Even when the economy is good, sometimes small business owners feel the need to try to handle a case in court without a lawyer.  As one well known legal saying goes, “he who represents himself has a fool for a client.”[1]   Frankly, in certain cases where the stakes are great or emotions are likely to be a significant part of the case, the saying seems completely true.  For instance, in a divorce case with issues such as child custody and “fault”, it is difficult for me to see how anyone, including a lawyer, can go into court and not become emotional while representing himself.  No matter how intelligent you are, if strong feelings are affecting you it is virtually impossible to express yourself rationally.  The same factors are at play if you are facing criminal charges in which you can be branded a felon and/or go to prison.

However, small collections cases and other similar civil disputes should not evoke strong emotions.  If you can be matter of fact about the subject, even if it is aggravating to have to go to court, many lay persons can handle it.  I am not recommending it, but for those of you considering doing so, I have a few comments limited to civil cases. First, in all Texas courts other than “small claims court”[2], the Texas Rules of Civil Procedure (TRCP) apply.  The courts are not supposed to apply them to the side with a lawyer and not to the side who is “pro se” (Latin, for the term “for oneself”, in this context representing yourself in court).  You can access the TRCP on line via several sources.  One is at the Texas Supreme Court website.

Things to keep in mind if you represent yourself:

1.    Anything you file with the court you need to “serve” on the other parties (give them a copy);

2.    You should be able to “prove” you have served the other party (certified mail return receipt, a fax report, a signed receipt);

3.    You need to sign a certificate with each document you file (except for the original petition) certifying that you served all other parties/attorneys in accordance with the TRCP;

4.    You are supposed to list your address, phone number and fax number (if you have one) on each document you file with the court;

5.    “Discovery”, which is the process through which attorneys and parties “discover” information about the case, commonly includes written requests and at times sworn testimony, usually out of court, called depositions;

6.    Written discovery always has deadlines (commonly 30 to 33 days) for responding with potentially harsh consequences for missing the deadline;

7.    Some examples of harsh consequences for not following discovery rules are:

a.    If you fail to respond to “requests for admissions” then each request is “deemed” admitted (even if not true!);

b.    If you fail to list a witness, (persons with knowledge of relevant facts), you probably will not be able to use that witness;

c.    If you fail to describe a type of damage or a set of facts responsive to written discovery, you probably will not be able to claim that damage or use those facts.

8.    Certain pleadings have very formal requirements which, if not met, can lead to bad results, such as:

a.    A “motion for summary judgment”[3], which requires a very formal response at least seven days before the hearing or submission (“submission” is consideration of a motion without a hearing, the “submission date” is the date the court can consider ruling on the motion);

b.    A suit on a sworn account requires that the defendant file a sworn or verified denial of the account (if not, then generally, when you go to the court, you will not allowed to dispute the sworn account, in other words “you lose”).

9.    Unless you are in a JP court[4], if your business is an entity such as a corporation or an LLC, you cannot represent that entity because that entity is a separate person under the law and you cannot represent another person in a legal matter without a license to practice law;

10. Said another way, if your corporation, LLC or partnership needs to sue or has been sued in county, civil district or federal court, a lawyer must represent that entity, not a non-lawyer, even if you as the owner think of that entity as being an extension of you; and, finally,

11. The personnel who work for the court are not lawyers, are not supposed to take sides and are prohibited from giving the pro se litigant advice, so don’t get angry at them when they won’t answer your “simple” legal questions.

Want some real life examples of what can go wrong when a non-lawyer goes to court without an attorney?  Over the past three months I have seen the following situations occur in cases where a non-lawyer represented himself in court and then wanted me to help him out of his mess:

1.    The wrong debtor sued:  A mobile phone company sued an individual in JP court for breach of his mobile phone account (let’s say his name was “John Doe”).  The account was with John Doe, but the John Doe the phone company served with the lawsuit never had an account with the company.  The “served” John Doe wrote a letter to the court explaining this was all a mistake because he never did business with that company.  Unfortunately, he did not file a verified answer denying the “sworn account” by the phone service and a judgment was granted against him via a motion for summary judgment based upon the sworn account on file against the non-verified “answer” by John Doe.

