Wise Counsel (1): Get a lawyer before you need one

No sane person enjoys paying lawyers. Yet there are times when legal advice can save you money, while oiling the wheels of a happy transaction. In the first of a three-part feature on when to get legal help, we asked the top UK and US collector car legal experts for their thoughts on sales contracts…

“I specialise in dispute resolution. My colleague Damen Bennion draws up contracts. Hence you could say that Damen’s aim in life is to prevent me getting any work,” says Nigel Adams of Goodman Derrick in London. “Avoiding litigation – which is expensive and stressful – is generally much easier if a formal contract was drawn up at the outset.”

But insisting on a legal contract every time you buy or sell a classic car sounds a bit OTT. Is it really necessary? Every time?

John Draneas of Draneas and Huglin in Oregon, USA, is unequivocal: “The short answer is ‘always’” – while Damen Bennion argues that it needn’t be expensive. “Imagine you agree to buy a car, send the vendor the sale price, then discover he doesn’t actually own it. Meanwhile, he’s disappeared with your money. Using a specialist car lawyer is a relatively small investment by comparison.”

Plus, as Draneas points out, “Not only does a contract establish legal rights and responsibilities, it’s also an extremely valuable communication aid. It’s common for buyers and sellers to understand different things from their oral communications, and disagreements can later develop.” Looking at his list of key points to cover in a contract (at the end of this article), it’s clear that even an experienced collector might not think of everything.

Michael Grenfell of UK legal firm Wilmots agrees: “We had a well-known case where our client sold a 1930 Speed Six Bentley to a lady who assumed the car had an original Speed Six engine. As the court later confirmed, the description ‘a 1930 Bentley Speed Six’ doesn’t imply that it’s an original Speed Six or that it has any type of history, let alone a continuous one. If you want an original car, you must say so.

“At the very least, in the absence of a formal sales contract, put everything in writing… ‘Glad you confirmed the car has its original engine and gearbox’. Never rely on verbal agreements – always follow up with an email stating all the key facts. The same goes if you’re the seller: buyer’s remorse can set in and an email trail will form the basis for the resolution of any dispute.”

Interestingly, Grenfell explains that it’s not necessarily a problem if the other party doesn’t reply. “If I send you an email out of the blue, saying ‘Delighted that you’ve agreed to give me £500k…’, and you fail to reply, it doesn’t mean you’ve consented. However, a Judge would consider the surrounding circumstances. An email might not be enough on its own but let’s say a putative buyer, who now claims he never agreed to buy the car, booked transport for its collection. If this is consistent with the content of the seller’s email, the lack of a response might not matter. On which point, beware incoming emails – people might trick you by hiding an unexpected detail in the middle! It’s happened before.”

What if things go wrong – if the buyer and seller fall out?

Nigel Adams of Goodman Derrick: “While one of the reasons for a contract is to prevent litigation specialists like myself getting any work, if there’s no contract and a case does get litigious, my aim is to try to avoid giving a barrister any work. Mediation (or a sensible discussion) is almost always preferable to going to court.”

For purely financial reasons? “Well, oddly enough, while arbitration is often thought to be cheaper and quicker than court, that’s not always the case. For me, the main reason to choose arbitration over court is the chance to keep your dispute private – the courts are open to the press and the public, whereas an arbitration is conducted behind closed doors.”

John Draneas warns, however, that there’s no appeal process for arbitration; and an arbitrator might ignore the fine points and decide the dispute based on a personal – and unpredictable – sense of ‘fairness’.

All of which adds weight to the argument that it’s better to get a lawyer before you need one: right at the start of the buying process.

The small print...

John Draneas lists nine key points to consider, when drafting a sales contract:

1.    Identify the buyer and seller, with full contact information.

2.    Properly identify the car, preferably including chassis or serial number.

3.    Clearly identify what is included in the transaction – books, tools, records, spares, etc.

4.     Clearly state the purchase price and currency denomination. A deposit toward the purchase price is customary.

5.     Address condition and any other representations about the car. The seller will often want to disclaim any such matters by selling the car ‘as is’. The buyer will want the seller to assure that everything significant said about the car is true. The seller should assure that the buyer has had a fair opportunity to have a professional inspect the car before the sale is completed.

6.     Payment and the procedures of consummation of the sale should be specified. The three main items of concern are the money, the ownership documents, and the possession of the car. For the protection of the other, neither party should ever possess all three at the same time. In many cases, that can be assured by having a neutral party act as the intermediary who holds the funds and the ownership documents, to be released to the proper party when possession of the car is transferred.

7.     The consequences of a party’s failure to perform should be specifically addressed. The consequences can range from forfeiture of the deposit to full-on litigation.

8.    Dispute resolution procedures should be specified. A choice should be made between arbitration and litigation. The place of resolution should be specified, especially where the parties are distant. Whether a prevailing party recovers legal fees should also be specified.

9.    Any other important terms of the transaction should be clearly stated. Each transaction is different and carries its own requirements. It pays to have good legal counsel assist in the preparation of the contract.

With thanks to Draneas & Huglin PC, Goodman Derrick LLP and Wilmots Litigation.