A Lesson in Contract Law (California)

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A Lesson in Contract Law (California)

Postby steve appell on Fri Jun 12, 2009 2:35 pm

Lien claimant sells a portion of it's receivables to 2 different collection companies. Defendant knows this and rather than entering into 3 seperate bulk settlements with lien claimant and both collection companies, defendant enters into a a hold harmless agreement with lien claimant. "Lien claimant holds defendant harmless from any & all known and unknown dates of service and any and all known & unknown liens through the date of the agreement."

Now of course the collection companies are calling defendant to collect on their liens. Defendant sends them the hold harmless agreement and instructs the collection companies to contact lien claimant for any money owed. The collection companies of course claim defendant should not have paid lien claimant all the money, and defendant owes the collection companies for the liens they purchased.

Since Lien claimant held defendant harmless, can the defendant be ordered to pay a single dime to the collection companies?

Thanx in advance for your responses !!

6311 Van Nuys Bl #480
Van Nuys, Ca 91401

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steve appell
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Re: A Lesson in Contract Law (California) (California)

Postby jonbrissman on Fri Jun 12, 2009 3:45 pm

Even though I suspect that this is not a "hypo", I'll respond.

The write-up makes it appear that the lien claimant (LC) sold some of its accounts receivable (A/R) prior to executing the "hold-harmless" (indemnity) agreement. Assuming that sequence is accurate, then the LC did not own all of the A/R for which it indemnified defendant. There is nothing necessarily wrong with that -- for the right consideration, a party may choose to contract for obligations for which it would not otherwise be liable. In that case, defendant has no liability to the third-party purchaser of the A/R. You may need to litigate to enforce the indemnity agreement, but a prudent drafter would have included an attorney-fee provision into the contract to cover such an eventuality. (Such as: "In any litigation involving this agreement or its terms or performance, the prevailing party shall be entitled to reasonable attorney fees.")

Conversely, if the LC issued the indemnity agreement prior to the sale of its A/R and did not disclose the issuance, the purchasers of the A/R likely have a fraud action against the LC. Defendant's no-liability position is even stronger in this scenario, because here the LC owned the A/R assets when it contracted.

You should build a paper trail of your contacts with the third-party A/R purchasers, and file 5813 petitions against them if they persist after being properly informed of the facts.

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