2.    Tennant Who Breached Rent Agreement Sued Landlord and Won: In this case, a man owned a building in south Harris County where he runs a bar in part of it and leased out another part to a lady who was to run a restaurant there.  The lady signed a six month lease agreement.  The lady failed to pay rent and the man rightfully took back possession of the space.  The lady and her “partner”, a lady not on the lease, sued the man claiming he ruined their business by wrongly taking possession of the building. He timely filed an answer to the suit.  One day the lady came by his business, apologized for the lawsuit, saying it was “wrong” and should not have been brought and said she was dismissing the lawsuit.  She put all of this in writing.  Thinking the case was over, the man failed to appear in court for the trial date (the court issued the trial date notice months after the lady wrote saying the suit would be dismissed) and a judgment was rendered against him for thousands of dollars he did not legally owe.  He then ignored a notice from the court which said a judgment was entered against him.  Only a year later, when the ladies and their lawyer got a receiver appointed to take over handling his bar business (so the receiver can pay the plaintiffs and their attorney out of his profits) did he come to see a lawyer.  A competent lawyer would have made sure the case was actually dismissed and would have raised the matter of what the lady wrote directly with her lawyer.  Court notices should never be ignored, even if you think it’s “all a mistake”.  

3.     Deemed Admissions Lose Case:  A man with a property management business was sued in JP court by a former client, represented by competent counsel, over charges by the manager for two extra months of management beyond the one year term which ended in May 2009.  The manager did not want to pay my usual $1,250 flat fee defense of JP cases when he contacted me in August.  In December, he contacted me and said he was set for trial in January and now wanted to hire me.  Unfortunately, the manager was served written discovery which included requests for admissions which were way past due and thus “deemed admitted” by operation of law.  The requests for admissions included requests that he admit to several billing errors for his service which, if true, means the client would win the suit.  I had to decline representing the manager because it would take way more than the usual half day trial to resolve his case and I felt he did not have a valid excuse for failing to respond to the requests for admissions.

So what can you take away from this?  Yes, you can represent yourself in court in most instances.  But if you do so, do not expect the court to overlook the rules just because you are not a lawyer.  As another well known legal saying goes, “ignorance of the law is no excuse”.

In representing small business, I have heard on a number of occasions a client say “he said ….” (here insert a statement like “we could have another 7 days to get the job done” or “he wanted blue paint”) … “but I don’t have any proof”.  Actually, the client is mistaken, because more than likely what the other party said regarding a relevant matter is admissible in a trial, so the client’s testimony about what the other party said is evidence or proof.  However, such comments by lay persons subconsciously reflect a truism in the law:  a great deal of importance is placed upon documentary evidence by the trier of fact (a “trier of fact” is either the judge or a jury; a trier of fact determines what the facts are; the law, when applied to the facts, determines what the result of the trial is).  I will use “jury” instead of “trier of fact”.

There is no law which gives greater weight to documentary evidence over sworn testimony.  Also, testimony by a seemingly sincere and honest witness can overcome documentary evidence.  It is a matter of the collective judgment of the jury as to how much weight to give each item of evidence.  If a jury likes a party or witness, that can affect in a positive manner the amount of weight the jury gives to the testimony. 

However, business or commercial cases tend to be decided on documentary evidence, as opposed to criminal, family law or personal injury cases, where emotional considerations such as “likability” of the key witnesses or of the parties can play a larger role.  For instance, in a collections case, where your business has provided goods or services but has not been fully paid, a number of documents may exist to “document” your case such as:

1.     A contract;

2.     A purchase order;

3.     An acknowledgement of receipt of the goods/ services by the customer;

4.     Your employee’s notes on a form about the service provided or goods sold;

5.     Your invoice (possibly based upon the employee’s notes);

6.     A statement of account from your billing software which shows the invoices to the customer, credits for any payments and the balance due.

