Legal Aid: Understand Force Majeure

Using the force in your contracts

By Peter J. Lamont, Esq.

April 02, 2010
 

One of the prime areas of concern for kitchen and bath companies with respect to the successful performance of a signed contract is focused around manufacturing and shipping delays, which can create liability and are rather commonplace throughout the industry. Manufacturing and shipping delays affect small local companies as well as large national companies, and everyone in between. In particular, this winter’s snowstorms have created numerous shipping and manufacturing delays for a large number of companies. As a matter of fact, Amazon.com recently posted a statement on many of their items indicating that because of inclement weather, many scheduled deliveries were delayed.

The kitchen and bath industry differs vastly from Amazon.com. Customers, including individuals, general contractors or large construction companies, are always concerned about delivery dates and deadlines. Quite often cabinets are ordered with a specific delivery date that will allow other trades, such as plumbers and electricians, to complete their tasks before the cabinets are installed. A fair amount of litigation in the industry stems from manufacturing and delivery delays. So how can you protect your company from such liability? The answer is to use the "Force" in all of your agreements. This is not the mystical "Force" of Star Wars but rather the force majeure clause.

USING THE FORCE

Force majeure is a French word that literally means "superior or greater force." The force majeure clause serves to excuse a party from liability if some unforeseen event beyond the control of that party prevents it from performing its obligations under the contract. In other words, a force majeure clause provides a means by which the parties may anticipate in advance a condition that will make performance impracticable. Such clause conditions a party’s duty to perform upon the non-occurrence of some event beyond its control and serious enough to interfere materially with performance.

Typically, force majeure clauses cover natural disasters or other "Acts of God," war, or the failure of third parties, such as suppliers and subcontractors, to perform their obligations to the contracting party. It is important to remember that force majeure clauses are intended to excuse a party only if the failure to perform could not be avoided by the exercise of due care by that party.

BE SPECIFIC

When creating your force majeure clause, it is beneficial if the clause sets forth some specific examples of acts that will excuse performance under the clause, such as wars, natural disasters, inclement weather and other major events that are clearly outside a party's control. Inclusion of examples will help to make clear the parties' intent that such clauses are not intended to apply to excuse failures to perform for reasons within the control of the parties.

A typical example of a force majeure clause is as follows:

"Neither party shall be liable in damages or have the right to terminate this Agreement for any reasonable delay or default in performing hereunder if such delay or default is caused by conditions beyond its control including, but not limited to Acts of God, Government restrictions (including the denial or cancellation of any export or other necessary license), wars, insurrections and/or any other cause beyond the reasonable control of the party whose performance is affected."

Yet another example is:

"Delivery dates, when given, are approximate. Seller shall not be liable for any reasonable delaying performance or failure to perform which is attributable to any cause beyond its immediate control, including, but not limited to, Acts of God, fire or other catastrophes, strikes, pickets, civil or military authority, fabrications delays, inability to obtain materials, transportation delays or other causes beyond its control."

In general, courts will enforce properly constructed force majeure clauses. When analyzing the enforceability of a force majeure clause, the courts will consider the contractual terms, the surrounding circumstances and the purpose of the contract. Notwithstanding the foregoing, the ultimate key to the enforceability of a force majeure clause is that the supervening event which prevents performance under the contract must be beyond the control of the seller.

Using a force majeure clause in your contracts may help your company avoid liability the next time Mother Nature decides to muddle up your manufacturing or delivery schedules. While it is recommended that you seek the advice of an attorney in preparing your contracts, the sample clauses above can be incorporated into your company’s contracts.

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.

A Good Start

Eight resolutions for a new and more profitable year

By Peter J. Lamont, Esq.

January 20, 2010

Amazingly, another year has flown by and, for many in the kitchen and bath industry, not a moment too soon. Last year was a very difficult year for many kitchen and bath companies, both large and small. Because of the horrific economy, fewer consumers were willing to put their cash into kitchen and bath renovation projects. On a larger scale, many construction projects lost their financial backing, leaving cabinet companies with hundreds of thousands of dollars in uncollectable receivables.

