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जोइन्ट venture

JOINT VENTURE AGREEMENT

THIS AGREEMENT is made on the [ ] day of [ ], 2007.

BY AND BETWEEN:

A. ABC Company Limited., a company organized and existing under the laws of Japan, with its registered office at [ ] (hereinafter referred to as “ABC”); and

B. XYZ COMPANY LIMITED, a company organized and existing under the laws of Thailand, with its registered office at [ ] (hereinafter referred to as “XYZ”).

WHEREAS:

A. ABC, and XYZ desire to establish a joint venture in Thailand for the principal purpose of manufacturing of parts and/or components for automotives, including engine covers and accessories thereof, and manufacture of all types and all kinds of plastic products (hereinafter referred to as the “Project”);

B. It is an intention of the Parties that the Company shall apply for the promotion privileges from the Board of Investment of Thailand (hereinafter referred to as the “BOI”) to carry out the Project;

C. For the purpose of carrying out the proposed joint venture the Parties agree to jointly form a private limited liability company under the laws of Thailand; and

D. In order to record their respective rights and obligations with respect to the purposed joint venture the Parties have determined to enter into this Agreement.

NOW, THEREFORE, in consideration of the mutual undertakings herein contained and mutual benefits to be derived hereunder, the Parties agree as follows:

1. CONDITIONS TO AGREEMENT AND DEFINITIONS

1.1 In this Agreement, unless it appears otherwise from the context, the following words and expressions shall have the following meaning, respectively:

“Affiliate” shall mean any person that, either directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control by a Party to this Agreement. For the purposes of this Agreement, “control” shall mean the power to, directly or indirectly, appoint a majority of the directors, or to otherwise direct or cause the direction of the management or policies of such person, whether through share ownership, by contract or otherwise;

“Agreement” shall mean this Joint Venture Agreement and all Annexes attached hereto and incorporated herein by reference including all Related Agreements;

“Articles” or “Articles of Association” shall mean the specimen Articles of Association which is attached hereto as Annex A;

“Board of Directors” or “Board” shall mean the board of directors from time to time of the Company;

“Business” shall mean the business of the Company as described in Clause 2 and such other business as the Shareholders may agree from time to time;

“Company” shall mean AAA Co., Ltd., a private limited liability company duly established under the laws of Thailand;

“Director” or “Directors” shall mean the directors of the Company for the time being as duly appointed in accordance with this Agreement and the Articles;

“Laws” shall mean all laws and regulations in force in Thailand and in all other relevant jurisdictions;

Memorandum (of Association) shall mean the specimen Memorandum of Association of the Company;

“Net Book Value” shall mean the net book value of the Shares as stated in the Company's balance sheet on any relevant date in accordance with generally accepted accounting principles as enunciated by the Thailand accounting body and the International Accounting Committee as certified by the auditors of the Company;

“Party” or “Parties” shall mean a signatory or signatories to this Agreement and shall include the corporate entities which through their duly authorized representatives are contractually bound to the terms and conditions of this Agreement;

“Shareholder” shall mean any registered holder of one or more Shares from time to time;

“Shares” shall mean the shares of the Company, whether currently issued or issued in the future; and

“Subsidiary” shall mean a company in which such other company:

(a) holds a majority of the voting rights; or

(b) being a shareholder of the company, has the right to appoint or remove a majority of the board of directors of the company; or

(c) being a shareholder of the company, controls a majority of the voting rights of the company, whether alone or pursuant to an agreement with other shareholders,

or a company which is a subsidiary of a company which is itself a subsidiary of such other company.

1.2 References herein to Clauses and Annexes shall be deemed references to Clauses and Annexes to this Agreement (unless it appears otherwise from the context).

1.3 Headings are inserted for convenience only and shall not affect the construction of this Agreement.

1.4 Words importing the singular shall include the plural and vice versa.

2. FORMATION AND BUSINESS PURPOSE OF THE COMPANY

2.1 The Parties shall cause the persons designated as the promoters of the Company to file an application to register the Memorandum and shall commence the procedures necessary to complete the formation and registration of the Company as a functioning legal entity according to the terms and conditions set forth in this Agreement, in accordance with the laws of Thailand, in which ABC and/or its designated person(s) will hold fifty one per cent (51%) of the Shares (“Class A Shareholder”), XYZ will hold forty nine per cent (49%) of the Shares (“Class B Shareholder”), at the final shareholding ratio. The Parties agree that the incorporation of the Company shall be completed within three (3) months as from the date of this Agreement, or within other period of time as mutually agreed by the parties.

2.2 The Parties shall co-operate in seeking to obtain all consents and licenses necessary for the formation of the Company and carrying out the Business under this Agreement and under BOI promotion and upon terms and conditions which will be feasible and profitable. The Parties shall use their best efforts to apply for and obtain investment promotion from the BOI.

2.3 The registered name of the Company upon its formation shall be “ABC Co., Ltd.” in English and “บริษัท เอ บี ซี จำกัด” in Thai or any other name mutually agreed upon by the Parties and approved by the Company Registrar.

The Parties acknowledge that the name “AAA Co., Ltd.” belongs to ABC and ABC reserves the right to withdraw this name at its discretion upon the occurrence of the events of (i) ABC’s ceasation to be a shareholder of the Company, (ii) a termination of this Agreement, or (iii) any breach or any non-performance by XYZ of any obligation under this Agreement.

2.4 The registered office of the Company shall be in Chachoengsao, Thailand.

2.5 In the event the Memorandum of Association and/or the Articles of Association of the Company as ultimately registered contain provisions that conflict with or are inconsistent with any of the terms and conditions of this Agreement, this Agreement shall prevail to the extent of such conflict or inconsistency.

2.6 All necessary and appropriate fees and expenses (including attorney’s fees) directly incurred by the Parties in the formation of the Company may be reimbursed by the Company to the Parties according to the sums so expended by each Party.

In the event the Company, through no fault of the Parties, does not ultimately become registered as an existing entity, the above fees and expenses shall be allocated pro rata according to each Party’s proposed shareholding in the Company.

2.7 The Businesses of the Company shall include, among other things, manufacture of parts and/or components for automotives, including engine covers and accessories thereof, and manufacture of all types and kinds of plastic products.

3. CAPITAL STRUCTURE OF THE COMPANY

3.1 At the final stage, the registered capital of the Company shall be Baht 120 million (Baht One Hundred and Twenty million) divided into 1,200,000 Shares, each Share with a par value of Baht 100 (Baht One Hundred).

3.2 All Shares shall be allotted as 100% paid up in value and shall be divided into two classes:

(a) Class A Shares:

Ordinary Shares: A number equalling 51% of the total shares issued.

(b) Class B Shares:

Ordinary Shares: A number equalling 49% of the total shares issued.

Unless otherwise provided by this Agreement, one Class A Share shall have the same rights and status as those of one Class B share. The designation of class shall be incorporated on each share certificate issued by the Company.

3.3 The Company may increase the registered capital of the Company pursuant to a special resolution adopted by the general meeting of Shareholders.


3.4 At an increase of the registered capital of the Company, each Party shall have a pre-emptive right to subscribe for any new Shares issued by the Company pro rata to its then shareholding in the Company and in accordance with the class of Shares.

3.5 Subject to the provisions of this Agreement, all Shares issued by the Company shall rank pari passu in all respects.

3.6 The subscription for Shares by a person or persons designated by a Party shall be attributed to that Party for the purpose of this Agreement.

