. . . But Is It What You Really Need?

Readers often ask whether a particular document, a contract or a rental agreement, for example, is “legal.” Will it stand up in court? they ask.

That may not be the right question. (Lawyers are always telling people to rephrase their questions; it’s part of our law school training.)

Or even if it is an appropriate question, a yes answer does not mean that the particular document is in your best legal interests.

Imagine that you are making a loan to a friend for $10,000. You give the money to your friend by check and, even though you trust your friend completely, you decide to “make it legal” by preparing a little something for your friend to sign.

Here is what it says:

I, (you put in your friend’s name here) agree to pay to (your name) the sum of $10,000, payable $200 per month beginning the first of next month with interest at 10% until paid in full.

Then your friend signs and dates the promissory note.

Is it legal? It sure is.

But then your friend pays for the first 12 months and stops. (Lawyers would call that a default.) You want to sue to collect what you are rightfully owed, so you file a lawsuit. Will the document stand up in court? It sure will. But not exactly the way you might like it to.

The only money your friend owes at the time you filed the suit was one month’s payment of $200 plus interest. And the note you drafted is perfectly fine to use to collect that amount.

But you will not be able to collect the whole balance owed you until the whole balance matures, that is, becomes due. And that won’t be for several years.

Hint. You could have done much better in the wording of your note. You would have been able to collect the entire amount of the note if the document had said that once a monthly payment is not made, you had the right to accelerate the balance upon demand or something of that sort.

The law allows you to accelerate an installment obligation if that was part of the written agreement, but there is no such automatic right. One more sentence could have saved you more than $8,000 in headaches.

And when you hire a lawyer to file the lawsuit, you’ll have to pay attorney fees. In the usual case, like this one, the fees come out of your pocket. Of course, you could have stated in the written document that reasonable attorney fees would be paid by the other party in the event a suit is brought to collect. That would have meant your friend pays your attorney if you win.

There are many helpful so-called “boilerplate” provisions that could have been included in your agreement.

All that fine print in a contract actually means something. There are lots of ways you could improve this or almost any legal document, most of which require consulting an attorney or further legal research on your part. There are all sorts of legal documents--wills, trusts, contracts, powers of attorney--and they all will stand up in court. They just may not be the ones you should use.