Contract Law

Published on: July 20, 2010

Georgia Contract Law: Understanding Bad Faith Conduct, Broken Contracts, and Business Disputes

“Can I sue for a broken contract?” is a question many people asking when they need a good Georgia contract lawyer. Many times during contract disputes, clients often feel that “even though a particular obligation is not written within their contract with another person or entity, it’s common sense that that person or entity breached the contract by not performing a certain service, or acting a certain way.” Depending on what service, or what conduct, the client is referring to, he or she may have a point.

Over the years, Georgia courts have established that certain implied terms and duties may naturally flow from a contractual agreement, even if those implied terms and duties were not expressly written within the contract.

One of those implied duties is the duty of good faith and fair dealing, as Georgia courts have found: “[g]ood faith is, if anything, a minimum standard of conduct in any contract.” The term good faith has been found to mean “a shorthand way of saying substantial compliance with the spirit, and not merely the letter, of the contract.” That means that contrary to what many feel, the implied duty of good faith and fair dealing relates to the performance of a contract and not to the conduct that induced a person to enter into a contract. (Although if you were tricked into signing a contract you may have a claim against the person for fraud, amongst other claims.)

In addition, what’s important to understand about the implied duty of good faith and fair dealing is that determining what conduct constitutes good faith and fair dealing will depend on the facts of your case. You should also be mindful that an implied duty such as that of good faith and fair dealing cannot contradict an express term of a contract, and must be an “inference absolutely necessary to ensure that the intentions of the parties regarding the contract is respected.” In Georgia, this standard is not an easy one to meet and is strongly fact driven with respect to the language of the contract and the circumstances upon which the contract was entered.

Georgia Courts have been able to use the implied duty of good faith and fair dealing to find terms that were not expressed in the parties agreement in order to cure defects in contracts. This may or may not be advantageous to you, depending on your conduct.

What is certainly advantageous to you, however, is finding a good lawyer to deal with your contract dispute and issues.
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Published on: June 12, 2010

Contract Law And Disputes In Georgia: How to Get Out of A Contract

By Williams Oinonen LLC

How do I get out of a contract? This is never an easy question. Many times we are asked: can I get out of (rescind) my contract? So today we would like to briefly discuss contract rescission is Georgia.

In Georgia, contract rescission has been held to be the complete abrogation (abolishment or cancellation) of a contract. The circumstances which allow parties to rescind a contract, generally, involve three (3) situations:

1. Both parties agree to rescind the contract, known as “mutual assent”;

2. The contract is rescinded because of fraud; or
3. A party (you) may be allowed to rescind a contract because the opposite party failed to perform in accordance with the contract terms.

If you are able to rescind your contract, it will be rescinded “at law” or “in equity.” Rescission “at law” applies to situations involving fraud, while rescission “in equity” involves the power of a court of equity to “undo” a contract.

We are often confronted with situations where a person wants to undo a contract because of fraud. If your claim is that someone fraudulently induced you to enter a contract, you have the option to either affirm the contract or sue in breach of contract. What is important for you to know is that in these types of cases Georgia courts require the defrauded party, you, to act with “promptness.” That means:

1. When you discover that you have been defrauded, you must act promptly to “restore or offer to restore to the other party (the party that you allege defrauded you] whatever he has received by virtue of the contract if it is of any value”; and

2. Upon discovery of the facts–that you have been a victim of fraud–at once announce your purpose to rescind the contract, and adhere to it.

Again, once you discover that you have been defrauded and take the position that you do not want to adhere to the contract, you should not waiver from that position. If you do waiver, and your action is interpreted as “affirming” the contract, despite the fact that you are claiming fraud, you will significantly impair your ability to rescind the contract at a later point. Once you lose or waive your right to rescind a contract, you most likely will not be able to revive that right.

In addition, if you do not act promptly upon discovering the alleged fraudulent conduct, but instead proceed with fulfilling certain obligations of the contract, or act in a manner inconsistent with your previous repudiation of the contract, a Georgia court may find that complaining about fraud during litigation is: too late.

There are more issues involved in contract rescission, especially those involving claims of fraud. And the issues are complex. You need a good lawyer who understands the law and its nuances and how to apply that law to the facts of your case, in order to maximize your position both at trial and the negotiating table.

