Sometimes All You Have To Do Is Ask

As a matter of policy, I do not give any legal advice in response to questions posted as comments or otherwise in this blog.  However, the following question piqued my interest and provides a platform for discussing the sort of everyday problem an average person might encounter.  The question was:

I have a fear of dentists and have neglected my teeth for years. The pain is so great in a few teeth that I finally broke down and went to a sedation dentist. They examined me and came up with a proposal to fix my entire mouth for the sum of 13,000.00, and finance it. The financing would result in the final total being 18,546.00 from GE Money Bank. Never heard of them. After having a day to crunch the numbers, the 309.00 payment over 5 years was going to be difficult. My girlfriend is willing to pay the dentist the 13,000.00 in cash, but I’ve signed a contract stating that I agreed to the 309.00 payment for 5 years. The contract was signed Friday afternoon, the first session is scheduled for Monday (08/02/10). Can I rescind the contract and simply give the dentist cash, rather than incur all that interest? What are my choices? No work has been done on my mouth as yet. My dentist would be happy to get paid the cash, but the contract that was signed would probably have to still be honored. How could I cancel this contract?

Am I stuck with the ridiculous interest payments and the grand total of 18,546.00? 

First, congratulations to the reader for realizing that he has a signed contract that may be valid.  You would be surprised how often clients come into the office having  just signed a contract for the purchase of real estate for many hundreds of thousands of dollars and say:  “I just signed this contract.  Can you look it over and tell me if it is okay?”  It is too late to have your lawyer look over a contract after it is signed.  At that point, if you have all the requisites for a valid contract, the damage is done.  So that is lesson number one — have your lawyer look over contracts before you sign them and not after.

Second, the contract is between GE Money Bank and the reader.  It is not between the reader and the dentist.  Nevertheless, the dentist is still the key to backing out of the contract at this time.  By the way, the GE in GE Money Bank stands for General Electric and it is a major consumer finance company.

Finally, I think the key to the reader’s problem is simple — just ask.  On Monday, he should walk into the dentist’s office a little early and offer to pay up-front if the dentist will tear up the contract.  I bet that the dentist will be happy to tear up the financing contract and take the money.  This is especially true if he just signed the contract on Friday.  Most likely it has not been submitted to GE Money Bank yet and no monies have been advanced to the dentist.

All is not lost if the dentist will not tear up the contract and take the money.  If that is the case, the next step is to read the contract.  Interest is charged for use of money over time.  The $5,546.00 interest charge is based on the use of the $13,000.00 for three years.  If there is no pre-payment penalty in the finance contract, then the $13,000.00 can be paid at any time and the interest due after the date of payment avoided.  Even if there is a pre-payment penalty, it is likely to be much less than $5,546.00.

I am often surprised by how often someone will come to me for a “legal” way out of a situation when they have not even tried to talk to the other party.  Sometimes the solution is as simple as asking.  I will bet that is the case here.  But, if not, the next step is to read the contract and see if anything in it can be used to your advantage or keeps you from doing what you want to do.  In this case, as with most finance contracts, it probably can be prepaid and some money may be saved.

Hiring A Lawyer Is Not As Expensive As You Think

Here are six good reasons for why hiring a business lawyer is money well spent:  6 Reasons Why Hiring A Business Lawyer Is Not That Expensive. As someone who litigates disputes, I can say that litigation is much more expensive than doing it right in the first place.

How Not To Structure A Deal: The CrunchPad Blow Up

TechCrunch founder Michael Arrington recently announced that the CrunchPad project blew up on the eve of the CrunchPad’s launch.  (See, The End of the CrunchPad) I’m not that interested in the tech or the details of the dispute between TechCrunch and Fusion Garage.  No, what I think is worth writing about are the lessons that the average businessperson can learn from this.  There are several lessons here.

Lesson 1: Don’t Do Business With Anyone You Wouldn’t Do Business With On A Handshake

In this post, Arrington mentions the “unsavory investors, borderline loansharks” that Fusion Garage raised money from.  He also alleges that Fusion Garage is a financial mess.  That sounds like a recipe for disaster.  When you’re doing business with a company, you’re indirectly doing business with their investors, shareholders, and associates too.  That is especially true if, as seems to be the case with the CrunchPad, the relationship is essentially a partnership.  Arrington makes Fusion Garage sound desperate.  The desperate turn into the greedy and the greedy will screw you.

