Small Claims - Contracts

If you are drawing up a contract yourself, understand that you can do it alone. While you are drafting, be sure to think of what you will do if something goes wrong with the contract and try to specify some of these terms in the agreement. Remember to keep the monetary guidelines in mind, and consult a Plan Attorney for advice where the contract amounts are in excess of several thousands of dollars.

If you are going to attempt to draft a contract yourself, you might keep these guidelines in mind [and keep your fingers crossed.] Each contract should contain the following terms in writing:

1. The Offer, including all terms and deadlines;
2. The Consideration;
3. The manner of acceptance;
4. What will happen if there is no performance or only partial performance; and
5. All other relevant terms you can think of with respect to defective goods, warranties, labor, future training and all types of problems which may be encountered in the future.

Be sure to sign and date it, and it is a good idea to have a witness who may testify later as to your intentions and your signature and the writing if ever necessary.

Using Attorneys to Draft or Review Contracts

One word about using your Plan Attorney to review documents, if you are a member. Most attorneys have probably been asked to review contracts and inevitably they have heard the words "It's just one sentence or paragraph." or "It's just a page." or "It's not a big deal." Understand that this request puts an attorney in an awkward situation. First, if an agreement is only one sentence or one paragraph or even one page, it probably does not contain enough provisions to properly protect your rights.

Second, every attorney approaches a review or drafting of contracts as if the deal will go wrong. That is what you are paying for in asking for the review. Your question "Please review this contract and see if it is all right." really means to a lawyer "Please review this agreement and make sure that it contains all of the provisions necessary to protect me in the event something goes wrong." When stated this way, you can see the attorney's work is no longer "just a few minutes to review the agreement."

An attorney must review the document and consider all of the things that can go wrong and then provide directions, in the contract, as to what the parties will actually do if certain items do go wrong. Acceptable terms and solutions to things that can go wrong must be researched.

Your expectations may be way off base if you are not willing to retain an attorney to review a document, but expect the attorney to spend several hours doing so. This is especially true if the agreement is one page or one paragraph. If you are not prepared to incur these costs, it is extremely unfair to expect the attorney to devote his/her time to protecting you.

Points to Remember

• You can write a contract without an attorney.
• Be sure to sign the contract, date it, and have a witness.
• Attorneys review or draft a contract to protect you if something goes wrong.
• Expect to pay for several hours of an attorney's time to review or draft a contract, even if it is only a page or two.

Contracts Whose Terms Are Broken

What can be done when the terms of a contract are broken by another party, or when you may need to break the terms yourself?

First, if you need to break the terms of a contract, or the other party is seeking to do so, analyze the contract to make sure it had a valid offer, valid acceptance, and consideration. If so, a party may be able to get out of the deal without incurring any damages.

Second, illegal contracts are never enforceable, for example, gambling debts.

Third, contracts in which fraud or misrepresentation exists may not be enforceable, or certain terms may not be enforceable.

Fourth, acts of God may excuse performance.

Fifth, certain assignments of contracts are not allowed.

Let's look at an example of breaking a contract. Assume that you are in a rental lease with a landlord for six months and you get a job in another state paying a lot of money, one month after signing the lease. Can you be sued if you do not honor the terms of the lease for the remaining five months?

The answer is yes. Your personal situation does not affect the validity and enforceability of your contract, nor does it create any excuses for your performance.

If you did not pay, and left early on your lease, you could be sued for the remaining rent, the costs of litigation, possibly costs in repairing the premises and other costs in readying the premises for a new tenant. In this case you should not sign a contract expecting to get out of it.

As an another example: If a person agrees to buy 50 gallons of paint from you and after buying 20 gallons, he does not pay for the remainder, can you sue? Yes. Keeping in mind the dollar amounts will tell you if you can do it yourself or whether you may need an attorney.

You can sue for the benefit of the bargain, i.e., the amount you expected to make in selling the paint, less, of course, the costs you would have spent to get the paint. You may also sue for the "out-of-pocket rule", that is, the costs which you spent in buying the paint, if you did so, to sell to this person.

Alternately, if the person took delivery of all 50 gallons of paint and did not pay, what should you do? First, look in the mirror and ask yourself why you released the paint without at least a down payment which would cover your costs. Second, you could decide to sue. Based on the value of the contract, you might decide that this is a candidate for a lawsuit for you to bring in Small Claims. You might review the discussion in the Small Claims section for information on how to sue.

What if the person in our example agreed you provided the 50 gallons, but accused you of misrepresenting its quality to you. Would this excuse the person from having to pay for the paint? This is entering a complicated area, because of the many interpretations in contract law cases. You should expect that if you sue someone, fraud or misrepresentation is a widely used defense which may be used by that person to attempt to defeat your lawsuit.

Whether you made a misrepresentation about the paint depends upon the evidence. Courts will look at what you told the person about the paint, weeding out any sales puffery ["it will spread easier than any other paint", etc.] and examining the defect to determine the extent of the fraud. Of course, these types of lawsuits may get expensive and may often require testimony of expert witnesses at a cost of several thousand dollars per half day of court testimony to support your case. A person seeking to not pay based on fraud may take the case to extremes, depending upon the price of the contract.

If you are faced with fraud claims, you ought to make a determination if the claims are real or not based on a reasonable person. Call the paint manufacturer to see if they have ever had such problems. Before you decide what to do, however, keep in mind the dollar amounts to see whether it is cost effective to retain a lawyer or whether you can handle it yourself in Small Claims Court.

Settling Contract Disputes

Often, you may be able to settle your case against the person whom you are suing, or who is suing you in a mediation proceeding of some type. This is encouraged in almost all courts and many cases, regardless of size, are forced through some type of mediation or arbitration. If you are forced to retain a lawyer, you should give careful thought to the idea of encouraging your lawyer to pursue mediation. However, it may be that the other side may not want to participate in such a meaningful proceeding.

Points to Remember

• If you must break a contract, analyze the contract to be sure it has a valid offer, acceptance, and consideration.
• Illegal contracts may not be enforceable.
• Contracts in which fraud or misrepresentation exists may not be enforceable.
• Acts of God may excuse performance.
• Mediation may be a good choice for settling a contract dispute.