The law recognizes a number of limited liability entities that are designed to protect the business owners from personal liability for claims against the business. These are familiar forms such as corporations, limited liability companies, and limited partnerships. Every year Indiana courts are faced with claims that the business owners should be personally liable even though the business is a limited liability entity. This is known in the law as “veil piercing.” The consequence of veil piercing is that the business owners are generally held liable as partners to one another. This can have devastating consequences as general partners are generally personally liable for all the debts of the business. Accordingly, keeping up the limited liability protection is essential to protecting the business owners’ personal assets. (more…)
Posts Tagged ‘Terry G. Farmer’
A new statute enacted in Indiana prohibits a landlord from requiring a lien on a motor vehicle owned by a tenant as a security deposit or to secure the payment of rent. However, it further authorizes the landlord to accept a lien on a motor vehicle (presumably on a voluntary basis). In order to do this, the landlord must file and record a lien with the county recorder. It apparently does no good to note the lien on the certificate of title. (more…)
Lenders who take a collateral package consisting of both personal property and real estate can face difficult choices due to the different legal schemes for liquidating the two different types of collateral. Generally, the route for the involuntary liquidation of real estate is a state law foreclosure. On the other hand, the usual route for an involuntary liquidation of tangible personal property is either repossession or replevin and then a UCC sale of that property. However, sometimes the interests of both the lender and the borrower are better served by coordinating the liquidation of the two. For example, a restaurant may be better liquidated with all of the personal property in place rather than to sell the personalty in one sale and later conduct a sheriff’s sale of the real estate at a later date. (more…)
For those of us who are increasingly dependent on our electronic devices to manage our lives, we may be unconsciously building up a great deal of value in our electronic data. This can take the form of large music collections, business records, pictures, correspondence, tax records, and can be compounded if we also operate a business. (more…)
Parties frequently enter into agreements in many different contexts that contain provisions that allow for early termination. In considering an ongoing employment contract, the Court of Appeals recently dealt with the proper measure of damages when a requirement of a 30-day written termination notice was not given to the other party. While the case deals with an employment contract, the rules relative to such notices presumably apply in other situations. (more…)
The Indiana Court of Appeals recently considered when a contractor may be relieved from a bid on a public works project. In the case considered by the Court, a construction company forwarded a bid for certain improvements to a school, together with the required bid bond. On the day the bids were opened, the contractor determined that a math error had occurred in the calculation of its bid and immediately informed the school corporation. The contractor also called the school corporation shortly after bid opening to say that there had been a mistake and to ask that its bid be withdrawn. The school corporation decided to hold the contractor to its bid amount and litigation ensued.
In a suit by the contractor seeking the rescission of its bid and to release its bid bond, the Court of Appeals held that a determination of the case turned on whether or not the bid mistake was the result of a clear cut clerical or arithmetic error or from a misreading of the specifications of the bid on one hand versus mistakes of judgment on the other. Mistakes of judgment, the Court held, do not qualify for relief from the bid while clerical and math errors or misreading of specifications would generally allow relief. In this particular instance, the Court held that the error was mathematical in nature and released the contractor from liability. Likewise, the Court held that the bid bond surety would be released as its liability was solely derivative from the contractor’s liability.
Author: Terry G. Farmer (bio)
Email: [email protected]
Most home equity lines of credit or HELOCs contain a provision that the line of credit remains available and is not extinguished by a payment of the line down to zero. The further requirement of a notice to cancel the line of credit is generally required by the documents in order to authorize the lender to withdraw the line and release its mortgage securing the HELOC. (more…)
There are many risks to be managed in conjunction with construction contracts. This is particularly true from the perspective of a subcontractor and the subcontractor’s lender. One of the risks that the parties seek to mitigate is the collection risk in the event of an insolvent property owner. As a result, general contractors frequently try to include in subcontracts what is called a “paid if paid” clause, which requires the general contractor to pay its subcontractors only if it receives payment from the owner. In a recent case, the 7th Circuit Court of Appeals was required to make two determinations. The first was whether or not the contract language was in fact a “paid if paid” clause as distinguished from a “paid when paid”, which merely determines the time for payment, not whether or not payment is due.
While there are no magic words necessary to create either one of these clauses, the particular language in this contract is instructive. The provision read as follows: “It is expressly agreed that Owner’s acceptance of Subcontractor’s work and payment to the Contractor for the Subcontractor’s work are conditions precedent to the Subcontractor’s right to payments by the Contractor.” The Court held that this was clearly a “paid if paid” clause. The next issue it considered was whether or not such a clause was legal under Indiana law. Applying Indiana law, the 7th Circuit held that there was no prohibition against the enforcement of a clearly written “paid if paid” clause. Therefore, the contractor, who was never paid by the owner, was excused from payment to the subcontractor. In addition, the payment bond surety for the general contractor was also discharged because its liability was derivative of the general contractor.
Subcontractors need to be aware of the distinction between the two types of clauses. Subcontractors also need to be aware that a determination of which type of clause contract language is designed to create is not always crystal clear. It is recommended that legal counsel be sought to review this type of clause to make a determination of what the subcontractor’s risk might be. If it is a “paid if paid” clause, the subcontractor should perform credit underwriting not only on the general contractor but also on the owner.
This is not just a problem for subcontractors. It should also be a concern for banks lending to subcontractors when evaluating the collectability of accounts receivable. Jobs performed by subcontractors for strong general contractors but weak owners could easily be misevaluated by a lender if a lender is not aware of this collection risk shifting type of clause.
Author: Terry G. Farmer (bio)
Email: [email protected]
One of the simplest and most common banking transactions is the typical car loan. However, a recent case illustrates the risk to a lender who simply relies on a physical examination of a certificate of title to determine whether or not liens exist against the motor vehicle – or for that matter who owns it. (more…)
Indiana has recently revised its partition statutes. A partition action is a legal process whereby joint owners of real estate can force a division of their ownership interests if a dispute breaks out among the owners. Previously, the statute allowed for a physical division of the real estate or a sale of the property. The court had discretion as to which method would be the most equitable for dividing the interests of the parties. (more…)