The good news is that things are looking up for 2010. Many economists are predicting that the economy will continue to pick up while more and more consumers will complete old renovations or begin new home improvement projects. Now is the time to re-evaluate your company's business plan and corporate procedures and to create focused News Year's resolutions, or better yet, goals to set your company up for a profitable and litigation-free year. The following are some suggested resolutions to get you started.


RESOLUTION 1: Review what worked for your company last year.
If your company is still conducting business, you must have done some things right. Perhaps you employed a new marketing or sales strategy that ended up being successful. Just because a new year is upon us does not mean that you should abandon all of last year's practices. You should only abandon those that did not work. You must be willing to spend the necessary time to analyze what you did right last year and work those practices into your new resolutions and goals.


RESOLUTION 2: Create manageable and attainable goals and be willing to adapt to market trends.
One of the biggest mistakes businesses make when setting goals is failing to set small, manageable and attainable goals. While the ultimate goal may be for your company to net $400,000 this year, you need to have daily, weekly and monthly goals to keep you on track. For example, in striving to reach your $400,000 goal, you should set monthly sales goals and review your sales procedures regularly. You must also be willing to acknowledge those strategies that are not working and be flexible enough to change them to meet customers' current needs and desires.


RESOLUTION 3: Revise contracts and sales agreements.
The beginning of the new year is the perfect time to revisit current sales contracts, vendor contracts and employment agreements. One of the biggest mistakes businesses make is that they hire an attorney to create form contracts and agreements when they start up their business, yet fail to update and revise them. This can be problematic because consumer protection and employment laws are constantly changing. Make sure that your contracts are up to date, comply with current laws and serve and protect your interests.


RESOLUTION 4: Review your business structure and compliance with state laws.
Make sure that your business is properly registered with state and local government agencies, many of which may require annual filings. For example, consumer protection laws are constantly changing and may require kitchen and bath companies to obtain new certifications and licenses. Make sure also to prepare and submit your annual filings in a timely manner. Far too many companies fail to keep up with their governmental filings, which can result in heavy fines.


RESOLUTION 5: Reconnect with old leads.
Most kitchen and bath companies keep contact information for customers who may have expressed an interest in their products but did not end up making a purchase. January is the perfect time to go through that information and make cold calls to those potential customers and invite them to come back to the showroom to see new products or explore new designs. You will be surprised at how many may still have an interest in your products and services.


RESOLUTION 6: Meet new successful entrepreneurs for business, mentoring and networking purposes.
Join a business-networking group, find or become a mentor, join the Chamber of Commerce or utilize online business networking services such as Linkedin.com.


RESOLUTION 7: Make business planning and lead development a daily task.
Make a monthly calendar containing daily business and lead development projects. For example, dedicate 30 minutes on Monday to reviewing customers who expressed interest in your products but never made a purchase. On Tuesday, call 10 of those potential customers. On Wednesday, search NKBA events and training seminars. On Thursday, run an advertisement in a local paper, and so on. If you plan out a month at a time and dedicate small amounts of daily time to business and lead development, your business will grow and so will your revenue.


RESOLUTION 8: Seek legal counsel when necessary.
Far too many people shy away from lawyers because they fear high hourly rates. While some law firms do charge exorbitant rates, you will be surprised to find that far more attorneys are easily affordable and are willing to work with clients to make their services affordable. Lawyers can provide a number of important services that can save your company time and money. For example, lawyers can: prepare contracts and agreements and negotiate on your company's behalf; ensure compliance with local and state laws; handle lawsuits and other claims; provide business guidance; set up employment policies and much more.

Take the time now to create you company's own resolutions and goals and stick to them throughout the year. Remember, sow now, reap later.

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.

Getting Paid

Are conditional payment clauses enforceable?

By Peter J. Lamont, Esq.