If you have a great many accounts and you are not personally involved in the transactions, if your employee is no longer with you and is not available (perhaps he moved out of state or you just don’t know where he is), valid business records may be the only way for you to win your case.  So this brings me to the point of this article, legally speaking just what is a “business record” and why is that important?

I will address the second part first.  Having documents which constitute “business records” is important because valid business records can be admitted as an exception to the hearsay rule.  Hearsay is an out of court statement (verbal or written) offered for the truth of the matter stated therein.  So an invoice to your customer showing that he received eight hours of service from your business at $50.00 an hour on a certain date or dates, would be hearsay if you were offering the invoice to show the jury that the customer owes you $400.   The invoice was created out of court and is being offered to show that the customer owes $400.  That would be hearsay unless the business records exception to hearsay applies.

Now, suppose the person who provided the service is no longer with you and you did not observe the service being provided (meaning you have no “personal knowledge” that the service was provided).  How do you “prove” you are owed $400?  You better hope your records constitute “business records” under the law.  So here is the definition of business records under Texas Rule of Evidence 803(6):

“(6) Records of Regularly Conducted Activity. A memorandum, report, record, or data compilation, in any form, of acts, events, conditions, opinions, or diagnoses, made at or near the time by, or from information transmitted by, a person with knowledge, if kept in the course of a regularly conducted business activity, and if it was the regular practice of that business activity to make the memorandum, report, record, or data compilation, all as shown by the testimony of the custodian or other qualified witness, or by affidavit that complies with Rule 902(10), unless the source of information or the method or circumstances of preparation indicate lack of trustworthiness. ‘Business’ as used in this paragraph includes any and every kind of regular organized activity whether conducted for profit or not.”  

Let’s break it down:

a.     A memorandum, report, record, or data compilation, in any form, of acts, events, conditions, opinions, or diagnoses;

b.    made at or near the time;

c.     by, or from information transmitted by, a person with knowledge;

d.    if kept in the course of a regularly conducted business activity;

e.     if it was the regular practice of that business activity to make the memorandum, report, record, or data compilation;

f.     all as shown by the testimony of the custodian or other qualified witness, or by affidavit that complies with Rule 902(10);

g.    unless the source of information or the method or circumstances of preparation indicate lack of trustworthiness.

In short, if it was your regular business practice for your employee to note to whom the service was provided, the nature of the service provided, the date it was provided, the amount of time involved and the charge and these records were made at or near the time (that same day would be best, next month would not likely work), then you, as the business owner, can qualify as a custodian of the records and thus you can prove up your invoices for goods sold by answering several routine questions or by signing a business records affidavit.   The same holds true for services rendered, though there is the need to also prove that the services were reasonable and necessary and there is a form affidavit for proving that via a custodian or a business owner.

Under the Assumed Business or Professional Name Act, §71.01 et. seq. Texas Business & Commerce Code (B&CC), both entities (corporations, LLC’s, partnerships, etc…) and individuals are required to file an assumed name certificate in various locations depending on the circumstances.  This article focuses on individuals and “mom and pop” businesses as a warning to all of you who are in business without a formal entity designation and have put out a sign, shingle or placard with your business name on it without filing an assumed name certificate.  An intentional violation of the statute is a class A misdemeanor punishable for up to one year confinement, a $4,000 fine or both.

Individuals are required to file the certificate with the county clerk in each county in which the individual has or will maintain a business or professional premises or, if the person does not and will not maintain a business premises in any county, then the individual must file the certificate in each county where business is conducted or professional services are rendered. 

An individual is said to be doing business under an assumed name when the name of the business does not include the individual’s surname.  So if Jose Flores, a roofer, has signs up and a placard on his truck which say “Flores Roofing”, that is not an assumed name.  He is exempt from the act.  However, if Sam Smith, a mechanic with a shop which has signs and business cards referring to “Fix It Right Auto”, then Mr. Smith is doing business under an assumed name and needs to file an assumed name certificate in the county where his shop is located.

