contract law

Creating Business Contracts That Won't Get You Sued

Thursday Bram — Thu, 25 Nov 2010 17:40:50 +0000

Link:

http://www.openforum.com/idea-hub/topics/managing/article/creating-business-cont...

For most small business owners, contracts are a necessary evil. You have to have something to protect you, but getting contracts written requires legal expertise and can get expensive. Many small business owners try relying on templates, but even a template can't cover all the contingencies that different companies can face. To make sure your business is truly protected by the contracts you rely on, you need to create contracts that are specific to how your company does business.

The Problem with Templates

When a new business owner is starting out, it is very tempting to just make use of a template or a standardized contract you can purchase online. Jeff Bonds, a lawyer with Newton, O'Connor, Turner & Ketchum, PC, points out the flaws in that approach: "First, with standardized online contracts, more often times than not, you usually get less than what you paid for in terms of effectiveness and quality."

There are more potential problems than can be listed, but generally, a contract customized to the way you do business will be more effective in ensuring that you won't have a problem down the road. Bonds points out a few of the potential problems: "Generally speaking, courts enforce commitments made in contracts. While a 'standard' downloaded contract may fit one's needs in some respects or have beneficial terms for the business, there may be significant terms which do not fit or that are not beneficial. If those terms are enforced, then the business suffers. Another problem is that a 'standard' downloaded contract may have terms enforceable in one jurisdiction but not enforceable in another. If the beneficial terms of a contract are not enforceable, this can be just as harmful to the business as if harmful terms are enforced. A problem that people do not think about is that the terminology used as well as the applicable law in a jurisdiction can change over time, and therefore a 'standard' downloaded contract written 10 years ago may use language that is no longer commonly used or contain terms that are not allowed due to a change in the law. This can give the impression that your business may not be on top of things or worse, the 'dated' terms may now be unenforceable. While 'standard' downloaded contracts may appear to save a few bucks now, one may pay a lot later to cure the problems caused by one of these clumsy or outdated contracts."

Getting Your Contract in Order

Lawyers specializing in business matters can draft a contract that you can use regularly. Bonds says, "The 'right lawyer' is the one who is excellent in a given area of the law, who the owner/manager communicates easily with, and who can be trusted. With this in mind, every business owner/manager should develop a relationship with a business attorney who can give the owner/manager recommendations with regard to purchasing legal services. Before using a particular attorney or firm, a person should ask others about the reputation of the attorney or the firm. Also, the attorney that you choose to help you should be one that is skilled and experienced in the area of law to which the contract applies. For example, if you need an employment contract for a future employee, then you should seek an attorney specializing in employment law, not one specializing in mergers and acquisitions. This brings up the advantage that firms like ours have over solo practitioners in that we have attorneys working together [who] have specialties in different areas. This allows our business clients to know that regardless of the type of contract they need, they will get an attorney experienced in that area that will provide an excellent product."

The particular problems you may need to consider in your industry may make it worthwhile to seek out an attorney who has experience working in your industry in the past. It is also necessary to find someone local to your geographic area — there can be a variety of differences in laws in different states, making it important to have a local expert. One of the fastest ways to find an attorney can be to ask your network for recommendations. You may need to winnow out some of the suggestions you get, but a professional recommendation can help you narrow down the field much faster than an online search or a phone book might.

A Contract Review

Bonds notes that for any contract beyond your standard, it's worthwhile to have it reviewed by a legal expert. "Unless they have a law degree or years of experience, every small business owner, if they are planning on growing a successful business, should seek help from an attorney with any contract they intend to use. When the business owner cannot afford to have an attorney review every contract, the owner should, at a minimum, obtain a review of those contracts which involve large financial commitments or key relationships."

Down the road, you may find that a client or customer has a problem with your standard contract. Bonds recommends getting a lawyer on board immediately: "The first step is to contact an attorney for help. The attorney may be able to help find a business solution on which both parties to the contract can agree. If not, then the attorney can give the owner/manager an assessment of the situation and guidance through a dispute resolution process. One thing is certain: The problem will not go away on its own. The owner/manager must go through the expensive process to deal with the issue like they would any other obstacle to their business. With this in mind, owners/managers should recognize that they should take active measures before problems arise in order to reduce or eliminate problems in the future. The prevention is ALWAYS cheaper than the cure!"

This article is from Thursday Bram of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

I Shouldn't Have to Pay for This! A Consumer's Guide to your Rights

Nora Dunn — Wed, 19 Dec 2007 23:06:55 +0000

If you buy something that stops working immediately and the seller refuses to refund your money, do you still have to pay for it?

If a door-to-door salesperson lures you in with their wares, only to leave you with buyer's remorse days later, can you cancel the contract?

If you receive merchandise in the mail which you didn't order, and shortly thereafter receive a bill for it, do you have to pay for it?

In many of these cases, the answer is no. Here are some instances where you may have a legitimate case against merchants:

Breach of Warranty

There are two types of warranties worth mentioning here: Implied Warranties and Express Warranties.

Express Warranty

This is a promise (or warranty) expressed directly by the manufacturer or seller. Although the word "warranty" or "guarantee" is not necessary in the language, there is nevertheless a promise of sorts being made. "If xyz fails to operate within two years of purchase, we promise to repair or replace it free of charge", or "we guarantee this table against all defects for one full year from purchase" are examples of express warranties.

Implied Warranty

Implied warranties are a little more in the grey zone. No specific language is made by the seller guaranteeing the item, but such warranties are, well, implied.

For example, if you buy a refrigerator, there is an implied warranty that it will cool your food - to at least 45 degrees or less.