4. TRANSFER OF SHARES

4.1 No Party shall transfer the Shares held by it other than in accordance with this Agreement and the Articles of Association of the Company. No Party shall sell, charge, encumber or otherwise dispose of all or any part of its interest in the Shares save with the prior written consent of the Board of Directors.

The above share transfer restriction shall not apply in the event that the Shares are transferred in compliance with Clauses 4.2 to 4.5. Any disposal made in violation of this Clause shall be void and of no effect.

4.2 A Party wishing to transfer all or any of its Shares in the share capital of the Company (the “Offering Party”) shall give a notice in writing (“Transfer Notice”) to the other Party (the “Offered Party”), who shall have a right to purchase these Shares at a price equal to the Net Book Value as at the end of the month preceding to the month of the Transfer Notice. Such offer must state the number of Shares to be sold and must invite the Offered Party(ies) to apply within thirty (30) days from the date of dispatch of the Transfer Notice. The cost and expenses of the determination of the price shall be borne by the Offering Party.

4.3 If the Offered Party(ies) or its designated person(s) do not exercise the right to purchase those Shares within the period as specified in Clause 4.2, then the Offering Party shall be entitled to sell the Shares included in the Transfer Notice to any third party within sixty (60) days from the date of the Transfer Notice but only on the same terms and conditions as described above and against evidence thereof to the satisfaction of the Board.

4.4 If more than one Party intends to buy the Shares offered by the Offering Party, the Offering Party shall sell such Shares to such Offered Party(ies) in proportion to their shareholding in the Company.

4.5 The provisions of Clause 4.2 shall not apply with respect to the transfer between Parties of the same class of Shares, provided such transfer has been approved by a majority of the shareholders of the same class of Shares.

In addition, any Party may freely sell, charge, encumber or otherwise dispose of all or any part of its interest in the Shares to its Subsidiaries and/or Affiliates upon giving a thirty (30) days’ prior written notice to the Board of Directors.

4.6 All transfers of Shares must be in writing and executed both by the transferor and the transferee. Their signatures shall be certified by at least one witness. Such transfer is invalid against the Company and third persons until the transfer as well as the names and address of the transferee shall have been duly entered in the register of Shareholders of the Company.

4.7 The Board of Directors may refuse to approve and/or register any transaction relating to the Shares which is otherwise in order if the process of transfer in this Agreement and the Articles of Association have not been complied with. If the Board of Directors so acts, it shall send to the transferor and the transferee notice of such refusal within one (1) month after the date on which the relevant documents were lodged with the Company.

4.8 The Parties agree that notwithstanding any of the provisions of this Agreement or the Articles of Association of the Company, no Share in the share capital of the Company can in any way be assigned or transferred unless the assignee or transferee (if not already bound by the provisions of this Agreement) executes an agreement with the Parties indicating that such assignee or transferee adheres to and agrees to be bound by all the provisions of this Agreement.

4.9 A Party who disposes of all its Shares in the capital of the Company in accordance with the provisions of this Agreement shall no longer have any rights or obligations under this Agreement without prejudice to the right of any Party to recover damages from another Party to the extent that they accrued prior to the disposal.



5. MANAGEMENT OF THE COMPANY

5.1 A Board of Directors shall be elected by the general meeting to carry out the Company’s businesses under the control of the general meeting of shareholders and subject to this Agreement.

A director needs not be a shareholder in the Company.

A director shall not be personally liable for any acts or omissions excepting those involving fraud or wilful wrongdoing.

5.2 At the first Annual General Meeting of every year, one-third of the directors, or if the number is not a multiple of three, then the number nearest to one-third must retire from office. A retiring director is eligible for re-election.

5.3 The Company shall be managed by the Board of Directors. The Board of Directors shall consist of four (4) Directors of whom two (2) shall be appointed upon the nomination of the Class A Shareholders (“Class A Directors”) and two (2) shall be appointed upon the nomination of the Class B Shareholders (“Class B Directors”), provided that one of the Class B Directors nominated by the Class B Shareholders shall be the director, who is nominated by ABC and appointed as a director in the board of directors of ABC and the other shall be the director who is nominated by the group of Thai shareholders of XYZ and appointed as a director in the board of director of XYZ. The appointment of Directors shall take place by the general meeting of Shareholders.

5.4 The Board of Directors shall elect one of the Class A Directors as the Chairman. Such Chairman shall preside over all meetings of the Board of Directors. The Chairman shall have a casting vote.

5.5 The Board of Directors shall appoint one of the Class A Directors as the Managing Director unless otherwise agreed unanimously by the Board of Directors. If he shall at any time vacate office, the Board of Directors shall appoint in his place a Managing Director from the other Class A Directors.

The Managing Director shall have such powers and duties as shall from time to time be established by the Board of Directors.


5.6 The number (or) name(s) of director(s) authorized to sign together with the Company’s seal affixed to bind the Company shall be fixed by the shareholders’ meeting.

5.7 Meetings of the Board of Directors shall be held at such times and places as may be determined by the Chairman but in any case not less frequently than twice per year unless otherwise agreed by the Parties for emergency cases. A notice of a meeting shall be given to each Director by telephone, e-mail, letter, or facsimile as appropriate. Such notice to any Director may be waived by that Director and shall be deemed waved by his presence at the meeting.

5.8 At all meetings of the Board of Directors, a quorum shall consist of at least two (2) Directors, either present in person or by proxy. Such quorum shall in any case include one Class A Directors.

5.9 A resolution of the Board of Directors shall require the affirmative vote of a majority of all Directors present in person or by proxy at a meeting, which vote must include the affirmative vote of at least one Class A Directors.

5.10 An instrument appointing a proxy shall be in such form and executed in such a manner as the Board of Directors may from time to time determine, unless such Board shall otherwise accept in a particular case.

5.11 The Board of Directors may adopt a resolution without holding a meeting if all Directors approve the action by placing their signature on the original copy of the resolution or each Director places his/her signature on his/her respective copy of the resolution. Any such resolution shall be binding on the Company only after all the Directors have signed the original resolution or their respective copies. The duly signed resolution shall be delivered to the Chairman and placed in the minute book of the Company.

6. SHAREHOLDERS' ACTIONS

6.1 The first general meeting of Shareholders shall be held within six (6) months from the date of registration of the Company. A general meeting shall subsequently be held once at least in every twelve (12) months. Such general meeting is called “Annual General Meeting” and all other general meetings are called “Extraordinary General Meetings”. Subject to the foregoing, the Board of Directors may summon general meetings whenever it thinks fit.
6.2 At least seven (7) days' notice prior to every general meeting shall be given to all Shareholders whose names appear in the register of Shareholders. Notices to Shareholders shall be sent by registered airmail, facsimile, or e-mail as appropriate in which two latter cases a letter confirming the notice in writing shall be sent to the Shareholders. The notice shall specify the place, the day and hour of the meeting, and the nature of the business to be transacted thereat.

6.3 Annual General Meetings shall be summoned for the purpose of:

(a) Considering the report of the Board of Directors covering works done during the previous period and suggestions as to future courses of action.

(b) Considering and approving the balance sheet and profit and loss account of the preceding fiscal year.

(c) Considering directors’ remuneration, declaration of dividends, and the appropriation of amounts as reserve fund.

