Top Six (6) Mistakes When Entering Into A Contract in Utah
(Examples are given below each one)
NOTE: The following is a general list, and YOU NEED AN EXPERIENCED ATTORNEY TO GUIDE YOU. Do not assume you can simply read this list and know what you are doing. There are many alligators in the swamp of contract law – do NOT get eaten alive. Call us to get you through that swamp. A little money spent now could save you TONS later.
#1: Failing to consider the choices of law.
- Mark, who runs an Idaho printing company out of Boise, calls Nancy in Salt Lake City, and offers her a job running Mark’s Utah operations. The pay will be $2,000 per month, plus commissions (about $4,000 per month).
- Nancy has a next-door-neighbor, George (“a really sweet and smart guy”), who does patent law.
- She goes to George’s home, and she tells him about the “great offer.” And she asks George if there is “anything special” she should put in her agreement with Mark. George says, “Well, just make sure you get what he’s going to pay in in writing.”
- Nancy, follows George’s advice, and she confirms the rate of pay via email with Mark.
- Although Mark is very wealthy, and Nancy does a great job for 90 days, Mark has only her half of what he’d promised ($6,000 instead of $12,000), so she quits.
- Naturally, Nancy hires George to sue Mark.
- (NOTE: George does not know Utah employment law, so he fails to claim constructive termination which is a claim that would allege Mark essentially forced Nancy to quit by not paying her; further, he never brings Utah Code Ann. § 34-28-5 to the court’s attention).
- After fighting with Mark’s pain-in-the-rear Utah attorney for over two years in a Salt Lake City district court, Nancy finally wins. She is relieved to get her $6,000 and her court costs and attorney fees paid by Mark.
- In other words, she got what she could get under Utah law (at least she thinks she does); but the Idaho law still would have been better even if George had done his job properly).
- So, what if Nancy’s email to Mark had stated Idaho law would be applied to their employment relationship, instead of Utah law?
- Well, let’s take a look at the Idaho law that could apply: “[If an employee wins in court, the court] may include all costs and attorney's fees reasonably incurred in connection with the proceedings and the plaintiff shall be entitled to recover from the defendant either the unpaid wages plus the penalties provided for in section 45-607, Idaho Code; or damages in the amount of three (3) times the unpaid wages found due and owing, whichever is greater. Idaho Code Ann. § 45-615.
- You see, she could have got $18,000, instead of $6,000.
- Also, even though there was nothing in writing saying Idaho law should apply, George should have gone down that road regardless.
- After all, Mark was in Idaho when he offered Nancy the job.
- Under many conditions, parties can choose the law that will apply, but if no law is chosen by them, there is an analysis the court must apply. Am. Nat. Fire Ins. Co. v. Farmers Ins. Exch., 927 P.2d 186, 188 (Utah 1996).
- Simply put: Nancy lost out because she failed to have the Idaho law applied.
#2: Failing to read where (in what state) the case must be litigated if there is a dispute.
- Mary has a lease on an expensive photocopier, which breaks down a lot, so Mary refuses to make her payments.
- She lives in Utah, and entered into her agreement with the photocopier company at her place of business in Sandy, Utah.
- To her shock, she gets sued in Minnesota.
- Can this happen? YES! Because that’s what her contract says.
#3: Failing to write a proper “liquidated damages provision.”
- In the month of August, John enters into a contract with Paul for the sale of John’s VW Beetle for $15,000.
- In the contract John writes: If Paul doesn’t pay me in full within 30 days, as a penalty to Paul, he must pay $20,000.
- When John sues Paul, Paul’s attorney sends John this quote: “[A}s a general rule, parties to a contract may agree to liquidated damages in the case of a breach, and such agreements are enforceable if the amount of liquidated damages agreed to is not disproportionate to the possible compensatory damages and does not constitute a forfeiture or a penalty. Young Elec. Sign Co. v. United Standard W., Inc., 755 P.2d 162, 164 (Utah 1988).
#4: Failing to write in what you want (you can often do this with a simple caret “^”).
- Alyssa is buying a car.
- She is given a form contract to sign.
- She very smartly writes this at the end of the contract: “Dealer agrees to give Alyssa three free oil changes, and will do all repairs on the car at half price for her for up to two years.” (If a dealer promises anything, PUT IT IN WRITING!)
