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Small Claims, Small Business
by Ralph Warner
Copyright © 1995 Nolo Press
It's almost a cliché that small business people have been among
those
worst hit by America's disturbing trend towards injecting the law into
every
relationship. Whether dealing with employees, suppliers or customers,
business
people must avoid countless legal minefields.
It's refreshing, then, to spot a glimmer of good news on the legal
front. The
recent widespread increases in Small Claims Court dollar limits make
Small Claims
an increasingly attractive arena in which to solve small business
disputes
quickly and cheaply.
Small business owners can use Small Claims Court in two main ways: to
collect
overdue bills or to resolve disputes with customers or other businesses.
Collecting Bills
Small Claims Court is particularly cost-effective for collecting unpaid
bills
because it eliminates the need for bill collectors and lawyers--who
often keep,
as their fee, up to half of what they collect. Indeed, Small Claims
works so well
that in many courts over 60% of the cases are filed by businesses.
Because a
substantial percentage of these claims are uncontested by the defendant
(they
know they owe the money and don't show up), little preparation or court
time is
needed. And best of all, many defendants who don't want their credit
rating
damaged pay voluntarily somewhere between the time they receive a final
demand
letter threatening suit and the date the judgment is entered.
But if you think the Small Claims Court deck is stacked in favor of
allowing
small businesses to collect doubtful debts, think again. When defendants
believe
they have a good defense and fight back, they have an excellent chance
of winning
or at least of paying substantially less than the plaintiff claims. For
example,
in a study of 996 Small Claims cases that went to trial, the National
Center for
State Courts found that 20% of the time, the defendant won outright. In
another
20% of the cases, the defendant was ordered to pay substantially less
than the
plaintiff demanded.
Other Disputes
Disputes between two small businesses or a business and a customer are
also
common in Small Claims Court. Most involve a contract. Commonly, a
business
argues that goods or services were provided poorly, late or not at all.
For
example, suppose Ted, an independent graphic designer, sues Tip Top
Excavators
because it won't pay him for redesigning its logo and newsletter. Tip
Top's
defense is that because the work was both substandard and late, the
contract was
broken and no payment is due.
If the parties don't negotiate their own solution or arrive at one
through
mediation, each would have a chance to present their side of the story
to a Small
Claims Court judge. A succinct and well-organized court presentation is
always
important. And in a close case, chances are good that the side with the
most
convincing written evidence will have the edge.
For example, if Ted can produce a written contract (or other documents
showing
that a contract existed), a decent-looking sample of the redesigned
newsletter,
and a letter from someone with expertise in the field stating that the
work met
or exceeded industry standards, he will be in an excellent position. Ted
would
also be wise to try to rebut the likely points the business will make.
For
example, if the design work was a few weeks late, Ted would want to
present a
good excuse, such as the fact that Tip Top asked for time-consuming
changes.
When Ted's presentation is complete, it will be up to Tip Top to back up
its
version of the story. It will want to present evidence that either the
work was
delivered so late that it amounted to a serious breach of the contract
or that
Ted failed to meet other important contractual specifications (designed
a
4-color, 24-page newsletter template when the contract called for a
2-color,
12-page job). Again, the more hard evidence (such as a letter to Ted
pointing out
the project was over deadline and asking for immediate completion), the
better
Tip Top's chances.
After both parties have their say, it will be up to the judge to decide.
And
again, there is good news. Instead of waiting around for months, as can
happen in
regular court, the judge will either announce a decision on the spot or
mail it
out in a few days. Either way, both sides will know where they stand and
be able
to get back to business.
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