(d) Election of new directors in place of those who must retire on the expiration of their terms.

(e) Appointment of the auditor and fixing his remuneration.

(f) Other businesses.

6.4 The presence of Shareholders or their proxies representing not less than 25 per cent of all the Shares issued by the Company constitute a quorum for a general meeting of Shareholders, provided that the Shares represented shall be comprised of not less than a majority of Class A Shareholders at any time and any general meeting.

6.5 Each Share shall entitle the holder thereof to cast one (1) vote at any general meeting of Shareholders.

All resolutions shall require a one-third of entire votes present at the meeting and such votes shall comprise of not less than a half of Class A Shareholder as the affirmative votes.

6.6 Decisions on the following matters shall be made by special resolution only, which shall require affirmative votes at a general meeting of Shareholders of not less than three-fourths of all votes which all Shareholders are entitled to cast thereat and at a subsequent general meeting of Shareholders affirmative votes of not less than two-thirds of all votes which all Shareholders are entitled to cast thereat:

(a) To amend the Memorandum or Articles of Association;

(b) To increase or reduce the registered capital;

(c) To dissolve the Company;

(d) To amalgamate with another company; and

(e) To allot new Shares as fully or partly paid up otherwise than in money.

7. ACCOUNTS AND RECORDS

7.1 The Parties agree that the Company's books and records shall be maintained in English language with Thai caption and according to international accounting practices and procedures generally acceptable in Thailand. The Company's books, accounts, records, minutes books, share register, register of Directors and other statutory records shall be kept under the control and custody of the Board of Directors.

7.2 The Company shall hire a reputable auditing firm or reputable public registered auditors, elected upon the nomination of the Class A Directors, and his/her remuneration shall be fixed every year at an Annual General Meeting. At the end of each fiscal year and at such other times as are considered necessary by the Board of Directors or a general meeting of Shareholders, the auditor will audit the accounts and records of the Company at the expense of the Company.

7.3 Any Director and/or Shareholder of the Company or its representatives shall have reasonable access to the books of account and records of the Company and to make extracts or copies there from during business hours of the Company.

7.4 Copies of all audited financial statements of the Company shall be furnished to the Shareholders of the Company.
8. PROFIT GOAL AND DISTRIBUTION

The Parties shall use their best efforts to make the Company a viable and profitable enterprise in accordance with the purposes of this Agreement. Dividends may only be distributed in accordance with the Laws and the Articles of Association.

9. CONFIDENTIALITY

9.1 Each Party agrees to treat as secret and confidential and not to disclose to any third party without the prior written permission of the original disclosing Party all documents, formulae, processes, trade secrets and any other materials concerning technical, financial, economic or marketing information or any other information disclosed or obtained as related to the operations of the Company or the business of the other Party during any communications preceding or after the execution of this Agreement. This confidentiality shall not include such information which at the time of disclosure has become public knowledge through no violation of this Agreement, or is available to the public from a source other than the Company or any of the Parties.

9.2 Acting in its capacity as a Shareholder of the Company, each Party shall cause the Company;

(i) to treat all such information as confidential; and

(ii) ensure that officers, executives, directors and employees of the Company as well as any third party given access to such information to treat it as confidential;

so as to ensure that such information will not be made available to any unauthorized third party.

9.3 Neither Party shall use any such information for any purposes except as permitted in writing by the disclosing Party or the Company for the operations of the Company in accordance with this Agreement.

9.4 Each Party agrees that neither it nor its employees shall, unless required by Laws or with the prior consent of the other Party or the Company, make any reference, comment or statement which may become publicly available if relating to:

(a) any matter which might harm the relations of the Company or the other Party with any government or its agencies;

(b) this Agreement; or

(c) the operations of the Company or the other Party.

9.5 The obligations in this Clause 9 shall survive the termination of this Agreement, liquidation of the Company or the cessation of the Business for any reason whatsoever for a period of three (3) years.

10. TERM OF AGREEMENT AND TERMINATION

10.1 This Agreement comes into force on the date of execution and continues until terminated as provided in this Agreement.

10.2 In addition to any other grounds provided herein, this Agreement may be terminated forthwith by the indicated Party for the following reasons:

(a) Default
If either Party defaults pursuant to the provisions of Clause 11 hereof, the other Party shall have the right to terminate this Agreement.

(b) Mutual Agreement
Upon the mutual written agreement of the Parties hereto, this Agreement may be terminated at any time.

(c) Bankruptcy or Insolvency
The non-affected Party shall have the right to terminate this Agreement forthwith by notice in writing in the event that the other Party enters, applies to enter, or if application is made by a third party intending to force that other Party to enter into bankruptcy, composition or reorganization.

Additionally, if a Party becomes insolvent due to its being unable to pay its debts as they become due, the other Party shall have this right of termination.


(d) Acquisition of Shares
In the event that one of the Parties and/or its designated person(s) acquires all of the Shares in the share capital of the Company pursuant to Clause 4 hereof, this Agreement shall be terminated automatically. In such case, Clause 10.4 shall not apply.

(e) Deadlock
In the event that any resolution proposed by either Party at any meeting of the Board of Directors or at any Shareholders' meeting is not passed in the manner as required by this Agreement and the Articles of Association and the Directors or Shareholders, as the case may be, are within thirty (30) days unable to reach agreement on such, then either Party may give sixty (60) days notice of intention to terminate this Agreement. If such required vote cannot be obtained within such sixty (60) days, this Agreement shall be terminated forthwith.

(f) Change of Control
In the event the Company becomes subject to, de facto or de jure, the control by any individual or business entity that is not a Party to this Agreement, this Agreement shall be terminated forthwith by notice to the other Party. For the purposes of this provision, “control” shall mean the ability to control more than half of the votes at the general meeting of Shareholders of the Company.

10.3 Upon termination of this Agreement pursuant to Clause 10.2, the provisions of this Agreement shall cease to have effect save as may be necessary to give effect to the remaining provisions of this Clause or in relation to any antecedent claims which may have arisen between the Parties.

10.4 In the event this Agreement is terminated pursuant to the provisions of Clause 10.2(a), (b), (c), (e) or (f) hereof, the Parties shall have the following rights, without prejudice to the rights and obligations of the Parties existing at the time of termination:

10.4.1 Option to Purchase or Sell Shares:

If the termination is effected by:


(a) a default under Clause 10.2(a);
(b) mutual agreement under Clause 10.2(b);
(c) bankruptcy or insolvency under Clause 10.2(c);
(d) a deadlock under Clause 10.2(e); or
(e) a change of control under Clause 10.2(f),

then the non-defaulting Party in the case of (a), either Party in the case of (b) and (d) or the non-affected Party in the case of (c) and (e), shall have the right to either:

(i) purchase or designate any person to purchase all the Shares in the share capital of the Company owned by the other Party at the then Net Book Value or, in the case of a default under Clause 10.2(a) at the initial investment price of the defaulting Party or such Net Book Value whichever is the lower, or sell to such Party or its designated person(s) or to a third party all the Shares in the share capital of the Company owned by the non-defaulting Party, the non-affected Party or the other Party, as the case may be, at such price. The purchase price shall be paid in full promptly upon the transfer of Shares which the transferring Party shall be bound to effect within sixty (60) days of the relevant option, resulting in the obligation to transfer, being exercised or upon terms to be agreed between the seller and the buyer.

