Articles Tagged with “contract law”

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The recent court case of Scafidi v. Hille No. 2014-CA-01261-SCT offers countless reminders for small business owners both experienced and novice about the importance of planning and documenting no matter what the relationship is between the parties involved. While there may be certain factors that may make it seem unnecessary to plan or develop managerial and operational strategies, this case highlights just how messy things can become no matter what the relationship is between the individuals. The overall message is to always plan ahead, document finances and other important information, and remember that when it comes to business, relationships should be set aside.

A Breakdown of the Case

Scafidi v. Hille centers on issues between a brother and sister who inherited a total of three family businesses. Due to the lack of proper planning, the funds were comingled, at one point one or both individuals were kept out of big decision-making processes, funds were not split properly and in the end this led to a huge upset between siblings and a lengthy court battle. The lack of formality in the operation of the business made the case complex and a battle that could have been completely avoided. In the end, each party was awarded a single business each and the third business was sold and funds were split. However, with some planning, not only could they both have been spared legal expenses and the stress associated with such a process, but they could have had three thriving businesses that each one could have benefited from. This case highlights the exact reasons why any business should hire a knowledgeable business attorney to assist with the process.

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A provision commonly utilized in commercial real estate contracts is a liquidated damages clause. This clause is utilized as an incentive so all parties involved in the transaction perform as stipulated under the contract. If they fail to do so, the harmed party can pursue restitution through the liquidated damages clause.

You must be careful when drafting the language of the clause because in California a liquidated damages provision is presumed to be enforceable, but could be voided if it is viewed as a penalty by a court.

In the 1970s, California adopted a policy of presumptive validity for liquidated damages clauses in commercial contracts, including real estate contracts. This means that a clause in a contract liquidating damages for a breach is valid unless the party challenging the provision can show that the provision was unreasonable under the circumstances when the contract was formed, or is so draconian that it is essentially a penalty.

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