November 16, 2009

Nothing can be more exciting or rewarding for a cabinet company than being hired as a subcontractor on a multi-unit project. Generally, multi-unit projects can generate a substantial amount of revenue for cabinet companies. However, all things considered, being hired as a subcontractor on a multi-unit job is not much different from being hired by a general contractor on a single residential house. As a company, you must assist the decision maker with choosing the appropriate cabinets, then place the order, deliver the cabinets and, more often than not, install the completed cabinets in the units. Most companies believe that the hardest part of being a subcontractor on a multi-unit project is coordinating with the general contractor and the other trades, such as plumbers and electricians. Actually, the hardest part, especially in today's economic situation, is ensuring that your company gets paid for your work.

Why are so many subcontractors not getting paid for their work? The answer is simple: They entered into a contract with the general contractor that contained a conditional payment clause. Although historically general contractors assumed the risk of an owner's non-payment, many subcontracts now include conditional payment clauses that attempt to insulate the general contractor from having to pay its subcontractors if the owner fails to pay him. Look at almost any subcontract and you will find a "paid-when-paid" or "pay-if-paid" clause.

Often when a smaller cabinet subcontractor attempts to get paid and the general contractor refuses to pay, they cite the conditional payment clause in the contract. Believe it or not, many subcontractors then adopt the general contractor's position and fail to obtain legal advice to determine if the clause if actually enforceable. When considering entering into a subcontract, you should understand what type of clause it contains so that you can make an informed decision as to whether or not to sign it. It is always recommended to have your attorney review all prospective contracts before signing. The following is a brief explanation of the differences between the two clauses.


PAYMENT CLAUSES

In general, "paid-when-paid" clauses typically mean that the general contractor has to pay the subcontractor when they receive payment from the owner. These clauses do not insulate a general contractor from their obligation to pay their subcontractor even when they have received no payment from the owner. An example of such a clause is as follows:

"All progress payments of the Subcontract Sum shall be made within 10 days after payment is received by the General Contractor from the Owner."

Pursuant to this clause, the general contractor is required to pay a subcontractor within 10 days after payment is received from the owner. These clauses are generally interpreted as permitting a delay in payment by a general contractor for a reasonable period of time. Generally, "paid-when-paid" clauses leave the risk of the owner's nonpayment with the general contractor, meaning that even if the general contractor does not get paid, he still must pay your company.

Conversely, "pay-IF-paid" clauses can be determined to be conditional clauses that provide absolutes, which shift the risk of nonpayment to the subcontractor. This type of clause seeks to avoid payment altogether. Quite often, general contractors use the two clauses interchangeably and interpret both to be a means of avoiding payment.

However, recent court decisions have shed light on the enforceability of the clauses. In considering the enforceability of "paid-when-paid" clauses, various district courts throughout the country have held that "paid-when-paid" clauses do not allow contractors to avoid payment to subcontractors simply because the owner does not pay them. The general rule is that while a "paid-when-paid" clause allows the contractor to delay payment for a reasonable amount of time, the risk of an insolvent owner is still borne by the general contractor.

"Paid-if-paid" clauses are slightly more complicated. These clauses must be examined beyond the use of the word "if", and interpreted as a whole. In other words, by simply using "if" instead of "when", a contractor is not necessary relieved of his obligations to pay a subcontractor. The following is an example of a "paid-if-paid" clause.

"Subcontractor agrees that it is never entitled to receive payment from Contractor unless and until funds are in hand received by the Contractor in full. This is a condition precedent to any obligation of the Contractor."


STATE DIFFERENCES

Many state courts, including New York, have held that "pay-if-paid" clauses violate both state lien law and public policy. In particular, in order for a subcontractor to be able to file a lien many states require that an amount be "due and owing." Under a "pay-if-paid" clause, the money is not "due and owing" until the general contractor receives payment from the owner. The clause essentially acts as an illegal lien waiver and is thus, unenforceable.

However, in many other states such as New Jersey, courts have held that so long as the "paid-if-paid" clause is explicit in its terms, such as in the example above, it will not violate anti-waiver provisions of liens laws.