Lesson 2: Get The Deal In Writing!

You want to do business with someone who you’d do business with on a handshake, because written contracts can be broken.  In fact, you have the right to break a contract but you must be prepared to pay the damages caused to the other party. Therefore, the other person’s integrity matters even with a written contract.  As the saying goes — trust but verify.

The CrunchPad project appears to be riddled with uncertainty as to the precise role of each party, and who owns what.  The contract should clearly state who pays what expenses and when, how the parties are reimbursed from income, and the profit split.  It is noteworthy that TechCrunch and Fusion Garage apparently had no written contract.  This is surprising because Arrington is a lawyer.  The lack of a written contract is likely to make for prolonged and extremely expensive litigation.  (One-hundred and six paragraph twenty page complaints don’t come cheap and that is only the beginning.) Without a written contract, the details of the deal must be teased out from dozens or hundreds or even thousands of conversations, telephone calls, letters, and emails.  That takes time and money — lots of both.  All of that information (much of it transmitted without consideration as a contract term or for future litigation) will provide fodder for both sides to argue over.

Lesson 3: Know Who You’re Dealing With And Act Accordingly

See, Lesson 1 above.  TechCrunch alleges that Fusion Garage and its founder “have shown a long-term pattern of deceit in their business dealings.”  Just a few days earlier he was saying how much he admired the founder and what good friends they were.  Perhaps TechCrunch is excused because Fusion Garage and its founder are in Singapore.  They claim that Singapore government control of embarrassing news made it difficult to find out about the founder’s past. Certainly, a company with TechCrunch’s reach in the tech world had other contacts in the Singapore business community. Moreover, TechCrunch now says it discovered the unsavory nature of the Fusion Garage founder last summer.  That would have been the time to quickly shorten the leash and to attempt to reduce the deal to writing. Frankly, the deal should already have been written, but this should have been a red flag to make an effort to clearly express the deal in writing.

I added the “and act accordingly” because I’ve had clients who actually did know negative information about business partners and investors and dealt with them anyway.  They almost always rue the day they did so.  When things blow up just like they should have known they would, they always say, “I knew better.”   It is amazing what you can discover on Google these days, especially in the U.S.

Lesson 4: The Best Time To Get The Deal In Writing Is When You’ve Got Leverage

Early on TechCrunch had all the power and leverage and Fusion Garage had none.  Fusion Garage probably still lacks leverage, but it doesn’t matter.  Fusion Garage has made its desperate move to grab the prize for itself at the last-minute.  Early on TechCrunch could have secured a written contract on favorable terms because Fusion Garage needed it more than it needed Fusion Garage.  Now that TechCrunch has paid expenses, widely publicized the CrunchPad, used its connections, and otherwise moved the project along, Fusion Garage no longer feels a need to share the project with TechCrunch and can make its move.  Often the greatest power a party has is the ability to walk away if the deal doesn’t suit them.  If the other party needs you, but you don’t need them that is when you have the greatest leverage.  Once the project is underway, you’ve already got a deal of some sort and its terms are inherently unclear.

Lesson 5: You May Have A Partnership Whether You Intend One Or Not

A partnership is one business relationship that requires no intent or effort to create.  When two or more persons or companies enter into a joint venture together, they have a partnership relation whether they intend one or not.  That means that without a written contract to define the relationship, rights, responsibilities, and obligations of the parties, the body of law concerning partnerships will apply.  That can be messy.

Lesson 6: Be Very Careful About Trying Your Case On The Internet Or Any Public Forum

Already Arrington is locking himself into positions and making contradictory statements by trying his case on TechCrunch.  Obviously, I’m not privy to all the emails and other information and I’m not interested in reviewing them all.  However, I know from experience that with every additional word he posts that Arrington is getting locked in to positions, probably without the benefit of a careful review of what has been said before.  Even a cursory review from one post to the next shows contradictory statements.  On the one hand, the Fusion Garage founder “was the kind of young, determined entrepreneur that I admire. I thought we’d be friends for the rest of our lives.” On the other hand, Arrington says in the next post that he’d learned last summer that the founder is “not a good guy” and deceitful.  Huh? If  Arrington learned last summer that the Fusion Garage founder  wasn’t a good guy and had previous bad business dealings, then how could he have just written what an admirable guy and friend for life he was?  A skillful lawyer can do some damage with such contradictions.