EVERYONE'S SMALL CLAIMS
LAWYER AT LARGE, LLC.
MICHAEL LYNN GABRIEL
ATTORNEY AT LAW
B.S., J.D., M.S.M., Dip. (Tax), LL.M.
SMALL CLAIMS COURT
TABLE OF CONTENTS
1. OVERVIEW OF SMALL CLAIMS COURT PROCEDURE . . . . . . . . . . . . . 4
2. PREPARING TO SUE .......................................................................................25
3. FILING THE COMPLAINT.............................................................................. 43
4. WHAT THE DEFENDANT CAN DO WHEN SUED .......................................60
5. PREPARING FOR THE TRIAL........................................................................ 70
6. THE TRIAL.......................................................................................................... 81
7. LANDLORD-TENANT........................................................................................ 95
8. MOTOR VEHICLE CASES ...............................................................................101
9. SUITS FOR MONEY OWED............................................................................. 120
10. REPAIR CASES................................................................................................... 131
11. VEHICLE SALE DISPUTES............................................................................... 139
12. JUDGMENT AND APPEAL............................................................................... 153
13. COLLECTION OF JUDGMENT........................................................................ 163
14. BUSINESS OWNERS LIMITING THEIR LIABILITY FOR THE BUSINESS .... DEBTS....................................................................................................................187
15. STATE LAWS ........................................................................................................239
Money is hard to get and even harder to keep. Therefore, everyone should always pay their just debts. Unfortunately, many people are professional deadbeats. These people deliberately run up debts for services or property and refuse to pay. Such people count on the fact that litigation through the normal court system is expensive and that it would usually cost more to collect the debt than it is worth. The cost for an attorney is usually at least $150 per hour. The normal debt collection runs at least $5,000 in attorney costs. Unless there is a written agreement that the prevailing party will get attorney fees, each side must pay their own attorney fees. It is this reality that the unscrupulous use to avoid paying their just debts.
In response to this situation, all states have adopted laws establishing small claims procedures. Under these laws, small claims, usually no more than $5,000, are heard before special judges, commissioners or attorneys serving as judges pro tem. The small claims court employs simplified procedures which make it easier for the parties to present their cases. Small claims courts are truly the people's court. For most individuals a small claims appearance will be their only contact with the judicial system except for the occasional traffic ticket.
Small claims court exists as an alternative to the highly structured, complex and expensive traditional court system. Small claims courts are a cheap, fast and efficient means to settle disputes concerning small amounts of money.
There are many "How To" books on the market that instruct a person as to what he must do to file a small claims action. This chapter addresses most of the fundamental concerns people have concerning small claims court without having to buy expensive books that merely expand this information. Through this chapter the average person should be able to understand the small claims court procedure. The reader should be able to go to the clerk of the small claims court, get the forms and the local rules of court and intelligently start the action.
The reason this chapter is appearing in this book is to educate people
on the advantages and simplicity of the small claims court. There is no
reason that a person should forgive debts of hundreds or thousands of dollars
because it is not cost effective to hire an attorney to sue for such money.
Money represents a person's future and safety. Money's protection and its
recovery from those who should not have it makes the knowledge contained
in this chapter vital. Knowledge is power, power is money, and money is
security. It is important to know how to go to small claims court to preserve
one's financial interest.
OVERVIEW OF SMALL CLAIMS COURT PROCEDURE
I. DEFINITION OF A SMALL CLAIMS COURT
The small claims court is a specially created court in which most disputes can be tried inexpensively and quickly. The rules of the court are simple and court procedure is relatively informal. Lawyers are not permitted to present or try the case. Claims vary from state to state. In California, for instance, disputes of $5,000 or less can be heard in small claims court. The regular filing fee for most small claims courts is between $6 and $15.
A small claims case is usually heard within forty (40) to seventy (70) days from the filing of the claim. While most small claims cases involve money damages, most small claims courts have the power to grant other remedies. For example, most small claims courts have the authority to grant injunctive relief which means authority to order a person to do or not do something (mandamus or injunction) if the value of the act ordered or restrained is within the monetary limits of the court.
II. FILING A SUIT IN SMALL CLAIMS COURT
Nearly anyone can sue in small claims court. The person bringing the suit is called the plaintiff and the person being sued is the defendant. An individual can sue other individuals or businesses and vice versa. Most states deny collection agencies the right to sue in small claims court, nor can someone file a small claims action for another. Most states deny assignees, persons who buy the debt of another, to sue in small claims court for collection of that debt.
A person must be over eighteen (18) years of age and mentally competent to file in small claims court. The plaintiff need not be a U.S. citizen to file a small claims complaint. The plaintiff does not have to speak English to file the complaint. Interpreters are permitted in court if a witness does not speak competent English.
It is imperative that a plaintiff file a small claims action in the proper court. Failure to file in the proper court may result in the action being transferred to proper court or dismissed altogether. Generally, a small claims action is filed in the court of the judicial district or area where the defendant lives or the business is located. Sometimes state laws permit the plaintiff to sue in the court district where an accident or tort (a civil wrong) occurred although it may not be where the defendant lives. Most states permit a small claims suit involving a breach of contract to be filed:
1. Where the defendant lives.
2. Where the defendant signed the contract.
3. Where the defendant lived when the contract was signed.
4. Where the contract was to be performed.
If it is possible to file in more than one judicial district, the plaintiff may choose the one most convenient for the plaintiff and witnesses. A judicial district may be chosen where the defendant does not live, thereby requiring longer notice and delaying when the case can be heard. All of the forms for small claims court are obtainable from the clerk of the small claims court. Many stationary stores also sell small claims forms to the public.
III. ATTORNEYS USUALLY ARE NOT PERMITTED IN SMALL CLAIMS CASES
Most states preclude the appearance of an attorney in small claims court as an advocate of a party. In most states the attorney cannot give legal advice in court to either plaintiff or defendant, nor can an attorney comment in court as to the presentation of evidence. The fact that most states do not permit attorneys in small claims actions is unique. There are no other instances in American courts where the parties are denied the right to have an attorney speak for them in court.
Although an attorney cannot appear in many small claims courts, the parties are permitted to speak with attorneys outside court and ask for advice in preparing their cases. The reason attorneys are not allowed in court is they are not necessary under the abbreviated procedures of the court. Both sides merely tell the court what happened and produce evidence they have to support their explanation. The trial is informal, sometimes to the extent of becoming a community forum or pulpit for the expression of individual beliefs.
An attorney is permitted to testify as a witness. There is no prohibition against calling an attorney or other professional to present facts and testimony germane to the case. The attorney is simply prohibited from assisting a party presenting his case in the courtroom. Regardless of whether an attorney is permitted to appear or not, the case is handled in the same manner by the court. The court, however, may stand more on strict compliance with state procedure when an attorney is present, which is a benefit to the party with an attorney: evidentiary objections, particularly as to hearsay, are more likely to be upheld.
IV. ALL CLAIMS MUST COMPLY WITH THE STATE'S
STATUTE OF LIMITATIONS
Every claim has a statute of limitations: a period of time in which a lawsuit must be filed or the right to bring the lawsuit will be lost. Statutes of limitation vary from state to state. The theory behind statutes of limitation is that no one should sit on their rights. The courts want to have claims decided as promptly as possible. Therefore, if a person waits too long to sue for damages, even though legitimately owed, the court will dismiss the complaint.
For example in California, the statute of limitations for various claims is as follows:
1. Claims for personal injury (physical injury to a person) have a one-year statute of limitation.
2. Breaches of a written contract have a four-year statute of limitation; while oral contracts have a two-year statute of limitation.
Checking the civil code for the state where the small claims court is located will give the appropriate statute of limitations for the appropriate claim.
Suits against most governmental agencies require special handling. First, the plaintiff must file a claim with the agency within a certain period of time following the injury or breach, normally around one hundred (100) days, but this varies. If the agency rejects the claim, the plaintiff must file his action within a very narrow time period, usually six months, or lose the right to sue altogether. Claims against government agencies should be pursued with all dispatch.
An agency is usually allowed 60 days after receipt to accept or reject. The claim is automatically rejected if the agency has not accepted within the allowed time.
V. THE DEFENDANT
The plaintiff must state the names and addresses of the defendants: the people or business being sued. Therefore, the plaintiff must know the identity of the defendant. If the defendant is a business or corporation, the business' legal name and address can be found with the city's licensing agency, the tax assessor's office, the fictitious business names files in the county clerk's office, or the office of the secretary of state's corporate division. All corporations incorporated in a state and foreign corporations doing business in a state are usually required to designate a person to receive process (service of complaints) for the corporation.
The correct names and addresses of the defendants are needed so they can be properly identified and served with the complaint, which is required before the court will hear the case.
VI. PRESENTATION OF THE PARTIES BEFORE THE COURT
Because attorneys generally are not permitted in a small claims action, both parties must represent themselves. In the same vein a corporation may appear in small claims court only through an employee or an officer or director of the corporation. A corporation may not be represented in small claims court by someone whose job is to represent the corporation in small claims court. In other words, a corporation cannot use an attorney in court if the function of the attorney is to represent the corporation on small claims actions.
Certain businesses and entities other than corporations, such as partnerships or joint ventures, may appear in small claims court only through a regular employee of the entity. The representative may not be someone whose sole job is to represent the business entity in small claims court. A trust may be represented in small claims court by the trustee of the trust.
VII. THE MONETARY LIMITS OF A SMALL CLAIMS CASE
The most important consideration in a small claims case is the amount of the claim sought. A plaintiff cannot exceed the jurisdictional limit of the court. If a plaintiff asks for more than the court is allowed to award, the entire case may be dismissed. If the plaintiff sues for less than is owed, he forever waives the balance. For example, assume that the plaintiff is owed twenty thousand dollars ($20,000) and sues for five thousand dollars ($5,000), the plaintiff forever loses the right to sue for the remaining fifteen thousand dollars ($15,000). The plaintiff could have sued in a regular court for the full $20,000, but he might have waited years to have the case heard and incurred large fees and costs preparing for the trial.
VIII. FILING FEES
There is always a filing fee for any complaint filed in any court. Courts are not free. In California the basic fee is $6 per case. Multiple filers, those with over 13 cases per year, $12 per case in California. In most states a person unable to pay the filing fee can request the court grant a waiver of fees. This waiver is called a "forma pauperis," Latin for "form for a pauper." If the plaintiff qualifies for the waiver, the fee is waived and subsequently recovered if the plaintiff wins. Put it another way: if the plaintiff wins the case, the defendant pays the filing fee as a court cost to the plaintiff.
IX. PLAINTIFF'S RECOVERY OF COURT COSTS
Most of the costs related to pursuing a small claims action are recoverable from the defendant if the plaintiff wins. Examples of court costs that are recoverable are filing fees, service of process fees, witness fees and mileage. There is usually no recovery for expert witness fees in small claims cases. Also recoverable are fees for subpoenas of individuals and for subpoenas duces tecum for documents. Interest on the judgment is always awarded, and, sometimes, it is awarded before judgment. Prejudgment interest (interest running from a date prior to the date of judgment) is governed by the laws of each state. A plaintiff should always investigate to determine if it is awardable in his case.
After the trial the plaintiff presents a summary of his costs to the court for approval. Once approved, the costs are included in the court's judgment against the defendant.
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PREPARING TO SUE
At this point you are ready to file a lawsuit to collect the money or other relief to which you feel you are entitled. When you reach this point, you have already done everything to resolve the matter out of court. You have probably met with the person and sent the obligatory demand letter which has been ignored. Most people ignore demand letters and threats to go to small claims court expecting it will be too much of a hassle for the creditor to pursue collection of the obligation.
A true story is that once a beginning attorney was hired as in-house counsel for a small manufacturer. Amazed by the large number of collection cases that were filed against the company, he questioned the boss. The attorney was told that bills were never paid until after a suit was filed. It was the policy of the boss to see if people were upset enough to sue. If they did not sue, he kept his money. If they did sue, he offered to settle for less than the amount sought by telling the people that his settlement amount was more than they would receive after they paid their attorney. After hearing this explanation, the attorney tendered his resignation because he did not approve of this morally questionable tactic. The attorney would have quit immediately but the canons of professional responsibility forbid an attorney from quitting without giving the client an opportunity to replace him.
While distasteful, the above tactic is a common practice among the unprincipled. Most debtors will not settle just because they are threatened with a lawsuit. The advantage of making a demand in writing is that a copy of the demand letter can be presented at court. This is proof that you attempted to resolve the matter out of court, and this attempt should not be discounted. Judges like to have these matters resolved out of court and they look dimly on parties who deliberately refuse to pay their just debts and force the other party to take less than is actually owed.
From this point on it is assumed that the reader has decided to sue. Therefore, hereafter, this book deals with the practical considerations in preparing a case for trial in small claims court.
I. WHO CAN SUE IN SMALL CLAIMS COURT
In order to bring a suit in small claims court, the plaintiff (the person who is filing the suit) must be the real party in interest. By definition "a real party in interest" is a person actually affected by the actions of the defendant that caused the injury described in the complaint. Example: A person is hit by a car in a cross walk. The person may sue the driver for negligence, but the person's brother or sister may not sue the driver because they are not the real parties in interest to the accident. For example, assume that a person borrows a car and is in an accident. Since the driver of the borrowed vehicle is not the owner, he is not the real party in interest and cannot sue the other driver for the damage to the borrowed car. Only the owner can do that. If the owner sues the borrower, the borrower can sue the other driver because the borrower then becomes liable for the damage and is a real party. Fortunately such complicated issues regarding real parties in interest seldom arise in small claims actions.
Agents for real parties in interest can file small claims action for the real parties. Such agents are persons holding powers of attorney for the real parties or are court appointed conservators, guardians, or personal representatives. Example: The person entered a coma and cannot file the suit himself. This person's sister has a durable power of attorney from the injured party. The sister can file the suit for her sibling.
Custodial parents have a legal right to file suits on behalf of their children. In doing so, they assure the court that the child's estate is handled properly. The parent or guardian usually must first receive court approval to bring suit for the child. This is an order signed by a local judge affirming that the parent or guardian is appointed the guardian of the estate of the child and is permitted to maintain the suit. The parent or guardian then files the suit in the same manner as any other. A phone call to a local attorney will apprise a parent or guardian of local procedure. It might be necessary to have the parent or guardian appointed as the guardian ad litem to bring the suit in small claims court. The parent or guardian may then proceed with the small claims action. The costs of the appointment as guardian at litem are recoverable from the defendant if the small claims action is successful.
Most small claims actions are by individuals and seek money to cover damages which the defendant is alleged to have caused the plaintiff. Any individual can bring a suit in small claims court if he is above the age of majority (more than 18 years of age) and has not been declared mentally incompetent by a court.
When a person who owns his business files a small claims action, the owner's name followed by the name of the business should all be listed as the plaintiff. Example: George Harper owns Harper's Garage. The plaintiff should be listed as George Harper, doing business as Harper's Garage.
A partnership is a legal entity. Thereafter, debts owed to a partnership must be recovered by the partnership. In such an event, the partnership is listed as the plaintiff with the names of the partners listed for reference. For example, assume that MG Partnership seeks to sue John Roddy. The plaintiff on the small claims complaint would read MG Partnership, a general partnership, with Mark Hallen and Lloyd Garger individually. Since all general partners have the right to act for the partnership, only one partner has to sign the small claims complaint on behalf of the partnership. Except for having a partner sign the complaint for the partnership, the suit is handled the same as any other action. New York is unique in that in most of its counties partnerships are precluded from filing small claims actions.
A corporation is a separate legal entity from its shareholders. In order for a corporation to bring a small claims action, the complaint must be signed by either an officer of the corporation or a person authorized by a resolution of the board of directors of the corporation to file the complaint. Except for having an officer or other person sign the complaint for the corporation, the suit is handled the same as for any other plaintiff. An exception exists in New York wherein corporations are precluded from filing small claims complaints.
Licensing requirements may hamper filing or prevailing on a small claims complaint in certain circumstances. Most states require certain individuals engaged in business to be licensed to maintain a small claims complaint for work done in the business. Example: Most states require real estate brokers, contractors (painters, carpenters, cement workers, plumbers, etc.), automobile mechanics, TV and VCR repairmen to be licensed. If such persons are not licensed, then they are precluded by law from bringing a small claims suit to recover business debts.
Most states permit bill collectors to appear in small claims courts. In those states, the creditor assigns the claim (they transfer the claim against the debtor) to the bill collector, who becomes the new owner. The bill collector then brings the suit in his own name and after recovery usually pays 60% to the original creditor. While permitting all other types of small claims complaints, Kentucky and Texas preclude small claims actions involving interest for money lenders. The following states do not permit bill collectors (assignees) to use small claims court: California, Michigan, Missouri, Nebraska, New York and Ohio. In New Jersey, assignees of corporations but not individuals or partnerships may use small claims court. As a practical matter, it makes no sense to hire a bill collector to file the suit in small claims court. The bill collector takes from 40% to 50% of the judgment when an average person could get the judgment himself for between $25 to $50. Collection is discussed in Chapter 12 .
II. WHO SHOULD BE SUED?
Almost everyone can be sued in small claims courts. State governments cannot be sued without the plaintiff first giving the state agency in question written notice of the claim against the agency. A suit cannot be filed before the state agency rejects the claim or a fixed time has lapsed since the service of the claim. The time for filing the claim against the state agency is quite short. In California it is just 100 days from the incident giving rise to the claim. If the claim is not filed in a timely manner the person loses all right to bring the suit. A person having a claim against a state agency should contact that agency's legal representative and ask for the claim form. If the agency does not have a claim form, the person should contact the city clerk or county clerk or board of supervisors and ask for the claim form. With the forms will come the appropriate procedure and time limits for filing.
If a person has a claim against the federal government, he is usually out of luck. There is no federal small claims court and the federal government cannot be hauled into a state's small claims court without its consent. Suits against the U.S. government must be brought in federal court and is usually too much bother for the amounts involved in small claims actions.
Most of the defendants in small claims cases are individuals. The suits against individuals are for what they did in their own individual capacities and not for what they did in business or as a partner or employee. This makes it easy to draft a complaint. The plaintiff simply lists each individual who caused the damage. The point to remember is that if a person is not named in the complaint as a defendant, a judgment cannot be obtained against him. There is no liability by association under the law. If a person is not named in a complaint then a judgment cannot be taken against him. For that reason all defendants must be identified in the complaint. For example, George was driving Bill's car when he hit Mary in an auto accident. If Mary names only Bill in the complaint, she will only be able to recover damages from Bill and not from George.
C. DEFENDANTS ENGAGED IN BUSINESS
The second most common defendant in small claims cases is a self-employed individual where the debt is business related. A self-employed individual is treated the same as a regular individual. A self-employed individual is personally liable for the consequences of all his acts and all of the acts of his employees in the scope of their employment. This means that the owner is responsible to pay the damages that he or his employees cause while doing their jobs.
In order to bring a small claims action against a self-employed person, the plaintiff should list as defendant the name of the owner plus the business name he usually uses. Many states require persons doing business under names not their own to file a fictitious name statement with the county clerk. This fictitious name statement is a public document that lists the true names and addresses of the owners of the business. Persons having claims against the business can find the true names of the owners and file a small claims action. Example: John, an employee of TALK Enterprises, had a car accident, hitting Joan, while driving the company truck. The fictitious name statement lists the owner of TALK Enterprises as Bill Crayon. Joan files a small claims action against Bill Crayon, doing business as TALK Enterprises and owner of the company and John the driver as defendants respectively.
Besides a fictitious name statement, information about the owner of the business can also be obtained from the city or county business license office provided businesses are required to have business licenses in order to operate.
Many attorneys feel that since the employer is responsible for the actions of the employee it is unnecessary to name the employee who actually caused the injury as a defendant. On the other hand, the court may find the employee exceeded the scope of his employment (exceeded his orders or authority) the employer is therefore not liable for the damages. If the employee is not named in the action, the plaintiff will have to refile.
A partnership is two or more individuals engaged in business for profit together. All general partners are individually liable for all of the debts and obligations of the partnership regardless of their percentage of ownership. If four persons own a partnership equally (25% each), they are all nevertheless 100% liable to pay all the debts of the partnership. If one partner cannot pay his share the other partners must do so for him, and if three partners cannot pay, one must pay it all.
A partnership is a legal entity. This means that the partnership can enter its own contracts and both sue and be sued. When a partnership is sued in small claims court, both the partnership and the individual partners should be named as defendants. The reason for naming both the partnership and the partners is to avoid having to go back later and require a court judgment ordering the partners to pay the partnership debts.
For example, ABC Garage improperly fixed Jill's car. The fictitious name statement shows ABC Garage is a partnership composed of Marty Cabel and Bill Linen. Jill files a small claims complaint listing as defendants ABC Garage, a partnership, and Marty Cabel and Bill Linen, individually. The procedure for identifying partners is the same as outlined above in the subsection Individuals Engaging in Business.