We recommend that you contact a good lawyer, immediately, once you realize or think you have been defrauded with respect to a contract.
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Published on: June 11, 2010

Contract Law And Disputes In Georgia: Read Before You Sign

By Williams Oinonen LLC

Contract Newer.jpg As you know, people sign contracts everyday. Contracts solidify agreements between, friends, professionals, consumers, tenants and companies. That said, you may (or may not) be surprised to hear that the issue regarding the failure of one party to read a contract before signing it, comes up, frequently. Generally, the party that failed to read the contract has been a victim of fraud or mistake. So the question then becomes: does your failure to read a contract before signing it mean that you cannot recover because of fraud or mistake? The answer is not so easy, in Georgia.

Generally, Georgia law presumes that parties to a contract have read the contract before signing it. So when a party states that he or she failed to read a contract, Georgia courts first determine whether that person is literate or illiterate.

A literate person who fails to read a contract has a tough road, because he or she has to show:

(1) An emergency at the time of signing that would excuse the failure to read; or
(2) That the opposite party misled you by artifice or device (trickery) that prevented you from reading the contract; or
(3) That a fiduciary or confidential relationship existed between you and the opposite party upon which you relied in not reading the contract.

Be mindful that Georgia courts take this issue very seriously, so excuses such as “I was in a hurry,” or “I was too busy,” or “I forgot my reading glasses” will not suffice.

Moreover, even if you were able to prove that a confidential or fiduciary relationship existed (see number [3] above), you must show that you relied on that relationship in not reading the contract. That means: if a confidential relationship exist, but you failed to read the contract because you were in a hurry (not because of the confidential relationship), then you will most likely lose, before a court in Georgia. This all makes sense because whatever agreement you and another party deemed important enough to put in writing, should also be important enough to read before signing, at least in the opinion of Georgia courts, notwithstanding legal exceptions (see above).

Regarding an illiterate party, he or she may generally rely on the representations made by another party. However, to be safe, an illiterate person should have the contract read to him or her because, in Georgia, an illiterate party must exercise ordinary care in ascertaining the contents of a contract before signing it. This also applies to those parties who are unable to read English.

Ultimately, the facts of your case as they apply to Georgia law will strongly influence the outcome of your case. If you failed to read a contract and that failure has resulted in you being a victim of fraud or mistake, we suggest you contact a good lawyer.
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Published on: April 30, 2010

How To Revive A Debt Barred By The Statute Of Limitations

By Williams Oinonen LLC

The statute of limitations on a written contract is six years and the statute of limitations on an oral contract is four. This means you have a six or four year time frame to sue a party who has breached their contract with you. What if someone entered a written or oral contractual agreement with you but the statute of limitations has already expired?

Well, the law in Georgia under O.C.G.A. §9-3-110 states: “A new promise in order to renew a right of action already barred or to constitute a point from which the limitation shall commence running on a right of action not yet barred, shall be in writing, either in the party’s own handwriting or subscribed by him or someone authorized by him.”

The new promise may be express or may be implied from an acknowledgement of an existing debt. The new promise or acknowledgement, in addition to being in writing, must meet two requirements: 1) it must be made by the debtor to the creditor, and 2) must “sufficiently identify the debt or afford a means of identification with reasonable certainty,” although it is unnecessary that the acknowledgment state the amount of debt. See National City Bank v. First Nat’l Bank, 193 Ga. 477 (1942.) Additionally, a new promise to pay may be evidenced by a series of letters. Id.

Thus, the written acknowledgment or new promise establishes a new point from which the statute of limitations begins to run. See Langford v. First Nat’l Bank, 122 Ga. App. 210 (1970). This means, if someone owes you money but the statute of limitations has already run out—you can try to extend it by writing them a letter or email about the money they owe you to see if they respond. If they respond by acknowledging the debt (see the criteria as stated above) the statute of limitations will be extended.

Additionally, when a new promise is given, the duration of the limitation is governed by the nature of the original obligation; thus, a written promise reviving the period of limitation for a written contract would be six years. A written promise reviving the period of limitation for an oral contract would be four.
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Published on: April 7, 2010

Contract Law In Georgia: Can You Recover Lost (Anticipated) Profits Caused by Someone Breaking A Contract Agreement With You?

By Williams Oinonen LLC

On this blog site, we have written about the difficulties that Georgia law creates for employers who want to recover punitive damages related to their breach of contract claims. Today we will briefly discuss another area that seriously affects the economic viability of both large and small businesses: recovering lost (anticipated) profits due to another party breaching your contractual agreement. Understandably, recovering lost profits may seem straightforward to you, but Georgia courts don’t see it that way. As we have said before, In Georgia, you need a good lawyer to navigate the tricky issues pertaining to breach-of-contract claims, including the difficulties associated with recovering lost profits, which you may be legally entitled to.

