The Honor of Business Contracts
During this election year, Donald Trump’s business acumen, or lack thereof, has become a major issue. This article will discuss a business tactic used by Mr. Trump and others like him. This is never mentioned by the politicians who say that Tort Reform is needed.
The use of economic leverage is what makes this tactic effective against small business owners.
A cabinet maker for one of Trump’s properties signed a contract to construct and install certain cabinets for a specified sum of money. The contractor performed his contractually required services and requested payment. That is when the trouble started. Even though there were no prior complaints about his contractual performance, suddenly there were all sorts of complaints once he asked to be paid. Mr. Trump had no intention of honoring the contract signed by his company. His company wrongly claimed the cabinet maker of not performing the contract. The cabinet maker refused to accept and a lawsuit followed. Trump used the legal system to make it super expensive to sue him and the company ultimately went out of business.
Economic Leverage Tactic
The use of economic leverage is what makes this tactic effective against small business owners. Assume that a small plumbing contractor, 6 workers, bids on a construction project to install all plumbing work for a building. Assume further that the plumber’s bid of $100,000.00 is accepted and the work is performed and is of good quality. Assume further that plumbing work is inspected and approved by the general contractor and/or architect or engineer. Typically, the plumbing contractor will receive partial payment during the project, so assume the plumbing contractor was $50,000.00. The plumbing work is done and an invoice is sent to the Owner for the remaining $50,000.00. Now, the Owner objects to final payment and only will pay $25,000.00.
Sign a Release denying all Wrongdoing
Assume the plumber sues, then he will need to pay $200.00 plus an hour to sue the Owner. The Owner can drag out these proceedings for years. Also, even if the case is tried and the Plumber wins, he still does not receive compensation for his legal fees. On the other hand, if the Plumber settles after litigation, he won’t receive the full $50,000.00 and he is still out his legal fees. Significantly, if the Plumber settles he will have to sign a Release which states that the Owner denies all wrongdoing and the Plumber must sign a Non-disclosure Agreement which states that the Plumber must not discuss any aspects of this dispute with other people. If the Non-disclosure Agreement is violated, the Owner can seek to be repaid. Violation of Non-disclosure Agreements include teenager Facebook commentary about the dispute.
Do you see why more people have not accused Trump of using unsavory business tactics?
They needed at least some of the money!
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Posted on Wed, August 10, 2016
by Thomas Tobin III