Corporations are also legal entities. Corporations may sue and be sued. A corporation is sued just like an individual: by listing its name on the complaint as a defendant. The shareholders of a corporations (its owners) are not personally liable for the corporation's debts or obligations. The officers or directors cannot be sued for the actions of the corporation unless they themselves do the act that cause the plaintiff's injury. This is the limited liability aspect of corporations, their most important asset.
The full name of a corporation must be listed on the complaint. Many corporations will use fictitious names just as individuals use them. The reason for fictitious names is usually to create a warmer, more comfortable business atmosphere. For example, a business named Aunt Milly's Restaurant sounds better than Millicent Cramer's Restaurant, Inc.
Corporations are licensed by the state in which they operate. Contacting the Secretary of State will give a wealth of information. The Secretary of State's office will provide the full name of the corporation, its principal place of business and the designated agent for the receipt of process (the person who is to be served the small claims complaint for the corporation). Armed with this information, the complaint can be completed and filed.
F. SUING AN ESTATE
A common lawsuit is one against the estate of a deceased person. When a person dies, if the person has a large enough estate, a probate must be opened. In opening the probate, the probate judge appoints a personal representative and sets a fixed date for the termination of creditor claims. Under the laws of most states the personal representative is required to notify all known creditors of the decedent's death and publish notice of the death in a paper of general circulation. All creditors are thereby given actual or constructive notice of the decedent's death and the time for filing the claims against the estate. If claims are not filed within the set period of time, the creditor loses all rights forever to present them and be paid.
If the claims are filed in a timely manner, the personal representative must either accept or reject them within a set time. If the claims are not accepted, they are automatically rejected. Once the claims are rejected, either expressly or by operation of law, the creditor can file suit for collection. Some states require the creditor to file the complaint for collection in the probate court, while other states permit the collection to be filed in any court including small claims court. The attorney for the estate will tell the creditor whether or not the state's law permits collection actions in small claims courts.
III. WHERE TO FILE THE COMPLAINT
Naturally, a plaintiff would like to bring a suit in his home city. That is not always permitted. Each state has its own requirements as to where the suit may be maintained. The suit must be filed where the incident giving rise to the action occurred (such as the site of the accident) or where the defendant resides. Corporations may be sued in the city where their principal place of business is located. All states permit suits based on breach of contract to be brought in the jurisdiction where the contract was signed. A few other states permit a contract suit for damages to be brought in a jurisdiction where the contract was to be performed. Chapter 15 (State Laws) lists the various form requirements among the states.
IV. STATUTE OF LIMITATIONS
Every state has enacted laws limiting the time in which various lawsuits may be brought. The states wish to keep their dockets manageable and do not want cases over a certain age cluttering their courts. The rationale behind this philosophy is that a person should look out for his own interest. There is an equitable adage at law, "He who sits on his rights loses them." Nothing is gained by belaboring the effect of the law. Until the law is changed, it is in effect. If a lawsuit is filed after the appropriate statute of limitations has run, the action will be dismissed with prejudice which means it cannot be filed again.
As a practical matter, almost all small claims matters must be filed within one year of the event giving rise to the action. Except where special time limits for government agencies exist (see above), there are no statute of limitation problems. Concern arises when a suit against nongovernment defendants is filed over one year from the date of the event that gave to the cause of action. Chapter 15 (State Laws) lists the general period of statute of limitations for each state.
The specific statute of limitations of each state can be obtained from state law volumes under the Index "Limitations of Actions" or "Statute of Limitations." Example: In California there is a one year statute of limitations for personal injury, a two year statute of limitations for breach of an oral (unwritten) contract, a three year statute of limitations for fraud and a four year statute of limitations for breach of a written contract.
The specific statute of limitations for each state starts to run from the time of event causing the injury. The time period for filing for damages for an auto accident starts to run from the date of the accident. The period for filing for breach of contract runs, not from the date the contract was executed, but from when the defendant stopped performing his obligations under the contract. For example, assume George had a written contract requiring him to provide Harry 1,000 bushels of corn for 10 years for $1,000 per year. After seven years George refused to deliver any more corn. Harry, in California, would have four years to sue George for the corn. The fact that the contract was signed seven years earlier is irrelevant because the statute of limitations runs from the date of the breach, not the date of execution of the contract.
The statute of limitations can be tolled (suspended) from running under certain conditions. If the plaintiff is unable to file the suit because of severe medical or mental reasons, the running of the statute of limitation will be suspended until the plaintiff is able to file. If the defendant tricks or deceives the plaintiff from filing his complaint, such as by promising to pay if the plaintiff does not file or concealing information that the plaintiff needs to file the suit, the statute of limitations will be suspended for the term of the defendant's improper actions. The best thing for any plaintiff to do is to file the action as soon as possible. We are talking about the collection of money that the plaintiff feels is legitimately owed him. A delay in filing the suit only complicates collection and runs the risk the defendant may die or disappear, which would only further complicate collection.
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FILING THE COMPLAINT
Now is the time that tries the hearts of all plaintiffs. For now is the time that the complaint is drafted and filed. Up to this point, everything was speculative. Most people decide before reaching this point not to sue for a variety of very practical reasons: the process is too cumbersome, the money is not enough, it takes too long, the moon is in the seventh heaven, Jupiter is aligned with Mars. The fact is that many people are intimidated with the process. This is unfortunate but nonetheless all too true. Hopefully, this book should convince the reader that there is nothing to fear regarding the small claims court. It really is easy to use, but being easy to use does not translate into always winning when using it. Plaintiffs still must produce evidence to support their case in order to win. The burden of proof is always on the plaintiff.
I. FILING FEES AND COSTS
One of the most important questions a person asks regarding small claims court is, "How much does it cost?" This is an understandable and totally appropriate question. There is always a filing fee for any complaint filed in any court. Courts are not free and small claims courts are no exception. The usual filing fee is between $10 and $25, rarely any more. In California, the basic fee is $18 per case. Multiple filers, those with over 13 cases per year, pay more. A person unable to pay the filing fee can, in most states, request that a court grant a waiver of fees. This waiver is called a Forma Pauperis, which is Latin for "Form of a Pauper." If the plaintiff qualifies, the fee is waived and subsequently recovered if the plaintiff wins the case. The defendant pays the filing fee as a court cost to the plaintiff if the plaintiff wins the case.
The most expensive cost in a small claims action is usually incurred in serving (delivering the complaint) to the defendant. State law is formalized in the manner and method of serving the complaint on the defendant. Many times a professional process server (a person who delivers complaints on defendants for a living) is employed. The process server will usually charge $50 to $100 to make the service on the defendant. In many states a county sheriff's office or police department will serve a complaint for a fee. Use of the sheriff or police officer is cheaper than a private process server, but it usually takes much longer to have the service done because service of civil process is not their primary duty.
The next item of major cost is witness fees. If a witness will not appear voluntarily, the witness can be compelled to attend by subpoena (see Chapter 5). Most states require a person being subpoenaed to live within a certain distance of the court (usually between 100 and 150 miles) and to be paid a daily fee (usually $35) and a mileage fee (usually 18 per mile). A judge will not order the loser to pay the winner's witness unless it finds that the witness was vital or at least important to the proof of the winner's case. This is policy prevents the prevailing party from incurring unnecessary witness fees with which to saddle the loser.
Most of the costs related to pursuing a small claims action are recoverable from the defendant if the plaintiff wins or from the plaintiff if the defendant wins on a cross-claim against the plaintiff. While court costs of filing fees, service of process fees, witness fees and mileage are usually recoverable, expert witness fees usually are not. Also recoverable are fees for subpoena of individuals and for subpoena duces tecum for documents. Interest on the judgment is always awarded and sometimes it is awarded before judgment. Prejudgment interest (interest running from a date prior to the date of judgment) is governed by the laws of each state. A plaintiff should determine if it is awardable in his case. After the trial, the plaintiff presents a summary of his costs to the court for approval. Once approved, the costs are included in the court's judgment against the defendant.
II. FILLING OUT THE FORMS
The basic forms for small claims courts do not change from state to state. The same basic information has to be included in every complaint. Since small claims courts are intended to be user friendly, the information is easy to provide. To show how simple the process is there is a completed sample complaint for a California Small Claims Court. Almost all states follow the same format or at least request the same information in a different order. The preparation of a small claims complaint involves filing the blanks. The plaintiff is required to state enough information to the defendant to show him why the plaintiff is suing. Many states do not even use the term small claims complaint but instead refer to it as a small claims court claim to signify the simplicity of the pleading.
In California the form is simplicity itself. The example is Michael Roddy suing John Stinemeyer for $1,500 for damage to a car. Michael Roddy the plaintiff will do the following:
1. Write or type his name, Michael Roddy, and address in the box titled "Plaintiff."
2. Write or type the defendant John Stinemeyer's name and address in the box titled "Defendant."
3. On line 1 write or type the sum $1,500, and in the space below it write or type "On August 1, 1993, the defendant damaged my car."
4. On line 2 check box 2 (a) to show that the defendant has not paid the claim after a demand was made for such payment.
5. On line 3 insert the letter representing the reason the suit is being filed in this particular court (usually either because the incident which is the basis of the suit occurred in the court's district or it is where the defendant lives).
6. If the plaintiff has filed more than 12 small claims in the last year, he must check box 4 (so he will be charged a higher filing fee). In this case the plaintiff has not filed more than 12 claims in the last year; so he leaves it blank.
7. The plaintiff prints his name and signs the claims.
The complaint is now ready to be taken to the clerk's office and filed. Once the complaint is filed, the clerk will keep the original and return two copies to the plaintiff. The plaintiff will then keep one copy of the complaint and serve the other copy on the defendant. When there is more than one defendant, the plaintiff will make a photostatic copy of the complaint to be served on each defendant.
All but a few states permit a landlord to bring an eviction or unlawful detainer action in small claims court. Warning: Do not sue in small claims court for unlawful detainer even if it is legal. All states have a summary unlawful detainer procedure that is faster and cleaner than a small claims case. The normal unlawful detainer action takes about 30 days and deals only with the right of possession. The tenant is not permitted to remain on the property pending an appeal after losing the case.
A small claims action for unlawful detainer is not so neat. In many states, the defendant can appeal and while appealing is allowed to remain on the property. The appeal of a small claims action can take months. In a real California example, a tenant had a terrible landlord who threatened and bullied his tenants. The tenant would not take the abuse. Therefore, the landlord served notice to vacate and then filed suit for unlawful detainer in small claims court in Chula Vista, California. Judgment was obtained against the tenant, who promptly appealed. While the small claims action was on appeal, the tenant remained on the property. The tenant, then, requested a finding of fact from the judge in the small claims action, which delayed the appeal. The result was that nearly nine months later the tenant was still in the apartment without having paid any rent. By then, the landlord had enough and agreed to drop the complaint if the tenant would simply move out so the apartment could be rented. The fellow tenants threw him a wild "going away" bash.
Small claims judge pro tems in Los Angeles are instructed to inform plaintiffs before hearing their cases that defendants can appeal adverse decisions and remain on premises while the appeal is pending. The courts in California do not like the use of small claims court for unlawful detainer actions because they are terribly inefficient and cumbersome. Since the legislature has given the small claims courts jurisdiction to hear unlawful detainer action, the courts must continue to hear them if they are filed there.
III. SERVICE OF THE COMPLAINT ON THE DEFENDANT
After the complaint is filed, each defendant must be given notice of the suit filed against him. This is known as "service." Each defendant must be provided with the small claims complaint in such a manner that the court will know that it was done. The procedural requirement for service must be followed correctly or the action may not proceed or may be dismissed altogether. A plaintiff cannot personally serve the small claims action on the defendant.
A. BY CERTIFIED MAIL
Most states (such as California and New York) will permit service of the complaint on a defendant by certified mail. The court clerk will post the complaint to the defendant's address by certified mail. If the defendant signs for it service is made. The fee for this is $3 in California. It is about the same in most states.
The problem with certified mail service is obvious. If the defendant does not accept delivery, the defendant is not served. The professional deadbeat knows better than to accept any certified mail. A few states (such as Alaska and Arkansas) have adopted statutes which hold that service by certified mail is effective even if refused by the defendant, but that is a minority view. Estimates are that nearly 60% of all small claims complaints sent by certified mail are accepted. That means defendants reject over four out of every 10 certified mailings.
When the court clerk serves the complaint by certified mail, the plaintiff should contact the clerk before the hearing date to ensure the defendant accepted service. Many clerks will inform a plaintiff before the hearing date if the defendant refused service. Some clerks do not, and the plaintiff is surprised at the time of the hearing to discover for the first time that service was not made. The court then has no jurisdiction to proceed, and the case is continued to give the plaintiff time to serve the defendant in another manner. Discovering before the hearing that there was no service causes the plaintiff the inconvenience of a needless court appearance. When service by certified mail has not been made, the plaintiff must serve the defendant with the small claims complaint in another way.
B. PERSONAL SERVICE
Next to service by certified mail, the most popular method of service of a complaint is by personal service directly on the defendant. Personal service of a complaint can be accomplished in one of two ways:
1. By law enforcement officers. Every state permits civil process, such as a small claims service, to be served by its law enforcement officers (sheriffs, constables or police). The fee charged is usually $25 to $50. In some states, this is the only manner of serving civil process except for certified mail. A disadvantage in using law enforcement officers is that civil service of process is not a high priority on their list of duties. It often takes an inordinate length of time to effect service. The real advantage of using law officers for civil service is that the defendants are far less likely to attack or abuse the process server. Several process servers have told horror stories of fights and assaults while attempting to serve process over the years.
2. Private process servers. Many states (check the appendix to determine your state's law) permit an adult over 18 who is not a party to the action to serve process. Some states have professional process servers who will serve process on a party for a fee of $50 to $100. Personal service of the complaint means just that. The complaint must be delivered personally to the defendant. It is not necessary to force the defendant to take the papers. Once the process server has properly identified the defendant, if the defendant refuses to take the complaint, the process server simply leaves the papers in the defendant's presence and departs. It is a fiction of the movies that a person can stand before the process server and refuse to take service and boast that he is not served. The key is that the defendant knew the papers he refused to accept were a complaint.
C. SUBSTITUTED SERVICE
The least popular and most contentious means of service of process is that of substituted service. Many states have statutes which hold that when a defendant cannot be served exercising and using the normal methods of certified mail or personal service, reasonable diligence the plaintiff can serve the complaint by substituted means. In these states the plaintiff is permitted to leave a copy of the complaint at the defendant's home or business with a person over 18 years of age and in charge. The plaintiff then must mail a copy of the complaint to the defendant at the same address. Service is usually deemed complete 10 days after the mailing.
Because the defendant is never personally given the complaint, it is obvious that many defendants will simply disregard the whole matter and claim that they never got the complaint. The courts require that before a plaintiff use this method of service that the plaintiff file an declaration stating the steps previously undertaken to serve the defendant. Substituted service requires the process server to leave a copy of the complaint with an identified person at the business or residence of the defendant and to mail a copy of the complaint to the defendant at that address within 10 days. A proof of service must be filed by the process server stating the name of the person receiving the complaint.
D. TIME FOR SERVICE
Procedural due process under the United States Constitution requires the defendant be served with the complaint enough days before the trial to prepare a defense properly to the allegations in the complaint. If the clerk is not serving the complaint on the defendant by mail, the plaintiff should ask how many days the state's law requires the defendant be served prior to trial. The number of days varies but is usually between 10 and 30. The day of service of the complaint is not counted but weekends and holidays are counted because those are days that are available to the defendant to prepare his defense.
The plaintiff is required to file with the court a proof of service form prior to trial that states when the defendant was served. If the defendant was not given the minimum amount of time to prepare, the trial will be rescheduled unless the defendant waives the defect and agrees to go ahead with the trial. The defendant should appear at any scheduled hearings in order to protect his interest even though he may not have been served properly. Such an appearance is not a waiver of service, and the defendant can still insist on the full number of days to prepare as promised under the law.
IV. SERVICE OF A BUSINESS
The rules of service of a complaint on a business depends on the type of business which is being sued. A sole proprietorship (a business owed by one person or a husband and wife) is sued by naming the business and the owner (the husband and wife if owned jointly). Service is made by delivery of the complaint on the owner (husband or wife if owned jointly).
A partnership is served by delivery of a copy of the complaint to any general partner. Each partner being sued must also be served with an individual copy of the complaint.
Corporations are different from both sole proprietorships and partnerships. Corporations are required to maintain records with the Secretary of State's office in every state where they do business. Part of the information that the corporation must maintain with the Secretary of State is the mail address of the person authorized by the corporation to receive all service of process for the corporation in the state. This person is called the "designated or resident agent for process." This is the person to whom the complaint can be sent by certified mail. A corporation's resident agent may not refuse to accept service by certified mail if authorized by state law. In addition to serving the complaint on the designated resident agent for process, a plaintiff may personally serve the complaint on any officer of the corporation by personal service. Customarily it is much easier to serve a corporation by posting it as certified mail to its designated agent for service. Many corporations that do business in several states retain the services of a professional resident agents who are the mailboxes for forwarding all correspondence to the home office. Such agents may represent hundreds of corporations
V. SERVING A DEFENDANT IN THE MILITARY
There are problems in suing people in the military. Congress passed the Soldier's and Sailor's Relief Act in 1940. The point of this Act is that a soldier or sailor on active duty cannot be sued in state courts for civil matters. If a person wishes to sue a soldier or sailor on active duty (does not include the reserves) the serviceman may stop the whole proceeding by simply invoking this Act.
A San Diego law firm once represented several car dealers in their collection actions. It was not and still is not uncommon for sailors to purchase vehicles and then not pay for them. The cars were repossessed and subsequently sold by the dealers under appropriate law. The dealers then obtained deficiency judgments, but they could not collect because of this Act. There is no distinction under the Act between a person stationed across the world and someone stationed down the street who lives near a base with a wife and three kids. In many instances, the intent of this Act has been abused to obtain property without the intent to ever pay for it. This conduct is little better than theft, and use of this Act in that manner is an insult to all of the decent men and women in the military who properly pay their just debts.
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WHAT THE DEFENDANT CAN DO WHEN SUED
The first three chapters dealt with small claims procedure from the viewpoint of the plaintiff, the person bringing the suit. This chapter will discuss the various options that should be considered by the defendant. Actual preparation for trial should be the same for both the plaintiff and defendant. Chapter 5 (Preparation for Trial) details the steps that both parties take to prepare to present their case before the judge or the jury.
Usually, the defendant knows the basis of the plaintiff's case and why he is being sued. The defendant already has a significant advantage over the plaintiff: the defendant can reasonably compute plaintiff's damages and how the plaintiff will go about proving those damages. On the other hand, the plaintiff does not know how the defendant will present his defense. Never discount this uncertainty. The worst thing that a plaintiff can do is appear uncertain and unsure in the presentation of his case. The defendant can play upon that uncertainty to maximize his defense.
I. THE NECESSITY OF FILING AN ANSWER
Few states require the defendant to do anything but appear at the small claims court trial and tell his side of the story. The defendant has an advantage because the plaintiff does not know if the defendant is going to contest the action or even appear at court. The plaintiff may not know all of the defense theories the defendant can expound. The plaintiff may be caught unaware at trial with the presentation of a wholly new and previously unannounced defense that he is unprepared to disprove. Because of the uncertainty regarding whether or not the defendant will appear, the plaintiff will be forced to go through the time-consuming and potentially nerve-wracking experience of preparing the case for trial. The plaintiff may unnecessarily have assembled and interviewed witnesses and have left work to attend the trial. His lost pay will not be compensated by the court.
A few states require the defendant to file with the court a responsive pleading (called an "Answer") in order to appear and defend himself against the allegations in the complaint. The court clerk in such states has a simple form that is used for this purpose. The defendant simply denies the plaintiff's claim or objects to the size of the claim. A copy of the answer is usually mailed to the plaintiff. Those states that require an answer to be filed also have fixed time limits for the answer to be filed. If the answer is not filed within the appropriate time limit (usually five to 10 court days before the trial), the defendant will be denied the opportunity to file the answer, and a default will be entered against the defendant.
Even though the defendant does not appear for trial, the court will not automatically grant judgment to the plaintiff. "Due process" still requires that the plaintiff present evidence that he is the one entitled to receive the requested damages. This process is called a "prove up." The judge will hear only the plaintiff's case and decide whether or not damages should be awarded. Just because a defendant does not appear does not mean that a judge can award damages. Perhaps no liability can be shown or the award violates state or federal law, and the judge is thereby prevented from awarding damages.