In the case where ABC or its designated person, or XYZ or its designated person exercises its right to purchase all the Shares under this Clause 10.4.1 (i), the purchase price shall be paid to the seller in full within one (1) year as from the date of the transfer of Shares, provided that the seller shall transfer all said Shares to ABC or XYZ or its designated person, as the case may be, within sixty (60) days as from the date ABC or its designated person, or XYZ or its designated person exercises the right to purchase such Shares; or

(ii) proceed the dissolution and liquidation of the Company in accordance with the procedure set forth in Clause 10.4.2 hereof.

10.4.2 Dissolution and Liquidation:

If the termination is effected by any of the causes mentioned in Clause 10.2 without written agreement to sell Shares to either Party or to a third party or to sell the Company as a going concern or to take other actions, or by Clause 10.4.1(ii) above, then the Company shall be dissolved and liquidated pursuant to this Clause. The Parties shall, in their capacities of Shareholders, vote for a special resolution at the general meeting of Shareholders in favour of such dissolution and liquidation of the Company and the liquidation of the Company shall commence in accordance with the laws of Thailand.

11. DEFAULT

11.1 Default shall occur upon a material breach by either Party of any of the terms of this Agreement. In determining whether a breach is material regard shall be given to all relevant circumstances, including without limitation, the nature of the relationship among the Parties and the need for each Party to maintain the confidence of the other, the nature of the breach and the consequences thereof.

11.2 No default under Clause 11.1 hereof shall be deemed to have occurred until the non-defaulting Party has first given notice of such default to the Party in default, and the Party in default has failed to remedy such default, if capable of remedy, to the satisfaction of the non-defaulting Party within sixty (60) days of receipt of such written notice.

11.3 If either Party defaults pursuant to this Clause, the other Party shall have the right to immediately exercise one or more of the following rights:

(a) terminate this Agreement pursuant to Clause 10.2(a) of this Agreement;

(b) purchase or designate person(s) to purchase the other Party's Shares pursuant to Clause 10.4.1(i); and/or

(c) recover any actual damages or costs which have been incurred by the non-defaulting Party as a result of the other Party's default, except damages arising from special circumstances or causes beyond the defaulting Party's control.
12. SPECIFIC PERFORMANCE

12.1 The Parties hereby agree that notwithstanding anything to the contrary contained in the Articles of Association of the Company either now or in the future, the provisions of this Agreement shall be binding upon the Parties and they agree to exercise their respective voting rights in such a manner as may be necessary to ensure that the provisions contained herein prevail.

12.2 In the event that either of the Parties fails to abide by the provisions of this Agreement, the other Parties may commence an action against such Party to obtain any legal remedy available, including but not limited to an award of contractual damage and/or specific performance.

13. DISPUTES

All disputes arising from the execution of or in connection with the present Agreement shall be settled through friendly consultation between both Parties. In case no agreement can be reached through consultation, they shall be submitted to arbitration for settlement.

The arbitration shall take place in Thailand, and the arbitration shall be conducted in accordance with the Arbitration Rules of the Arbitration Institute, Thai Ministry of Justice. The number of arbitrators shall be three (3), unless both Parties agree on a single arbitrator. In case of having three (3) arbitrators, each Party shall select one (1) arbitrator, and the two arbitrators agree on the third one. The language of the arbitration procedure shall be English. The arbitration shall apply the law of Thailand, and be conducted in such a manner that the proprietary or confidential information of the Parties remains protected according to the terms of the Agreement.

Each of the Parties expressly agrees that the decision rendered in such arbitration will be final and can be enforced against the losing Party at any court of proper jurisdiction whether in its country of residence or in any place in which the losing may hold assets sufficient to satisfy, in whole or in part, such decision rendered by the arbitration panel. The arbitration fee shall be borne by the losing Party.

In the course of arbitration, both Parties shall continue to execute this Agreement except those sections subject to arbitration.


14. NOTICES

Unless this Agreement provides otherwise, all notices, demands and other communications required or permitted by the terms of this Agreement to be given to any Party shall be in writing and shall be given by personal delivery, mail or overnight courier, by telex or facsimile transmission. Any such notice, demand or communication shall be deemed effective either: (i) if sent by mail: on the date of delivery as evidenced by the postal receipt or other written receipt, or (ii) if delivered by hand or courier or overnight service that provides for a signed receipt upon delivery: when received and acknowledged, or (iii) if sent by telex or facsimile: when sent. Such notice, demand or communication shall be directed to the address, telex number or facsimile number of such Party set forth below or at such other address, telex number or facsimile number as such Party shall designate by like notice to the other Party:

If to ABC COMPANY LIMITED:

Address: [ ]
Telephone: [ ]
Facsimile: [ ]
Attention: [ ]

If to XYZ COMPANY LIMITED:

Address: [ ]
Telephone: [ ]
Facsimile: [ ]
Attention: The Chairman of the Board of Directors

15. MISCELLANEOUS

15.1 Force Majeure
Neither Party shall be liable for any breach nor failure to perform hereunder where such failure is caused by contingencies beyond the foreseeable control, including but not limited to acts of God, fire, flood, storms, typhoons, wars, civil strike, sabotage, governmental actions of either the Government of Thailand (including but not limited to currency import and export prohibitions) or other governments and any other occurrences similar to the foregoing. The Party so prevented from complying herewith shall immediately give notice thereof to the other Party and shall continue to take all actions within its power to comply as fully as possible herewith.

15.2 Assignment
Save as otherwise provided herein, this Agreement and any of the rights and obligations hereunder may not be assigned, transferred or otherwise disposed of by any of the Parties without the prior written consent of the other Party.

15.3 Governing Law
This Agreement shall be governed by and interpreted in accordance with the laws of Thailand.

15.4 Waiver
The failure of either Party hereto at any time to require performance by any other Party of any provision of this Agreement shall not be construed as a waiver of any right under this Agreement.

15.5 Entire Agreement
This Agreement constitutes the sole and exclusive agreement between the Parties relating to the subject matter of this Agreement and no warranties, guarantees, representations or other terms and conditions of whatever nature not contained and recorded in this Agreement shall be of any force or effect unless recorded in writing and signed by all Parties after the effective date of this Agreement. All prior agreements, correspondence and expressions of intent are superseded by this Agreement and other documents implementing the same.

15.6 Counterparts
This Agreement may be executed in any number of counterparts and all such counterparts taken together shall be deemed to constitute one and the same instrument.

15.7 Representation
Each Party represents to the other Party and to the Company that the execution of this Agreement and the performance of any obligation under this Agreement will not contravene or constitute a default under its Memorandum or Articles of Association or under any commitment by which such Party is bound.

15.8 Severability
If any provision of this Agreement is deemed illegal or unenforceable, such illegality or unenforceability shall not affect the validity and enforceability of any part of this Agreement, which shall be construed as if such illegal or unenforceable provision or provisions had not been inserted in this Agreement, unless the severability of such illegal or unenforceable part would destroy the underlying business purposes of this Agreement.

15.9 Variation
No variation or amendment to this Agreement shall be effective unless in writing signed by authorized representatives of each of the Parties.

15.10 Restrictions On Announcements
Each of the Parties undertakes that it will not make any announcement in connection with this Agreement unless the other Parties shall have given their respective consents to such announcement which consents may not be unreasonably withheld.

