How to Legally Manage a Difficult Contract Dispute
It has finally happened. You have a client who refuses to pay you. You thought you did everything right. You had a signed contract outlining what work you would do and how much they would pay you. But they come to you and say the work was sub-par. They say you spent more time than you should have on their project. Or they just ghosted you.
It happens to every business at some point in time. It is a part of doing and being in business. So what should you do about it? Below I will walk you through how I advise my clients on what to do when they find themselves in this unfortunate situation.
How Much Do They Owe You?
Let’s remember it is just money. And while money is important (we all have bills to pay) it really is not everything. And more importantly, how much are you willing to spend on top of what is owed to try and get it? In my opinion as a business owner and attorney, if the amount owed is less than $5,000, it is not worth pursuing. You are simply going to spend more money on an attorney to pursue it than you would actually collect. And that is simply not the point. Write it off and move on. However, if we are talking about more than $5,000 read on.
Can we collect?
Have you ever heard someone described as “judgment proof”? Unfortunately, that is a real thing! If you are owed a substantial sum of money by a person or corporate entity that has no assets then how are you going to collect a judgment?
A judgment is a piece of paper saying you are entitled to a monetary award. It does not magically make money appear before you. Therefore, if the judgment is uncollectable, then what is the point in pursuing it? Now you are trying to collect the amount they owe you, and attorney’s fees from someone who could not pay you the original amount in the first place! And more important than any of that is your time.
You will spend a lot of time working with your attorney to get the judgment and work on collecting it. This is time you could be spending on your business. You must weigh the opportunity cost here. Again, if the amount you seek is substantial and there are options for collection, let’s press on!
Where and what court will you pursue the debtor? First: unless your contract (you did have one, right?) stated where you are allowed to sue, you have to file your lawsuit where the debtor is located or where the situation occurred. If you are seeking less than $25,000, you could file in General Sessions Court, also known as small claims court. If you are seeking any non-monetary damages (i.e. injunctive relief, etc.) you would file your lawsuit in Chancery Court. Monetary relief only is handled in Circuit Court.
Did your contract state that in the event of a lawsuit the prevailing party is entitled to attorney’s fees? I hope so because that is one of the only ways in Tennessee to receive an award of attorney’s fees as part of a judgment. Depending on which route you take, you could be looking at a month to several years before you have a judgment to collect.
Generally, I am a fan of making deals, reaching a settlement and working out our disputes without going to court. But there are many times when those avenues are not fruitful and litigation is the only option. In my opinion, evaluate the dollars and cents of the situation. If you and your attorney feel you are going to get a judgment that exceeds your spend on attorney’s fees and costs, then go for it. If not, you may have to swallow that pill and write off the debt.
I also encourage my clients to learn from these situations. There are always two sides to every situation, and there are usually tweaks that can be made to ensure you do not find yourself staring into the face of a potential lawsuit.
If you find yourself needing to sue to enforce a contract, or you want to explore how to avoid litigation in the future, call Schaffer Law Firm to set up a complimentary initial consultation today.
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