Enforcing Warranties

In most cases, simply bringing the defect to the attention of the seller or manufacturer is enough to have the item repaired or replaced. If they don't cooperate however, you have three options: Sue the manufacturer or seller, resolve the dispute through arbitration, or stop making payments on the item.

Suing

In most cases you have to sue within a certain time frame of purchasing the item, usually four years or so. You will also have to prove that you notified the seller of the problem and they refused to help.

Arbitration

Better Business Bureau has a mediation program that may assist you in your search for arbitration. In some cases you must go through the arbitration process before you can sue.

Stop Making Payments

Please be very careful in expediting this option: if you borrowed money to pay for the item, the lender may not care if it works or not - they want their money! Your credit rating may be at stake, in addition to interest charges and penalties being levied. In fact, the lender can sue YOU for ceasing your payments!

The problem must be substantial and you must have gone through all the proper channels of trying to have the item repaired, given the seller a reasonable chance to repair the time under warranty, and you cannot have abused or damaged the product. Even so: buyer beware!

Your Car Is A Lemon

I cover this area in another article, so I won't go into it in much detail here.

Suffice it to say that beyond the standard warranty programs, there can be "secret warranties" available to fix your problems, as well as lemon laws in most states to help you navigate your way through arbitration with the seller of a crappy car.

Fraud

There are laws against unfair and deceptive behaviour on the part of sellers, including the following:

Contracts that contain pages upon pages of complicated legalese masking an unfair term.
High pressure sales tactics.
Exploiting groups like children, the elderly, or mentally or physically disabled people.

Each state is different, so you need to look up the Unfair and Deceptive Acts and Practices (UDAP) laws for your area to know how best to proceed in these instances.

In many cases, you'll end up in small claims court to see any relief from fraud, and if you are in a financial pickle with collection agencies or debtors, simply not paying the debt is (again) a risky strategy.

If you feel that you are a victim of fraud, you may find relief from the National Fraud Information Centre, who provides information on how best to proceed and assistance with complaints.

Cancelling Contracts

Most contracts are binding from the time you sign them. (That's why you signed)! But they also generally have a "cooling-off period" built into them that allows you to get out of the contract using proper measures within three days of signing.

Door to Door Sales Contracts

The Federal Trade Commission gives you a three day cooling-off period to cancel such contracts, in the following cases:

The door-to-door contract is for $25 or more.
Contracts made elsewhere like at a restaurant, hotel, or friend's place also qualify.

Sales made over the phone, or at auctions or fairs are generally exempt from this cooling off period. But you may still have some relief from these types of sales, so it's worth your time and energy to investigate.

After cancelling, the seller is obligated to refund your money within 10 business days, and they must pick up the items (or reimburse your cost of shipping them back) within 20 days.

Under state law, you may be allowed to cancel the following contracts which are not covered under other jurisdictions:

Timeshares
Health club memberships
Dating services
Credit repair services
Dance lessons (although my gosh - why would you cancel dancing lessons)!
Camping memberships

Cancelling Contracts

Although a phone call (with proper detailed records of who you spoke to and the nature of the conversation) is a legitimate way to start, you must get something in writing! Whether it is a cancellation form provided by the seller, or a formal letter written and signed by yourself confirming the conversations, make sure you retain copies of everything sent and received.

And although in this day and age email and faxes are quick and easy, it is best to send any documentation that may end up as legal evidence by good ol' snail mail.

Contract Defences

Cooling-off period or not, you may have a legitimate case for cancelling a contract under the following conditions:

Incapacity - If you can prove you didn’t have the mental capacity to enter into a contract, you might be off the hook.
Minors - Minors aren't able to enter into binding contracts in most cases.
Duress - Being forcibly coerced into signing a contract is grounds for nullification.
Fraudulent Misrepresentation - Being lied to about critical contract terms when you had to rely on their information to make your decision is illegal.
Unconscionability - If the bargaining process was extremely unfair or the contract terms unbearably unbelievable, it's unconscionable.

You Didn't Order It!

If you receive an item and subsequent bills for something you didn't order, you certainly don't owe them for it! It is legally considered a gift. (But beware: you may have filled out some sweepstakes form or ticked a box on a subscription request that indicated you did in fact order the item, so read the fine print).

In order to remedy a legitimate mail-order dispute, simply write the company and state that you did not order the item and that you consider it a gift and are not obligated to pay for it. In order to remedy a legitimate mail-order dispute, simply write the company and state that you did not order the item and that you consider it a gift and are not obligated to pay for it. You can also insist on the seller providing proof of your ordering the item if the hassles continue.

Layaway Plans

The beauty of a layaway plan is that you haven't purchased the item - you are simply putting it on hold for a certain period of time. So when push comes to shove, you don't have to pay for it!

If you are paying on an instalment program where the seller keeps the item as you pay it off piecemeal, then you will likely have a written layaway agreement, which you should read thoroughly to determine your rights if you no longer want the item. At worst, the seller may have the right to retain a service fee of sorts before refunding the rest of your money.

In all cases, be careful about simply refusing to pay any debts accrued for the above items. Your lender usually doesn't care about whether or not you were coerced into the deal or not: they want their money! In some cases, you can contact your lender and describe the situation to them (again recording all details and confirming with a written follow-up letter), and they may allow you to suspend payments until the dispute is settled.

Some Resources to aid your Crime Fighting Plight:

Federal Trade Commission

Direct Marketing Association: For complaints about mail-order companies and direct marketers.

United States Postal Inspection Service (USPIS): To address fraudulent promotions offered by mail.

National Fraud Information Center

This article is from Nora Dunn of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: