Contract Law         

 

Contracts...
An Overview
by Robert A. Livingston

The word contract scares many. It makes some uneasy and others just ignore there is such an animal! Why is this the case? There are many reasons. Among them are:

1) Contracts are too complicated,
2) Contracts are too costly to draft, and
3) Contracts are too costly to enforce.

Also, it is often the case that contracting parties fail to draw up a written agreement. There are many reasons for this neglect:

1) Contracts are too complicated,
2) Contracts are too costly to draft,
3) Contracts are too difficult and costly to enforce,
4) The persons involved "trust" each other and see no need for a written instrument, and
5) They fail to foresee or understand the benefit of "getting it in writing."

Often, the agreement is that "we will work things out as time rolls along." Actually, "agreeing to agree" amounts to "agreeing to nothing!" The fact is, more often than not, things change and 'stuff happens.' Examples include:

1) Memories become blurred as to what exactly each parties' responsibilities were,
2) Intentions and verbal communications are misinterpreted,
3) The negotiating power of the parties often, if not always, changes with time,
4) Costs are miscalculated and/or misrepresented,
5) Unanticipated competition in the marketplace arises, e.g., new competitors emerge, technological breakthroughs of existing competitors, etc.,
6) A party is unable to deliver part or all of agreed contribution(s),
7) Uncontrollable circumstances or events change or terminate the ability to continue specified activities, and/or
8) The contractee's spouse has an affair with his trustworthy partner.

The consequences are obvious--monetary losses, unwanted lawsuits, terminated friendships, stress, etc..

In still other instances people sign contracts and have little or no understanding of what or why they signed! Worse, they do not foresee the possible ramifications of their signing. It may be shrugged off as "just another form," or "just some of the necessary red tape."

Although alien and disturbing to many, let's face it, contracts are a fact of business life. The best approach then, to minimize the negative aspects here-to-for mentioned, is to grasp at least a functional understanding of contracts, i.e., one must familiarize himself to the extent that he will become "functionally contract literate."

What is that? That means he will be able to tell if he is the "duper" or the "dupee!"

In this discussion about contracts the objectives will be to:

1) Eliminate some of the mystique and fear often associated with contracts,
2) Enable a more functional understanding of contracts,
3) Enable a better communication and agreement between the contracting parties,
4) Enable better communication between laymen and lawyers,
5) Reduce stress, broken friendships, and lawsuits,
6) Enable the businessperson to feel confident and protected in his business activities, and the bottom line,
7) Make a business more cost effective.

Contract Basics

A contract is an agreement between two or more entities to do or not to do a certain thing. An entity is a person or corporation.

Contracts may exist between two or more people, corporations, or combinations of the two.

Technically, the agreement (promise or set of promises) must create a legal obligation for the performance of a defined duty, or duties, by one and/or all parties involved. A legal obligation is an obligation that is enforceable under law.

A contract may be made verbally or in writing. In some instances, the law demands that there be a written instrument to define an agreement. Where the law directs this action, a verbal agreement would not be enforceable.

There are six basic elements that all contracts should contain:

1) An offer,
2) Acceptance of the offer,
3) Consideration,
4) A declaration of legal capacity,
5) The legality of the subject matter, and
6) A written instrument (if required by law).

1 & 2) The offer and acceptance elements work hand in hand and establish that the parties involved do, in fact, agree to the same thing, i.e., that they mutually understand what it is that is being offered and accepted. The offer itself is basically a conditional promise. That is, a promise that is only carried out if certain conditions are met.

Acceptance is established by the verbal utterance of the word "yes" to the offer, or by signing one's name to the written agreement.

3) The consideration element of a contract is the return promise made by the promisee. Consideration is the legal benefit, tangible or intangible, and with no regard as to the degree of its value, that the promisor receives from the promisee. It is the part of a contract where bargaining power usually emerges as the deciding factor as to exactly what the considerations will be.