The bottom line is that cabinet subcontractors must become familiar with their payment rights under their subcontracts. There are no guarantees when it comes to conditional payment clauses and their enforceability will depend upon the language use in the clause as well as your state's law. As always, it is highly recommended that you have any attorney review all subcontracts before signing on the dotted line.


—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.

PROTECTING YOUR COMPANY AGAINST DAMAGING ADMISSIONS

     “The customer is always right.” From the dawn of time those five words have been the mantra of all salespeople. As salespeople nothing is more important than keeping customers happy. For example, how many times have you had to agree with a disgruntled customer that the finish on the cabinets he received is not the finish that he ordered? Frequently, when confronted by an angry customer salespeople say things such as, “I am terribly sorry – my mistake” or “Don’t worry, I will fix this mistake”, even though they believe that the customer is mistaken. Other times it seems more appropriate to blame another employee, not because you really believe that he or she made a mistake, but simply to deflect the customer’s anger away from you. In those situations a salesperson may say something like, “I am sorry that the measurements of your cabinet are off. I apologize for our designer Jimmy. He can’t add without using his fingers and toes.” Generally, these tactics appease the customer. However, as consumers become savvier concerning their legal rights, salespeople are finding themselves in the middle of courtroom dramas where they must attempt to dance around their prior apology to the customer. Often times, at the conclusion of the trial the apologetic salesperson is told by his company, “We’re sorry, you’re fired.”

     To a shrewd consumer and her lawyer, “I’m sorry” and similar appeasements amount to damaging admissions of liability. For example, in a recent jury trial, the plaintiff homeowner sued his cabinet company because his kitchen island was three inches too short. The cabinet company contended that it ordered the size that the customer had requested and relied upon the design plans to support its position. However, the designer had failed to obtain the customer’s signature on the design plans. Additionally, when the customer complained to the showroom manger she decided that although she believed that the designer had done nothing wrong, she would blame him to deflect the customer’s anger away from her so that she could negotiate a solution. Thus, she told the customer, “I know how you feel. This has happened before. Our designer just can’t seem to get it right. Believe me, I will not tolerate this any longer with him. Today will be his last day.” The manger convinced the customer to pay full price for another island. The customer seemed satisfied and of course, the designer was not fired. A few weeks later, the customer sued. At trial, the plaintiff’s attorney asked the showroom manager if she had made those statements. She confirmed that she had made them. As she tried to explain that she did mean what she said, the attorney simply said “no further questions.” The jury found in favor of the plaintiff. After the trial, jurors were questioned by the defense concerning what made them find for the plaintiff. All of the jurors polled said the deciding factor was the manger’s “confession” concerning the designer’s ineptitude.

     The lesson to learn is that while it seems natural to try to appease a customer with apologies and excuses even though you do not believe that your company was at fault, it is dangerous and may result in your statement morphing into a damaging admission. So does this mean you can never apologize to a customer? Obviously, the answer is “no.” There will be times when an apology is appropriate. For example, an apology is acceptable when your notes show that the customer ordered a glass backsplash, but you inadvertently ordered tile. In this situation you know that you actually made a mistake and thus, an apology is acceptable. The key is to only offer an apology when you know that you made a mistake. Do not apologize just to appease a customer especially when you do not believe that you did anything wrong.

     As salespeople or management you must be cognizant of the following rules and issues concerning apologies to customers. 1.) Chose your words carefully, when dealing with upset or disappointed customers; 2.) Remember that even the friendliest customer can turn against you; 3.) Know that anything you say will be used against you at trial; and 4.) Never ever criticize management or co-workers.

Certainly, you can attempt to resolve the costumer’s issue without offering an apology. A far better response than “I’m sorry” is “Let’s agree to disagree. However, I want to make you happy so let’s see what we can do.” Nothing is more damaging to a lawsuit than an adverse statement made by a defendant. These “party admissions” are almost always admissible as evidence against the declarant or his company at trial. Fight off the urge to apologize to an angry customer when your company did nothing wrong, even if it means losing that customer.