If the plaintiff presents sufficient evidence to convince the judge or jury that damages should be awarded, the plaintiff wins the action. Once the judge or jury decides for the plaintiff, the judge will issue a "Default Judgment" for the amount of damages and other relief that it is being awarded the plaintiff. Part of the judgment will be an award for the proper damages suffered by the plaintiff, the court costs in bringing the suit and the amount of interest permitted under state law.
If a default judgment is taken against a defendant, most states delay enforcement of the judgment for a period of 10 to 60 days. The purpose of this delay is to give the defendant the opportunity to file with the court a "Motion to Vacate Judgment." This is a request by the defendant that the default judgment be set aside and a new trial be held in which the defendant will appear and present his side. The form for the "Motion to Vacate" is obtained from the court clerk and is as simple to complete as other small claims court forms. The court will usually grant a motion to vacate a default judgment only on one of the following grounds:
1. An emergency arose that made attendance impossible. This can be any reasonable excuse acceptable to the court. The court must be convinced that but for the happening of the unexpected event, the defendant would have attended the trial.
2. The defendant was never notified of the hearing. The defendant must prove that he was never served with the complaint. This argument occurs most often when substituted service of the complaint was made on the defendant. If the defendant was not properly served the judgment, is null and void.
Judges are not disposed to grant motions to vacate judgments. The longer a defendant waits before moving to vacate the judgment, the more unlikely it will be granted, except where the defendant was never given proper notice of the hearing.
II. FILING A COUNTERCLAIM
A defendant in a small claims case has the same right as any other defendant to countersue the plaintiff. This means that small claims court is not a one-way street for the plaintiff. A defendant can also seek justice in the form of damages and equitable relief. Important Reminder: In nearly all states, if a defendant has a cause of action against the plaintiff arising from the same set of facts that serves as the basis of the plaintiff's suit, the defendant must either file a claim against the plaintiff or have the case transferred to a formal court. Otherwise, the plaintiff will not be able to sue the plaintiff on the claim later. The purpose of requiring the defendant to file a claim for all damages arising under the same set of facts as the plaintiff's claim is to have a final one-time resolution of all claims arising under one event. States vary concerning the procedure to be followed by a defendant in presenting a claim against the plaintiff.
In a few states the defendant has the advantage of being able to wait until the day of the trial to file his claim against the plaintiff. These states permit the defendant's claim to be filed on the morning of the trial and sometimes even permit the filing at the beginning of the trial. The defendant has an advantage because the plaintiff does not know if the defendant is going file a cross claim and if so, on what grounds. In fact he does not know if the defendant will appear to contest the action. The plaintiff is usually caught unawares and may not even know prior to trial the claims against him. The plaintiff without knowledge prior to trial of these totally unexpected claims is unprepared to refute them.
When the defendant surprises the plaintiff with a last minute filing of claim, the plaintiff has one of two options. The plaintiff may:
1. Seek a reasonable continuance to prepare a defense against the allegations contained in the defendant's counterclaim. If a continuance is sought, it will always be granted. All of the work and preparation that the plaintiff has undergone to prepare for the trial that day will have to be redone again for the new trial. The plaintiff will be forced to go through the time-consuming and potentially nerve-wracking experience of preparing the case for trial again. The plaintiff may unnecessarily have assembled and interviewed witnesses and been absent from his job to attend the trial. The court will not compensate him for the lost pay of his efforts.
2. Bite the bullet and stand at trial with the evidence at hand and refute the defendant's claims to the best extent as possible.
The surprise caused by a defendant's last minute filing will severely affect the plaintiff's presentation of his case. Many plaintiffs cannot overcome such a surprise and adjust their case.
A helpful tactic is for the plaintiff to call the defendant as his first witness. Most defense attorneys rehearse the testimony of their client and tell him to listen to the plaintiff's testimony in order to color his testimony to the most attractive shade. Calling the defendant as the first witness is most unusual and unexpected. In one case the defense attorney was the former president of the county bar with decades of experience. When called as the first witness, his client nervously asked, "I'm first? What do I do?" His attorney objected to the calling of his client first, but the judge had to allow it. His client was so shaken that he made a terrible witness and the case was lost. After the trial the attorney said that in 20 years as an attorney he had never seen that tactic before. Two weeks later he had a jury trial in which he was the plaintiff's attorney. He called the defendant as his first witness and won.
Most states require a defendant to file his counterclaim against the plaintiff with the court by a certain date (usually five to 10 days before the trial). Once the claim is properly filed, the defendant's counterclaim will be heard on the same date as the plaintiff's claim. Some states will automatically reschedule a small claims case when a defendant's counterclaim is filed to give the plaintiff adequate time to prepare.
The defendant's counterclaim has the interesting effect of making the plaintiff the cross-defendant to the counterclaim. The defendant has the same obligation to prove by a preponderance of the evidence the allegations contained in the counterclaim as the plaintiff has to prove the allegations of his claim. It is possible for both the plaintiff and defendant to prevail and be granted relief in part on their cases.
Following this chapter for reference purposes is a completed defendant's claim as used in California. Nearly all states follow the same format. It really is that simple. The defendant merely states the basic reason for suing the plaintiff as the plaintiff did in his claim.
III. TRANSFER TO REGULAR COURT
The last quiver in the sheath of a defendant is the ability to request the small claims case be transferred to a regular formal court. Transferring a case to a formal court has advantages and disadvantages to a defendant. The advantages to a defendant in transferring a case are:
1. A long delay before the case will be heard. When a case is transferred to a regular court's docket, it is placed on the last of the civil calendar. All criminal cases have precedence over civil cases. So criminal cases, which have a statutory dead-line problem, will be heard before the civil cases. Certain civil cases, such as those involving elderly parties, are given precedence on the calendar and moved to the front.
2. Attorneys are permitted to represent parties in regular court. Some states do not permit attorneys to represent parties in small claims court. A defendant may want to be represented by an attorney, especially in the situation where the defendant knows he is not able or competent to present his own case in a state which does not permit attorneys in small claims cases.
3. A defendant can recover more in damages in a formal court than in the small claims court. Example: In California the most that a person can receive is $5,000. If the defendant has a meritorious claim against the plaintiff under the same set of facts for $25,000 and the case is heard in small claims court, the most the defendant can receive is $5,000 (a loss of $20,000). In contrast, if the case is heard in a municipal court in California, which has jurisdiction to $50,000, the defendant can get the full $25,000 if he wins.
The disadvantages that could result to a defendant from the transfer to a formal court are:
1. The plaintiff could amend his suit to sue for more money. If the case is transferred to a formal court, the plaintiff is no longer bound by the limits of small claims court and can sue for damages equal to the jurisdictional limit of the court.
2. If the dispute is over a contract and the contract provides for attorney fees to the prevailing party and the defendant loses, he will have to pay the plaintiff's attorneys fee, which will be higher than if the case had been heard in small claims court. Of course, if the defendant wins, the plaintiff must pay defendant's attorney fee pursuant to the clause.
Whether or not a defendant can transfer a plaintiff's small claims case to a formal court depends on state law. If the defendant files a counterclaim exceeding the jurisdictional amount of the small claims court, the entire case with both plaintiff's and defendant's claim will be transferred to the higher court. A few states permit the transfer at the request of the defendant even though the defendant has not filed a claim or his filed claim is within the small claims jurisdictional amount. Other states transfer the case whenever a jury trial is requested by either party. Only a few states absolutely refuse to transfer a small claims case regardless of the size of the defendant's claim. Chapter 15 (State Laws) lists the transfer provisions of the various states.
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PREPARING FOR TRIAL
A plaintiff gets just one shot to present his case in small claims court. Most states do not permit a plaintiff to appeal a losing small claims decision. A defendant on the other hand is given the chance to appeal a judgment taken against him. For this reason it is all the more important that the plaintiff (and the defendant when presenting a counterclaim against the plaintiff) present his case in the most concise and professional manner.
It is amazing how many people seem to feel that they will win if they yell the loudest or act the most indignant in the Court. These people fail to grasp the concept of burden of proof is the same in small claims courts as any other court. The plaintiff (or defendant with counterclaims) has the burden and sole responsibility to present enough proof to convince the trier of fact, be it a judge or jury, that he should win. No degree of indignation nor sarcasm can replace the legal requirement of proof. Many seem to forget that neither the judge nor jury knows anything about the parties before the trial. The parties approach the trial with a clean slate and the judgment rendered by the court is written by the parties themselves through the presentation of their cases. For this very reason, it is important that parties present their cases in the most complete and professional manner possible.
I. DOCUMENTARY EVIDENCE
The most common type of evidence produced in a small claims court is the type known as documentary evidence. As the name implies, documentary evidence is that of a written nature that tends to prove or disprove the material elements of the plaintiff's or defendant's case. Examples of documentary evidence are canceled checks used to prove that actual payments were made on a debt.
Documentary evidence is most often needed in situations involving the Statute of Frauds. All states have laws requiring that any contract for the sale of goods worth over $500, the sale of land, or any interest that will touch and concern land for over a year (such as a lease, easement, condition, covenant or restriction) must be in writing to be enforceable. A court may order specific performance of such a contract that is not in writing if it can be proven that a contract did exist between the parties along with one or more of the following acts:
1. The purchaser has taken possession of the land or property.
2. The purchaser has made substantial improvements to the real property.
3. The purchaser has paid for the property.
4. The party seeking to enforce the contract against the other party has fully performed his obligation under the contract.
In other words, before a person can win a suit for damages based on the sale of goods worth over $500, he must show that a contract existed for the sale of the goods or that the defendant has taken possession of the property. A landlord cannot sue a tenant for breach of a lease specifying occupancy longer than one year that is not in writing. For example, assume that George rents a building for five years but doesn't sign the lease. After two years, George moves out. Since the lease was not in writing, the landlord may not sue for the unpaid rent for the remainder of the unused term of the lease because the lease extended over one year and was not in writing.
In addition to the Statute of Frauds, there is another procedural rule called the Best Evidence Rule that can come into play if contracts are involved. Under the Best Evidence Rule, a summary of a written document, either oral or written, is not admissible as evidence in place of the original document unless it can be shown that the original document is unavailable. The unavailability must not be the fault of party using the summary as evidence. This is a terribly legalistic objection that will only come into play in those states permitting attorneys to appear in small claims case. Assume this rule is applied, and the plaintiff has the only copy of a contract and cannot find it. Before he can present what the contract said he must satisfy the court that he actually lost the contract. He must convince the court that he is not just hiding it from the court so that a different interpretation of its clauses can be alleged.
In addition to contracts, documentary evidence also consists of bills, estimates, police reports and any other tangible proof of a party's case or defense. All of this evidence must be assembled and brought to court. Any documentary evidence not in court when needed does not exist. The court will not accept as evidence that which is not in the courtroom at the time of trial because the opposing side is unable to see, verify or refute it. This is just basic fairness.
In addition to written materials, photographs and video tapes are also sources of documentary evidence. In a California case, temporary restraining order was once sought for an illegal dump on a person's property. Photographs showed that stuff was dumped on the property but it did not give the depth and detail needed. A video tape camera was placed on the property and photographed the property from several angles. Instead of arguing for an hour about the extent of the problem, the tape was played for the judge. The tape showed the extent of the depth far better than the flat pictures ever could. The case was won, and the injunction to clean the property was granted.
Another example of documentary evidence arose in a case in which a woman arrested for worker's compensation fraud. This woman was on a full disability for a bad back after telling a worker's compensation doctor that she could hardly move. Yet, despite her disability she was a participant in a rodeo. Video cameras caught her doing trick riding and also doing heavy yard work. The tape was introduced into evidence to assure that the woman gets a prolonged rest for her back at state expense.
Another form of documentary evidence is the damaged item itself. An auto body repair shop was sued by a woman because it did not repair the car to her satisfaction. The woman had pictures that really did not show the reason for dissatisfaction. The defendant claimed she was being unreasonable in her expectations and that he had done a good job. Before rendering his decision, the judge asked where the car was located and told that it was in the parking lot. The judge continued the case to the end of the docket and personally inspected the car. After examining the work, he found it to be fair but, by no means, the first-rate standard represented. The judge gave the defendant the option of redoing the work or reducing its bill by one-third to reflect what was considered the true value of the work. This was acceptable to the plaintiff, and the defendant agreed to the reduced bill. The judge would not have been able to reach this ruling had the plaintiff not brought her car to the court.
II. DEMONSTRATIVE OR RECREATIONAL EVIDENCE
One of the most persuasive forms of evidence is called demonstrative or recreational evidence. The most common form is use of charts or maps. We have all seen on television the police officer testifying in court that an accident occurred while a car was going south and another car turned in front of it. The district attorney or defense counsel would be tracing the car's path on a large map of the intersection as the officer talked.
Judges and juries both appreciate visual displays. The fastest growing field in computer graphics is computer simulations for personal injuries. That is not to say that such simulations will be used in small claims cases. If the case is worth several thousand dollars, it might be worth asking a computer specialist what it would cost to make a simulation.
Another way to create a simulation is to restage the event exactly as it happened with a video tape present. Naturally, there is always a question in the back of the mind as to whether or not the event is being accurately portrayed. As with all evidence it is for the trier of fact, be it the judge or jury, to give the appropriate weight to such evidence.
III. USE OF WITNESSES
All triers of fact, be they judges, juries or judges pro tem, give greater credence to the testimony of impartial third parties than to the testimony of either the plaintiff or defendant. This is only common sense: the third parties are relatively disinterested because they are not sharing in any award. They tend to be viewed as more reliable than a party who although honest may be swept away by the emotion of the case.
Some states permit statements by witnesses in small claims actions to be used instead of the witness actually appearing. The statements must be in writing and signed under penalty of perjury. The statement should declare, "Signed under penalty of perjury that the foregoing is true and correct." Still, it is always best to have your witnesses available at trial. Since the other party cannot question a witness who is not present, judges do not have to accept a written statement or give it much effect. The court clerk would know whether or not the judge admits witness statements when the judge is the trier of the case. When the case is tried by jury, witness statements are not admitted.
Sometimes a judge will be willing to take testimony of a witness over the telephone. The only way to determine if a court will permit it is to ask the clerk. If the clerk doesn't know, he will ask the judge. Many judges will allow telephone testimony if they are the trier of fact. If a jury is deciding the case, telephone testimony of witnesses is denied because the jury cannot see them. The judge cannot see the witness either, but that doesn't seem to matter.
When a party wants a person to testify at trial, he can subpoena the person to attend the trial. A subpoena is a court order that requires a person to appear at the court to testify; failure to appear brings charges of contempt of court. Another type of subpoena called a subpoena duces tecum can be issued for the production at trial of designated documents. A subpoena duces tecum requires the person served with it to bring specified documents to court on the day of trial.
A subpoena can be served only in person and cannot be mailed. The person serving the subpoena must be over 18 years of age. In some states a party can serve the subpoena in other states if the plaintiff cannot serve it. To be safe, the subpoena should not be served by a party to the case. The subpoena form can be obtained from the court clerk. The party places on the forms the name of the person whose attendance at trial is requested along with the date and time. The completed subpoena is then copied and served (delivered) personally to the person being subpoenaed. Whoever serves the subpoena must fill out a "proof of service" stating the date and location where the person was served. The proof of service is filed with the court. If it becomes necessary to compel attendance, the court will rely on the proof of service for jurisdiction over the witness.
Most states require the party issuing the subpoena to pay the witness a daily fee and round trip mileage compensation. In California this is presently $35 per day and 20 per mile. Always bear in mind that a subpoenaed witness may be hostile to a case. It might be better not to subpoena a witness who might "forget" or "misremember" key items. Most states require a person being subpoenaed to live within a certain distance of the court (usually between 100 and 150 miles) and to be paid a daily fee (usually $35) and a mileage fee of .18 per mile. A judge will not order the loser to pay the winner's witness unless it finds that the witness was vital or at least important to the proof of the winner's case. This is a sound policy because it prevents the prevailing party from saddling the loser with unnecessary witness fees.
As an example, a copy of the form of subpoena used in California follows this chapter. This is the basic subpoena form used in all states. It really is just a matter of filling the blanks with the name of the person being subpoenaed and the date, time and place of the appearance.
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Everything the plaintiff has done in previous chapters has been to reach this stage: the trial. Now is the moment of truth. The parties have their day in court. They stand before the trier of fact and present their case. After all of the time, aggravation, delay, work and preparation, the parties finally have their opportunity to present their case.
A small claims court is the court, with the possible exception of traffic court or divorce, with which the average person, whether layman or attorney, will, most likely, have some contact during his life. Most people are not sued for large amounts of money in their life. When they die, their estate might have to be probated in court but they are not present. On the other hand, statistics show that most people will be a party to a small claims court at least once in their life.
The small claims court is a specially created court in which most disputes can be tried inexpensively and quickly. The rules of the court are simple, and court procedure is relatively informal. Lawyers are usually not permitted to be present or to try the case. Claims in small claims cases vary from state to state. In California disputes not more than $5,000 can be heard in a small claims court. The trial of a small claims case is usually heard within 40 to 70 days from the date of filing of the claim. While most small claims cases involve money damages, most small claims courts have the power to grant other remedies such as ordering a person to do or not do something if the value of the act ordered or restrained is within the monetary limits of the court.
This chapter informs the reader on what is to be expected in appearing for trial. After the reader completes this chapter he will feel reasonably competent to present the case. There really is little of great concern when presenting a case. Small claims courts are justly called the "people's courts" for valid reasons. The presentation is relatively informal with each side simply stating their case and the judge dispensing the justice with the wisdom of Solomon. The judge's authority is limited. He cannot divide children in half or exceed the monetary jurisdictional amount of the court. Except for those limitations, the judgment of the small claims court is final and binding on the plaintiff.
I. CONDUCTING YOURSELF IN COURT
A party appearing in any court should do everything possible to present his case in an agreeable light and to garner the maximum amount of good will. That should strike everyone as common sense but it is amazing how many people do not seem to get the message. Judges in small claims courts sometimes have rude, mean-spirited, argumentative, disagreeable and unprepared people appear before them. Most judges disregard the unprofessional persona of the parties. It is suggested that anyone appearing before a judge follow these simple guidelines:
1. Dress for success. The judge and the court staff are professionals. The judge wears a formal judicial robe. The bailiff wears a uniform, and the clerk is professionally attired. Common sense dictates that the parties dress in a subdued and business-like manner. Studies show that juries psychologically think better and higher of those individuals who dress conservatively. Whether or not such impressions are right or wrong is arguable, but if they do exist you should use them to your benefit or at least make sure that any good appearance of the opposing side is canceled.
2. Present the case professionally. A party presenting a case before a court is acting as his own attorney. All have seen attorneys present cases in the movies and television, and everyone knows when a case has been presented well. A party should attempt to present a case as professionally as an attorney. The party must be prepared. He should have gathered the evidence to be presented, brought the witnesses to court who will be called and rehearsed his presentation.
No party should ever argue with or interrupt the other side. Arguing makes good drama, but it also wastes valuable time that could otherwise be used in presenting the case. Arguments usually alienate the judge. Nothing is more disagreeable to a judge than the screaming of a person's high pitched voice or profanity. Being impolite to a judge or arguing is about as intelligent as shooting yourself in the foot.
II. EXCHANGING INFORMATION WITH THE OPPOSING PARTY
Before the beginning of a small claims court session the bailiff usually goes into the hall where the parties are sitting. He announces that each much show the opposing side any and all documents before the court is called into session. This is the first time that a defendant will see the physical evidence that the plaintiff will use against him. This will be the first opportunity a plaintiff will have to see the evidence that the defense will introduce to defeat the plaintiff's claim.
This exchange of information before the court is called in session is a practical step of the court to accelerate the case. The normal small claims case takes 10 to 20 minutes. The judge does not want to waste precious minutes with the parties milling around in open court exchanging documents. Therefore, parties should expect to both show and be shown all documents to be presented in court.
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Most of the people in the United States live or will live in rented property. For every tenant there is a landlord with superior ownership rights and control of the property. At one time the landlord was supreme and the tenant had virtually no rights to the premises. The property was rented "AS IS" under the doctrine of caveat emptor (buyer beware). Tenant occupancy was based solely upon payment of rent regardless of the condition of the property. Over the years, courts and state legislatures have eroded the landlord's omnipotent rights in the property. Tenants today have significant rights to their rented properties, and the landlord's violations of these rights can result in serious fines and penalties.
It is only to be expected that a body of law would have developed over
the years to govern the respective duties and obligations of both landlords
and tenants. Entire treatises have been written to discuss in detail their
rights. This chapter presents in a concise fashion the rights of both the
landlord and the tenant in the five most common areas of dispute. This
chapter discusses a landlord's filing of a small claims action for lost
rent and damages to the property. On the other side, this chapter will
discuss a tenant's cause of action for Costs of repair, Retaliatory or
constructive eviction, and the rent of the rent deposit.