- The salesman doesn’t even read the changes, but proceeds to send her to the sales office to “finish up the paper work.” The paperwork “gets done,” and she drives her car home.
- Ninety (90) days later, when Alyssa comes in for her first free oil change, the dealer screamed, but Alyssa shows them her contract. Who wins?
- Well, Alyssa should win because her words clearly show the parties’ most recent agreement, and court almost always go with the most recent agreement (unless what Alyssa wrote was essentially something out of bounds).
- Here is what the Utah law says: “Parties to a contract are obligated to understand the terms of the contract before affixing their signatures to it and may not assert ignorance as a defense. . . . Generally, a person who has had an opportunity to read a contract, is not misled as to its contents and has no confidential relationship to the other party, cannot avoid the contract based on mistake, absent circumstances excusing his failure to read the contract. Finally, “[b]efore [a handwritten change] will [will nullify a contract] it must materially alter the sense of the document and be made after execution and delivery.” Estate of Schmidt By & Through Schmidt v. Downs, 775 P.2d 427, 430 (Utah Ct. App. 1989).
- It would be very hard to argue that the free oil changes and ½ price repairs would materially alter the agreement.
- Had Alyssa written in, “And the sales manager agrees to baby sit my two-year-old every Friday night for the next two years,” that would be different.
- The caret (“^”) with a simple word or two above it is a good way to save yourself a TON of headache.
- If you are given a form contract to sign which says something such as, “LOSER PAYS ALL LEGAL FEES” and you cross out the word ALL and above it write “NO,” you may be safe (arguably a lot safer than by NOT doing that!). Doctors and dentists love to push you into signing such things, so think about that next time you are handed a clipboard by a sweet, smiling receptionist with a form contract for you to sign.
- And if the contract says “Minnesota,” you may be risking little by striking that and writing “Utah” above it.
#5: Giving a personal guarantee (this is so EASY to screw up on!).
- When you sign your name, YOU are liable, even if your entity status (like “president”) is mentioned in the document.
- Before you sign anything significant, it is a good idea to set a simple LLC with your name (such as Mary Baker LLC).
- Sign things like By Mary Baker LLC, instead of Mary Baker.
- Here is a snippet from some case law on this: “To relieve an individual signer from liability [being able to be sued on the contract], the signer's corporate capacity must be clear from the form of signature [such as Mary Baker for Mary Baker LLC]. . . .[W]here it is not clear that a corporate officer signs a contract in a representative capacity, he is personally liable. . . . Individuals who fail to limit their signatures to their corporate capacity have consistently been held to be directly liable on corporate instruments. See Bushnell Real Estate, Inc. v. Nielson, 672 P.2d 746, 751–52 (Utah 1983) (holding corporate officers liable on promissory note where they failed to signify their corporate capacity in their signatures); Anderson v. Gardner, 647 P.2d 3, 4–5 (Utah 1982) (holding that where it is not clear that a corporate officer signs a contract in a representative capacity, he is personally liable); Sterling Press v. Pettit, 580 P.2d 599, 600–01 (Utah 1978) (holding individuals liable on purported corporate check signed without corporate titles and using unregistered corporate name); Starley v. Deseret Foods Corp., 93 Utah 577, 74 P.2d 1221, 1223–25 (1938) (affirming action on note against corporate secretary who signed corporate promissory note without adding word “Secretary” next to signature). DBL Distrib., Inc. v. 1 Cache, L.L.C., 2006 UT App 400, ¶ 13, 147 P.3d 478, 481.
#6: Failing to confirm everything by email immediately!
- You call a locksmith to come to your office because you are locked out.
- He shows up, and twenty (20) minutes later, he’s made you a new key, and you are in your office.
- He then gruffly says, “That’ll be $180.”
- You scream, “What?! For that?! You were only here for 20 minutes!”
- Because you had no discussion about his fee, you must pay what is reasonable.
- And who the heck knows what that is?
- Anytime you discuss anything with anybody that matters, send a confirming email. It can be something simple like this: “Hi, this is Tricia. I just spoke to Gracie on the phone, who told me your fees range from $45 for an easy job (less than a half hour) and more than $100 for ones that take over an hour, and was told your estimates are free. See you soon.”
- Pointing to a confirming email can stave off many disputes very quickly, and in court they are like GOLD.
- If you can’t send an email, send a text. Send something! And sign off with something like this: Tricia in her capacity for ABC incorporated (otherwise, you could be personally liable).
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