Thursday, December 19, 2013
Often times a collector is on the phone trying to convince a delinquent debtor to pay up for goods which were sold and delivered, but not paid for. The debtor often uses a tactic of tying to throw the collector off track by claiming a "legal defense" to the claim. A little legal knowlege on collection topics may go a long way to helping battle debtor claims. The following are a few common examples:
· You waited too long to try and collect, I’m not going to pay you because I have no legal obligation to do so. All claims have an expiration period. Under the UCC, the expiration (statute of limitations) is 4 years for an action under breach of contract for the sale of your product. The parties can even reduce the period of limitations to not less than 1 year but may not extend it. Obviously, a seller/creditor that waits more than 4 years to bring a contract action involving the sale of goods is likely to be met with that defense.
· I’m not going to pay because you never told me the price you were going to charge. The good news is this is generally not a valid defense under the UCC. The parties do not have to include terms. The essential elements of a contract for the sale of goods is a description of the items and the quantity of the items. Price can be presumed based on a reasonable price at the time of delivery for those particular goods, prices charged in the past to that customer for similar goods or whatever is the standard or market price in the industry.
· You failed to honor your warranties so I’m not going to pay you. If you sell product, you must honor your warranty concerning that product. However, if the debtor hasn’t paid for that product, the warranty becomes a “which came first, the chicken or the egg” situation. You don’t want to honor the warranty until the product is paid for and that’s a reasonable approach because you don’t want to throw good money after bad in fixing the product. On the other hand, the debtor was entitled to a produce that worked and therefore is entitled to warranty repairs when the product breaks.
Another wrinkle is if you are a leasing company. The UCC provides that leasing companies can waive any obligations which would normally be raised. If the debtor defaults on the lease payment plan and starts making claims of defective goods like delivery, etc., the creditor/leasing company has no further obligation, and the debtor/lessee, must look exclusively to the manufacturer for all warranties and issues concerning the product itself.
· Your contract is over bearing and I’m not going to honor it. In cases of commercial businesses dealing with other commercial businesses, courts pretty much give free rain to the parties to contract for whatever they wish. Therefore, this would not be a valid defense.
If the debtor is a consumer, however, they sometimes have a defense of unconscionability as a defense to a contract or a particular clause in a contract. This usually arises in a situation where one party has a huge negotiating advantage over the other such as the typical credit card or bank contract where the bank establishes the contractual terms and the consumer either accepts them or rejects them. There really is no negotiation. It is simply “take it or leave it”. Well, if the credit card agreement contains strongly unfair terms, a court might refuse to enforce those particular terms as unconscionable. However, although a specific clause may be unfair, the debtor is going to have a hard time convincing the court that the whole contract should be tossed out because of one unfair clause. In other words, the defense will mostly fail.