For example, a publisher (promisor) may offer to pay a songwriter (promisee) a certain percent of the gross income from one of his songs if the songwriter agrees to assign the rights of his song to the publisher.

The contract is put in writing. It is read, understood, and signed by both parties.

In this example, the offer is made by the publisher. The publisher's offer is to pay the songwriter a specified percent of the gross income from the song. The consideration or return promise is made by the songwriter. The songwriter's consideration is to assign the rights in the song to the publisher. Acceptance is then confirmed by the signing of the agreement.

4) A statement declaring that the parties have the legal capacity to enter into a contractual agreement is the fourth element of a contract. However, even when this statement is included, it does not necessarily assure that the parties are, in fact, of legal capacity. In general, persons who are minors (i.e., under the age of 18 in most states), under guardianship, or mentally ill or defective, would not be of legal capacity. If any of the parties involved were not of legal capacity at the time the agreement was made, it would be viewed legally as though a contract had never existed.

5) The fifth element needed to assure the existence of a contract is that of legal subject matter. This means that the parties cannot agree to do something illegal.

6) The last element, the existence of a written instrument, is only applicable where the law directs this action be taken...

The above is only a partial example excerpt...

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Contract - A Closer Look

 

The Songwriter/Publisher Contract
by Robert A. Livingston

A Songwriter/Publisher Contract defines the agreement between a songwriter and his music publisher. We are all familiar with what a songwriter is, but a music publisher may not be so thoroughly understood.

A music publisher is a business that secures the legal rights to musical compositions and exploits such rights with the intention of making a profit. Or, a person, called a "self-publisher," who engages in the same activity. As copyright proprietor, they administer the business and financial aspects of publishing that may include:

1) Registering (and renewing pre 1978) copyrights,

2) Securing licensing agents with regard to print licenses, mechanical licenses, compulsory licenses, purchase licenses, transcription licenses, synchronization licenses, and performance licenses, e.g., coming into contractual alliance with mechanical rights agents, performance rights societies, and with foreign publishers,

3) Coming up with the appropriate contracts to assign rights in copyright via licenses to music users, e.g., mechanical licenses, synchronization licenses and print licenses…and keeping records of any right transfers, assignments, or mortgages,

4) Obtaining record releases,

5) Collecting song incomes and royalties from licensed agents, e.g., royalties from publishing, performance, mechanical, print, synchronization, merchandising, etc.,

6) Auditing licensed agent representatives to insure they are paying proper royalties and deducting correct amounts for administrative service charges,

7) Accounting for royalties collected, e.g., to songwriters and co-publishers,

8) Reporting to the IRS on Form 1099-MISC certain royalties, independent contractor fees, salaries, commissions, interests, rents, pensions, medical assistance programs or health, accident, and sickness insurance programs, certain direct sales of consumer products for resale, and other compensations paid out. Each recipient is reported separately and the report must include the recipient's name, address, taxpayer identification number (social security number for sole proprietorships), and the total paid,

9) Paying the required employment and other taxes to the proper tax agencies, and

10) Distributing the proper royalty payments, accompanied by a royalty statement, to affiliated songwriters and co-publishers.

Some publishing deals only involve a music publisher handling a specified portion of the above listed overall responsibilities. For example, one limited deal is called an "administration deal." Here, only a limited supervision of the song catalog would be handled, e.g., copyright registration and financial accounting. While obtaining record releases would be handled by the songwriter/artist or label/production company. This often happens where the songwriter/artist owns his own production company and label.

A full-time top rated music publisher will receive up to 200 unsolicited songs each week. The publisher will also receive many other new songs from songwriters they deal with on a regular basis.

When a publisher accepts a song and a contract is signed, the song becomes a part of the publisher's catalog.

