It’s Just On Paper: Why A Written Contract Is Vital

tytanium | 08.06.20

A legal expert explains the details of a written contract to two business people.

We frequently have clients come to us with disputes about what is on paper versus what the parties intended. Their friend needed someone to co-sign a loan, and they did it to help their friend buy a car, but now the lender is coming after them for money and they’re upset because “My friend said it didn’t mean anything, it was just on paper so they could get the loan approved.” Or the converse – “I let my brother live at the house and loaned him money, but we didn’t write anything down because he’s a good guy and promised to pay me back and leave after a week.” Or even more troubling, “I transferred title to this item to my daughter so we could get an insurance discount, but now she won’t give it back?”

Why It’s Vital To Put Your Agreements In Writing

Everyone has good intentions at the start. Maybe your friend really did intend to pay their loan. Maybe your brother really did intend to leave and pay you back. Maybe you really needed the discount, and insurance companies are rich so who does it hurt? But it is important to realize that every action has a consequence.

Nearly every written contract contains an integration clause. This is a clause in the contract to the effect that every part of the deal is included in the written paper. Side deals, including those with the friend promising the co-sign is “just on paper”, will not be honored. Even contracts without such express language are often interpreted to exclude any kind of side dealings. Co-signing any kind of loan or rental agreement, or in any way putting down your name as someone who will be financially responsible for another person’s actions or debts is risky. You should not do it unless you are willing, ready, and able to pay the debt. If you can’t afford to pay the loan, or don’t want to, don’t sign on the dotted line. 

The same is true with loaning money. Do not loan money to anyone if you are not willing to a) write the loan off as a gift or b) sue the person. Know that a lawsuit can be expensive. And unless you had a written agreement with an attorneys’ fee clause saying that the party that wins any lawsuit recovers their attorneys’ fees, you are unlikely to be entitled to recovery of any of your attorneys’ fees. A lawsuit can easily incur tens of thousands of dollars in fees and expenses. Even the most streamlined, basic lawsuit that is resolved on default or in early mediation can easily surpass $15,000 in fees and expenses. 

A house guest can be seen as a tenant under California law faster than you might think. Even residencies under a month can qualify someone for tenancy rights. Most people will leave when asked, but for those who decide to push back and argue that they have obtained some rights to stay, what do you do? A formal eviction costs money and can take several months to complete. The best option is to never invite someone for an open-ended stay. If someone is going to be moving in “just until they get back on their feet”, put a tenancy agreement in writing.

And finally, we all want to save money. We all want the best deal. But, any kind of agreement that is deemed illegal is unenforceable. If you have lied or stretched the truth or moved things around for a better deal, do not be shocked when a court won’t enforce the deal or finds you guilty of fraud. The classic example is a drug deal. If you bought $100 worth of cocaine but your dealer gave you a baggie of flour instead, you cannot sue them. The underlying transaction was illegal (an attempted drug deal) and the courts will not enforce any kind of illegal bargain. But the theory applies to dealings that are not so cut and dry as a drug deal as well. Moving assets to avoid a collection agency or passing title to avoid fees or get a better loan rate could all be deemed illegal. A court will not enforce those deals, and so you may not have any legal recourse to get your assets back.

The old saying goes that you should not be penny wise but pound foolish. If you are considering entering into any sort of transaction and are unsure about the legal consequences, we suggest you retain counsel to advise you BEFORE the deal is struck. Waiting until things go wrong to call in a lawyer to sort out the mess will cost you time and money. Paying a small fee up front to have a lawyer review the transaction and advise on the best way to proceed will almost certainly save you in the long run. Learn more about working with the team at LloydWinter here.

Posted in