Here’s the problem: The Georgia Court of Appeals feels that “ordinarily, anticipated profits are too speculative to be recovered.” However, the term ordinarily, used by the Court, does not mean anticipated profits are never recoverable. There are circumstances that may allow you to recover anticipated (lost) profits when a person breaches a contractual agreement made with you.

Ask yourself the following questions, because if you call us based on this entry and/or others, we are going to definitely ask you the following questions, and many more:

1. Is your business established? That is, how long have you been around? Typically, new businesses have a much harder time recovering lost profits because many do not have “definite, certain, and reasonable” data to support their claim for lost profits. That means, to Georgia courts, your profits lean more towards being speculative than certain, so recovery may be more difficult.

Ask yourself: if my business has been around for only one year, or two, can I really claim that, had the other party not breached our contract, my profits were almost certain? If the answer is yes, then a few counters would be: how do you know? where is the consistent data? Aren’t the first 0-5 years extremely volatile, profit-wise, for businesses? Evidently, young businesses have it tough in this area of recovery.

2. Even if you own an established business and have definite, certain, and reasonable data to demonstrate lost (anticipated) profits, Georgia courts (and we) still want to know: At the time you and the other party entered into the contract, which was eventually breached, did the breaching party understand that breaking the contract would produce negative economic consequences for your business? Again, due to the confusing nature of this issue, focus on what was understood at the time you entered into the contract.

For example, you may have had a significant event that was dependent on your contractual agreement being executed in a “time-of-the-essence” manner. Did the breaching party know that? Did you make that known in the contract? Or, was it an oral agreement, which would involve entirely different legal issues regarding proof of the understanding.

Notably, the two above-mentioned issues do not have to be proven with mathematical certainty. But your lawyer must:

1. Show the probable gain [profits], with great specificity;
2. Show the expenses incurred in realizing such profits, with great specificity; and 3. Demonstrate that the lost (anticipated) profits incurred are directly related to the acts of the party who breached the contract.

As you can read, the situation is complex, and the above-mentioned are just a few of the issues and questions that must be properly analyzed.

Simply put, contract disputes are difficult. Find a good lawyer who understands how to maximize your total recovery.
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Published on: April 1, 2010

Contract Law In Georgia: Can You Recover Punitive Damages When Someone Breaks Your Contract Agreement?

By Williams Oinonen LLC

Almost everyone in our country is affected by contract agreements. And people and businesses break those agreements all the time. That’s reality. And when someone or a business fails to perform as he or she promised, in accordance with a contract, clients seem to always ask: can I recover more money as punishment for the reproachable manner in which our contract was breached? The answer, in Georgia: maybe.

The Georgia code expressly states “[u]nless otherwise provided by law, exemplary damages shall never be allowed in cases arising on contracts.” O.C.G.A. § 13-6-10. (Exemplary damages are commonly referred to as punitive damages, a penalty [punishment] imposed against the wrong-doer to deter future, similar conduct.)

As you can read, the Georgia code disfavors punitive damages for breach of contract actions, and the Georgia courts have agreed. But, there exists avenues other than stating your claim as a breach of contract, in order to maximize your recovery if punitive damages seem warranted. You may be able to claim that the person who breached your contract committed a civil tort against you.

A civil tort is an unlawful violation of a private right other than a breach of contract, generally. That means the wrong-doer must breach an independent duty created by statute or common law that, importantly, was owed to you. And that breach of duty must be the actual or proximate cause of your injury (damages). So if a person or business committed a civil tort against you arising out of a contract, then, punitive damages may be possible, under Georgia’s civil tort statute, O.C.G.A. § 51-12-5.1.

For example, if a a person keeps a car without paying rental fees owed to you by contract, Georgia courts have reasoned that the civil tort of conversion may be claimed against that wrong-doer (and punitive damages possible), since he or she is unlawfully in possession of your property, after defaulting on payment. Or, maybe fraud or deceit was committed against you in the context of a contract agreement. Or, maybe a third party (stranger to the contract) interfered with your contractual rights and thus caused your contract to be terminated.

The above-mentioned civil claims are complex, but nevertheless they are tort claims, and while they may arise out of a contract dispute, these type of claims carry with them an independent cause of action that “may” entitle you to punitive damages. Ultimately, the substance of your claim–as “truly” being a tort claim rather than being a breach of contract claim in disguise–will determine if punitive damages are on the table, in Georgia.