15.11 Costs
Each Party shall pay its own costs and disbursements of and incidental to the preparation and execution of this Agreement.

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IN WITNESS WHEREOF this Agreement has been executed on behalf of the Parties by their duly authorized representatives as of the date first above written.


ABC COMPANY LIMITED

By :
( )


XYZ COMPANY LIMITED

By :
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Witness: Witness:
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Annex A

ARTICLES OF ASSOCIATION
OF
AAA CO., LTD.

CHAPTER I
General

1. These regulations shall be called the Articles of Association of AAA Co., Ltd.

2. Unless otherwise specified "Company" shall mean AAA Co., Ltd.

3. Unless otherwise stipulated in these Articles the provisions in the Civil and Commercial Code regarding limited companies shall apply.

4. Any addition or amendment to these Articles or Memorandum of Association of the Company shall require the passing of a special resolution by two successive general meetings of the shareholder.

CHAPTER II
Shares and Shareholders

5. The Company's shares shall consist solely of ordinary shares entered in name certificates.

6. The shares of the Company shall be divided into two classes:

(1) Class A Shares: Ordinary Shares, equalling 51% of the total shares issued.
(2) Class B Shares: Ordinary Shares, equalling 49% of the total shares issued.

Unless otherwise provided by these Articles, all shares in the two classes shall have the same rights and status. The designation of class shall be incorporated on each share certificate issued by the Company.

7. Each share certificate issued by the Company shall bear the following statement upon its face: "Transfer or sale of shares represented by this share certificate is subject to the restrictions contained in the Articles of Association of the Company."

8. The Company shall not own its own shares nor take them in pledge.

9. The Company shall provide a register of shareholders, which shall be kept by the Company under the control of the Board of Directors, and in which shall be entered the particulars of transfer or alteration of every share.

10. (1) No shareholder shall transfer the shares held by it other than in accordance with the Articles of Association of the Company. No shareholder shall sell, charge, encumber or otherwise dispose of all or any part of its interest in the shares save with the prior written consent of the Board of Directors.

The above share transfer restriction shall not apply in the event that the shares are transferred in compliance with Articles 10 (2) to (5). Any disposal made in violation of this Article shall be void and of no effect.

(2) A shareholder wishing to transfer all or any of its shares in the share capital of the Company (“Offering Shareholder”) shall give a notice in writing (“Transfer Notice”) to the other shareholders (“Offered Shareholder”), who shall have a right to purchase these shares at a price equal to the Net Book Value as at the end of the month preceding to the month of the Transfer Notice. Such offer must state the number of shares to be sold and must invite the Offered Shareholder(s) to apply within thirty (30) days from the date of dispatch of the Transfer Notice. The cost and expenses of the determination of the price shall be borne by the Offering Shareholder.

(3) If the Offered Shareholder(s) or its designated person(s) do not exercise the right to purchase those Shares within the period as specified in Article 10 (2), then the Offering Shareholder shall be entitled to sell the Shares included in the Transfer Notice to any third party within sixty (60) days from the date of the Transfer Notice but only on the same terms and conditions as described above and against evidence thereof to the satisfaction of the Board.

(4) If more than one shareholder intends to buy the shares offered by the Offering Shareholder, the Offering Shareholder shall sell such shares to such Offered Shareholder(s) in proportion to their shareholding in the Company.

(5) The provisions of Article 10 (2) shall not apply with respect to the transfer between shareholders of the same class of shares, provided such transfer has been approved by a majority of the shareholders of the same class of shares.

In addition, any shareholder may freely sell, charge, encumber or otherwise dispose of all or any part of its interest in the shares to its subsidiaries and/or affiliates upon giving a thirty (30) days’ prior written notice to the Board of Directors.
11. All transfers of shares must be in writing and executed both by the transferor and the transferee whose signatures shall be certified by at least one witness. Such transfer is invalid against the Company and third persons until the transfer as well as the names and address of the transferee shall have been duly entered in the register of the shareholders of the Company.

12. The Board of Directors may, in their absolute discretion, and without assigning any reason, refuse to register a transfer of any share. If the Board of Directors refuse to register a transfer of any shares, they shall, within one month after the date on which the transfer was lodged with the Company, send to the transferor and transferee notice of the refusal.

13. A fee, as the Board of Directors may from time to time determine, in accordance with law, may be charged for issue of share certificates and registration of transfers.

14. The Company may close the registration of share transfer during the fourteen days immediately preceding Annual General Meeting.

CHAPTER III
General Meetings

15. A general meeting of shareholders shall be held within six months of the date of registration of the Company and a general meeting shall subsequently be held once at least in every twelve months. Such general meetings are called "Annual General Meetings", and all other general meetings are called "Extraordinary General Meetings". Subject to the foregoing the Board of Directors may summon general meetings whenever they think fit.

16. At least seven days' notice prior to every general meeting shall be given to all shareholders whose names appear in the register of shareholders. Notices to shareholders shall be sent by registered airmail, facsimile, e-mail as appropriate in which two latter cases a letter confirming the notice in writing shall be sent to the shareholders. The notice shall specify the place, the day and the hour of the meeting, and the nature of the business to be transacted thereat.

17. Annual General meetings shall be summoned for the purpose of:

(1) Considering the report of the Board of Directors covering work done during the previous period and suggestions as to future courses of action.

(2) Considering the balance sheet and the profit and loss account of the preceding fiscal year.

(3) Considering directors' remuneration, declaration of dividends, and the appropriation of amounts as reserve fund.

(4) Election of new Directors in place of those who must retire on the expiration of their terms.

(5) Appointment of the auditor and fixing his remuneration.

(6) Other businesses.

18. The presence of shareholders or their proxies representing not less than 25 per cent of all the shares issued by the Company constitute a quorum for a general meeting, provided that the shares represented shall be comprised of not less than a majority of Class A Shareholders at any time and any general meeting.

19. Each share shall entitle the holder thereof to cast one (1) vote at any general meeting of shareholders.

All resolutions shall require a one-third of entire votes present at the meeting and such votes shall comprise of not less than a half of Class A Shareholder as the affirmative votes.

20. Decisions on the following matters shall be made by special resolution only, which shall require affirmative votes at a general meeting of shareholders of not less than three-forth of all votes which all shareholders are entitled to case thereat and at a subsequent general meeting of shareholders affirmative vote of not less than two-third of all votes which all shareholders are entitled to cast thereat:

(1) To amend the Memorandum or Articles of Association.

(2) To increase or reduce the registered capital.

(3) To dissolve the company.

(4) To amalgamate with another company.

(5) To allot new shares as fully or partly paid up otherwise than in money.

21. Any shareholder may vote by proxy, provided the power given to such proxy is in writing. The instrument appointing a proxy shall be dated and signed by the shareholder and shall contain the following particulars:

(1) The number and class of shares held by the shareholder.

(2) The full name and address of the proxy.

(3) The meeting or meetings or the period for which the proxy is appointed.

If a proxy proposes to vote at a meeting, the instrument of appointment of the proxy must be deposited with the Chairman at or before the commencement of that meeting.

22. Only shareholders duly registered and having paid all sums for the time being due and payable to the Company in respect of their shares, shall be entitled to vote on any question either personally or by proxy at any general meeting.