I. LANDLORD'S LIABILITY FOR INJURIES CAUSED BY DEFECTS
IN THE PROPERTY
At common law, the general standard used throughout the United States was a landlord was under no obligation to deliver the real property to the tenant in a good or satisfactory state of repair. The lessor was not liable to the tenant or his guests or invitees for injuries suffered on the real property as the results of the defects on the property. The lessor's common law immunity from injuries to persons on his property has been greatly reduced. Now, in most instances, liability will be assessed against an owner for injuries caused by undisclosed defects on the property.
The landlord is obligated to disclose the existence of latent defects on the property. A latent defect is one that the tenant could not discover after making a reasonable inspection of the property. The landlord does not warrant that the property is free from latent defects. To avoid liability for injuries, the landlord merely has to disclose the existence of those defects that he actually knows exist or has reason to suspect exist. If the disclosure is made, the landlord is immune from liability for injuries suffered by the tenant from the disclosed defects. If the landlord fails to disclose the existence of the latent defects, the landlord is liable for the injuries or damages caused by those latent defects.
The common areas of multi-unit buildings are not part of a tenant's leased property. The responsibility remains with the lessor to maintain the common areas in a safe manner. Lessors have been found liable for negligence in maintaining the common areas when injuries occurred because of the owner's negligence. The lessor must use ordinary care to make the area safe for tenants and invitees (business guests) to the property. The latest extension of liability for common areas occurred when courts found lessors liable for crimes committed by third parties. The court held that the lessors were negligent when they failed to install locks on gates leading into the common areas. The negligence theory was based on the belief that the landlord should never act in such a way as to create or promote a foreseeable risk of harm to the tenants. The landlord had notice that criminals had been passing through those gates in order to commit crimes and yet he did nothing to protect the tenants.
II. LANDLORDS MAY BE SUED FOR DAMAGES CAUSED BY FAILURE TO
MAINTAIN THE PROPERTY IN A SAFE CONDITION
Under the common law, the lessor had no duty to maintain the rented property unless there was an express covenant in the lease requiring him to do so. The modern trend in landlord tenant law is that landlords have a general duty to use reasonable care with respect to residential tenants. The landlord will be held liable for personal injuries suffered by the tenants and their guests as the result of the landlord's ordinary negligence. Liability will be imposed for such negligence only when the landlord had notice of the problem and failed to repair it after a reasonable opportunity to do so. The California Supreme Court has held landlords strictly liable for injuries caused by defective conditions of their property without proof of negligence (knowledge).
Many state courts have held the landlord liable for injuries caused by the landlord's failure to comply with housing codes. All a plaintiff has to show is that his injury was caused by a violation of the housing code. The landlord's knowledge of the violation is irrelevant for liability. Punitive damages cannot be assessed for injuries resulting from a violation of housing codes unless it is proven that the landlord knew or should have known of the violation through normal reasonable inspections.
III. THE IMPLIED WARRANTY OF HABITABILITY
More than half of the states have adopted the implied warranty of habitability. Under this legal doctrine, a landlord is held to the standard of an implied warranty that rented residential property is reasonably suited for use as a human residence. State law gives the tenant specific remedies against the landlord if the property is or later becomes uninhabitable. The remedies for a breach of an implied warranty of habitability are:
1. The tenant may leave and terminate the lease.
2. The tenant may make the necessary repairs and offset the costs against future rent.
3. The tenant may abate the rent, reduce it to the fair market rental value of the property with the defects.
4. The tenant may pay the full rent and sue the landlord for damages caused by the defects.
Retaliatory eviction is the eviction of a tenant for reporting housing codes violations to the proper authorities. Many states make it illegal for a landlord to evict a tenant for reporting housing codes violations. In those states a landlord may be fined for committing a retaliatory eviction. A tenant may sue in small claims court for the damages incurred as a result of a landlord's violation of the implied warranty of habitability or for any retaliatory eviction.
IV. A LANDLORD MAY SUE A TENANT FOR FAILURE TO MAINTAIN THE PROPERTY
In most instances unless the lease agreement imposes an express duty to do so, a tenant has no duty to make any substantial repairs on the property. The tenant does have the duty to make minor repairs and to take such other steps as are necessary to prevent damage by the elements. If the tenant does not make the minor repairs, he will be liable to the landlord for the damages caused because the minor repairs were not made. The tenant will not be liable for the actual cost of making the repairs but only for the damages actually caused by not making the repairs.
A small number of states have passed laws specifically requiring tenants to:
1. Refrain from violating any housing codes.
2. Keep the property free of vermin.
3. Use plumbing, utilities and appliances in a reasonable manner.
A landlord may sue a tenant in small claims court for the damages incurred to the property by the tenant's violation of housing codes or failure to make minor repairs. The landlord is not required to evict the tenant as part of the action in order to bring the suit.
When the tenant covenants to keep the property in good repair, the condition of the property at the beginning of the lease and at the end of the lease must be compared to determine if there was a breach. If the covenant to repair does not contain any exceptions, the tenant may be liable for normal wear and tear to the property. If consideration (rent) is given for the use of the property, most courts will exclude normal wear and tear from the duty to repair. Under the covenant to repair, the tenant is liable to repair the damage to the property regardless of the cause (third persons, act of God) unless expressly excepted. When a tenant had breached an express covenant to repair, the landlord may sue for the damages incurred by the breach of the covenant in small claims court without having to evict the tenant as part of the action (although he can do so.)
V. A LANDLORD MAY BE SUED FOR CONSTRUCTIVE EVICTION
Every lease agreement contains an implied covenant of quiet enjoyment. The covenant implies the landlord will do nothing to interfere with the possessory rights of the tenant. Constructive eviction is some act by the lessor or failure to act when he has a duty to act which makes the property uninhabitable. The following conditions of constructive eviction must be met:
1. The act or failure to act must be by the landlord or his agent, not third parties.
2. The result of the act is to render the property uninhabitable.
3. The tenant must vacate the premises as a direct result of the landlord's act. If the tenant does not move out, there is no constructive eviction.
A tenant may declare the lease terminated because of the constructive eviction and sue in small claims court for damages suffered or sue the landlord for the return of possession and damages suffered.
A relative of constructive eviction is the interference with the tenant's right of quiet enjoyment of the leased property. Virtually all states have held that a landlord can not anything that interferes with the reasonable use and enjoyment of the property. Interference with such rights must, by their very nature,
be determined on a case by case basis. Interference with quiet enjoyment does not require that the property be rendered uninhabitable but only that it is no longer comfortable or safe in which to reside or utilize as a result of the landlord's actions. Such interference with the right of quiet enjoyment can be any type of obnoxious behavior performed by the landlord or by other which is tolerated by the landlord which seriously impairs the safety or enjoyment of the property by the tenant.
The most prominent cases of constructive eviction involve tenants suing the landlord because of the presence of other drug dealing tenants. Trafficking in illegal drugs, especially in the inner city, has turned neighbor against neighbor. It has always been permitted for people to sue a property owner or tenant whose of property creates a private nuisance. When it is shown to the satisfaction of the court that the use unreasonably interferes with the enjoyment of the neighbors' uses of their property then the defendant will be held liable for damages and continued improper use of the property enjoined. In fact, cities themselves are now declare the buildings inhabited by active drug dealers to be public nuisances and the cities are demolishing them.
In the landlord-tenant area, tenants have taken the next step and sued their landlord for failing to evict drug dealing tenants. The claim, upon which the tenants almost always prevail, is that the drug dealing tenants pose an unreasonable risk to the safety of the other tenants and that their criminal activity interferes with the other tenants' enjoyment of their property. A suit for interference with a tenant's right of quiet enjoyment requires that the tenant prove that the landlord knew that other tenants were selling drugs and that the landlord did not evict them. This is relatively easy to prove. A complaint can be made to both the police and the landlord. If sufficient evidence exists the police will get a search warrant and investigate. Even if the police do not investigate, if the tenant produces enough evidence to the court to convince them that drug sales were going on at the premises, the court could still enter judgment against the landlord.
In a suit for quiet enjoyment, the tenant may be awarded monetary damages and even punitive damages. The Plaintiff in such a case is entitle to compensation for the reduced value of rental space during the period of the drug dealing and may even receive punitive damages up to the jurisdictional limit of the court. If there are several tenants suing a landlord for the same drug tenant, the costs of the suit to the landlord may be very high. This is a valid threat to the landlord to get his act together and evict the criminal element in his building.
VI. A LANDLORD MAY SUE A TENANT WHO ABANDONS THE LEASE
When a tenant abandons property with time still remaining on the lease, the landlord has the following options available:
1. The landlord may consider the abandonment as an offer to surrender the property. If the landlord accepts the surrender and resumes possession of the property, the tenant is relieved of further liability on the lease. The fact that the landlord enters the property to make repairs or offers to rent the property to others on behalf of the tenant does not constitute acceptance of the surrender.
2. The traditional option still available in many states allows the landlord to do nothing and simply sue the tenant each month for the rent as it becomes due or wait for the end of the term and sue for the whole amount.
Many states require a landlord to attempt to mitigate his damages and try to rent the premises and apply the rent received to the damages owed by the tenant. The tenant is then liable for the difference. If the property cannot be rented, the tenant is liable for the full remaining rent owed for the unexpired term of the lease.
Once the tenant has left the premises, the landlord's suit is a simple suit for money; so it would not qualify for the summary unlawful detainer procedures of a formal court. This means that the case would be placed at the end of the civil calendar and not given any precedence over the other cases in the court docket. A better procedure is to sue in small claims court provided the damages are within the small claims court jurisdictional limit. The case will be heard much faster than in the regular court system.
VII. UNLAWFUL DETAINER
Unlawful detainer is the legal remedy available to a landlord against a tenant who:
1. "Holds over" after the lease has terminated.,
2. Continues in possession of the property without payment of rent when due.
3. Continues in possession after failing to perform the duties required under the terms of the lease or after breaching the terms of the lease.
4. Continues in possession after a valid notice to quit has been served.
Unlawful detainer is a summary remedy where a "notice to quit" is served. It calls for the tenant to vacate the premises within a fixed period (usually three days). If the tenant does not leave, the landlord files a complaint in court and serves the tenant with it. The tenant will have a short period of time (usually five days) to answer the complaint. If the tenant fails to answer, the court will enter a default judgment against the tenant. If the tenant does answer, the case is set for preference on the calendar and usually heard within two weeks to a month.
It is recommended a landlord not use small claims court for an unlawful detainer action even though it is legal to do so. All states have a summary unlawful detainer procedure which is faster and cleaner than a small claims case. The normal unlawful detainer action takes 30 days and deals only with the right of possession; the case cannot be clouded by unrelated counterclaims raised by the tenant.
Once the tenant loses in the normal unlawful detainer action before a regular court, he is not permitted to remain in the property pending an appeal. This is not usually the case in small claims actions. In many states, the defendant can appeal and remain in the property rent free while the appeal is pending. The appeal of a small claims action can take months. A California case highlighted the pitfalls present in bringing a small claims case for unlawful detainer. In this case, the tenant, who happened to be an attorney, had a terrible landlord who often threatened and bullied his tenants. The tenant would not take the abuse which led to confrontations. Predictably, the landlord to serve the tenant a notice to vacate and filed suit for unlawful detainer in small claims court in Chula Vista, California. Judgment was obtained against the tenant who then promptly appealed. While the small claims action was on appeal the tenant remained on the property. The tenant requested a findings of fact from the judge in the small claims action that delayed the appeal. Nearly nine months later the tenant was still in the apartment without having paid any rent. By now, the landlord had enough and agreed to drop the complaint just to have the tenant move out so the apartment could be rented.
To prevent, such future cases in its small claims courts, California amended its California Code of Civil Procedure Section 116.220 bar the use of small claims courts to evict tenants. California small claims courts can still be used for determining other landlord-tenant disputes.
In Los Angeles, plaintiffs are informed before hearing their cases that defendants can appeal any adverse decisions and remain on the premises while the appeal is pending. The courts in California do not like the use of small claims court for unlawful detainer actions because they are terribly inefficient and cumbersome. Since the legislature has given the small claim courts jurisdiction to hear unlawful detainer action, the courts must continue to hear them if they are filed there.
VIII. A LANDLORD MAY BE SUED FOR "LOCKING A TENANT OUT"
It used to be permitted for a landlord to "lock a tenant out" of the premises after the lease expired. This form of "self-help" was widely used. Few states now permit a landlord to evict a tenant unilaterally. All states have unlawful detainer statutes to evict tenants wrongfully in possession. The unlawful detainer action is a summary procedure and therefore given preference on the court's calendar. Most states recognize that "self-help" can result in breaches of the peace and have abolished it altogether.
Forcible entry and detainer is a tort whereby a person, usually the landlord, unlawfully evicts a tenant from the leased premises. States that do not permit "self-help" remedies to the landlord will find the landlord liable for damages suffered by a tenant who is evicted or whose possession of the property is inhibited by the lessor. California makes it a crime for a landlord to terminate utilities to a tenant for any reason and fines a landlord $100 per day for any forcible entry or detainer act.
IX. TENANT'S AGREEMENT TO LIQUIDATED DAMAGES ON BREACH
The parties in a lease may agree that a breach of the lease by either party will entitle the other only to the remedy of payment of a fixed amount of money. These clauses are enforceable if they represent a true attempt to limit damages before a breach has occurred and are entered in good faith. Generally, these clauses are used more in a commercial setting where rent might be based on a percentage of monthly gross income. As long as the parties agreed to accept a fixed amount of rent in the event of a breach, the stipulated amount is what the court will award in the event of the breach, even if the actual damages are less than the stipulated amount.
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MOTOR VEHICLE CASES
One of the most common type of cases to appear in small claims court involves damages arising from motor vehicle accidents. The only cases of this type that should be brought to small claims court are those involving damages to vehicles and other personal property. Only claims for minor personal injuries should ever be brought to small claims court. The normal settlement or award for personal injuries is usually more than the small claims jurisdictional amount. In practice, insurance companies tend to settle legitimate cases for three times the medical bills to cover pain and suffering. Example: A person has an arm broken, and the medical bills are $2,000. The insurance may settle for $6,000. In a situation where the car incurred $2,000 in damages in addition to a broken arm to the driver, the plaintiff could sue in California's small claims court for $5,000 (which is only the compensation for the car and medical bills) or sue in the municipal court for the car damage, medical bill and pain and suffering.
It is important to check individual state law to ensure small claims courts can be used to collect damages for motor vehicle accidents. Several states do not permit suits for either property damage or personal injury arising from motor vehicle accidents in their small claims courts. New Jersey does not permit personal injury suits but does permit property damage suits arising from motor vehicle accidents.
This chapter presents the procedure of small claims courts in the motor vehicle accident case and explains how to prepare and present a case before the judge. Most cases are poorly presented, and it is difficult to decide the cases when the proper presentation has not been undertaken. Through this chapter the reader will understand the basic standard of competent preparation needed to handle the case.
I. EFFECT OF NO-FAULT INSURANCE ON SMALL CLAIM COURT
Nearly 15 states have adopted no-fault auto insurance in some form. The implementation of no-fault insurance in those states has the effect of limiting the right of an injured to sue in both regular and small claims courts. To pursue a suit in a no-fault state, the plaintiff is first required to comply with the terms of the state's insurance code. This usually means that a claim must be submitted to the plaintiff's insurance company for processing before a suit can be filed. The plaintiff cannot sue the defendant until after the plaintiff's insurance company has ruled on the claim. Most no-fault states follow the Massachusetts model that treats small claims court as an appeal court to review the administrative determination of the insurance companies on whom should be paid and how much.
If a person suffers damage as a result of an accident in a state having no-fault insurance, the person should contact his insurance agent for a determination of what his rights are under the state's insurance law and his policy. No-fault insurance means that each party's own insurance will fix each insured's car and pay for property damages. The only issue of contention is which insurance company will pay for the personal injuries suffered by the parties.
As a practical matter, an insurance company does not care if the other one is sued by its insured. Any award the insured might get would reduce the amount that the insurance company of the insured might have to pay. For that reason, each insurance company will work with their insured and explain the rights that the insured has to sue. Speaking with the insurance company is the easiest way to determine the injured party's rights in a no-fault state. Another way is to consult with an attorney who specializes in auto accident cases.
II. THE DEFENDANT
Under the laws of all states, an owner of a vehicle is responsible for the negligent injuries caused by that vehicle when driven by a person with the consent of the owner. Some states make the owner entirely liable for the full amount of injuries caused by the driver whereas other states (such as California) have limits of $15,000 on the amount that an owner can be liable for the accident caused by a person driving his car.
Obviously, if a car is stolen and the thief runs over a person, the owner will not be liable based upon the consent theory. An exception to this rule exists in some states if a person leaves his keys in the car, and the car is stolen. The owner might be sued for the accident based upon a negligence theory. Such vicarious liability is based on the belief that the car would not have been stolen and the accident would not have happened if the owner had not left the keys in the car. In some states, the act of leaving keys in a car is viewed as gross negligence because it is foreseeable that such cars will be stolen and used in committing crimes.
Many states impose liability on the owner of a car under the theory of "negligent entrustment." Under this legal doctrine, if an owner loans a vehicle to a person in a negligent fashion, the owner is liable for any damage that the driver causes. Under this theory owner liability is not limited. The most common example is an owner who loans a drinking driver his car. The owner is liable for negligence when the drunk driver gets into an accident. Negligence is a legal term stating no one should do anything that creates a risk of harm to anyone else. If a person does such an act and someone is injured, the person who did the act causing the injury is liable. When a vehicle is loaned to a person under circumstances that dictate it is foreseeable that the driver would cause an accident, the owner will be held liable for the damages of any accident in which the driver becomes involved.
It is absolutely imperative that a party to a accident case have all favorable witnesses present at court. One good disinterested witness is better than five friends and relatives (unless they happen to be priests and nuns). Often the only way to explain the strange situation of the cars after the accident is through witnesses. A client and his wife once witnessed a horrible accident while driving north on Interstate 101 in California. A car several lengths in front of them swerved onto the shoulder and without stopping made a sharp right angle, shot across all the lanes and was hit on the side by a car going south. The car going south spun around and hit a small truck head on. The south bound car was up on the shoulder of the south bound lane; the truck that it last hit was spun around facing north. To all appearances it looked as if the truck had caused the accident. The client's wife was a former nurse, and they stopped and administered first aid. The driver causing the injury was obviously drunk. At least six people were seriously injured. The client and his wife were the only disinterested witnesses. They waited for the highway patrol and gave their statement. The officer had thought the driver of the truck was the cause and was going to cite him until the client told him how the accident happened. Because he was available as a witness, a drunk driver did not get away with his crime.
IV. POLICE REPORTS
Whenever there is an accident and police are called, a police report is usually prepared. Some police departments will not write a report unless the property damage is over a fixed amount (usually $100) or a personal injury has occurred. When a police report is made, it always makes sense to get a copy the report. If it is favorable, then it should be used. If the report is unfavorable, it is good to have the information so it can be refuted. It is best to assume that if a police report is unfavorable the other side knows of it and will use it.
Almost all states permit police reports as evidence without the police officer having to be present to testify. The only way to refute an unfavorable report is to have the police officer prepare a supplemental report, subpoena the police officer for cross-examination (which usually does not change the content of the report) or refute the report through an accident reconstruction expert.
Usually the police report decides the case. The court tends to give great import to the opinion of a trained police offer as to the interpretation of what caused an accident. The well founded belief is that an independent, disinterested and trained investigatory officer is in the best position to observe, collect and interpret the facts preceding and involving an accident. Police reports are critical whether they help or hurt a case.
Occasionally police reports are in error as to the facts and if that error is not caught before trial, it can mean disaster. A judge tried a case involving an accident where the plaintiff produced a police report that showed a diagram of the accident scene. The officer was not present, and the report was written a week after the accident. The judge was familiar with the area. The officer had drawn the scene in reverse. The explanation of his conclusions did not fit the scene, nor did the officer's explanation fit the scene if it was reversed and corresponded to the story of the defendant. The defendant had not reviewed the police report before the trial. As the judge reviewed it in court, it was he who realized that the officer got the sketch wrong and the facts backward. The defendant, who happened to drive across the scene of the accident frequently, recognized that the gas station and store were on the wrong corners.
When a police officer writes a report, he often cites the driver he believes is most culpable for the accident. The citation is for a violation of the state's motor vehicle code. If the driver is charged by the district attorney for a traffic offense and convicted before the small claims case is tried, the plaintiff can introduce that conviction to prove the accident was caused by the convicted person's violation of the vehicle code. Example: A person arrested for drunk driving will have a hard time proving to a judge that the accident in which he was involved was not caused by his drunk driving.
