January 1998 Volume 20 Number 1

Contracts: A Lawyer's View

"A verbal agreement isn't worth the paper it's written on."

attributed to Samuel Goldwyn

In recognition of Samuel Goldwyn's wisdom, you probably have gone to the trouble of drafting a written contract you use for most of your conservation work. Many of you cribbed parts of it from other conservators' contracts, adding your own touches. Those of you with sufficient resources or neuroses consulted a lawyer. After you finalized your contract, you undoubtedly stopped thinking about why you need one, and why some of those legalistic sounding clauses even have to be there.

The previous article provides a good discussion of all the basic terms that should be included in a conservator's contract. My intent is to review why it's important to have a written contract and the practical meaning of those legalistic clauses, from the viewpoint of a litigator.

A "contract," we learned the first day of law school, is an agreement that is legally enforceable. After that, it got more complicated. [Note: Although weighty treatises have been written on what makes an agreement legally enforceable, one way to look at it is that the parties must agree on sufficiently definite terms with some evidence that they meant it to be enforceable (for business contracts, this is usually an agreement to pay money). Without getting too technical, the typical conservation treatment contract will be enforceable if the conservator and the owner of the art (or his agent) agree upon a description of the work of art, the treatment to be provided, and the price for that treatment. This is only the minimum necessary for enforcement, however, and Ms. Naude's article discusses many of the advisable clauses to protect you in case something goes wrong.]

Why Lawsuits Happen and How a Written Contract Protects You

The law does not distinguish between an oral contract and a written contract; both are equally enforceable provided they meet the legal standard for enforceability. From a litigator's standpoint, the primary value of a written contract is that it will keep you out of court. I've been to court, and believe me, you do not want to be there as a litigant. For the amount of money at stake in most conservation contracts, it is not worth the grief, money, and time to have your day in court, at least for those of you who are still taking your medications.

To understand the value of a written contract, you have to understand how and why disputes end up in court, even when you have met your contractual obligations. [Note: This article focuses on how a written contract can keep you out of court, and assumes the conservator has met his or her contract obligations. If you have actually breached your contract or have been negligent, your written contract can still provide some protection (by limiting your damages, for example, or providing for arbitration of the dispute), but it will not completely insulate you from liability. What to do when you have been sued or threatened with a suit, and how to minimize your damages when you have some legal liability, may be the subject of a future article. Between now and then, make sure you have insurance.]

The reasons someone might sue you, even when you are blameless, fall into three categories:

1. Someone feels they have been injured and they honestly believe you have been negligent or have not met your contractual obligations. When you are in fact blameless, their belief arises from a misunderstanding.
2. Someone feels injured and, although they are not sure you have any legal fault, they feel in justice that you should pay them some money.
3. Someone feels if they threaten you with litigation, they may gain some benefit they are not really entitled to. (Indeed, there are dishonest people who will avoid their legal obligations if they think they can get away with it.)

Let's put it in concrete. As a conservator, there are two reasons a lawsuit would be most likely to happen: your client is dissatisfied with the treatment, or your client won't pay you. Often, both issues would arise in the same lawsuit. The client may honestly believe you breached the contract, or he may simply be trying to evade his obligations through bluffing.

The written contract protects you by preventing misunderstanding as to what was agreed upon. Even if the client insists in the face of the document that there was a misunderstanding, a properly written contract will usually keep you out of court, assuming you met your contractual obligations. This is because the client will realize (through a lawyer's advice if necessary) that he or she will probably lose a lawsuit.

Preventing Misunderstanding:

The terms of a verbal contract reside in the memories of the parties, which are imperfect from the inception and fade over time. If there is any dispute about what was agreed upon, even honest people will tend to remember the terms as more favorable to their position than they actually were. A written contract, if properly drafted, will remind the parties of what they actually agreed to. Often a client who honestly feels he did not get what he bargained for will concede that you in fact discharged your contractual obligations when confronted with his or her signature on the contract.

Protecting You From the Dishonest Client:

Unfortunately, some people lie. If you have the misfortune of becoming involved in a legal dispute, you will observe lying honed to a fine art; cleaned, varnished, and put in a gilded frame. At some point in your career you will be confronted with the lying client. One who insists, for example, that he never agreed to pay what you are charging, regardless of what it says in the contract, and you will know he is lying.

A written contract puts the liar at a particular disadvantage, at least if the written contract specifies the issue he is disputing. If the lying client takes his dispute as far as seeking legal advice, his lawyer will tell him he is likely to lose if he sues. This will dissuade most people.