23. The chairman of the Board of Directors shall preside at every general meeting. If there is no such chairman, or if he is not present within fifteen minutes after the time appointed for holding the meeting, the shareholders present may elect one of the other directors to be chairman. The chairman shall have a casting vote.

24. The chairman may adjourn a general meeting with the consent of the meeting but in the succeeding meeting no other business may be discussed except that pending from the previous meeting.

CHAPTER IV
Directors and Auditors

25. A Board of Directors shall be elected by the general meeting to carry out the Company's business under the control of the general meeting of shareholders and subject to these Articles of Association.

A director needs not be a shareholder in the Company.

A director shall not be personally liable for any acts or omissions excepting those involving fraud or wilful wrongdoing.

26. At the first Annual General Meeting after the registration of the Company and at the first Annual General Meeting in every subsequent year, one-third of the directors, or, if their number is not a multiple of three, then the number nearest to one-third must retire from office. A retiring director is eligible for re-election.



27. The Company shall be managed by the Board of Directors. The Board of Directors shall consist of four (4) Directors of whom two (2) shall be appointed upon the nomination of the Class A Shareholders (“Class A Directors”) and two (2) shall be appointed upon the nomination of the Class B Shareholders (“Class B Directors”), provided that one of the Class B Directors nominated by the Class B Shareholders shall be the director, who is nominated by the Class A Shareholders and appointed as a director in the board of directors of the Class B Shareholders and the other shall be the director, who is nominated by the group of Thai shareholders of the Class B Shareholders and appointed as a director in the board of director of the Class B Shareholders. The appointment of Directors shall take place by the general meeting of shareholders.

28. The Board of Directors shall elect one of the Class A Directors as the chairman. Such chairman shall preside over all meetings of the Board of Directors. The chairman shall have a casting vote.

29. The Board of Directors shall appoint one of the Class A Directors as the Managing Director unless otherwise agreed unanimously by the Board of Directors. If he shall at any time vacate office, the Board of Directors shall appoint in his place a Managing Director from the other Class A Directors.

The Managing Director shall have such powers and duties as shall from time to time be established by the Board of Directors.

30. The number (or) name(s) of director(s) authorized to sign together with the Company’s seal affixed to bind the Company shall be fixed by the shareholders’ meeting.

31. Meetings of the Board of Directors shall be held at such times and places as may be determined by the Chairman but in any case not less frequently than twice per year unless otherwise agreed to by the Board of Directors for emergency needs. A notice of a meeting shall be given to each Director by telephone, e-mail, letter, facsimile, cable or telex as appropriate. Such notice to any Director may be waived by that Director and shall be deemed waved by his presence at the meeting.

32. At all meetings of the Board of Directors, a quorum shall consist of at least two (2) Directors, either present in person or by proxy. Such quorum shall in any case include one Class A Directors.

33. A resolution of the Board of Directors shall require the affirmative vote of a majority of all Directors present in person or by proxy at a meeting, which vote must include the affirmative vote of at least one Class A Directors.


34. An instrument appointing a proxy shall be in such form and executed in such a manner as the Board of Directors may from time to time determine, unless such Board shall otherwise accept in a particular case.

35. The Board of Directors may adopt a resolution without holding a meeting if all directors approve the action by placing their signatures on the original copy of the resolution. Any such resolution shall be binding on the Company only after all of the directors have signed the resolution. The duly signed resolution shall be delivered to the chairman and placed in the minute book of the Company.

36. The Board of Directors may entrust to and confer upon a Managing Director or manager any of the powers exercisable by the Board upon such terms and conditions and with such restrictions as the Board think expedient, and may from time to time revoke, withdraw, alter or vary all or any of such powers.

37. The Board of Directors may appoint other persons to carry out the Company's business under the Board of Directors' supervision or may by duly executed power of attorney entrust to and confer upon such other persons such powers as they think fit and for such time as they think expedient and they may confer such powers collaterally with or to the exclusion of or in substitution for all or any of the powers of the Board of Directors in that behalf and may from time to time revoke, withdraw, alter or vary any of such powers.

38. The Company's auditor shall be elected upon the nomination of the Class A Directors and his remuneration fixed every year at an Annual General Meeting. A retiring auditor is eligible for re-election.

CHAPTER V
Books and Accounts

39. The Company's books and accounts shall be kept in English with Thai caption, and shall be maintained according to international accounting practices and procedures generally acceptable in Thailand.

40. The Board of Directors shall cause true and complete accounts to be kept:

(1) Of the sums received and expended by the Company and of the matters in respect of which each receipt or expenditure takes place.

(2) Of the assets and liabilities of the Company.

41. The Board of Directors shall cause a balance sheet to be made at least once in every twelve months, as of the end of the fiscal year of the Company. The balance sheet must contain a summary of the assets and liabilities of the Company and a profit and loss account for the fiscal year of the Company.

42. The Board of Directors shall have the balance sheet and profit and loss account examined by the Company's auditor and submitted to a general meeting for adoption within four months from the end of the fiscal year. A copy of the balance sheet must be sent to every person entered in the register of shareholders at least three days before the general meeting.

43. The Board of Directors shall cause minutes of all proceedings and resolutions of all meetings of shareholders and directors to be recorded and duly entered in the minutes book which shall be kept at the registered office of the Company. Any such minutes signed by the Chairman of the meeting or of the succeeding meeting, are presumed correct evidence of the matters therein contained, and all resolutions and proceedings of which minutes have been so made are presumed to have been duly passed.

CHAPTER VI
Dividends and Reserves

44. The Company must appropriate to a reserve fund, at each distribution of dividends, at least one-twentieth of the profits, until the reserve fund reaches one-tenth of the capital of the Company.

45. No dividend may be declared except by a resolution passed in a general meeting.

Notice of any dividend that may have been declared shall be given by letter to each shareholder whose name appears on the register of shareholders.

The Board of Directors may from time to time pay to the shareholders such interim dividends as appear to the Board of Directors to be justified by the profits of the Company.

If the Company has incurred losses, no dividend may be paid unless such losses have been made good.

CHAPTER VII
Increase in Capital

46. The Company may, by special resolution, increase its registered capital by such sum as the resolution shall prescribe.
47. All new shares must be offered to the shareholders in proportion to the shares held by them.

48. No new shares of the Company may be allotted as fully or partly paid up otherwise than in money, unless otherwise provided for by special resolution of the Shareholders.

These Articles of Association have been approved by the Statutory Meeting of the Company on




(...........................................................)
Director



(...........................................................)
Director

Forms & Contracts: Frequently Asked Questions

When Will a Promise or Statement Be Considered a Binding Contract?
Are there any instances in which a contract could exist even though the parties did not complete the deal?

If one party makes a statement or a promise that causes another party to rely on that statement in such a way that he or she is financially injured by that reliance, then a court will enforce the statement or promise as if it was a completed contract. The court does not need to find an agreement or consideration in order to enforce the promise like a contract.

The idea of giving a remedy against a person who has broken his or her promise appeals to most people. However, the "detrimental reliance" of the promisee (the person to whom the promise is made) on the promise must be reasonable and foreseeable by the promisor (the person who made the promise) at the time of his or her statement. If the promisee took action that the promisor could not have anticipated, the promisor is not required to live up to the promise.

Example: John tells Doris he will pay her $3,000 to take care of his children for the summer. Doris cancels her less lucrative summer employment in favor of John's offer, but at the last minute John takes in a foreign exchange student who will do the work for free. Doris may be able to receive damages from John for the lost earnings she suffered by relying on his promise.