(You must always be mindful that punitive damages, in Georgia, can be difficult to recover because the conduct in question must be more than merely negligent conduct or even grossly negligent. Generally, the conduct must be intentional or willful, or demonstrate a complete want of care that would lead an ordinary person to presume that the wrong-doer had a conscious disregard for the consequences of his or her action[s].)

You definitely need a good lawyer when dealing with breach of contract issues because whether or not punitive damages are possible, a good lawyer still must evaluate issues such as liquidated damages provisions (O.C.G.A. § 13-6-7); mitigation of damages (O.C.G.A. § 13-6-5); recovery of lost profits; and recovery of actual, remote, or consequential damages, amongst many other considerations.

Every case is different. So your recovery will depend on a good lawyer who can apply the unique facts of your case to the multiple facets of Georgia law.
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Published on: March 18, 2010

Has Your Former Employee Tried To Steal Your Client: Drafting Enforceable Non Solicitation Agreements In Georgia

By Williams Oinonen LLC

In Georgia, and everywhere, as too many employers know, employees solicit (attempt to steal) clients from their former employer. There exist obvious and significant financial and professional incentives for employers to prevent this from happening. The answer is a well drafted non solicitation agreement, amongst other safeguards. The problem is that many non solicitation agreements are poorly drafted, because whoever drafted the agreement failed to take into account applicable, and stringent, Georgia laws. In the world of non compete/solicitation agreements, Georgia law is notorious for being extremely unfavorable to employers. And although the Georgia legislature passed employer-friendly legislation (HB 173) in this area, and Governor Sonny Perdue signed that legislation into law, voters must still amend the Georgia Constitution so that the legislature has the power to make HB 173 actual law. That may be difficult.

Regardless, Georgia courts, currently, strictly construe non solicitation agreements. That means: if any potion of your non compete/non solicitation agreement is held to be invalid, the entire agreement is void.

We have written about non compete and non solicitation agreements before on this blog. Today, we are writing this entry to give you a few considerations when reviewing or attempting to draft your own non solicitation clause, although we highly recommend that you seek a good lawyer who has experience in this area to help you with drafting these types of agreements; the stakes are too high to rely on a poorly drafted agreement made by someone who is not familiar with Georgia law.

Some considerations:

The law: “Georgia law is clear that unless the non-solicit covenant pertains to those clients with whom the employee had a business relationship during the term of the agreement, the non solicit covenant must contain a territorial restriction.” Trujillo v. Great Southern Equipment Sales, LLC, citing Advance Technology Consultants v RoadTrac, 250 Ga. App 317.

In Trujillo (the above-mentioned case) the employer illegally expanded the class of prohibitve clients by stating, within the non solicitation clause, that

“the non-solicitation restriction set forth in this Section 2 is specifically limited to Customers of Employer with whom Employee had contact… or about whom Employee had a confidential or proprietary information becasue of his/her position with Employer.”

As you can read, the employer started off great, by restricting the scope of the clause to clients that the employee truly had contact with. But then the non solicitation clause went awry of strict Georgia law, by stating that the employee could not solicit clients that he or she had gained confidential or proprietary information about, by merely working for the employer. While you may think that’s a reasonable restriction, Georgia courts do not.

The Trujillo court reasoned that the language pertaining to confidential and proprietary information did not constitute a valid confidentiality provision or a “reiteration” of the confidentiality clause found in Trujillo’s contract. Rather that language, in the Court’s opinion, constituted an impermissible attempt by the employer to broaden the class of customers (clients) whom Trujillo could not solicit. As a result, the court stated–and this is what really hurts employers– “because the non-solicitation clause was unenforceable, the non competition clause included in the agreement was likewise unenforceable.” That’s a result that you as an employer do not want.

What lessons can be learned? First, get a good lawyer that knows Georgia law in the area of non compete non solicitation agreements. Second, regardless if you’re an attorney or not, don’t try to be “slick” when drafting these agreements. The Trujillo court made it clear: just because you do not use the red-flag term all clients does not mean that you can avoid the harsh and scrutinizing results of Georgia law. Moreover, understand fully that if you decide to use broad language such as all clients, strongly consider placing a geographical limitation within the non solicitation clause.

Additionally, understand that non solicitation agreements do not mean that a client cannot solicit your employee– this area of law is tricky and involves other complex legal issues.

Ultimately, when you attempt to use a non solicitation agreement against an employee to protect your business interest, your success will depend on the facts of your case as applied to Georgia law. You need a good lawyer.
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