Are you keeping comprehensive client records?

It is a well-known fact that we live in an extremely litigious society. This may be explained, in part, by the fact that never before has a generation known more about our nation's laws and the workings of the legal system. We have instant access to statutes and recent court decisions via the Internet. Additionally, blogs, message boards and posts help to educate consumers about their legal rights.

Aside from an increased knowledge of legal rights, the following may also contribute to the frequency of consumer lawsuits: 1) a weakened economy; 2) the ease of finding a plaintiff's attorney to take your case; 3) recent changes to consumer protection laws favoring consumers; and 4) the fact that our legal system allows people to sue for just about any reason at all.

For those in the kitchen and bath industry, there are a number of factors that can create liability and lead to litigation. These include mistakes, misrepresentations, confusion, a lack of formal procedures, a lack of communication, taking shortcuts, a failure to follow through, poor recordkeeping and a failure to report problems.

In the coming months, this column will address the top five preventative measures that can help your business minimize litigation. In general, they are 1) proper recordkeeping; 2) maintaining proper communication; 3) conducting thorough site inspections; 4) reporting claims in a timely manner; and 5) avoiding damaging admissions. This article will focus on the first of these measures: keeping comprehensive records.


MAINTAINING ORDER

While proper recordkeeping may seem like a "no-brainer," far too few kitchen and bath companies actually do so. Although the task does require a commitment of time, ensuring that your records are comprehensive and well maintained will make it much easier to respond to frivolous claims by customers. Conversely, poor record keeping can destroy your defense to a claim and actually increase the likelihood that you will end up paying out money to settle. Following are some tips to keep in mind when getting your records in order.

• Create a client file. It is imperative that you establish a standardized method for document management of all of your company's records, including contracts, prospective clients, orders, complaints and other documents. For example, every customer should have his/her own client folder. Within that folder should be every document related to your interaction with that customer. These documents should include correspondence between your company and the customer, notes, memos, receipts, invoices, orders, photographs, plans and drawings, emails and any other document that relates to that customer. This allows for easy access to documents when issues arise.

All documents in the folder should be filed in reverse chronological order (i.e., from oldest to most recent.) The documents should be secured in the folder by two-hole fasteners to prevent them from falling out of the folder.

• Reduce all verbal communications to writing. All conversations with your client should be reduced to writing, including telephone conversations and informal discussions. Often, a customer will telephone to authorize a charge, request a change to an order, confirm styles and colors and make other requests. Even if you have a memory like that of an elephant, you should make sure that you write a memo that details the date and time of the call and summarizes the discussion between you and the customer. This should be done for each verbal communication. The memos should be immediately placed into the customer's file. Frequently, having a detailed account of all customer communications can resolve a dispute in your company's favor before a lawsuit is commenced.

• Develop a document retention policy. It is important to save client files for a sufficient amount of time because you never know when a good customer could go bad. For example, if a customer purchases cabinets from you, and during the course of the sale, you advise her that the finish she chose will not hold up to her anticipated level of use and abuse. Being careful, you write a memo about your warning and the customer's decision to ignore it, and you even obtain the customer's signature on it. However, after the installation of the cabinets, you throw out the file. Two years later, you are sued by the customer because the finish, as predicted, did not hold up. Unfortunately, you now have no proof of your warning and you will most likely end up paying to settle the claim or replacing the cabinets.

Considering that the statue of limitations for many breach of contract, warranty and negligence claims run from two to eight years, depending upon your state, it makes sense to maintain your client files for at least six to eight years.


PAY OFF

Keeping comprehensive customer files can help your company avoid unnecessary litigation. The time and effort that you apply to maintaining organized and complete client files will pay off in spades. To learn about other ways you can protect your business against litigation, check back in a month for a discussion on how to limit your liability with proper communication.

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.