Further, a publisher is the one who effectuates the publication of a musical composition. Publication, according to copyright law is:

1) The distribution of copies or phonorecords (e.g., CDs and music video DVDs) of a work to the public. The distribution may be by sale or other transfer of ownership, or by rental, lease, or lending, or

2) The offering to distribute copies or phonorecords to a group of persons for the purpose of further distribution, public performance, or public display (however, a public performance or display of a work does not of itself constitute publication.)

Now that we understand who the parties are in a Songwriter/Publisher Contract, let us look at what is involved from the beginning.

Contract Negotiation and Content

At the start, all terms of a contract are negotiable. Although it is possible for a novice songwriter to acquire a "fair" contract from an "honest" publisher with his first signing--it does not always happen. Even honest publishers are going to first look out for themselves and negotiate a deal that is not detrimental, or potentially detrimental, to themselves. The dishonest ones, however, look out only for themselves.

So, the depth of the contractee's music business experience is important. Past experience helps in negotiating fair contracts. Further, it is predominately a contractee's past track record that will establish his bargaining power. For these reasons the operation of contract bargaining between songwriters and publishers varies greatly.

Here then, are two points of major concern:

1) Bargaining power, and

2) The contents of the final considerations of the agreement.

Attempts at exercising bargaining power may become apparent at the outset. The songwriter may be asked to sign an industry form contract that is said to be "standard for everyone." He may be led to believe it is only a formality, and told in so many words that this is his "chance of a lifetime" and not to sweat the small stuff.

If the songwriter asks any questions or proposes changes the publisher might accuse the songwriter of insinuating that he (the publisher) is dishonest. This is a ploy by the publisher to put the songwriter on the defensive. This enhances the publisher's position of strength and authority. The songwriter is made to feel that any objections will jeopardize the whole "deal."

Publishers will also exert authority by having the signing at their office. This further enhances negotiating strength via the psychological edge of being on their own turf.

Many experienced songwriters will ask for time to read, study, and go over the contract with their family, others who are directly or indirectly involved, and with their legal representative. This would enable a thorough understanding of the contract's content and consequences.

Other songwriters will hire a competent music attorney to study the contract for them and to do all the negotiations. This completely removes them from any confrontations. They can remain "friends" with the management of the publishing company while their representative hammers out the final agreement.

Legitimate publishers will respect sound business procedures implemented by a songwriter.

Experienced songwriters never rush into any contract without completely understanding its ramifications both short and long run. Total evaluation and understanding may take several days. After reading, studying, and discussing the contract with a competent music attorney they often put the contract aside for a few days, clear their minds, and then look at it again. They would talk to others who are currently under contract with the publisher. They would try to look at all...

The above is only a partial example excerpt...

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The Songwriter/Publisher Contract

 

 

 

   
How To Negotiate
A Recording Contract
by Robert A. Livingston

A Recording Contract is a written document that outlines, identifies, describes, defines, and governs the business relationship between a recording artist (also called a royalty artist) or group, and a record company. The contract is called an executory agreement, i.e., it is an agreement that is yet to be executed or performed.

To better understand this business relationship, it is important to understand what it is that a record company (also called a "label") does. A record company is an enterprise whose business activities may include:

1) Acquiring the rights to material (e.g., songs, master records, videos, etc.),
2) Locating and signing talent,
3) Producing masters,
4) Manufacturing records,
5) Releasing records,
6) Promotion,
7) Distribution,
8) Sub-publishing,
9) Publicity,
10) Public relations,
11) Accounting for royalties collected,

12) Reporting to the IRS on Form 1099-MISC certain royalties, independent contractor fees, salaries, commissions, interests, rents, pensions, medical assistance programs or health, accident, and sickness insurance programs, certain direct sales of consumer products for resale, and other compensations paid out. Each recipient is reported separately and the report must include the recipient's name, address, taxpayer identification number (social security number for sole proprietorships), and the total paid,

13) Paying the required employment, and other taxes to the proper tax agencies, and

14) Distributing the proper royalty payments, accompanied by a royalty statement.

Record companies may be large (majors or minors) or small. Small record companies have limited release objectives and capabilities.

