Wednesday, February 29, 2012

Just Pay The Attorney Consultation Fee: You'll Thank Me Later

There is a saying among attorneys that lawyers do well in good economic times and bad. Of course, the latter hasn't been so true in the present bad economic environment, simply because collecting what is owed has been more challenging for attorneys than in the past. But for some, the adage seems to be backwards; that in good economic times, one does not need an attorney. This could not be further from the truth. 

As a litigator, it never ceases to amaze me when a new client walks in my door with contract in hand asking me to defend a lawsuit that has been filed against him, and one look at the contract reveals  the clients' ignorance of the contract's contents or the obligations the client agreed to. 

In good economic times, new business associates are giddy with anticipation when they venture into a new agreement together. They are in the honeymoon phase, shaking hands, back slapping, and congratulating each other on their new contractual arrangement, and pouring the champagne to celebrate how much money they are going to make. However, too often one party to a contract is handed a prewritten contract, that, though there may be some negotiation about the salient terms (e.g. how much is the monthly rent, what percentage of profits am I entitled to, etc.), they do not pay any attention to the "boiler plate" language, or do not recognize the obligations to which they are agreeing. This especially occurs where one party has more "bargaining power" than the other.  Generally, it is usually the small business owner who forgoes consulting an attorney to "save money." Thus, while everyone recognizes the need for the pre-nup, love is blind and one party may be blinded as to what the pre-nup should or should not say. 

Every party to a contract should consult an attorney to go over the contract with a fine toothed comb. Parties to a contract should not rely on one attorney to draw everything up, because the attorney must have allegiance to only one party. The attorney either represents Party One OR Party Two, OR the attorney represents the corporation, in which case she is not an attorney for EITHER Party One or Party Two. Small business owners must consult an attorney of their own to avoid buyer's remorse when five years later the deal goes south in an economic downturn. Here are some real life examples I have encountered over the years. 

Client A recognized that forming a corporation provided a layer of protection to keep his personal assets separate from the obligations of the business. Client A formed a corporation and entered into a commercial lease agreement for the benefit of the business, in the business's name only, but then signed a personal guarantee.  Client A did not realize that a personal guarantee made his personal assets available for collection for the debts of the corporation. Had Client A come to me before signing the lease, he would have known what he was committing himself to, and could have avoided incurring thousands of dollars in legal fees.

Client B signed a 10 year commercial lease that stated if he broke the lease and vacated the premises prior to the 10 year term, then even if the landlord re-leased the premises at exactly the same or even higher rent, Client A would still be held to the balance owed for all future lease payments on the 10 year lease. Had Client B come to me before signing the lease, he would have understood this commitment, and could have perhaps negotiated a shorter lease term with an option to renew.

Client C signed a signature page presented to her by her cousin without asking to see the full document. Nothing more need be said here.

Client D signed a purchase agreement for a condominium that stated he was obligated to pay even if he could not secure financing from a bank. Client D did not realize this, but would have if he had come to me before signing.

Client E signed a contract that stated any litigation arising regarding the contract was to be brought in Florida. I had to explain he could not file suit in Nevada, but had to find an attorney in Florida to bring suit there.

Client F was in the business of purchasing and selling real estate by borrowing money from others. Client F put the title in other's names, but believed he "owned" the property based on an oral agreement he had with these other people. Had he consulted me, I could have explained that courts do not recognize oral agreements for the transfer of real property. A written agreement could have been drafted to accomplish his goals and reasons for recording the title as he did.

A couple of things to note: Consulting an attorney before you sign a contract will not make you "bullet proof." Even if after getting the advice of an attorney, you are able to change the terms of the contract so they are more favorable to you (and that is not always possible depending on with whom you are negotiating), there are always arguments that can be made in litigation to challenge even the most "iron clad" contract.  An attorney also cannot tell you what the best business decision to make is, only you can make the business decisions. But an attorney can do two things: (1) Help you negotiate he best terms possible, and (2) explain the ramifications of the contract so you can make an informed decision before signing on the dotted line.