Question:
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Ken,
Sometime when you're not very busy you may want to write an informative article on breach of contract. I'm sure most of us reading your emails will read it and learn something.
Alarm monitoring of one account represents small monetary value compared to litigation fees. You may want to describe when it is worth to enforce breach of contract and when is the time to "let go".
Can the party who caused the breach be liable for legal fees? If that's the case, then even few months left on contract could be worth to enforce and sue. This may be of interest to someone who bought accounts and can't collect on perfectly good contracts.
What happens after the lawsuit when some money is recovered? Do we still have obligation to perform on the contract, or is the contract closed? If the alarm company has to pay legal fees, then there is no money left to perform on the contract.
There are as many variables as there are "reasons" for breach of contract (often due to failure to read or understand contractual obligation) and most likely you heard them all. This could make a quite interesting article.
Dusan
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Answer:
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Thanks for raising the issue. Collections is a touchy topic for some. Suing subscribers and paying lawyers goes against the grain of some. But you know what they say about lawyers, can't live with them or without them [or is that wives?].
You get a new subscriber, sign a contract, do everything you have to do to perform your end of the bargain, and you naturally expect your subscriber to perform, which means pay on time. When payment is either not timely or not at all, you've lost what you bargained for. A subscriber breach can have many reasons and you need to consider the reasons before you decide to commence collection procedures. A subscriber may be justified in withholding payment if you have not adequately performed. A little introspection on your part, and being honest with yourself, may confirm that perhaps the subscriber is right. Even my contracts, which affords very little to the subscriber, permits suspension of payment if the alarm is not repaired timely [of course this applies to a Service Contract or service obligation, found for example in the Commercial lease]. Subscribers get ill, die, suffer financial setbacks, move [and disappear] or simply find a better alarm deal and decide to stiff you.
If you don't have lots of subscribers then your loss rate may be low. If you're a smaller operation then you may wear lots of hats, sales, installation, service, etc. You're not going to have time to add another hat, litigant and witness in court. It would have to be a large contract for significant money for you to forgo new business, taking care of subscriber who are actually paying you, to chase a dissatisfied subscriber or dead beat.
On the other hand, a larger company can assign in house collection personnel and should have guide lines for pursuing non performing subscribers. How long to wait before you commence action? As soon as the subscriber departs from its customary payment history. A subscriber who pays within 7 days of invoice, or by 7th day of month without any invoice, who all of a sudden doesn't pay, should get your attention by the 15th of the month. On the other hand, a subscriber who is 90 days behind, but reliable, has trained you to wait.
My office does a lot of collection litigation for the alarm industry in New York, and those clients who have strict collection policies and pursue their non performing subscribers, have significant recoveries overall.
Once your subscriber is in default you have no obligation to continue performance on your end. Be sure the sub is in default before you suspend service. Your suspension rights should be addressed in your contract, and it is in my Standard Form Contracts. Even though you may not be required to give any form of notice of default or of suspension of services, saving the account is always the goal, so communication with the sub is a good idea. Threats, especially if you don't follow through, are counterproductive.
Generally you are not entitled to recover your legal fees unless your contract provides for such recover [mine of course do] or there is a statute in your state that mandates such recovery, generally to the prevailing party. Arizona is one state that permits legal fee recover to the prevailing party in a breach of contract action. Most states don't have a statute, so it's up to your contract.
Getting a judgment against your subscriber is only half the battle. Recovery of the judgment is the harder part. There are a lot more laws protecting those breaching contracts and trying to evade paying judgments then those that help you collect that judgment. Both Federal and State laws exist that provide all kinds of protection, sword and shields, to those who don't pay their bills. The Federal Fair Debt Collection Act is a maze of laws that subject you to all kinds of damages if you're not careful how you pursue your non performing subscribers. Collection work is not for the novice or someone who does not specialize in that legal work.
Nevertheless, you should pursue your non performing subscribers and a policy that you stick with is your best bet. If you're in the New York metropolitan area then contact my office and we'll be happy to represent you. Call 516 747 6700 and just ask for Denise, our head paralegal. Sorry we don't handle litigation outside of our area.