Many small businesses provide a service at the customer’s location and the owner operates out of his/her home.  For example, let’s examine a “handy man” business.  Suppose that George Jones has an apartment or home in Houston and none of his customers seek him out there.  He has ads in local weekly newspapers and in some regional phone books and has a website for “Honey Do Services”.  The newspapers and phone books reach not only Harris County but several of the surrounding counties.  Of course, the website reaches the entire world.  Once Mr. Jones does a repair job in any county as “Honey Do Services” he must file an assumed name certificate in that county because he does not have a fixed business premises.  He would be well advised to file in Harris County as soon as he gets his ads out and/or the website up as the act requires the assumed name certificate to be filed in each county where business is “to be” conducted and his circumstances in the scenario noted above make it appear he is likely to be doing business in Harris County.

It has been my experience that while a good number of small business owners have heard about dba’s and know something about filing assumed name certificates, there is generally widespread ignorance of the details of the law behind it.  Moreover, it is my impression that very few persons realize that it is a crime to go out and start doing business under a name that does not contain the surname without filing an assumed name certificate.  So if you are doing business as “Susie’s Arts & Crafts” or “Tony’s Plumbing Service” and you have not filed an assumed name certificate, whether you know it or not you may be guilty of a class A misdemeanor. 

And if you are literally a “mom and pop” business, where husband and wife are running the business, guess what?  Even if you don’t have any formal written agreement, your “mom and pop” business is probably a general partnership and if your business does not contain your surname in it (here I would assume husband and wife share the same last name, but if not then both surnames need to be in the business name), then your business needs to have an assumed name certificate on file as well.  So if Mike and Debbie Thompson run a floor cleaning service as “Do It Right Floor Service”, then they need to have an assumed name certificate on file.  If they run the business out of their home and customers don’t come to the home to transact business there, then they probably should file in every county they do business in.

Also, if your business name does have your surname in it but suggests the existence of additional owners with words such as “& Company”, “& Sons”, “& Associates”, etc…, then that business must also file an assumed name certificate in the appropriate county or counties.

Non-lawyer clients often call up and ask if such and such is “legal”.  Many people wonder if oral or verbal contracts are “legal”.  What they really mean to ask is if they are enforceable in a court of law.  I have never had a client ask if an agreement is “barred under the statute of frauds”.  Texas (and I believe all other states) has a statute of frauds (Chapter 26 Business & Commerce Code)[1] which requires certain contracts to be in writing and signed by the parties intended to be bound in order to be enforceable. 

Examples include:

1.     When one person guarantees a loan payment for another person;

2.     A contract for the sale of real property (e.g. land, home, building);

3.     A lease of real estate for a term longer than one year;

4.     Prenuptial agreements;

5.     Agreements “made on consideration of non-marital conjugal cohabitation” (e.g. a man and woman living and sleeping together).

The provision in the statute most likely to affect business agreements has to do with the requirement that oral contracts which cannot be performed within a year must comply with the statute of frauds.  Thus, if you make an agreement to provide a service to one of your customers for a period of time exceeding one year, you will need for that contract to be in writing and signed by the customer in order to bind that customer to the agreed upon length of the contract.

In most instances oral contracts are “legal”.  In fact people frequently have oral agreements.  One of the most common is employment. The vast majority of people do not have a formal written employment contract.  Think of the work force where you work or have worked.  An applicant applies for a job and gets hired.  The employer agrees to pay the employee a wage or salary and the employee agrees to work the hours and location(s) assigned. This is an employment at will agreement and may be terminated at any time for any reason (except an illegal one such as the laws prohibiting discrimination by reason of gender, race, religion, national origin etc.) and thus because it is possible to have such a job for less than one year, it need not be in writing.   

It should be pointed out that the writing and signature requirements may be met under the Uniform Electronic Transactions Act, which Texas and all but four states have enacted[2] if the parties expressly agree to do so or, if by their conduct it can be inferred that it was their intent to do so.  In simple terms, exchanges of emails can suffice to meet the writing and signature requirements of the statute of frauds.