V. ACCIDENT RECONSTRUCTION
One way to refute a police report or to prove the cause of an accident when no police report was made is through accident reconstruction. Most police departments have officers who are trained in accident reconstruction. These officers are trained to judge speed of a car by skid marks and the force of collisions by the damage caused. These officers can be hired to give private opinions on cases not before their departments. They might be hired for from $200 to $1,000, depending on the scope of the case.
Sometimes an accident reconstruction is a godsend. A judge had a case where a person was turning left across a southbound lane and was hit. The officer investigating the case cited the driver who was hit for failure to yield. The judge had pictures taken of the accident and paid special attention to the other driver's skid marks. The judge measured the skid marks and took that information to an accident reconstruction expert. After reviewing that information, the expert opinion was that the other driver had been traveling about 50 mph on street with a speed limit of 35. Given the point of impact of the vehicle, the expert opinion was that there would not have been an accident if the other driver had been traveling one mph slower (still speeding by 14 mph). The judge took that reconstruction expert's opinion to the district attorney and convinced him not to charge the client.
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SUITS FOR MONEY OWED
The most common type of small claims case is one for the collection of money owed. The claim arises in a contract situation such as landlord-tenant (Chapter 7) or the more simple loan arrangement. Where the claim is to pay money, it is of paramount importance that the debtor (usually the defendant) had an absolute obligation to pay the money to the creditor (usually the plaintiff).
A suit for money owed is initiated like any other small claims case. The plaintiff (the person who is owed the money) must be the real party in interest. Example: Mary Hope loans Alice Chambers $5,000. Mary must file the suit. Mary's brother, sister or parents lack standing to commence the suit on Mary's behalf unless one of them has been appointed by a court as her legal representative or they have been granted a power of attorney by Mary. In such case the representative would be filing the suit in Mary's name. If Bill was the representative the caption would read, "Bill Jones, representative of the Estate of Mary Chambers, Plaintiff vs. Alice Chambers, Defendant.
Usually, small claims actions are usually filed directly by the individuals who seek recovery on money they claim is owed to them. These individuals can bring a suit in small claims court if they are above the age of majority (more than 18 years of age) or minors legally emancipated and have not been declared mentally incompetent by a court.
I. TURNING THE CASE OVER TO COLLECTION
Many businesses and individuals with large numbers of accounts (such as doctors, lawyers and other professionals) do not have the time or wish to be involved with the inconvenience of collecting accounts. As a service to such businesses and individuals an entire industry has developed called "collection agencies." For a fee (40% to 50%) these agencies will attempt to collect money owed on straight forward contracts. The fee for the collection service appears excessive but what must be remembered is that the agency collects nothing unless it recovers and executes on a judgment. Most of the risk is on the collection agency. The fee paid is deductible on the creditor's income tax return as a business expense, reducing the net effect of the fee to about 25%.
While many states permit individuals and businesses to sue in small claims court for collection of personal and business debts, not all states permit collection agencies to sue in their small claims courts. While permitting all other types of small claims complaints, Kentucky and Texas preclude small claims actions involving money lenders for interest. New York is unique in another way: forbidding corporations and insurers from using its regular small claims court. Instead, it has created a special commercial small claims court where only corporations, partnerships and other business associations may sue. The following states do not permit bill collectors (assignees) to use small claims court: California, Michigan, Missouri, Nebraska, New York and Ohio. In New Jersey, assignees of corporations, but not of individuals or of partnerships, may use small claims court.
II. SMALL CLAIMS SUITS FOR BAD CHECKS
Probably one of the most recurring type of collection cases in small claims court involves bad checks. In most states the district attorney will not seek criminal charges unless there are three or more checks that total over a fixed amount (usually $100). If the check is large enough (perhaps $1,000) the district attorney might institute criminal charges with one check. When a person is given a bad check in a large enough amount to make the effort worthwhile, the person should go to the district attorney's office and file criminal charges. If the district attorney will prosecute, the creditor need only sit back and let the district attorney prosecute the defendant criminally. If a conviction is obtained and the defendant is given probation, the court will order restitution (payment of the bad check) as a condition to avoid jail. If the district attorney decides the case is too small to prosecute, the creditor can sue in small claims court for the value of the check.
Small claims courts are ideally prepared to handle bad check complaints. The average small claims court complaint for a bad check involves a relatively small amount. Because of the size of the check some businesses do not sue and instead choose a path of embarrassment as punishment for the offender. There was a business man who ran an ad in the paper listing the name and addresses of all the writers of the bad checks he had cashed. Within a week he received payment on about a quarter of the bad checks. Most states have some type of bad check law that permits a business, and in some instances individuals, to sue for several times the amount of the bad check. In California, Civil Code Section 1719 permits a suit to be filed for value of the check plus three times the amount of the check. The additional amount will be at least $100 with a maximum of $500.
States like California require that the debtor be given notice by certified mail of the bad check before the court will award the additional amount. Regardless of whether or not the additional sum is sought as penalty under a bad check law, anyone given a bad check can always sue in small claims court.
III. STATUTE OF LIMITATIONS
The most common block to collection on a complaint for money owed is the statute of limitations (the plaintiff waits too long to sue). Every state has adopted specific time limits in which various lawsuits may be brought. These limits are called statutes of limitations. The reason for such limits in bringing suits is that the states wish to keep their docket manageable. Without such limitations ancient cases without any chance of winning because of dead witnesses or lost evidence would clog the courts. If a lawsuit is filed after the appropriate statute of limitations has run, the court usually has no alternative but to dismiss the action. If the defendant can show that the plaintiff knew that the action was barred by the statute of limitations and filed the suit anyway just to annoy the defendant and cause him to waste money defending a frivolous case, the defendant can probably sue the plaintiff for malicious prosecution.
Usually the statute of limitations is not a problem for collection cases because the creditor sues promptly when payment is not made. Usually a creditor will file a collection action within one year of the event giving rise to the payment's default. Except where special time limits for commencing lawsuits against government agencies exist (Chapter 2), there is no statute of limitation problem. A creditor should become concerned with the statute of limitations when a suit against nongovernment defendants is filed over one year after the date of the delinquent payment or the event creating the debt. Chapter 15 (State Laws) lists the general periods of statutes of limitations for each state.
The specific statute of limitations of each state can be obtained by looking in a particular state's laws in the Index for "Limitations of Actions" or "Statue of Limitations." Example: In California, there is a one year statute of limitations for personal injury, a two year statute of limitations for breach of an oral (unwritten) contract, a three year statute of limitations for fraud and a four year statute of limitations for breach of a written contract.
The statute of limitations starts to run from the event causing the injury. In the collection case, the time for the statute of limitations starts to run from the time of the last payment on the debt or when the debt was incurred, whichever was later. Example: George borrowed $5,000 from Ed and paid it back at $1,000 per year for three years. In the 4th year, he refused to pay any more. The statute of limitations would start to run from the date of the last payment, not when the loan was taken out.
If the loan was not reduced to written form, such as a promissory note, then it is an oral loan and governed by the state's statute of limitations for oral contracts. In the above example, if the statute of limitations for oral contracts was one year and Ed filed suit one year and one month after the last payment, Ed is barred from collecting. On the other hand, if the loan was documented by a promissory note, it is treated as a written contract and governed by the statute of limitations for written contracts. In the above example, if the state's statute of limitations for a written contract is two years, then Ed's suit one year and one month after the last payment would be valid.
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A major source of litigation in small claims court stems from excessive charges or improper repairs. Most people have experienced overcharging for work not done or work not done correctly. Most people do nothing but grumble and absorb the loss. That unfortunately is exactly what the repairman expects. In most cases the overcharge is not high enough to go to court or the people being cheated do not live in the area, and bringing a small claims action is just not practical.
In 1995, a national news magazine show did a segment about the widespread practice of service stations watering or otherwise diluting their gas. What was most intriguing was the fact that most of these practices took place in western states where most of the defrauded customers were tourists. These people were deliberately targeted for these illegal practices with the knowledge that the chances of being sued were slight.
We live, today, in a technological society. Most of what is sold today cannot be repaired at home by the average person. Just twenty years ago, the average man used to be able to do most of the basic maintenance on his car. Now, with nearly everything on a car computer controlled, there is little except changing the oil,muffler, hoses or belts that the average person can do on a vehicle. Fuel injection is an illustration of something that the average person cannot repair when it is needed. Clogged fuel injectors (such as caused by bad gas sold at service stations) will cost several hundred dollars to fix, whereas a clogged carburetor is well within the ability of the average owner to clean. Over the years a fortune can be spent to keep fuel injection in tune.
The most obvious representative of the modern age is the computer. Where for years John used a manual typewriter and was able to maintain it quite easily. He finally "moved up" to a dedicated word processor and used it for years. One day the machine began jamming on screen when John used the phrase memory function, and it finally reached a point where the machine was useless. With trepidation, he took the machine to a repairman whom he did not know. The machine had a short in the keyboard and cost $75 to get it fixed. After taking it home, John was only able to used it for a week before the same problem occurred. Taking it back he insisted that it be permanently repaired. Instead, John was told that the machine could not be permanently repaired without replacing a memory board which, alone, cost $300. The dilemma facing John was that the machine only cost $400 new. It made no sense to pay that much to get it fixed and still have a five year old machine. John had the memory cleared, took the machine and has used it ever since by avoiding the phrase memory function. To this day, John still does not know if what he was told is correct. It was not worth $80 to him to get a second opinion. John paid $75 to have the machine memory cleared so that he could continue to use it. For him, it was worth $75. If it had been more, he would have demanded a partial refund. If John did not get it, he does not know if he would have sued since he would have had to file the small claims suit 60 miles from his home. This example is mentioned to show poor service is not limited to one particular person but is inflicted on everyone at some time.
I. GET THE OLD PARTS
The fact that a car, computer or other item does not work after a repair has been made or does not last as long as it should certainly is evidence that it was not repaired correctly. As a matter of law, a person has suffered a legal damage when he has been deprived of the use of an item because of an improper repair. The amount of that loss is another matter of proof to be presented after the bad repair has been substantiated.
Most often the best proof of a bad repair is where the repairman does not return the old parts to the customer. Parts not returned or offered to be returned is evidence that a judge would be very interested in hearing. Keeping the useless parts is an indication that the repairman had something to hide. A few years ago Sears was cited by the State of California for performing needless repairs on cars. Sears reached a settlement wherein it promised to pay its mechanics based on commissions. Whether or not that will cure the problem is in question because a store that it is in financial straits might still overcharge just to stay afloat. The fact that a Fortune 500 company would adopt policies that led to this state of affairs further highlights the fact that the consumer should not assume all repairmen are honest. Many states have laws which require the repairman to return the parts and provide a written estimate for the work before it is done.
Getting the replaced parts will help to prove that the repair was done. If the part is not defective, the repairman did an improper repair and cheated the customer. Taking that part to the judge with testimony from an expert, either written or oral, that the part is not defective will help prove the repair was needless and wrongfully done. Do not always assume that the parts returned are those that actually came from the item that was supposedly repaired. In 1992, a fantastic television expose showed a series of appliance repairman called to repair a dishwasher. The only thing wrong with the dishwasher was that a wire was deliberately disconnected. A hidden video camera was trained on the repairman. The customer left the room while the repairman worked in private. Eight out of the 10 repairman charged for work that was not done. Most of the crooked repairmen claimed that a broken switch they brought with them came from the dishwasher, and then they charged for a switch they never replaced.
The ideal way to assure that the correct work is actually done is for the customer to remain with the repairman throughout the repair. That is no guarantee that the repairman will not palm and switch parts, but it reduces the chances. The parts once obtained from the repairman can be taken to another repairman for an opinion as to whether they were defective.
II. HAVE THE REPAIR REVIEWED BY A PROFESSIONAL
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VEHICLE SALE DISPUTES
Disputes involving the sale of vehicles is one of the most common type of cases brought before small claims courts. Such disputes take the form of three general types: new vehicle sale, used vehicle sales with dealers and private party sales. Generally how a court will rule is predicated in large part on the type of sale involved. Most commonly the vehicles involved in such disputes are automobiles but can easily be motorcycles, boats , planes or even wagons. The operative word is vehicle denoting transportation. Just as there are a myriad ways of transporting oneself from one point to another so to can the purchase of such a means of transportation result in a dispute that calls upon a small claims court for resolution.
There are two ways for which a Plaintiff may bring an action before a small claims court for a claim involving a vehicle. The first is if the prayer for damages does not exceed the jurisdictional limit of the court. The second method is for the Plaintiff not to seek a monetary damage award but instead to seek equitable relief of some type from the court.
Irrespective of the jurisdiction limit of the court, many states permit their small claims court to grant equitable relief in certain instances. Equitable jurisdiction of a court is the authority bestowed upon it by the state to "do that which should be done". In other words, it is governed by the goal of achieving justice. The most common type of equitable relief exercised by a small claims court is rescission and restitution of a contract when the facts warrant it. California, for example, under California Code of Civil Procedure section 116.610(a) grants authority to small claims courts to grant such equitable relief as rescission, restitution, specific performance and reformation of a contract. Rescission and Restitution are very similar remedies for the misconduct of a party calling for the termination of the contract. On the other hand, reformation and specific performance require that the contract be performed but possibly with some changes. In determining what type of equitable relief is to be sought, the Plaintiff must understand the differences if these types of relief.
Rescission and restitution are so closely related that, in practice, they are often considered to be the same. By definition, rescission is the remedy to be used when a contract was entered as a result of fraud, duress, undue influence or mistake of law that is so egregious that it would be manifesting unfair for the court to allow the contract to stand. Rescission is simply the cancellation of the contract as a result of the improper conduct of the other party. Restitution could be considered as the implementation of the rescission. Once a contract is rescinded, both parties must return to the other all of the money and property received under the contract, this is called restitution. In other words, the parties are put back into their pre-contract position.
Whenever property has been exchanged under a contract and that contract is later rescinded, then restitution, the return of the exchanged property, must be made as well.
Reformation of a contract is an equitable remedy not as extreme as rescission and restitution but gives rise to most acrimonious disputes. In employing the remedy of reformation, the court keeps the contract in force but changes its terms so as to reflect what was originally promised. For example, if an auto dealer promised four white wall tires but did not include that promise in the written contract, the court might not find the false promise insufficient to justify rescinding the contract but will instead rewrite the contract so as to include the provision of furnishing the four white wall tires. Reformation of a contract almost always pertains to promises made outside a written contract that were not made part of the final contract. This is probably the most common source of lawsuits regarding vehicles sales. It is not uncommon for both new and used car salesmen to make outlandish promises of future performance that are not set forth in the contract and then after it is signed refused to perform on those promises because it is not in the contract.
Specific performance is the last of the four most popular forms of equitable relief. It is employed when one party has a change of mind and no longer wants to sell an item. Under this remedy, the court simply orders both parties to perform the contract as written (one party buys and one party sells). Specific performance usually requires that there be something special about the item being sold. The payment of money is not considered unique enough to justify specific performance. On the other hand, land is considered unique under the law and the court will always order the specific performance of any contract involving its sale. Likewise, where a contract involves the sale of a special vehicle, such as a one-of-a-kind the court also will enforce the contract. If the failure of the sale will cause unreasonable harm to Plaintiff, the court will order the sale completed even though the object is not unique. For example, assume that a dealer was to sell a 1988 Chevy to a handicapped person and the dealer later changed his mind. Ordinarily, a court would not order specific performance of the contract because the Plaintiff could sue for damages instead. However, if the Plaintiff need this particular right now because of handicap, the court could order that the sale go ahead instead of paying damages.
The determination of the rights and remedies of the parties in any suit involving vehicles depends on the type of relief being sought. Understanding this enables the Plaintiff to better structure his or her small claims complaint and prepare for its presentation.
A. NEW VEHICLE DISPUTES
At first blush, it would seem that disputes involving new vehicles sales would be beyond the jurisdictional limit of a small claims court. As stated repeatedly throughout this book, a small claims court has only limited jurisdiction to resolve disputes, This means that a small claims court can only hear ceratin types of cases and are usually limited to a maximum monetary amount. In California, for example, a small claims court can only hears cases where the Plaintiff is seeking damages of no more than $5,000 not excluding claims for equitable relief.
The cost of most new vehicles, certainly those involving cars and trucks, will exceed the jurisdictional monetary amount of a small claims amount. The question before the court is what relief the Plaintiff is seeking from the court and will it exceed the jurisdictional limit. For example, the car may cost $50,000 but the Plaintiff is only suing for a new engine which may be $4,000 and therefore within the jurisdictional limit of the court. Nonetheless, where the complaint is based upon fraud, equitable relief may be pled in many states seeking rescission and restitution or reformation.
It is a rare situation where a buyer sues a dealer for specific performance of a contract to sell a vehicle, but it has happened. In the late 1980's, Honda was selling the most popular cars in the country. There were huge back orders and some models were selling for above dealer suggested prices. As a result, some dealers were actually canceling or delaying the performance of their contracts at lower prices so as to sell the vehicles to new buyers at much higher prices. Some of these dealers were sued by their customers for specific performance of the contract at the price originally contracted. This problem became so wide spread that some states actually began criminal investigations for unfair business practices against such dealers.
Generally, the most common complaint heard in a small claims court regarding a new claim is the allegation that it is a lemon. many states have enacted laws called "lemon laws" for new cars which experience an inordinate number of repairs. California set the precedent for the first lemon law under California Civil Code Section 1793.2. California's lemon law requires that the manufacturer of a car either replace or reimburse the buyer for the car if within one year or 12,000 miles the car has had to have the same problem fixed four or more times or has been out of service more than 30 calendar days. As a result of lemon laws, many car manufacturers have created customer complaint departments to help buyers with their complaints. Before filing a small claims complaint for a lemon, it is a good idea to contact the manufacturer in an attempt to determine if there is anything that it will do to correct the problem in addition to anything the dealer may be doing.
In any problem involving a new car, the written warranty should first be consulted. If the problem is not completely covered by the warranty, then the state's lemon law should be consulted. If the problem persists after repeated repairs, then the issue of a lemon exists. Even if a state does not have a lemon law, a person may still be able to sue the dealer and manufacturer for rescission and restitution if it can be shown that the car is a lemon. Such a suit is based upon the court's jurisdiction to render equitable relief, that which is fair rather than legal relief based solely upon the contract.
In the early 1980's General Motors got into problems when it began selling its Cadillacs with Oldsmobile motors without telling its customers. When the story broke, General Motors claimed that the engines were virtually identical and refused to replace the engines or refund any money for the differences in the values of the cars. After losing a series a lawsuits, General Motors eventually agreed to a settlement with all of its customers who had purchased what was referred to derisively as the "Cadimobile". The buyers won there suits based upon the equitable theory of reformation, they were not given what they were promised and the courts reformed the contract to make it the way it should have been from the beginning.
Suits for rescission based upon the fact the vehicle was a lemon have prevailed throughout the United States on a case by case basis. In such a suit, it will be necessary to document all of the repairs to the vehicle, the type of driving made and number of miles between each breakdown. In such an instance, the court is probably more likely to rule for the buyer than the dealer when a new car, that has been properly maintained, self-destructs within 20,000 miles even though out of warranty.
Before commencing a suit against a dealer for selling a lemon, the buyer should consult a car magazine or specialist to determine if the car has developed a reputation for such problems. If so, such knowledge would help in a lawsuit but, most importantly, it might help settle the matter outside of court. Once the suit is filed, the dealer may feel constrained to fight it to the fullest in order to protect his reputation. On the other hand, if the dispute could be settled quietly, that is worth something to a dealer and the manufacturer. Fear of a government ordered recall is a very good incentive for a manufacturer to deal with a lemon complaint quickly. Several years ago, a very expensive import automobile had a highly publicized series of accidents resulting from the automatic transmission jumping from park into drive. in one instance, one such car was at a dealer auction when it jumped into gear and ran into several persons killing and maiming others. The entire scene was caught on video tape. up to this point, the manufacturer had been successfully claiming that such accidents were driver's error. After this tape was aired on a national tabloid, the manufacturer issued a recall just days before the Federal Government was going to open hearings on the car. Safety complaints can be filed not only with the National Transportation and Safety Board but also with various state agencies as well. As a result, it is not a good idea or in its best interest for a manufacturer to ignore a lemon complaint.
B. USED VEHICLE SALES
Just as dealers sell new vehicles, they also sell used vehicles. Unfortunately, it is often more difficult to recover from a dealer for a defective used vehicle than for a defective new vehicle. The main reason for this increased difficulty in bringing a suit is that the manufacturer usually will indemnify the dealer for a lemon but that is not the case for a sued vehicle. It is also more difficult to prove that a used car was a lemon when it was sold and that the dealer knew it. By its very name, a used car is used. It is not new. By not being new, it is not expected to last as long as a new vehicle. The only then is whether the car was sold in good faith or if its condition was somehow misrepresented to the buyer.