One of the great rules of law is that people are deemed to have read their contracts before they sign them. That means that the dishonest person's first argument ("I never read it; he just put it in front of me and made me sign it") is legally irrelevant. [Note: Yes, this can also be an honest person's argument, and it's equally irrelevant. So, word to the wise: read contracts before you sign them.] Absent some sort of fraud ("he said he wanted my autograph; I didn't know I was signing a contract"), the court will enforce the terms of a written agreement even if one of the parties insists he never read it and he agreed to something totally different.

In this sense, written contracts are like those security signs in front of houses warning of an armed response. They are your first line of defense, and if backed up by good contract language, they will deter all but the most persistent thieves.

Unfortunately, there is no perfect defense against the overly litigious person who dishonestly is willing to claim you defrauded him into signing the contract. Even though you will prevail in such a frivolous lawsuit, it may cost you. Fortunately, it is rare for someone to initiate a lawsuit with such a fantastic lie. Beware, however, if you initiate a lawsuit to collect your fee; it is quite common to get a cross-complaint or defense that the client was fraudulently induced to enter into the contract.

If despite your written contract, a client files a lawsuit against you, you will soon find out how good your contract is. You will not be able to foresee all possible disputes regarding your conservation treatments, and you will not be able to specify the treatment in such detail that there could never be a dispute about what was agreed to. However, through careful drafting, you can take care of the vast majority of disputes, and I refer you to Ms. Naudé's article for a discussion of most of the basic terms. She wisely advises that you consult a lawyer to help you draft your own contract for the most protection.

Beware of The Client Who Does Not Want to Sign A Contract:

Although it's painful to acknowledge this as a lawyer, I will admit that there are many honest people who will comply with their contractual obligations without a written contract. What you need to know as a conservator is that the successfully dishonest people are remarkably good at masquerading as those who always keep their word. Truly honest people gladly sign written contracts; if a client refuses, or, more commonly, has an endless series of excuses for not signing, you have a problem.

Any Modifications Should Also Be In Writing:

If any change is made to a treatment proposal (such as charges or procedures), these modifications should be confirmed in writing. Make sure to get a signature on a modified contract, or send a confirming letter. Ideally a confirming letter on an important modification should be sent by registered or certified mail, return receipt requested, and should ask the client to sign the letter and return a copy to you. In many situations, this would be overkill, but use your judgment when dealing with the troublesome client on a large project.

Your Second Line of Defense:

There are, of course, many things apart from a written contract that you should do both for good client relations and to avoid a potential lawsuit for those issues that may not have been covered in the contract. First, when confronted with a client who you feel may be trouble, spend more time and effort explaining your fees and treatment procedures. Return the client's phone calls quickly.

Explain any problems, delays, or changes. Encourage them to seek the advice of other conservators if they are displeased with your charges or the way the treatment is going. Don't promise the moon; state that the treatment will result in an "improved appearance," rather that saying "it's going to look like a million dollars!"

Be careful about offering to reduce your fees. Some clients may interpret this as a concession that you have not done a good job; others may sense weakness and move in for the kill. (Okay, so I'm a lawyer.) If a client requests a fee reduction, ask for his reasons, listen respectfully, but stick to your agreement if you are in the right. If you feel you are being bullied, offer to think over the matter and call later, when you have time to gather your thoughts (and your courage).

Demystifying Some of the Legalisms

There are a many legal terms that are mysteries to the non-lawyers among us. While I am bound by my oath as a practicing lawyer to keep most of these secret, I can demystify a few, as long as it doesn't go beyond this newsletter.

Arbitration Clause:

Generally if you have a legal dispute, you are entitled to take advantage of our wonderful court system. This is a system that started with trial by combat, and has been perfected through centuries of jurisprudence to its present form. Now you get an unbiased, highly trained, professional judge who has been appointed by the governor or voted in by the electorate. He or she will guide your case through the jury system and ensure that the law is properly applied, that only properly admissible evidence is considered, and that justice prevails. In most cases you also get a jury of your peers who are sworn to apply the law given to them by the judge, to the facts they find by considering the credible evidence submitted by the litigants.

Why would anyone want to resolve their disputes any other way? Well, sometimes judges are biased or incompetent, juries are unpredictable or swayed by passion, and trials can be protracted and prohibitively expensive. To take care of these pesky problems, the law allows you to agree in advance that any disputes concerning your contract will not go to court, but will instead be resolved by binding arbitration.

In arbitration, you get an unbiased seasoned attorney (or, in large cases, three seasoned attorneys), who will listen to both sides of the story and try to reach the same result a court would reach. However, arbitrators are not bound by the normal rules of evidence (they can consider hearsay and other evidence that would be inadmissible in court), and they have a reputation for trying to do what's "fair" rather than what's strictly legal. Some arbitrators may try to "split the difference" even if a strict interpretation of the contract would favor one party at the expense of the other. Nevertheless, arbitration is often far cheaper, and almost always far quicker than a court trial.