But, if John tells Doris he will pay her $3,000 to take care of his children for the summer and Doris drops her health insurance coverage because she assumes John will cover her, her assumption is not based on a promise made by John. Therefore, Doris can not get damages from John for her increased medical expenses.


What Contracts are Required to Be in Writing?
Most contracts can be either written or oral, but some agreements must be in writing in order to be binding. The following types of contracts need to be executed in writing:

real estate sales;
agreements to pay someone else's debts;
contracts that take longer than one year to complete;
real estate leases for longer than one year;
contracts for over a certain amount of money (depending on the state);
contracts that will last longer than the life of the party performing the contract; and
a transfer of property at the death of the party performing the contract.
An English law from 1677, the "Statute of Frauds," provides the basis for current written contract requirements. The goal of written contract rules remains the same as ever-to avoid fraud by requiring written proof of the underlying agreement. This legal goal makes sense as a practical objective as well.

Although other types of contracts may be oral, it is advisable to "get it in writing" to insure both parties understand their obligations. If court enforcement is required, a written contract shows the parties' obligations and avoids a "he said, she said" dispute. It is easier to check with an attorney prior to signing to see whether a contract is valid than it is to enforce a poorly-drafted agreement after problems arise.

How Can an International Contract Be Illegal?
Courts will not enforce contracts that are illegal. An illegal contract either specifies prohibited goods or services, or requires illegal activity in order to fully perform its terms. Since international business by its nature involves multiple layers of law, contracts that would be perfectly legal in one country may be illegal in another and unenforceable in that country's courts.


Example: Gus and Marshall enter into a contract for the sale of hemp. While this contract is perfectly legal in countries that allow the cultivation and sale of hemp, the hemp would be an illegal subject of the contract if Gus took delivery of the hemp in a country that outlawed the product or tried to sue Marshall for breach of contract in such a country.

Illegality of performance can also negate a contract. If a contract for the sale of goods originating in Ireland requires that the shipment include a NAFTA certificate of origin, at least that clause of the contract is illegal and void. The goods are Irish, and cannot legally receive a NAFTA certificate of origin.

Intervening illegality can also affect contract validity. If a contract is legal in its terms when made, but subsequent laws outlaw performance or subject matter, the parties may have to abandon the contract. If possible, the illegal provisions can be severed from the agreement and performance can go forward. Otherwise, the parties are released from the contract. Both sides should check with their attorneys to make certain their obligations under the agreement are finished.

The variety of laws that may apply to international contracts heighten the possibility of illegality. Competent legal advice regarding the status of a contract's terms will help businesses avoid these difficulties.

Must a Mortgage Be in Writing?
Although many contracts are enforceable whether written or oral, contracts that involve a transfer of real estate are deemed important enough that they are required, under the Statute of Frauds, to be in writing to be enforceable. The Statute of Frauds originated in England in 1677, and has been subsequently adopted in some variation in all states. As relates to mortgages, the purpose of the Statute of Frauds is to prevent a creditor from fraudulently contending that a debtor granted it an unwritten mortgage when in reality none existed.

There is an exception to the Statute of Frauds, called the part performance doctrine, under which an unwritten mortgage is deemed to arise by operation of law or is deemed enforceable even though unwritten. A mortgage will arise under this doctrine only when money is lent for the purchase of the specific real estate on which a mortgage is to be granted. If the money is lent and the borrower does not follow through with a mortgage as promised, an equitable mortgage can arise in favor of the lender by operation of law.

However, simply lending money does not constitute sufficient part performance to take an unwritten security arrangement out of the Statute of Frauds. The money has to be lent specifically for the purchase of the real estate on which the mortgage is to be granted. In cases where the loan proceeds are to be used for purposes other than the purchase of the real estate at issue, the lender will have to look to assets other than the real estate to satisfy a judgment on the defaulted loan.

Even where the part performance doctrine requirements for imposition of an equitable mortgage are met, it is highly advisable to get the mortgage in writing. First, oral testimony as to the mortgage agreement is subject to clouded recollections and intentional fabrication. On the other hand, a written mortgage speaks for itself and should avoid a credibility contest in court. Also, by definition, an unwritten mortgage is unrecordable. Therefore, other parties can record liens and mortgages on the real estate at issue subsequent to the initial loan. This can result in the holder of the unwritten mortgage losing the repayment priority to which he or she is entitled by virtue of the earlier loan.

Do All Construction Contracts Have to Be in Writing?
Not necessarily. All states have a law (generally known as the "statute of frauds") that requires certain types of contracts to be in writing. As the name suggests, the statute is designed to prevent fraudulent claims, especially in the case of large contracts.

If contracts listed in the statute of frauds are not in writing, they cannot be enforced. Construction contracts sometimes fall within the terms of a state's statute of frauds and therefore must be in writing.

For example, in Florida, the following types of contracts that might involve construction projects must be in writing:

credit agreements (i.e. construction loan financing);
contracts that cannot be performed within one year (major construction projects may fit this bill);
contracts for the sale of goods over $500 (any contract involving expensive construction materials); and
contracts for the sale of real property (contracts involving the sale of improved real estate).
In addition, written contracts for construction work frequently include clauses requiring that any modification of the original written agreement must also be in writing and stating that the written contract constitutes the entire agreement of the parties. Courts will generally uphold and enforce these clauses to defeat an owner or contractor's claims that there was a separate oral agreement that changed the terms of the written agreement.

What is "Consideration" and How Much is Required?
Generally, the courts will not reform a contract because one party made a bad bargain. Consideration is the value bargained for by the parties, and most decisions indicate there is no reason to inquire into a party's motivation for giving another party an incredible deal. In a famous legal quote, a single peppercorn was considered adequate consideration.

Having said that, consideration must meet other requirements. The consideration must be an exchange for the bargain in question; past consideration is no good.

Example: Suppose XYZ Corp. employs Dave under a contract for one year for $100,000. Six months later the president notes that Dave does not seem happy in his job. The president offers Dave $20,000 more to stay for the full term of the contract. At the end of the year, Dave asks for the extra $20,000. There is no enforceable contract for the extra incentive pay. Under the original contract, Dave was already obligated to work for XYZ Corp. for a full year. The extra pay is not supported by new consideration; Dave is not giving anything that he did not previously agree to.

But, if the $20,000 was offered to Dave to take on extra responsibilities or to work Friday nights, and he did, there would be additional consideration that would support the change to the contract.


Do Construction Contracts Require Consideration?
Like all contracts, construction contracts require "consideration" in order to be enforceable. Consideration can consist of money, as well as agreeing to do something that you don't have to do.

Example: I agree to pay you $2,300 to paint my house. My agreement to pay you $2,300 is the "consideration" (what I give up to get what you promised) that makes this contract enforceable.

A promise that is made without the expectation of anything in return is known as a gratuitous promise. Such a promise is not generally enforceable because there is no consideration.

Example: I promise to seal your driveway the next time I seal mine; you don't agree to do anything for me in return. My promise to seal your driveway is unenforceable because you haven't provided me any consideration.

In the construction context, consideration may be an issue when a prime contractor is forced by a supplier to pay more than the existing contract amount with the supplier for a given item.