This problem most often arises in the "AS IS" contract. In this case, the vehicle is sold as it stands with all faults. Yet, at the same time the salesman is making all types of claims that are not represented in the contract. The intention behind these claims is to get the person to buy the vehicle. Yet at the same time, the salesman has no intention of proving or standing behind his statements when they are relied upon.
A real danger in buying a used car is the mistaken belief held by most buyers that the dealer must disclose everything that he or she know about the car. Such is not the case when the car is being sold "AS IS". In such an instance the car is simply being sold as it stands. A few years ago, a small claims action was brought in california. The buyer purchased a car from a dealer "AS IS". The dealer made no representations regarding the car and the buyer acknowledged that no representations has bene made. After the car was purchased, a few months later the engine blew up. it was then discovered that the engine was a Pontiac in a Chevy frame. A suit was brought claiming that the dealer had a duty to inform the buyer if the different engine. The buyer cited the General Motors suit for its switched Cadillac engines. At the trial, the judge heard the evidence and ruled for the dealer. It was true that the Chevy had a Pontiac engine. No evidence was produced that showed that Pontiac engine had a lower life expectancy than the Chevy engine or that car was worth less money because of the different engine. The Judge noted that the dealer made no representations as to the car in any manner. The pivotal point as stated by the Judge is that the buyer produced no evidence to show that she would not have purchased the car if she had known the engine was not a Chevy. It was also not proven that the dealer knew that the engine was not a Chevy. Without that knowledge there could not be a duty imposed on the dealer to disclose that which he did not know and even if there was such knowledge, the buyer did not prove that she would have acted differently if the she was aware of the fact. This is very close decision, other judges have stated that they would have ruled differently.
Some states have enacted laws to aid the consumers in purchasing used vehicles from dealers. In some states, dealers are required to furnish the names of prior owners of vehicles so potential purchasers can contact them and ask questions regarding the vehicles. This is an excellent means of cross-checking the representations of the dealer. In the same vein, in any lawsuit against a dealer for a used lemon, the prior owner is a good source of information to prove that the dealer was aware of the problem and subsequently concealed it from the buyer.
In order to sue a dealer it is important, if fact vital, for a buyer to prove to a stranger, the judge, that the buyer was defrauded. The legal definition of fraud is; "The misrepresentation of a fact upon which the Plaintiff relied when the reliance was reasonable, and as a result of that reliance the Plaintiff was damaged." Statements, no matter how false are not fraudulent if the buyer did not rely upon them in making the purchase. For example, a statement after the sale was made by the dealer that the car will get 50 miles per gallon is not fraudulent because the sale the sale had already taken place. Such a statement prior to deciding to but the car could very well be fraudulent if it was reasonable to believe it. If the car is a 1976 Chevy such a statement would not be believable so there would not be justifiable reliance upon it. On the other hand, reliance on such a statement regarding a Honda might well found to be justifiable.
The real difficulty in suing a dealer is lack of proof. all of the paperwork including the ad for the car, if any, should be brought to court. Unfortunately, it is usually difficult to produce evidence of the dealer's oral statements and that is exactly what the dealers rely upon when making the false statements. A case in point a woman purchased a 1996 Subaru in Carson City, Nevada. The dealer promised that she could return the car if her credit union would not give her a loan. The loan documents did not reflect this promise. It turned out that the credit would not give the loan but the loan document listed another bank from which the loan would be taken. The dealer then insisted on completing the sale despite the protestations of the woman. There was nothing in writing to support the woman's version and as such she was forced to complete the purchase the automobile.
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COLLECTION OF JUDGMENT
The case is over once a court enters its judgment. If the court issues a money judgment, the person being awarded the money becomes a "judgment creditor" of the losing party, who is now the "judgment debtor." Occasionally the judgment may specify that the amount of money awarded is to be paid in full to the judgment creditor in periodic payments by the judgment debtor. Periodic payments are usually ordered in the judgment only if the parties entered a settlement agreement ordering them. Periodic payments are ordered when the judgment debtor convinces the judge that in the interest of justice the payments should be made periodically. Usually the court does not order periodic payments. When a payment schedule is not ordered by the court, the judgment creditor may begin collection procedures immediately for the entire outstanding judgment award.
Interest, as an element of the judgment, is usually awarded from the date of the judgment. The legal rate of interest varies from state to state but is generally 10% per year. Many courts will also award prejudgment interest on breaches of contract for money due from the date that money should have been paid. Certainly the judgment creditor should request prejudgment interest in the event the court might grant it.
Collection of a judgment is totally the responsibility of the judgment creditor. Collecting a judgment is the most frustrating part of the small claims process. Having a judgment does not guarantee payment. However, there is no right to demand payment without a judgment. A judgment debtor may be without assets, "judgment proof," or be uncooperative, causing extra effort and costs. One should never assume that just because he may possess a judgment the debtor will quickly and voluntarily. In the real world, collection on a judgment can be time- consuming and sometimes not very successful.
Many people mistakenly believe that the court will take care of the collection of the judgment. That, unfortunately is not the case. The court will not collect the award for the judgment creditor. The extent of the court's involvement in collection is to supply the orders and documents needed to help collect the judgment. Often, in order to collect a judgment, a judgment creditor turns to a collection agency.
Most often the Court's judgment is an absolute sum of money due and payable immediately. The judgment creditor can therefore begin collection procedures for the entire sum so awarded. In some instances, however, the Court will fix the value of the judgment but may decree that it be paid in installments. Whenever a judgment is ordered to be in installments, the court will award interest at the state's prevailing interest rate, usually ten percent per annum. If the installment payments are not made, the judgment creditor is given the right to return to court and request that new judgment be issued for the full amount payable immediately.
When collecting a judgment, the judgment creditor must obey the same collection laws as any other creditor. More specifically, the judgment creditor must comply with the Fair Debt and Practices Act. Congress enacted the Fair Debt and Practices Act to correct abuses in collection activities that were prevalent in the past. Under the Act, a judgment creditor can not harass a debtor or engage in any abusive or unfair conduct in an attempt to collect a judgment. Prohibited conduct is contacting an employer or calling the judgment creditor at unreasonable times. In addition, if the debtor requests that attempts to conduct him or her cease, then the creditor must do so and resort to a lawsuit to collect the judgment. Penalties for violating the Fair Debt Practices Act are severe and may expose the judgment creditor to fines in a greater amount than the judgment itself.
I. AMENDING A JUDGMENT TO ATTACH HIDDEN ASSETS
It is not uncommon for people to do business using an alias name. One need only look to Hollywood to quickly see how prevalent it is for people to use different names. As strange as it may seem, it is usually not illegal for a person to change his or her name without court approval. Most states will permit the use of aliases as long as their use is not intended to defraud people. The debtor's use of aliases as such can cause a problem when seeking to collect a judgment.
Most judgment only list the given name of the individual. As such, only assets in the actual name of the judgment creditor can be attached and seized to satisfy the judgment. Professional deadbeats have used this fact to conceal their assets under other alias names. If the debtor is not asked about assets being held under other names, he or she can simply keep quiet and create the false impression of being judgment proof when in reality assets are being concealed.
When a judgment creditor discovers the fact that the debtor has used a particular alias in the past, the judgment creditor may ask the Court to amend its judgment to add the alias along side the given name of the debtor. Such an amendment is easy done is accordance with the procedure set forth under state law. In most instances, it is simply done by virtue of a declaration filed with the court. A sample of the declaration that may be used follows:
I, , declare as follows:
1. I am the Plaintiff in the case
2. On judgment was rended in the case against in the sum of $ .
3. Following the issuance of the judgment, I have discovered that uses the alias of .
4. I know that uses this alias because
5. I request that the judgment be amended to reflect the alias which is used by the defendant.
I declare under penalty of perjury that the foregoing is true and correct under the laws of the State of .
II. ATTACHMENT OF WAGES
The commonly utilized method of collection of a judgment is attachment of the wages of the judgment debtor (called "garnishment" in some states). An attachment of wages is accomplished with the judgment being taken by the winner to the clerk of the court. The clerk of the court issues a "writ of execution" containing the information in the judgment. Each state sets the amount of wages that be garnished from a debtor. All states set a minimum amount of wages which are exempt from attachment, in California for example, a judgment creditor is usually permitted to get 25% of a debtor's net wages to satisfy a debt. Where, however, the debtor has extremely low income the amount that can be garnished in California can be extremely less than 25% or none at all.
A "writ of execution" is a court order directing the sheriff or marshal to take control or "levy upon" the assets of the losing party to satisfy the judgment. It is the responsibility of the judgment creditor to tell the marshal or sheriff where the property is located so it can be seized.
Wages, like other assets of a debtor, can be attached ("garnished") to pay the judgment. Most states have laws to prevent employees from being fired just because their wages have been attached. All states provide debtor statutory exemptions (see Chapter 15, State Laws) on certain property of the debtor to protect it from collections. All states permit a debtor to exempt a certain amount of wages that cannot be attached or seized to satisfy the judgment. Only property over these statutory exempted amounts can be taken to satisfy a judgment. In Texas, for instance, wage garnishment is not permitted. In those states that allow wage garnishment, the sheriff's or marshal's office will provide the debtor with the local forms and rules for garnishment.
Special rules apply to the garnishment of the wages of federal employees. State courts lack authority to order a federal agency to attach wages unless there exists a specific federal law allowing it. To date, attachment for federal wages is only permitted in the area of a judgment for child support or spousal support. For other types of judgment a federal agency will not honor an attachment request. The wages of postal workers and federal housing may, however, be attached as any those of any other person because they are not considered to be direct federal employees. Attaching the wages of most other federal employees, including seamen, longshoremen and harbor workers is more usually barred.
An alternative to attaching federal workers's wages and also for regular debtors as well, is to obtain a court order directing the debtor to assign the portion of his wages which are attachable to the creditor. This order will be recognized and honored by the federal agency. A request for a wage assignment may be may in COurt at the time of the trial otherwise it will have to be made by a separate pleading called a "motion" after the trial. Obtaining a wage assignment can be a cumbersome process depending on individual state law. If pursued after a judgment has been entered, then the creditor should consult with an attorney as to procedure. NOLO PRESS publishes a book COLLECT YOUR COURT JUDGMENT which sets forth a simple procedure, with forms, for obtaining a wage assignment under California law. Generally, for federal workers, it is easier to concentrate on the other collection methods rather than seeking to attach wages.
III. SEIZURE OF REAL PROPERTY
Another method of collection on a judgment that is available is the seizure and sale of the judgment debtor's real property. This collection method isn't used often in small claims cases because of the formalized steps and procedures that must be followed. Real property can be seized and sold by a marshal or sheriff executing on a small claims judgment. Every state has its own procedure for execution on real property. The sheriff or marshal advertises in a newspaper of general circulation that on a certain date (usually after 30 to 60 days notice to the debtor) the real property will be sold to the highest bidder at a public auction at the sheriff's or marshal's office.
At the sale the highest bidder purchases whatever interest the debtor had in the property. If the debtor owes $100,000 on the real property, the purchaser will take the real property subject to that $100,000: the $100,000 debt still remains on the property. Several years ago in Florida a tenant sued his landlord, a large residential apartment owner, for return of a security deposit. The tenant won the case in small claims court. The tenant executed against the real property and purchased it at the sheriff's sale for approximately $1,500. The landlord tried to set the sale aside, but the courts affirmed it. The tenant bought a million dollar piece of property for $1,500.
In most states, a person can file a homestead on the debtor's real property that is the debtor's residence. The statutory amount varies from $5,000 to unlimited. This means that if the real property is seized and sold, the debtor is first given the homestead amount before any proceeds are applied to the judgment. A court will not permit execution on real property unless the debtor has equity in the property exceeding the homestead amount because the creditor wouldn't receive anything anyway.
IV. PLACING A JUDICIAL LIEN ON THE DEFENDANT'S REAL PROPERTY
The most common and effective means to assure collection of a small claims judgment is to record a lien against all of the real property owned by the debtor. This kind of lien ensures that no real property of the debtor can be sold or have loans taken against it until the debtor's judgment is paid. A judgment creditor places a lien on the real property of the debtor by first requesting that the clerk of the court issue an "abstract of judgment." An "abstract of judgment" is an official recordable court document which states the amount owed to the plaintiff.
Under the laws of some states, such as Nevada and California, the recordation in the county recorder's office of the abstract of judgment places an automatic lien on all the real property of the debtor located in the county where the abstract is recorded. To cover all the property that a defendant may own in a state, an abstract of judgment must be recorded in every county. In a few states, when issued, a judgment operates as an automatic lien on all of the debtor's real property in the county where it is issued.
In most states, the judgment creditors record the abstract of judgment against each individual piece of property that the debtor owns in order to have the lien placed on that particular piece of property. The reason for this multiple recordation is that most states do not use the grantor-grantee index that lists all documents recorded by or against a person. Instead these states use a plat index which lists all documents particularly filed against the property. A general filing against a person would not show against the property. The court recorder will provide details that will clarify whether or not the abstract has to be filed against each piece of property.
Once a lien is placed on real property, it remains on all current and future property of the debtor until released by the creditor. No one will ever purchase any of the debtor's real property without having the lien removed. Once an abstract is recorded, it stays on the real property for 10 years or until the judgment is paid. The abstract and the judgment usually can be renewed in increments of 10 years. When any of the debtor's real property is sold the lien must be paid, along with all interest, before clear title can be passed. Because of the cloud that the lien places on the title of all the debtor's current and future real property, recording an abstract virtually assures that someday the judgment will be paid with interest if the debtor has or acquires any real property.
The recordation of the judgment may be considered as an element in the creditor's retirement portfolio. The judgment is growing because of interest. One day the judgment will have to be paid. Since the interest rates on judgments are higher at this time than interest on bank accounts, it might make sense for a debtor not to collect a judgment and let the interest accrue against a solvent debtor.
V. ATTACHMENT OF BANK ACCOUNTS AND PERSONAL ASSETS
A judgment creditor may attach a debtor's bank account. The attachment is done in the same manner as an attachment of wages. The judgment creditor takes his abstract of judgment to the marshal's or sheriff's office along with the name of the debtor's bank. It is generally not necessary for the judgment creditor to know the account number of the debtor only the bank and the branch for which the attachment is directed.
The local Sheriff, Marshall or Constable's Office will inform a judgment creditor as what it will need to perform an attachment of a debtor's bank account. At the bare minimum, it will need a certified copy of the judgment and usually a writ of execution from the court clerk as well. Both the certified Copy and Writ of Execution are issued by the Court Clerk usually for a small fee which is a recoverable court cost from the debtor.
Many states have enacted laws that exempt certain amounts in bank accounts. The marshal's or sheriff's office will provide the information on the state exemptions. Most states tend to exempt 75% of wages placed in bank accounts within 30 days of their payment to the debtor. Social security payments paid into a bank account are totally exempt.
Just as a debtor's bank accounts can be seized over a certain value so can any personal asset of the debtor which is not exempt under state law. The general rule is that all assets of a debtor can be attached to satisfy a judgment unless exempt under state law. Each state has a list of property which is exempt from attachment to satisfy a judgment. Property that is not exempt can be attached. The attachment of such non-exempt property is very similar to that of a bank account. The property is identified by the judgment creditor, usually through as Writ of Execution" issued by the Court Clerk. The Sheriff's, Marshall's or Constable's Office will, acting upon the writ of execution, seize the designated property and sell it pursuant to state law. The proceeds from the sale will first go to paying the costs of the sale, then to paying the judgment with the remaining amount, if any, being returned to the debtor.
VI. COLLECTION OF A JUDGMENT AGAINST A BUSINESS
In one very important aspect, small claim judgments against businesses
are easier to collect than against individuals. This is in the area of
a "till tap". When the judgment is against a business, the "writ
of Execution" may permit the Sheriff, Marshall or Constable to seize
all of the business receipts as they come in until the judgment is paid.
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BUSINESS OWNERS LIMITING THEIR LIABILITY
FOR THE BUSINESS DEBTS
This section of the book is for those persons who are or will be engaged in business and look to limit their personal liability for the debts of their company. Just because a person owns a business does not that the person has to become personally liable for the debts of the business. While a small claims judgment is usually not enough to put a company out of business it is symptomatic of a financial problem. Enough small claims judgments can collectively put a company out of business but saddling the company with such a debt that it can not recover.
It is not necessary for a business owner to be personally liable for the debts of his or her business. In fact, it is most business owners attempt to segregate their personal and business financial affairs, By doing so they attempt to limit their personal liability for business debts to only tort actions (civil wrongs, that they themselves may cause.
Limiting liability is especially important when there will be two or business owners or the company will have employees. In such instances, unless the company will be incorporated, organized as a limited liability company or formed as a limited liability partnership, each owner will be personally liable to pay all business debts incurred by the company including debts arising by accidents or torts of employees during the course of their employment. This potential liability can bankrupt a small business.
A true case on point occurred in California. An owner of three fast food franchises visited an attorney for simple legal advice. During the interview, the attorney discovered that the client did not have any of the franchises incorporated. The attorney advised the client to incorporate each franchise separately to protect himself from personal liability. The client declined to do so stating that he was required, under his franchise agreement, to carry $3,000,000 in insurance which would be enough to handle every contingency. A little over two months later, the attorney open his newspaper to see the heading that a hepatitis outbreak at one of the client's franchise affected nearly 300 people, one person died one had irreversible brain damage and the rest had various degrees of illness. The client called that day and asked for advice. Nothing could be done except to refer the claim to the insurance company. The client, thereafter incorporated, but that would not protect him from personal liability for the claims arising prior to the incorporation. The ultimate liability was expected to exceed the policy limits for which the client will haver to pay himself. Had each franchise been incorporated the extent of the liability would have been the $3,000,000 and the value of that particular franchise. Instead, the client now faced personal bankruptcy as a result of the hepatitis passed on by his employee. This example points out the necessity of a business owner protecting himself from liability for the business debts especially when it relatively inexpensive to do so.
When two or more people, not married to each other, wish to conduct a business together they have only three options available in structuring the business. They may incorporate and operate as a corporation, they may organize and operate as a limited liability company or they may operate as a partnership (in a general or limited liability form). A limited partnership is not applicable if the limited partners intend to participate in the management of the business because if they do so, they lose their limited liability protection and be treated as a general partner anyway.
IT IS TO EDUCATE BUSINESS OWNERS OF THE METHODS TO AVOID OR REDUCE PERSONAL LIABILITY FOR BUSINESS DEBTS THAT THIS CHAPTER IS DIRECTED. TO DO SO, THE THREE MAJOR ALTERNATIVES OF LIMITED LIABILITY PARTNERSHIPS, CORPORATIONS AND LIMITED LIABILITY COMPANIES ARE DISCUSSED INCLUDING HOW THEY ARE FORMED AND OPERATE.
Partnerships are used because they are simple. A partnership is not required to be in writing to be legal; although it makes a great deal of sense to have it in writing. Partnerships are usually created between family members or close friends. There are three types of partnerships: general partnerships, limited partnerships and a new type called a limited liability partnership. Each one has it own body of law and differ from each other in significant ways.
While partnerships are simple to form and operate, that does not mean they are unregulated. On the contrary, a complete body of partnership law has been developed both by case law and statutory law. The rights and obligations of partners and those persons dealing with partnerships are covered by a state's partnership law in the absence of written agreement of the partners to the contrary.
Partnerships are treated for federal tax purposes as "pass-through" vehicles. All profits and losses of the partnership pass through the partnership and are attributed to the partners. The effect of this pass through of profits and losses is that the partnership itself is not taxed. Partnership income is not subject to double taxation as is the income of a regular C corporation. To achieve this same tax benefit for small corporations, Congress created the S Corporation.
1. PARTNERS' LIABILITY FOR PARTNERSHIP DEBTS
The main drawback to any general partnership is the fact that the partners are personally liable for the debts of the partnership. By forming a partnership the partners have agreed to guarantee payment of any debts or judgments taken against the partnership. Partners are not liable for the personal non-partnership related debts of the other partners.
Under the Uniform Partnership Act the partnership (and thus the partners) are liable for "any wrongful act or omission of any partner in the ordinary course of the business of the partnership. Where loss or injury is caused to any person by the partnership, the partners are individually liable for payment of the damages. In addition, the partners are liable for money damages that arise from the actions of any partnership employee or the other partners during the course of their work for the partnership. Example: A partner is involved in a car accident and kills two people while engaging in partnership work. All of the other partners will be liable to pay the damage award that the heirs of victims receive in wrongful death action against the partnership. If the award is $1,000,000 and the partnership only has assets of $200,000, a personal judgment will be taken against each partner for $800,000.