It is the business of the record company to exploit the rights they acquire with the intention of making a profit. As the proprietor of these rights they administer the related business and financial aspects concerned. The label will not usually sign an artist unless they are fairly certain the artist will engender wide and strong acceptance. This is because of the high cost (from $300,000 up) of breaking a new artist.

The type of rights appropriated by the record company from the artist are defined by the recording contract. The contract contains many clauses because it covers a wide range of agreement.

Contract Negotiation and Content

At the start, all terms of a contract are negotiable. Although it is possible for a novice artist to acquire a "fair" recording contract from an "honest" record company with his first signing--it does not always happen. Even honest record companies are going to first look out for themselves and try to negotiate a deal that is not detrimental, or potentially detrimental, to themselves. The dishonest ones, however, look out only for themselves.

So, the depth of the contractee's music business experience is important. Past experience helps in negotiating fair contracts. Further, it is predominately a contractee's past track record that will establish his bargaining power. For these reasons the operation of contract bargaining between an artist and a label varies greatly.

Here then, are two points of major concern:

1) Bargaining power, and

2) The contents of the final considerations of the agreement.

Attempts at exercising bargaining power and maximizing the label's self-interests may become apparent at the outset. The artist may be asked to sign an industry form contract that is said to be "standard for everyone." He may be led to believe it is only a formality, and told in so many words that this is his "chance of a lifetime" and not to sweat the small stuff.

If the artist asks any questions or proposes changes the record company spokesperson might accuse the artist of insinuating that he (the record company representative) is dishonest. This is a ploy by the record company representative to put the artist on the defensive. This enhances the record company representative's position of strength and authority. The artist is made to feel that any objections will jeopardize the whole "deal."

Record company representatives will also exert authority by having the signing at their office. This further enhances negotiating strength via the psychological edge of being on their own turf.

Many experienced artists will ask for time to read, study, and go over the contract with their family, others who are directly or indirectly involved, and with their legal representative. This would enable a thorough understanding of the contract's content and consequences.

Other artists will hire a competent music attorney to study the contract for them and to do all the negotiations. For example, the experienced music attorney brings with him, not only experience, but clout. This would enable the negotiation of the largest advance and highest royalty rates possible. He would seek over scale wages for recording sessions. He would try to secure generous record promotion budget provisions and guarantees for concert touring, etc..

Also, having an attorney handle the negotiations would completely remove the artist from any confrontations with the record company. In this way, the artist is able to remain "friends" with the management of the record company while his representative hammers out the final agreement.

Legitimate record companies will respect sound business procedures implemented by an artist.

Experienced artists never rush into any contract without completely understanding its ramifications both short and long run. Total evaluation and understanding may take several days. After reading, studying, and discussing the contract with a competent music attorney, they often put the contract aside for a few days, clear their minds, and then look at it again. They would talk to others who are currently under contract with the record company. They would try to look at all the angles and consider the worst possible situations that might occur. Finally, they would try to minimize the probability and possibility of these distasteful situations ever happening.

Optimistic and positive attitudes are easier to maintain when all the bases have been covered.

Sometimes laws will override things upon which agreements are made. Sometimes agreements are made that are illegal and therefore will not be upheld in a court of law.

Sometimes the law allows for devastating things to happen to an artist even if it is not so stated in the contract. For example, the meaning of some words and/or phrases used in the contract may be defined by statutory law. These words and/or phrases may seem insignificant to an inexperienced artist. They could, however, result in long term grief!

A competent music attorney would be able to spot these "hidden" legalities and meanings and explain them to the artist.

Life will be easier to face when all the bases have been covered...

The above is only a partial example excerpt...

If you happened on this web page while surfing the Internet, and are interested in reading the full discussion, that discussion is found on the LaCostaMusic.com TMBIO Members Website...

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Then Go To This Web Page to Read the Full Commentary:

The Recording Contract