Uniform Commercial Code Governs Software Contract

A software developer was sued for breach of contract. The court ruled the suit was barred by the Uniform Commercial Code's four year statute of limitations. The plaintiff argued that the six year contract statute of limitations should apply. The contract was for the development and sale of computer software. The court found that the primary purpose of the contract was the sale of goods. Therefore, the contract was governed by four year statute of limitations in the Code.

Why This Is Important . . . Contracts involving both the sale and maintenance of software are governed by the Code if the court finds that the primary purpose of the contract was the sale of goods. Companies having problems with contracts involving both goods and services should bring an action within four years of the breach.

Hazardous Waste Recovery Action - Corporate Successor

A court decision found that a buyer of a polluter's business must establish it never assumed environmental liabilities from its predecessor. The decision also found that an indemnification agreement may not cover clean up costs. The court balanced several factors to decide whether there was a continuity of the business. It found liability exists if continuity exists. The Court also held that the party enforcing an indemnification agreement must show it included contingent environmental liabilities.

Why This Is Important . . . Even in an asset purchase, it is important to avoid the continuity of enterprise in order to avoid the risk of liability for environmental contamination. An indemnification agreement should expressly include contingent environmental liabilities.

All Shareholders Must Sign Subchapter S Election

A corporation elected S corporation status. On the IRS Form 2553, the founder listed himself as sole shareholder, although two other men had already paid at least a portion of the amount due for their stock. The IRS disallowed the distribution of losses to shareholders because not all of the shareholders had consented to the S election. The court agreed with the IRS that the S election was invalid because it was not affirmed by all shareholders.

Why This Is Important . . . In order for a subchapter S election to be valid, all shareholders must consent. The corporation should not assume that one is not a shareholder merely because they have not been issued a stock certificate or have not fully paid for the stock.

Bulk EMAIL On The Internet

Many businesses are now testing internet marketing. One way is through bulk EMAIL campaigns. Active Nicolai Law Group clients have received memorandum outlining current litigation on bulk EMAIL campaigns.