This is the main drawback of the partnership. The general rule of thumb is if a partnership is formed and it has employees, the partners should either carry a great deal of insurance or incorporate. Either of these entities will carry their individual personal liability for the partnership's debts
2. CONSIDERATIONS BEFORE DECIDING TO FORM A PARTNERSHIP
Before forming a partnership, the parties should consider the following issues and decide for themselves how they should be addressed:
1. Name of the partnership.
2. Term of the partnership.
3. Purpose of the partnership.
4. Scope of objective: joint venture or partnership.
5. Capitalization: funding the partnership.
6. Distribution of profits and losses.
7. Admission of new partners.
8. Expulsion of old partners.
9. Withdrawals of contributed assets.
10. Expense accounts.
11. Salaries and draws of income by partners.
12. Responsibilities of partners.
13. Dissolution of the partnership.
14. Staffing and management.
15. Comparison with the alternative of incorporating.
16. Extent of possible personal liability for partnership debts.
These are important considerations. They are not the only ones. Each partnership is different because each is composed of different people with different viewpoints. What must be remembered is that anything not covered in the partnership agreement will be decided in accordance with the state's Uniform Partnership Act. If the partners do not want the UPA to apply on a particular point, they must expressly create their alternative provision.
3. TERMINATION OF A PARTNERSHIP
Termination means that business is no longer being carried on by the partnership except to the extent necessary to discharge its affairs. A partnership will one day end. It is not like a corporation that has perpetual existence. The partnership agreement usually lists the conditions under which a partnership will terminate. A partnership agreement may have a clause in it stating that the partnership will terminate:
1. When the partnership purpose is accomplished (in a joint venture).
2. On a certain date stated in the partnership agreement.
3. If a partner becomes insolvent or bankrupt. Under the Uniform Partnership Act when a partner files for personal bankruptcy, the partnership is automatically terminated even though the business may itself be solvent. When a partner goes bankrupt, the relationship with the partnership and the other partners changes. By filing for bankruptcy protection, the filing partner is no longer liable for the partnership debts. The liability for payment of partnership debts remains with the partners who did not file bankruptcy. It is this general release of liability for the partner filing bankruptcy that gives rise to the termination of the partnership. The partners can agree not to have the partnership dissolved automatically upon the bankruptcy of a partner by a provision in the partnership agreement. Unless the partnership agreement states otherwise, the UPA will apply, and the partnership will be terminated upon the bankruptcy of a partner.
4. If a partner dies or becomes disabled.
5. If any partner withdraws from the partnership.
Without a clause in the partnership agreement stating otherwise the law is that a partnership terminates on the death of a partner or upon a partner's resignation.
Under the Uniform Partnership Act a court may order dissolution of a partnership for the following reasons regardless of specific clauses in the partnership agreement stating otherwise:
1. A partner has been found insane by a court.
2. A partner is incapable of performing his duties under the partnership agreement.
3. A partner's conduct has prejudicially affected the ability of the partnership to carry on its business.
4. A partner has repeatedly breached the partnership agreement.
5. The partnership can only do business at a loss.
6. Equitable reasons support the dissolution.
A lawsuit seeking termination on any of these grounds will be difficult and costly to prove. An alternative is for the partnership agreement to have an expulsion provision permitting expulsion of a partner for any of the above six reasons.
Termination of a partnership is accomplished in three steps:
1. The decision to terminate is made either by the partners or by law through the application of the provisions of the Uniform Partnership Act.
2. The existing business of the partnership is discharged.
Under the Uniform Partnership Act each partner remains liable for the debts of the partnership incurred during discharge of the partnership affairs.
3. The final cessation of business, the payment of creditors, taxes and final division and distribution of the remaining assets to the partners takes place.
After a partnership has been dissolved and its assets liquidated, the distribution is made as follows to the extent of partnership assets:
1. All federal and state taxes are paid.
2. All employee wages and benefits are paid.
3. All secured liabilities are paid.
4. All unsecured liabilities are paid.
5. Remaining funds are divided among the partners in accordance with their percentage of ownership interest in the partnership.
The proceeds received by a partner in the dissolution of a partnership are a return of the partner's investment. Any gain or loss in the dissolution is treated as a capital gain or loss. For example, assume that a partner paid $4,000 for stock and got back $3,000. The partner had a $1,000 capital loss. Likewise, if the partner received $6,000, he would have to recognize a $2,000 capital gain.
4. TAX TREATMENT
A partnership is subject to its own peculiar tax treatment under federal tax law. Most unincorporated associations and trusts that conduct business are taxed as though they were corporations. Partnerships, however, are treated differently. In a partnership the income is attributed to the partners according to their percentage of partnership interest. The partnership pays no income tax itself on the federal level. Example: A partnership earns $1,000,000. It will pay no taxes. Each partner will include his pro rata share of the $1,000,000 on his personal tax returns. Assuming a 28% federal tax rate, the partners will pay a total of $280,000, not the total $519,200 that a C corporation and its shareholders must pay.
5. LIMITED LIABILITY PARTNERSHIPS
The most important change in partnership law since the creation of the limited partnership is occurring now. A few form of partnership has been enacted by some states called the REGISTERED LIMITED LIABILITY PARTNERSHIP or just the LIMITED LIABILITY PARTNERSHIP (LLP). The limited liability partnership is a cross between the two existing types of partnerships: the general partnership and the limited partnership. On the whole, a LLP is the treated the same as a general partnership except for the fact that the LLP provides a degree of protection to the partners for the liabilities of the partnership. A LLP must, the same as any other type of partnership, be composed of two or more persons, trusts, or companies who have joined together to engage in a business for profit.
The driving force behind the enactment of LLP Acts is that professionals are permitted to practice their profession through the use of the LLP. Some states, most notably California, do not permit professionals to do business through the use of a limited liability company, LLC. In such states, professionals are limited to doing business in a corporate form, as either a regular corporation or subchapter S to limit their liability for the debts of the business. In order to provide professionals to get together and conduct their profession with some degree of limited liability for professionals working together, some states have enacted limited liability partnership acts. California is a state that does not permit professionals to operate through a LLC and instead adopted in October 1995, one year after the enactment of its LLC Act, a LLP Act. Other states which permit LLP's are Delaware, Minnesota, New York, New Mexico, Texas along with the District of Columbia. More states may be adopt such acts in the future. As of January 1996, 46 states along with the District of Columbia have enactment limited liability company acts. A LIMITED LIABILITY COMPANY OFFERS THE OWNERS (MEMBERS) THE SAME DEGREE OF FREEDOM AND OPERATION AS AN LLP ALONG WITH EVEN GREATER PROTECTION FOR LIABILITY FOR THE BUSINESS'S DEBTS. Usually, if a person can do business in either the LLC or the LLP form, the LLC form is better. As stated above, however, not all states permit their professionals to do business in the LLC business form. Therefore, in such states, the LLP is the only alternative to a forming a corporation if it is available in the person's state
A. STATUS OF THE PARTNER
The LLP is for most purposes the same as a general partnership. All of the discussions previously,in this books, regarding a general partnership except for the personal liability of the partners applies to the LLP. A partner of a LLP is a general partner not a limited partner. One of the major differences between the LLP and a general partnership is that the LLP is governed and managed by a written partnership agreement whereas the general partnership is not required to have a written partnership agreement.
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C. THE LIMITED LIABILITY COMPANY
The most recent development in business law is the creation of the Limited Liability Company (LLC). The first LLC was created in the 1970's. For many years LLC's were not popular because the tax laws subjected them to more taxation than either a corporation or a limited partnership. In 1977, the first LLC was created in Wyoming for an oil company. The company was granted a private tax ruling stating that it would be treated as a partnership. In 1980, the U. S. Treasury issued proposed regulations that stated an LLC would be taxed as a corporation because its members did not have a partner's liability for the company's debts. In 1988, the Internal Revenue Service finally issued Revenue Ruling 88-76, 19882 CB 360, stating that an LLC could be taxed as a partnership. This revenue ruling calmed concerns about forming LLC's. As a result, the number of states permitting LLC's has increased dramatically.
An LLC is a cross between a corporation and a partnership. The characteristics that are shared with a corporation or a partnership are:
1. It bestows limited liability on its members just as a corporation does on its shareholders and a limited partnership does on its limited partners.
2. It can provide for the free transferability of its membership interests the same as a corporation or partnership.
3. It can provide for continuity of life after the death, resignation, expulsion or bankruptcy of a member the same as a corporation or a partnership.
In addition, an LLC may give full management and control to just a few managing members, which is the same treatment that is available in a partnership and similar to that of the board of directors of a corporation.
The following, however, are the major differences between LLC's and corporations or partnerships:
1. Unlike a corporation, which can have perpetual existence, some states permit an LLC to exist only for a stated period of time (30 years in such states) before it is terminated by operation of law. Many states, however, such as California treat an LLC like a corporation and permit it to have perpetual existence.
2. Unlike the partners of a general partnership, the members of the LLC are not personally liable for the debts of the company, which is the same basic treatment as that of shareholders of a corporation or limited partners of a limited partnership.
3. Unlike a corporation, the company does not have the corporate restrictions on financing. Example: The company does not need to create a special surplus account for distributions.
4. Unlike a corporation, in the majority of states, absent an agreement among the members to the contrary, profits and losses of an LLC are allocated in accordance with each member's percentage of capital contributions. A few states have adopted the per capita partnership rule: if there is no agreement on decision, profits and losses will be allocated equally among members. Either method is different from that of a corporation. Division of corporate profits and losses must be based upon the number of shares that a shareholder owns in the corporation.
These characteristics are important. If an LLC has any three of them (as discussed below), it will be taxed as a corporation. Such taxation would be detrimental to members so care must be taken in deciding which common characteristics the company should share with a corporation.
The main advantage of an LLC is the limited liability that it provides its owners, who are called members. In an LLC, the most that its members can lose in a lawsuit against the company are the assets they contributed to the LLC. The limitation of liability would naturally not extend to any personal guarantees of company debts by a member. If a member personally guarantees a company loan of $100,000, the member is personally liable for the repayment. The member's liability arises not because the person is a member of the company but because the member guaranteed that he personally would repay the loan. It is immaterial that the money may have gone directly to the company. The limited liability for members is quite different from that of a general partnership where the partners are totally liable for all debts of the business. The creditors of a general partnership can seek and attach every dollar and piece of property that a partner owns in order to settle a judgement against the partnership. Such personal attachment to satisfy company debts cannot be taken against the assets of a member. People either incorporate or form an LLC to eliminate this unlimited business liability exposure.
LLC's are relatively new and has taken time for them to catch. Even so, 48 states and the District of Columbia now permit them to be formed or recognize them. Only Hawaii and Vermont have, as yet, to join the majority, although there are bills before their legislatures to enact a LLC Act. It is expected that soon these states will also enact a LLC Act.
The fact that some states have yet not decided to permit the existence of LLC's causes a degree of concern for any foreign LLC that wishes to do business in a state that does not permit the formation of LLC's. Such a state could treat a foreign LLC in one of two ways:
1. It could grant full force and credit to the company and permit it to do business in the state in its limited liability form in accordance with the terms of its operating agreement. Hence, members would retain their limited liability for all company debts incurred in the state (absent personal guarantees).
2. It could treat any LLC doing business in the state as a general partnership and disregard the terms of the operating agreement where they contradict state law.
It is commonly felt among corporate and tax attorneys that most of the four states that do not permit their citizens to do business as an LLC will permit foreign citizens to do so. An LLC that is considering doing business in one of these three states should consult with both a corporate and a tax attorney to determine how that state would treat the company. It may well be that by the time the company wishes to do business in Hawaii or Vermont, the state may have, by then, adopted a LLC Act which settles the issue.
An LLC is considered to be separate and apart from all of the people who own, control and operate it. An LLC holds most of the rights of a legal person. An LLC is able to validly execute contracts, incur debts, hold title to both real and personal property and pay taxes. The attractiveness of LLC's is that they are held to be separate legal entities from owners, the members, which gives them unique advantages over both corporations and partnerships.
An LLC is a statutory creation. It can only be formed by strict compliance with the state law under which it is being created. An LLC just as with a corporation or a limited partnership requires a public filing of its formation documents. The filing of the Articles of Organization is required:
1. To give public notice that the company is formed in a way that bestows limited liability on the members for the debts of the company, and
2. To give the public notice where the company is located and who can act in its behalf.
Most states require an LLC to have more than one owner. This is a different requirement than imposed on corporations, which are permitted to legally have only one shareholder. Several states which include Arizona, Colorado, Delaware, Illinois, Iowa, Kansas, Louisiana, Maryland, Minnesota, and Virginia permit only one person to form an LLC, but the company is not given legal effect until it has more than one member. The states requiring the LLC to have two or more members also usually require that the organizers sign the Articles of Organization or, alternatively, a subscription
agreement prior to filing the articles. If a company falls below the minimum number of members for an LLC, it will not only be dissolved but it will lose the limited liability shield for its members to the extent necessary to dissolve the company. A company will be treated harshly if it continues to do business for an undue period after ceasing to have the minimum number of members. The states imposing the two member requirement use it to insure the availability of the partnership classification for tax purposes. A partnership requires, by definition, two or more persons engaged in business.
b. ARTICLES OF ORGANIZATION
Articles of Organization, also called a Certificate of Organization in a few states, is an application by a group of individuals or entities for a license to do business as an LLC. Once the Articles are accepted and filed, the LLC is thereafter formed. Each state sets its own requirements for the contents of the articles, however, they all require:
1. A name for the company which does not mislead the public but does disclose that it is an LLC.
2. The address of the company's principal place of business.
3. The name and address of the company's registered agent in the state.
The requirement for listing both the resident agent and the registered office is also imposed upon a company which is incorporating. Listing of registered agent ensures that someone is authorized to receive legal process against the company. The resident agent is the person who is served any legal notices or summons and complaint on behalf of the company.
Several states also require additional provisions to be included in the articles, such as:
1. How capital contributions will be made to the company.
2. Whether the company will be treated as a corporation or partnership for tax purposes.
3. Name and address of each organizer.
4. Whether all the members or a centralized management will manage the company.
Some states such as Colorado, Florida, Minnesota, Nevada, West Virginia and Wyoming require the Articles to state if the company will continue in effect upon the death, bankruptcy or withdrawal of a member.
Before the Articles are filed they must be approved and adopted. The person who will file the Articles calls a meeting of potential members where they decide what provisions will be contained in the articles. They also decide another important detail: whether all the members or a centralized panel of selected managers will manage the business. Once the Articles are adopted, they must be signed either by all the selected managing members, or by all of the members (if no managing members are selected. Usually, the operating agreement for the company is also created and adopted at this meeting.
c. OPERATING AGREEMENTS
Once the LLC files its articles or certificate of organization, it exists on paper; it does not exist at law (de jure) until membership certificates are actually issued. It is the fact that the company has outstanding membership certificates in the hands of members that is the defining characteristic behind the existence of an LLC. Similarly, a corporation is not deemed to be in effect until it has sold and issued stock. Following the filing of the articles, the potential members of the LLC meet to purchase their membership certificates and adopt the operating agreement for the business. Once the membership certificates have been issued, the company is fully formed.
Operating agreements are the rules for the general day-to-day management and operation of the LLC. Contained in the operating agreement are the terms of the company concerning:
1. Capitalization of the business,
2. Distributions made from the business,
3. Admission and withdrawal of members,
4. Management of the business,
5. Fiduciary duties owed to and by the members, and
6. Dissolution of the company.
The operating agreement is adopted by the members and thereafter can be amended only by a majority vote of the members. An operating agreement is an attempt to resolve the many areas of potential conflict within an LLC and to delegate duties and assign responsibilities. Operating agreements can be general in nature or tailored to the needs and desires of the members. A few states do not require the operating agreement to be in writing. Only if the agreement is in writing can the actual intent of the members be ascertained with confidence.
Once these steps have been accomplished the LLC is formed and can commence operations. An LLC is easier and less expensive to create than a corporation or a limited partnership provided ordinary caution and care are undertaken.
Members are the owners of the LLC. Usually an LLC must have two or more members. In contrast, Texas for example, permits a company to have only one member. The IRS, however, requires a LLC to have two or more members to have partnership tax treatment. Members own the membership certificates of the LLC and have the right to vote in the election of managing members. The extent of a member's ownership interest is usually based either:
1. Upon a member's percentage of contribution to the total contribution of all the members,
2. Upon an equal division among all the members irrespective of contribution (per capita), or
3. Upon some other agreement between the members.
Members are not personally liable for the debts of the LLC beyond the extent of their investment in the LLC. Exception: A member is personally liable for a company debt or obligation if he personally guarantees repayment.
Members may agree for all members to manage the company or agree to elect a few members to manage, who will be called "managing members." In addition to electing any managing members, the members are required to vote on the following:
1. Amendment of the Articles of Organization,
2. Sale, option or lease of substantially all of the LLC's assets,
3. Merger or consolidation of the LLC with another LLC,
4. Amendment of the operating agreement,
5. Removal and replacement of managing members, and
6. Dissolution of the LLC.
The term "managing member" refers to all of the managing members. Managing members must be elected if the operating agreement does not reserve the management to all of the members. If managing members are elected, they alone are responsible for running the day-to-day business of the LLC. When the LLC is taxed as a corporation, the managing members are permitted reasonable compensation for their services. In small LLC's, the managing members usually serve for free to protect their investments. Caveat: The decision to have the LLC managed by elected managing members is an element of corporate existence. If the company also has free transferability of its shares or continuity of life, it will be taxed as a corporation and not as a partnership.
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This chapter lists appropriate small claims state laws as subsequently amended. A person engaged in a small claims action should be aware of them. The application of the law is discussed throughout the text of the book. This summary of state law covers the 50 states and the District of Columbia.
It should be understood that laws do change. In the case of small claim actions, the thing that changes most is the jurisdictional amount of the court. In the last ten years California, for instance, has raised its limits for small claims cases from $1,500 to $2,500 and then to $5,000. The rest of the state laws seldom change because of the nature of small claims court which is to keep it as simple as possible.
A person desiring to file a small claims action should telephone the clerk of the court to ensure the current accuracy of this information. The chances are that if the law has changed, it has changed to the benefit of the plaintiff by raising the amount on which the plaintiff can file suit.
"Equitable relief" mentioned in the summary refers to a court's
jurisdiction to order a person to do or not do something beyond the payment
of money. This power is normally called the power to grant injunctions
(for example an order not to trespass on property). If a court has the
power to hear motions involving contract actions, it is implied it has
the power to grant the basic equitable relief to the extent necessary for
the reformation of the contract or the recision of the contract along with
restitution of property that each party received under the contract.
Code of Alabama 1986, Title 12, Ch. 12, Section 31, 7071 and Alabama Rules of Court.
By certified mail, sheriff or court-approved adult.
STATUTE OF LIMITATIONS
Most Contracts six years, sale of goods four years, torts 14 years. Judgments good for 20 years.
TRANSFER OF TRIAL TO HIGHER COURT
Either party may appeal within 14 days of judgment.
JUDGMENT AS LIEN ON REAL PROPERTY
Recording the judgment places a lien on the debtor's real property in the county.
WAGE EXEMPTION FROM GARNISHMENT
Only the lesser of 25% of the judgment creditor's gross wages or 30 times the federal minimum wages can be attached.
GOVERNMENT BENEFITS EXEMPTION
The following government benefits are exempt to protect the debtor receiving the benefits:
1. Aid to AFDC, aged, blind and disabled by statute 38-4-8.
2. Black lung benefits (pneumoconiosis) by statute 25-5-179.
3. Compensation to victims of crimes by statute 15-23-15.
4. Prisoner of War benefits by statute 31-7-2.
5. Unemployment compensation under statute 25-4-140.
6. Worker's Compensation benefits under statute 25-5-86.
Alabama Code statute 6-10-2 has a $15,000 homestead exemption on real property or a mobile home. The property cannot exceed 160 acres. A homestead declaration must be recorded before any sale of the property.
There are several exemptions for different types of insurance proceeds under Alabama law:
1. Annuity proceeds up to $250 per month are exempt under statute 27-14-32.
2. Benefits from fraternal societies are exempt under statute 27-34-27.
3. Benefits from mutual aid associations are exempt under statute 27-30-25.
4. Disability benefits up to $250 per month are exempt under statute 27-14-31.
5. Life insurance proceeds when the debtor-beneficiary is the insured's spouse are exempt under statutes 6-10-8 and 27-14-29.
6. Life insurance proceeds when the debtor-beneficiary is the insured's are exempt child under statute 6-10-8.
7. Life insurance proceeds when the insurance policy prohibits payment of the proceeds being made to the debtor- beneficiary's creditors are exempt under statute 27-15-26.