One case I reviewed for this article, an appellate case styled Iacono v Lyons, is a good example of how “legal” oral agreements can be.  In that case two ladies, Lyons and Iacono, had been friends for 35 years.  Lyons talked Iacono into going to Las Vegas with her.  Lyons paid all expenses for the trip, including the gambling money.  Iacono said that one reason Lyons wanted her to go was that Lyons felt like Iacono was “lucky”.  Iacono in fact had recently dreamed about winning big at a slot machine.  She said that Lyons said they would split any winnings “50-50”.  Iacono “accepted” Lyons’ offer to travel with her to Las Vegas under those circumstances.  Lyons won 1.9 million dollars at a slot machine Iacono selected.  When Lyons refused to split the winnings, payable over 20 years, Iacono sued.  The trial court ruled that the statute of frauds voided the oral agreement and that there was legally insufficient consideration.

The appeals court held the statute of frauds did not void the oral agreement because it was possible for the agreement to be performed within one year.  It reasoned that had the winnings been $200, they doubtless would have received the money that same day and thus could have split it 50-50 that day instead of over the 20 years the 1.9 million dollars was to be paid out.  The court also ruled that Iacono’s agreement to travel and be a source of luck for Lyons was sufficient evidence of consideration to allow her a day in court via a trial, so the case was sent back to the trial court for continued proceedings.

Wouldn’t it be nice if your industry had a statutory lien such as the Mechanic’s, Contractor’s, or Materialman’s Lien (Chapter 53, Texas Property Code) (M&M lien) which construction contractors have? If you provide a service to real property such as landscaping, security and janitorial service, a contractual lien can be used to give your business the equivalent of a statutory lien. Under Texas law, all that is needed to create a contractual lien on a certain property is for the contract of the parties to make it clear that was their intent. The specific property upon which the contractual lien is being created for should be described in the contract with a unique street address so that there is no question which property the lien applies to.

What I have recommended to clients is that their contract not only state the intent to create a lien to secure payment for the service provider’s services, but that the contract invoke the M&M lien statute and Article 16, §37 of the Texas Constitution which provides for a lien for labor to construct or repair real property. I also recommend that the contract state that the deadlines under the M&M lien for giving a notice and filing the lien be extended from 2.5 and 3.5 months to 6.5 and 7.5 months respectively because I have found that many clients tend to give their customers far more than three months time in which to pay before they consider contacting an attorney.

I realize that many of you have your own clients who have their form contracts and they won’t let you change theirs. However, many of those clients are economically more powerful than the service contractor, which is why they can force their contract on you. In such cases, having an attorney send a demand letter and follow up with a collections lawsuit should take care of most situations since that party has an apparent ability to pay which is why you went with their contract to begin with.

However, with the less economically powerful clients who will likely not have a form service contract and thus will sign yours, a contractual lien provision in your contract can be a very useful tool when attempting to get paid. Many clients only read the price part of the contract and nothing more. For those who do read the contract and object to the lien provision, your comeback can be, “what’s the problem, do you anticipate not paying?” After all, the purpose of the contractual lien is to secure payment. If the client pays, the lien provision will not be invoked.

There are other considerations to make with a contractual lien on property being provided a service. For instance, many apartments and commercial properties hire contractors via their property manager as an agent. The contract should require the agent to disclose who its principal is (unless you are sure you are dealing with the owner directly or through its authorized employees). Even if eventually a property owner can “get out of” the lien you file on its property for some legal reason (such as the agent had no apparent authority to agree to the lien), putting a lien on the property will likely require the owner to have to retain counsel and that owner might just decide that it would be a lot cheaper to pay your bill and get a release of lien than it would to litigate whether your lien is valid or not. Moreover, if you file the lien and they continue to ignore paying your bill, you will really get their attention when you file a lawsuit to foreclose on the lien which could lead to a court ordered sale of the property so that you can collect what is owed.