Example: A general contractor agreed to buy a trash disposal system from a subcontractor. Relying on the subcontractor's bid, the general contractor was awarded the contract. After the award, the subcontractor demanded a higher price, which the general contractor agreed to pay. The court found that the agreement to pay the higher amount was unenforceable because there was no consideration.

What is "Specific Performance" as a Legal Remedy?
"Specific performance" is a specialized remedy used by courts when no other remedy (such as money) will adequately compensate the other party. If a legal remedy will put the injured party in the position he or she would have enjoyed had the contract been fully performed, then the court will use that option instead. The most common reason courts grant specific performance is that the subject of the contract is unique. When a contract is for the sale of a unique property, mere money damages will not remedy the purchaser's situation.

Example: Rina offers to buy Beth's house and Beth accepts, but later decides to keep the property. Real estate is considered to be unique. Since there is no other piece of property or house exactly like Beth's, Rina may be entitled to specific performance on the contract. Beth would be compelled to go through with the sale.

Courts will enforce specific performance only if the underlying contract was fair and equitable. Other commodities that courts have found to support specific performance include works of art, custom-made products, and goods in short supply.


Is the Bidding Process the Same for Private and Government Contracts?
No. Construction contracts may fall into one of two basic categories:

(1) public contracts, where the party requesting bids is a government agency; and

(2) private contracts, where none of the parties to the bidding process is a government agency.

The bidding process in connection with public contracts is generally very formal, with a raft of existing rules and regulations that must be strictly followed in order to emerge with the winning bid.

In connection with private contracts, the bidding process is less formal and not generally constrained by detailed government-imposed rules and regulations. In the private sector, the owner or prime contractor requesting bids has wide latitude in setting its own rules for soliciting bids, and in selecting among the various bids submitted. However, this latitude in the private sector is not completely unbounded. In connection with major projects, it is wise to have a construction lawyer review bid solicitation documents for compliance with state and local laws and customs.

Top 10 Reasons to Avoid Breaching a Contract

1. YOU LOSE ALL THE WAY AROUND. You could end up spending much more time, money, and mental and physical energy resolving the breach than you would have spent performing your obligations under the contract.

2. PUNITIVE DAMAGES. You could be ordered to pay punitive damages, which are not limited by the amount of the other party's losses and can be very significant
3. COMPENSATORY AND CONSEQUENTIAL DAMAGES. You could be forced to pay money damages to the nonbreaching party, in an amount that puts that party in as good a position as it would have been in were it not for the breach.

4. CONTEMPT. If you don't obey the court's order, you could be held in contempt, fined, and/or imprisoned

5. SPECIFIC PERFORMANCE. Depending on the nature of the contract, you could be ordered by the court to perform your obligations under the contract.

6. LEGAL FEES. You could incur significant legal fees.

7. TIME AWAY FROM YOUR BUSINESS. If sued, you could be forced to spend valuable time away from your business in order to respond to discovery requests, attend depositions, and litigate the matter in court.

8. LAWSUITS. You could be sued.

9. YOUR BUSINESS RELATIONSHIPS. You could sever your business relationship with the other party.

10. YOUR BUSINESS REPUTATION. You could damage your reputation in the business community

Nominal damages are token damages awarded when a breach occurred, but no actual money loss to the non-breaching party was proven.

Liquidated damages are specific damages that were previously identified by the parties in the contract itself, in the event that the contract is breached. Liquidated damages should be a reasonable estimate of actual damages that might result from a breach.

Specific Performance. If damages are inadequate as a legal remedy, the non-breaching party may seek an alternative remedy called specific performance. Specific performance is best described as the breaching party's court-ordered performance of duty under the contract. Specific performance may be used as a remedy for breach of contract if the subject matter of the agreement is rare or unique, and damages would not suffice to place the non-breaching party in as good a position as they would have been had the breach not occurred.

Cancellation and Restitution. A non-breaching party may cancel the contract and sue for restitution if the non-breaching party has given a benefit to the breaching party. "Restitution" as a contract remedy means that the non-breaching party is put back in the position it was in prior to the breach, while "cancellation" of the contract voids the contract and relieves all parties of any obligation under the agreement.

What Happens After a Contract is Breached?

When a breach of contract happens (or when a breach is alleged), one or both of the parties may wish to have the contract enforced on its terms, or may try to recover for any financial harm caused by the alleged breach.

If a dispute over a contract arises and informal attempts at resolution fail, the most common method used to resolve contract disputes and enforce contracts is through lawsuits and the court system. If the amount at issue is below a certain dollar figure (usually $3,000 to $7,500 depending on the state), the parties may be able to use "small claims" court to resolve the issue.

Courts and formal lawsuits are not the only option for people and businesses involved in contract disputes. The parties can agree to have a mediator review a contract dispute, or may agree to binding arbitration of a contract dispute. These out-of-court options are two methods of "alternative dispute resolution."

No matter what avenue is chosen to remedy a breach of contract, the non-breaching party will most likely be entitled to some kind of remedy under the law.

Remedies for a Breach of Contract

When an individual or business breaches a contract, the other party to the agreement is entitled to relief (or a "remedy") under the law. The main remedies for a breach of contract are (1) damages, (2) specific performance, (3) or cancellation and restitution.

Damages

The remedy that is most often used for a breach of contract is the remedy of damages -- payment in one form or another, made by the breaching party to the non-breaching party. There are many kinds of damages, and generally speaking damages may be very specific to the kind of breach that has occurred. Following are some guidelines on damages.

Compensatory damages aim to put the non-breaching party in the position that they had been if the breach had not occurred.

Punitive damages are payments that the breaching party must make, above and beyond the point that would fully compensate the non-breaching party. Punitive damages are meant to punish a wrongful party for particularly wrongful acts, and are rarely awarded in the business contracts setting.

"Breach of Contract" and Lawsuits

"Breach of Contract" and Lawsuits
In a perfect business world, agreements would be entered into, both sides would benefit and be pleased with the outcome, and no disputes would arise. But in the real business world, delays happen, financial problems can crop up, and other unexpected events can occur to hinder or even prevent a successful contract from being carried out. Following is a discussion of the legal concept of "breach of contract," and your options should such a breach occur.

What is a "Breach of Contract"?

A business contract creates certain obligations that are to be fulfilled by the people or companies who entered into the agreement. In the eyes of the law, a party's failure to fulfill an end of the bargain under a contract is known as a "breach" of the contract. Depending on the specifics of the contract, a breach can occur when a party fails to perform on time, does not perform in accordance with the terms of the agreement, or does not perform at all. Accordingly, a breach of contract will usually be categorized as either "material" or "immaterial" for purposes of determining the appropriate legal solution or "remedy" for the breach. [More on legal remedies for breach of contract can be found below.]

To illustrate how a breach of contract might happen in the real world, assume that R. Runner contracts with Acme Anvils for the purchase of some of its products, for delivery by the following Monday evening. If Acme delivers the Anvils to Runner on the following Tuesday morning, such a breach of the contract would likely be deemed immaterial, and R. Runner would likely not be entitled to money damages (unless he could show that he was somehow damaged by the late delivery). However, assume now that the contract stated clearly and explicitly that "time is of the essence" and the anvils MUST be delivered on Monday. If Acme delivers after Monday, its breach of contract would likely be deemed "material," and R. Runner's damages would be presumed, making Acme's liability for the breach more severe, and likely relieving Runner of the duty to pay for the anvils under the contract.