Business Law

A commonly misunderstood fact is that most contracts are oral and not written. Another fact that often surprises potential business owners is that an overwhelming majority of contracts are followed without the need to involve lawyers and the courts. In that rare circumstance where there is a need to force compliance with an agreement, it is important to know that certain agreements must be in writing to be enforceable. 

There are 5 elements necessary to form an agreement or contract:

- An offer.

- Acceptance of that offer

- 

Consideration.

- Capacity.

- Legality of purpose.

The subject of agreement must be in definite and certain terms. Consideration means actual value being exchanged between persons; where the consideration offered is illegal, impossible, or none is offered, the consideration is called illusory and will not support the existence of a contract. Consideration can be anything from money to a promise to perform. The parties must also have capacity. For example, a minor does not have capacity to enter into contracts unless the minor has been emancipated from his/her parents by operation of law. A person who is incompetent also is not able to enter into contracts. Much of the litigation over agreements is because the parties are not happy with the deal they made and wish to get out of it. In that event, courts may allow a party to breach their duties to strictly follow the contract, but they will still owe damages to the other party in the form of the money they agreed to pay, or profits that were lost by the other party due to the breach.

Insurance is an essential and critical part of everybody’s personal and business life. There are many types of insurance. Many are mandatory, such as automobile liability insurance. For many businesses, workers compensation insurance may be mandatory. To qualify for a SBA loan, a borrower is required to purchase “key-man” life insurance.

So, make insurance a vital component of your business plan. A number of types of insurance is available and a few are listed here: premises, flood, business interruption, disability, life, dental, health, buy sell agreements, errors and omissions, malpractice, and products liability.

Insurance is probably the only current industry who literally has participating companies, most notably Lloyds of London, for more than 300 years. Interestingly, it was insurance companies and agreements that really supported European expansion to the new world.

There are many employment and labor laws. Everyone knows about minimum wage and child labor regulations. Sometimes the line becomes fuzzy, like cottage industries, which are where people contract to do piece work at home. Of course there are prohibitions as well. For example, in companies with more than 16 employees, it is illegal to make a hiring or firing decision based on an employee’s or potential employee’s race, religion, creed, age, color, or national origin. There is a dispute as to whether one may discriminate as to disability, as a blind person can’t drive and therefore can’t be hired as a truck driver. On the other hand, an employer may be required to provide reasonable accommodations to allow the disabled person to work, assuming he or she has the necessary qualifications to perform the job duties.

There are also other types of distinctions: whether an employer has an open shop, closed shop or union shop. An open shop means an employee may not be required to join the labor union. A closed shop is where an employee must join a union in order to work for a particular employer. A union shop is where an employee may work temporarily in a closed shop. There is also the concept of employment-at-will and person service agreements. In Texas, all employment agreements are presumed to be at-will unless the parties change that relationship in a way that limits the employer’s right to terminate the employment. If one is working in an open shop, union shop or closed shop, then the collective bargaining agreement or union contract between labor and management takes the employment relationship out of the at-will employment. For disputes in that arena, usually the union will represent the employee against the company before the National Labor Relations Board.

The US Constitution granted to Congress the duty to make laws regarding bankruptcy. The basic theory is a social responsibility. There are three or so reasons to be in bankruptcy court.

1. Location

Where a person (or company) files for bankruptcy attempting to protect what assets remain before creditors can take away those assets through judicial execution. In other words, give the debtor a “fresh start.” Many debts can be discharged meaning the creditor gets nothing. 

2. Debt Involvement

There are creditors, who for the most part, want to get paid. They file proof of claims against the debtor. Depending on the type of debt owed, and whether that claim is secured by collateral, determines whether that creditor will get any or most of their money. For example, one may not discharge a mortgage on a house and keep the house as usually. However, credit card debt is not secured by collateral and usually the credit card company loses. The familiar forms of bankruptcy are called chapter 7, chapter 11 or chapter 13 and that means liquidation, reorganization and pay out plan respectfully. There are a number of debts that are not discharge-able. For example, real property taxes may not be discharged, nor may one discharge, 940 and 941 taxes, customs duties, state and property taxes, child support, community property divisions, intentional and malicious judgments. Contact Howard M. Kahn, your Contract Attorney Houston.