Whether you include an arbitration clause will depend on what sort of disputes you contemplate are most likely, and is largely a matter of judgment. You should discuss this with your own attorney before you make up your mind. While your typical litigation risk may be for your fees (probably under $5,000), you will want to be prepared for that nightmare when a client threatens to sue you for the value of a rare work of art.

My own view is that arbitration makes sense for cases involving sums over the jurisdictional limit of the small claims court (in California, currently at $3,500), but under $50,000. For cases over $50,000, I would seriously consider going to court if you are confident about your contract, because I find it more predicable. For cases under $3,500, it's probably cheaper and quicker to go to small claims court, though you must take the risk that the losing party will appeal (which can be expensive). An appeal of an arbitration decision is uncommon and usually a waste of time. For cases over $3,500, but less than $50,000, it will rarely be worth the expense of a full court trial, although this can change if you have an "attorneys' fees clause," which I will now address.

Attorneys' Fees Clause:

There is a rule in American law that, absent a specific statutory exception, or a contractual provision, each party to a lawsuit is responsible for his or her attorneys' fees. Many contracts have a clause opting out of this general rule, and providing that the prevailing party in any dispute concerning the contract is entitled to his or her litigation expenses, including reasonable attorneys' fees.

If you expect to be on the winning side of any lawsuit, an attorneys' fees clause has obvious benefits. Moreover, it is a powerful disincentive for someone to sue you on a weak claim; the losing party will have to pay his own attorneys' fees, plus yours. Whenever a client of mine is threatened with a lawsuit based on a contract with an attorneys' fees clause, that clause is featured in my first letter to the opposing party: "Please be advised that your threatened suit is meritless, and if you pursue it you will have to pay my client's attorneys' fees in accordance with the contract you have signed (copy attached.)"

The clause is not complete protection. A person with few assets may figure you could never collect from him or her anyway, and there is no risk, especially if he or she can get a lawyer to take the case on a contingency.

An attorneys' fees clause may not be appropriate if you do enough business that you would expect large numbers of meritorious claims against you, and you are generally far more able to afford attorneys than your adversaries. This may be a concerns for large corporations; it is rarely so for conservators.

Some of those creative types among you may have thought you could draft a clause providing that the conservator would be entitled to fees if he or she prevailed in a lawsuit, but the client would not be entitled to such fees under any circumstances. Nice try. The State of California in its wisdom has decided these types of "one-way" attorneys' fees clauses are against public policy. Hence, by statute "one-way" clauses are automatically deemed to be "two-way" clauses, allowing either prevailing party to recover attorneys' fees from the losing party.

These sort of tricky rules are the reason you should see an attorney before you finalize your written contract.

Limitation of Liability Clause.

You may have seen a clause that provides that you will not be responsible for any damage to a work of art even if you were negligent. Some of you may have wondered, "Can you do that?" The answer is complicated and beyond the scope of this article. But the bottom line is that if you really did something negligent that damaged a work of art, the court will be reluctant to completely let you off the hook, regardless of the contract language. The more negligent you were, and the more damage it caused, the less likely such a clause will protect you. It will provide you some protection, and it's probably worth considering for strategic reasons. You may have trouble, however, explaining it to anyone who carefully reads your contract.

This brings up another topic: what do you say to someone who asks you about a certain clause in your contract? If it's a clause regarding your fees, your treatment procedure, or other such practicalities, of course you answer and explain as necessary. But if it's one of these legalistic clauses, you are probably best saying that your attorney helped you draft the contract, you tried to draft the contract so it was understandable, but if the client still does not understand it, he or she should consult his or her own attorney. Do not say: "Oh, I never understood that clause," or "I don't think it ever came up," or "I would never really do that." These sorts of answers will get you in trouble if there is any litigation, because the client will have an argument that they are not enforceable based on your oral representations.

Contracts With Governments and Large Institutions:

The foregoing discussion and Ms. Naudé's article deal with situations where the conservator is drafting the contract. Sometimes, however, you will be presented with a contract by a government or large institution. The client in such a case often will not sign your contract, but will insist that you sign theirs if you want the business.

If possible, have an attorney review the contract for you. At the very least, read the contract carefully, and look for potential problems (like, "any litigation involving this contract will be conducted in Uganda".) Do not be afraid to ask for an explanation of any provision you don't understand. Confirm any explanation you get in writing. You may be able to get the contracting party to cross out some of the more objectionable clauses if you have a reasonable argument. If not, at least you will know the risks you are assuming.

In summation, your written contract is your best protection against legal disputes. Once you have a good contract the rest is common sense: keep your wits about you, stay in touch with your client, and if necessary consult a lawyer.

If you have other legal topics you would like to see discussed in the Newsletter, send your suggestions to the Editor; another column is a possibility.