PERSONAL PROPERTY EXEMPTION
Alabama has exemptions for the following personal property:
1. Books under statute 6-10-6.
2. Church pew under statute 6-10-5.
3. Family pictures and portraits under statute 6-10-6.
4. Funeral plot under statute 6-10-5.
5. Needed clothing under statute 6-10-6.
6. Property of a business partnership under statute 10-8-72.
RETIREMENT BENEFITS EXEMPTION
The following retirement benefits are exempt to protect the debtor receiving the benefits:
1. Judges are exempt only to the extent of payments being received under statute 12-18-10.
2. Law Enforcement Officers under statute 36-21-77.
3. State Employees under statute 36-27-28.
4. Teachers under statute 16-25-23.
TOOLS OF THE DEBTOR'S TRADE EXEMPTION
Under Alabama law, arms, uniforms and equipment that the debtor is required to keep as a member of the National Guard are exempt by statute 31-2-78.
Alaska Statues 1988, Title 22, Ch. 15, Section 040, District Court Rules of Civil Procedure, Rules 18-22, Rules of Civil Procedure, Rule 4.
By certified mail, registered mail, or peace officer.
STATUTE OF LIMITATIONS
Most contracts four years, torts two years, judgments last 10 years.
TRANSFER OF TRIAL TO HIGHER COURT
By defendant or judge.
By either side but only as to questions of law within 30 days of judgment.
JUDGMENT AS LIEN ON REAL PROPERTY
Judgment does not create an automatic lien on the debtor's real property. To have lien, the judgment must be recorded in each county where the debtor has real property.
WAGE EXEMPTION FROM GARNISHMENT
Only the lesser of 25% of the judgment creditor's gross wages or 30 times the federal minimum wages can be attached.
The following government benefits are exempt to protect the debtor receiving the benefits:
1. Under statute 9.38.015:
(a) Compensation to victims of crimes.
(b) Alaska longevity bonus.
(c) Federally exempt public benefits.
2. Unemployment compensation under statute 23.20.405.
3. Worker's Compensation benefits under statute 9.38.015.
4. One-half of permanent fund benefits under statute 43.23.065.
5. General relief under statute 47.25.210.
6. Aid to AFDC by statute 47.25.395.
7. Aid to aged, blind and disabled by statute 47.25.550.
Under Alaska Code statute 9.38.010, there is a $54,000 homestead exemption. If joint owners file for bankruptcy, the total exemption is still $54,000; it can not be doubled.
There are several exemptions for different types of insurance proceeds under Alaska law:
1. Benefits from fraternal societies are exempt under statute 21.84.240.
2. Disability benefits under statutes 9.38.015 and 9.38.020.
3. Insurance proceeds for wrongful death or personal injury to the extent of exempt wages under statute 9.38.030.
4. Life insurance proceeds when the debtor-beneficiary is the insured's spouse or dependent are exempt, to the extent of exempt wages under statute 9.38.030.
5. Life insurance or annuity contract with a value of up to $10,000 under statute 9.38.025.
6. Medical and hospital benefits under statute 9.38.015.
Alaska has exemptions for the following personal property:
1. Under statute 9.38.015:
(a) Funeral plot.
(b) Medical aids.
(c) Child support payments.
(d) Liquor licenses.
(e) Alaska fisheries permits for limited entry.
2. Under statute 9.38.020:
(a) Books, family pictures, portraits and heirlooms up to $3,000.
(b) Jewelry up to $1,000.
(c) Motor vehicles with equity up to $3,000.
(d) Pets worth up to $1,000.
3. Recoveries for personal injuries and wrongful death to the extent of exempt wages under statute 9.38.030.
4. Alimony to the extent of exempt wages under statute 9.38.030.
5. Recoveries for damaged property under statute 9.38.015.
6. Business partnership property under statute 9.38.100.
7. Building materials under statute 34.35.105.
The following retirement benefits are exempt to the debtor receiving the benefits:
1. ERISA, IRA and Keogh benefits deposited more than 120 days before filing the bankruptcy relief under statute 9.38.017.
2. Public Employees under statute 9.38.015.
3. Teachers but only for benefits building up under statute 9.38.015.
4. Other pension plans but only for payments being received to the extent of exempt wages under statute 9.38.030.
TOOLS OF THE DEBTOR'S TRADE
Under Alaska law there is an exemption for books, tools and implements used in the debtor's trade up to $2,800 under statute 9.38.020.
Arizona Revised Statutes 1975, Sections 22.501-523, 22.202.
By certified mail, sheriff, deputy or court-approved adult.
STATUTE OF LIMITATIONS
Most contracts six years, sale of goods four years, torts one year, judgment lasts five years.
TRANSFER OF TRIAL TO HIGHER COURT
By either side for cases involving more than $500.
JUDGMENT AS LIEN ON REAL PROPERTY
Judgment does not create an automatic lien on the debtor's real property.
The judgment creditor must record the judgment in every county where the
judgment debtor has property in order to have a lien on the property in
WAGE EXEMPTION FROM GARNISHMENT
Only the lesser of 25% of the judgment creditor's gross wages or 30 times the federal minimum wages can be attached.
No defamation, landlord-tenant, injunctions, or ownership of real property cases.
The following government benefits are exempt to the debtor receiving the benefits:
1. Unemployment compensation under statute 23-783.
2. Welfare benefits under statute 46-208.
3. Worker's Compensation benefits under statute 23-1068.
Under Arizona Code statute 33-1101, there is a $100,000 homestead exemption. A married couple may not double this exemption.
There are several exemptions for different types of insurance proceeds under Arizona law:
1. Benefits from fraternal societies are exempt under statute 20-881.
2. Life insurance with a cash value to $2,000 per dependent up to a total value of $10,000 under statute 20.1131.
3. Benefits from group life insurance under statute 20-1132.
4. Health, accident or disability benefits under statute 33-1126.
5. Life insurance proceeds when the debtor-beneficiary is the insured's spouse or dependent are exempt to $20,000 under statute 33-1126. A married couple may double this exemption.
6. Life insurance with a cash value to $1,000 per dependent to a total value of $5,000 under statute 33.1126. A married couple may double this amount.
Arizona has exemptions for the following personal property:
1. Household goods, appliances, family pictures, portraits and heirlooms to $4,000 under statute 33-1123. A married couple may double this exemption.
2. Enough food and fuel to last six months under statute 33-1124. A married couple may double this exemption.
3. Bible, bicycle, sewing machine, typewriter, funeral plot, firearms to a total of $500 under statute 33-1125. A married couple may double this exemption.
4. Books to $250. Animals to $500. Musical instruments to $250. Medical aids. Clothing to $500. Books to $250. All are exempt under statute 33-1125. These exemptions may be doubled by a married couple.
5. Motor vehicles with equity up to $1,500 or $4,000, if disabled, under statute 33-1125. A married couple may double this exemption.
6. In lieu of a homestead exemption (renters) there is an exemption for a rent or security deposit to $1,000 or one and a half times the rent whichever is less. Also a bank deposit account with no more than to $150 is exempt under statute 33-1126. A married couple may double the exemptions.
7. Recoveries for sold and damaged property under statute 33-1126. A married couple may double this exemption.
8. Minor's child earnings are exempt under statute 33-1126.
9. Business partnership property under statute 29-225.
The following retirement benefits are exempt to protect the debtor receiving the benefits:
1. ERISA for qualified deposits made more than 120 days prior to filing for bankruptcy relief under statute 33-1126.
2. Police under statute 9-931.
3. Firefighters under statute 9-968.
4. Board of Regents under statute 15-1628.
5. Elected officials under statute 38-811.
6. Public Safety personnel under statute 38-850.
7. State Employees under statute 38-262.
8. Rangers under statute 41-955.
TOOLS OF THE DEBTOR'S TRADE
Under Arizona law the following property used in the debtor's trade and business is exempt:
1. Under statute 33-1130.
(a) Books, tools and implements (not including vehicle) used in the debtor's trade up to $2,500.
(b) Farm equipment and animals up to $2,500. A married couple may double this exemption.
2. Arms, uniforms and equipment that the debtor is required to keep under statute 33-1130.
3. Teaching aids for a teacher under statute 33-1127.
**** end of sample view of chapter *****
GLOSSARY OF TERMS USED IN SMALL CLAIMS
The following are basic terms that tend to arise in small claims actions. Words that are in quotation marks are themselves separately defined.
ABSTRACT OF JUDGMENT An official document issued by a court clerk to the effect that a "judgment" was issued by the Court on certain date against the "judgment debtor" in the favor of the "judgment debtor" in a certain amount. The recordation of the abstract of judgment places a lien on the real property of the judgment debtor in each county where it is recorded.
ANSWER The formal response that is required to be filed by "defendant" . In the response the defendant is expected to admit or deny the truth of the "plaintiff's" allegation in the "complaint." Not all states require an answer to a Small Claims case to be filed. In such states, it will not be known until the day of trial if the defendant will appear and defend the suit. In states that require an answer to be filed, failure of a defendant to file an answer will result in a default judgment being taken against him.
APPEAL The review by a higher court of the propriety of the decision rendered in the small claims court. A few states do not permit appeals. Other states permit appeals only by the "defendant." Some states permit appeals only on questions of law whereas most states which permit appeals have "trial de novo." In California for instance, small claims appeals are handled by the Superior Court on a trial de novo basis.
ASSIGNEE A person to whom the right to collect a debt is transferred or assigned. Many states will not permit a person to whom a debt has been assigned to sue in small claims court for collection of the debt.
ATTACHMENT The legal procedure in which real or personal property is seized in execution of a court's judgment. When wages of a debtor are attached the term is "garnishment." All states have limitation on the amount and type of property which can be attached. Attachment is also not permitted if the person subsequently files for debt relief under Bankruptcy law.
CLAIM The demand for relief against one or more other parties set forth in the complaint. A claim must be based upon a legally recognized theory such as breach of contract, negligence, fraud.
COMPENSATORY DAMAGES The award given to the prevailing party, thereafter referred to as the Judgment Creditor, to fully compensate the party for the damages actually suffered as a result of the other party's, thereafter referred to as the Judgment Debtor's, wrongful acts.
COMPLAINT The formal written pleading filed with the court wherein all of the "plaintiff's claims" are set forth along with the requested relief. The complaint usually must written on official court forms.
COUNTERCLAIM A claim filed by the "defendant" against the "plaintiff." In most states, the "defendant" is required to file a claim in small claims court against the "plaintiff" for any damages allegedly suffered that arise from the same set of facts or occurrence that is the basis of the plaintiff's claim against the defendant. This is called a compulsory counterclaim. In states which require the filing of a compulsory counterclaim, if the defendant does not file the counterclaim then the defendant is barred from ever suing for those damages. A permissive counterclaim is a "claim" by a defendant against the plaintiff that does not arise under the same set of facts as the plaintiff's claim. A defendant is not barred from bringing a suit on a permissive claim later if it was not filed against the plaintiff's claim.
CONTINUANCE A delay or postponement of the trial of a small claims court proceeding or an extension for the time to file a pleading. Continuances are often granted when parties have not been served or to give a party time to prepare for the trial.
CROSSCLAIM A claim filed by one plaintiff against a fellow co-plaintiff or by a defendant against a fellow codefendant.
DEFAULT JUDGMENT A judgment rendered in favor of the opposing party (usually the "plaintiff") because the losing party failed to appear for trial.
DEFENDANT The person who is being sued by the "plaintiff." State Law sometime places restrictions on who can be sued in small claims courts.
DEPOSITION The questioning under oath before a court reporter prior to a trial. Depositions are usually taken when a lawsuit has been filed in a formal court or when a small claims "judgment" has been appealed and the appeals court is having a "trial de novo."
DISCOVERY The legal process wherein one party can force the other party to disclose information which is relevant to the trial of the case. "Interrogatories" (written questions) and "depositions" are the most common forms of discovery.
EQUITABLE RELIEF Relief granted to a winner of a small claims case in addition to money. Some states deny their small claims courts the power to grant any relief other than money damages. Most states, however, permit their small claims court to grant any relief, including money damages, which the courts consider just and proper.
EXEMPTION Property which, under state law, cannot be attached or taken for payment of a "judgment."
JUDGMENT The final decision of the court on the validity of the claims filed by the parties. Most judgments are awards for money and grant the prevailing party (winner) court costs and interest from the date of the entry of judgment inn the court's book of judgment or judgment rolls.
JUDGMENT CREDITOR The person ordered to be paid money by virtue of the court's judgment. The judgment creditor may be the defendant in the case if the defendant prevails in his cross-complaint or crossclaim against the Plaintiff and the plaintiff is ordered to pay the defendant.
JUDGMENT DEBTOR The person ordered to pay money to the judgement creditor under a court's judgment. The judgment debtor could be the plaintiff in the action if he is order to make a payment to the defendant by the court.
NEGLIGENCE The most common legal theory for a lawsuit next to breach of contract. It is the recovery of damages based upon the breach of a standard of care owed to the world at large or to a particular individual which is the actual and proximate cause of the damages to the plaintiff.
PLAINTIFF The person who initiates a small claims action by filing a small claims complaint.
PROOF OF SERVICE The document filed under penalty of perjury with the court which states the time, place and manner "service" of a legal document (usually a "complaint" or "counter claim" was made on the opposing party. A small claims action can not go forward until the proof has been filed. The proof of service is evidence that the defendant has been given notice of the lawsuit and therefore is aware that action should be taken to avoid the entry of judgment against him.
PUNITIVE DAMAGES Are punishment damages. They are awarded by a court in addition to the actual damages suffered by the judgement creditor. Punitive damages are not awarded for breach of contract actions. Punitive damages are awarded when the actions of the judgment debtor which resulted in the injuries were done with malice or wilful disregard of the safety or rights of others.
STATUTE OF LIMITATIONS All causes of action, theories for recovery against a party, have a specific of time for which the law suit can be brought. Failure to sue on the cause of action within that time period will result in the right to sue being lost. In California, for example, the statute of limitations for breach of a written contract is four years whereas for an oral, unwritten, contract is only two years and for fraud it is three years.
TORTS A "tort" is a civil wrong as opposed to criminal wrong. All crimes are torts but not all torts are crimes. There are two basic types of torts: intentional and unintentional. The intentional torts include but are not limited to assault, battery, false imprisonment, conversion (theft of property), defamation and fraud. Unintentional torts include injuries caused by negligence (such as most auto accidents) and breach of contract.
TRIAL The formal hearing on the merits of the claims filed in a small claims court case by the parties. In most states, the trials are usually by judges; in a few states, trials of small claim cases may be heard by juries.
TRANSFER The right of a "defendant" to have a small claims case transferred to a formal court for trial.
VENUE The court before which a trial may validly be heard. In most states, the court in the district where the "defendant" resides, where a contract was executed or where an accident occurred is the proper place to bring an action against the "defendant." A corporation may also be sued where its principal place of business is located.
WRIT OF EXECUTION. A court order which permits a sheriff or marshall to seize and sell assets of a "judgment debtor" in order to payment a "judgment" held by a "judgment creditor." The execution call only take place against property that is not exempt as discussed above under attachment.
APPEALS ........................................................................................................16, 146
Types ................................................................................ 152
ATTORNEYS ................................................................................................ 6, 82, 83
BAD CHECKS ........................................................................................................ 23
BURDEN OF PROOF ............................................................................................. 81
COLLECTION OF THE JUDGMENT ............................................................ 18, 155
Amending a Judgment ............................................................................. 157
Bank Account Attachment ...................................................................... 164
Debtor's Examination .............................................................................. 168
Judicial Lien ...................................................................................... 20, 161
Real Property Seizure ....................................................................... 19, 161
Wage Attachment ............................................................................. 18, 159
CONDUCT IN COURT .......................................................................................... 78
CORPORATIONS AS DEFENDANT .................................................................... 33
COURT COSTS ................................................................................................ 10, 43
DAMAGES ....................................................................................... 39, 107, 112,122
DEBTOR'S BANKRUPTCY ............................................................................ 21, 169
DEBTOR'S EXAMINATION ........................................................................... 22, 166
DEFENDANT ......................................................................................... 8, 13, 86, 110
DEFENDANT'S COUNTERCLAIM .................................................................. 14, 60
DEFENDANTS ENGAGED IN BUSINESS ............................................................. 31
DEFINITION ............................................................................................................... 4
DEMONSTRATIVE OR RECREATIONAL EVIDENCE ................................. 75, 117
DOCUMENTARY EVIDENCE ................................................................................. 66
EQUITABLE RELIEF ................................................................................................ 38
ESTATES AS DEFENDANTS .................................................................................. 34
EXCHANGE OF INFORMATION .......................................................................... 84
EXEMPTIONS ....................................................................................................... 166
PENSIONS ............................................................................................................. 168
FAILURE OF DEFENDANT TO APPEAR .................................................. 13, 55, 86
FILING FEE ........................................................................................................ 10, 43
FILING SUIT ........................................................................................................ 4, 35
FILLING OUT THE FORMS .................................................................................... 45
GOVERNMENT AS DEFENDANT ......................................................................... 30
INDIVIDUALS AS DEFENDANTS ......................................................................... 31
JUDGE ..................................................................................................................16, 80
JUDICIAL LIEN ON REAL PROPERTY .......................................................... 20, 168
JUDGMENT ....................................................................................................... 89, 153
JUDGMENT VALIDITY ............................................................................................ 24
JURY TRIALS ...................................................................................................... 39, 80
LANDLORD-TENANT .............................................................................................. 88
ABANDONMENT OF LEASE ................................................................................... 96
CONSTRUCTIVE EVICTION ................................................................................... 93
IMPLIED WARRANTY OF HABITABILITY ............................................................. 91
LANDLORD'S LIABILITY FOR DEFECTS ............................................................... 89
LANDLORD'S FAILURE TO MAINTAIN PROPERTY ............................................. 90
LIQUIDATED DAMAGES ........................................................................................... 95
LOCKING OUT TENANT ........................................................................................... 99
SECURITY DEPOSIT ................................................................................................. 100
TENANT'S FAILURE TO MAINTAIN PROPERTY ................................................... 90
UNLAWFUL DETAINER ............................................................................................ 97
MONEY OWED ........................................................................................................ 115
BAD CHECKS ........................................................................................................... 117
COLLECTION AGENCIES ........................................................../............................ 116
DAMAGES ................................................................................................................. 122
JURY TRIALS ............................................................................................................. 121
STATUTE OF LIMITATIONS .................................................................................... 118
MONETARY LIMITS ..................................................................................................... 9
MOTOR VEHICLE ..................................................................................................... 104
ACCIDENT RECONSTRUCTION ............................................................................. 110
DAMAGES .................................................................................................................. 112
DEMONSTRATIVE EVIDENCE ................................................................................ 111
NO-FAULT INSURANCE .......................................................................................... 105
OWNER ....................................................................................................................... 106
POLICE REPORTS ...................................................................................................... 108
WITNESSES ................................................................................................................ 108
PARTNERSHIPS AS DEFENDANT ............................................................................. 32
PLAINTIFF .................................................................................................................... 26
PRESENTING THE CASE ..................................................................................... 7, 8, 14
REAL PARTY IN INTEREST ......................................................................................... 26
REHEARSAL ................................................................................................................... 75
REPAIR CASES ............................................................................................................ 124
CRIMINAL COMPLAINT ................................................................................. 130
PARTS ................................................................................................................ 126
REVIEW OF REPAIR ......................................................................................... 127
SETTLEMENT OFFER ....................................................................................... 128
REPRESENTATIVES ........................................................................................................ 9
REVIEW SMALL CLAIMS CASES ............................................................................... 74
SATISFACTION OF JUDGMENT ......................................................................... 22, 175
SEIZURE OF REAL PROPERTY .................................................................................... 19
SERVICE OF COMPLAINT ..................................................................................... 12, 48
CERTIFIED MAIL ................................................................................................... 49
PERSONAL SERVICE ............................................................................................ 50
SUBSTITUTED SERVICE ....................................................................................... 51
TIME FOR SERVICE .............................................................................................. 52
SERVICE OF PROCESS ON BUSINESS .............................................................. 53
SERVICE ON SERVICEMAN ................................................................................ 54
STATUTE OF LIMITATIONS ..................................................................................... 7, 35
TRANSFER TO REGULAR COURT ............................................................................... 63
TIME TO PRESENT CASE ............................................................................................. 81
TRIER OF THE CASE ................................................................................................. 6, 80
VEHICLE SALE DISPUTES ......................................................................................... 132
NEW VEHICLES ................................................................................................. 134
USED VEHICLES ................................................................................................ 139
REFORMATION ................................................................................................. 134
RESCISSION AND RESTITUTION .................................................................... 133
WAGE ATTACHMENT ............................................................................................ 18, 159
WITNESSES ....................................................................................................... 11, 71, 108