the surety, but the defaulting contractor probably defaulted for a reason and may not be in a position to indemnify the surety.

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Transportation Agreements

Transportation is described as the movement of goods or people from one location to another. When employees wish to transport goods or persons, they usually have to enter into some type of agreement to effectuate this purpose.  Typically, the employer wants to delineate the services offered and limit liability to the extent possible.

In certain situations, where the entity or person providing the transportation is deemed to be a common carrier, any clauses that purport to limit liability may be against public policy.  An attorney that is astute in drafting transportation agreements, and who is aware of the case law articulating exculpatory provisions in carrier agreements, can potentially prepare a contract that will protect the carrier in a number of circumstances.

In any event, if you are an employer or looking to transport people or goods, you should have a contract in place that sets forth your duties, obligations, and limits your potential liability.  For assistance with drafting a transportation agreement, contact an attorney today.

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