Consumer Fraud: Strict Consumer Protection Laws Have a Serious Impact on the Kitchen and Bath Industries

Consumer Fraud: Strict Consumer Protection Laws Have a Serious Impact on the Kitchen and Bath Industries

By: Peter J. Lamont, Esq.

In the past, when a kitchen or bath company was sued the allegations generally sounded in breach of contract or negligence. The defendant kitchen and bath company typically did not have to worry about payment of attorney’s fees or punitive damages. In essence, the parties were on an equal playing field in the prosecution and defense of the claims. However, over the past five years, there has been a dramatic increase in pro-consumer laws passed by a majority of states which have greatly shifted the playing field in favor of the consumer plaintiff.

Legislative Shift

Unfortunately, most people have fallen prey to some form of deceptive business practice at one time in their lives. It may have been as simple as a loss of $10 on a product that a deceptive television advertisement duped you into buying or a serious as being bilked out of thousands of dollars by an unscrupulous contractor or failed to finish construction on your house. Five to ten years ago, people would generally complain to the Better Business Bureau or retain a private attorney. However, as the Internet developed it became much easier to e-mail local government officials or file claims online with the Federal Trade Commission. As a result, state and federal agencies became overwhelmed with consumer fraud claims. The legislature’s response, both at the state and federal levels, was to enact strong consumer protection laws which had “teeth” and that would act as a deterrent against fly-by-night companies and general deceptive business practices.

The “teeth”, in most states, was the possibility of double or triple damages against a company found to have committed a deceptive business practice and the repayment of the plaintiff’s attorney’s fees by the defendant. For example, under New Jersey law, which is at the forefront of consumer protection legislation, if a cabinet company was found to be liable to a plaintiff for a deceptive practice and the actual damages were $100,000, the Court could award three times the damages, up to $300,000, plus award attorney’s fees to the plaintiff’s counsel. Depending upon the length of the case, attorney’s fees could exceed $50,000. Thus, a $100,000 claim could end up costing the cabinet company $350,000 (not to mention the defense costs to its own attorney).

Increase in Consumer Rights Practice

Plaintiffs attorneys quickly focused on the potential to cash in on the new consumer protection laws. As a result, many plaintiff attorneys have devoted their practices to consumer rights. Obviously, the draw for the attorney is the ability to recover most if not all of his fees as opposed to the typical 1/3% recovery of the total amount awarded in a regular negligence action. Type in “consumer fraud attorney” into any search engine and you will find pages of plaintiff-oriented law firms who are eager to speak with you about your consumer rights.

In addition to their websites, many attorneys actively seek out potential plaintiffs on consumer complaint websites such as the squeakywheel.com and complaints.com. The result is that more and more cabinet and bath companies are being sued by these over-aggressive plaintiff attorneys.

Understanding Your States Consumer Protection Laws

It is critical that you research and understand your state’s consumer protection laws. Many kitchen and bath companies are hiring attorneys to make sure that there practices and procedures comply with their state’s consumer protection laws. These new laws can be rather tricky to understand and have broad sweeping language which is detrimental to the kitchen and bath industry. For example, numerous states have enacted home improvement laws which directly impact the industry.

While you may not think of your company as a “home improvement” company, the statues may say otherwise. For example, New Jersey law defines a “home improvement” as:

the remodeling, altering, painting, repairing, renovating, restoring, moving, demolishing, or modernizing of residential or noncommercial property or the making of additions thereto, and includes, but is not limited to, the construction, installation, replacement, improvement, or repair of . . . cabinets, kitchens, bathrooms, . . . , and other changes, repairs, or improvements made in or on, attached to or forming a part of the residential or noncommercial property, but does not include the construction of a new residence. . .

Clearly, kitchen and bath companies are considered “home improvement” contractors under New Jersey law. Similar definitions and laws have bee enacted in numerous states including, New York, Pennsylvania, Illinois, Florida and California. In fact, Pennsylvania recently began enforcing its new home improvement contractor’s registration act which provides for criminal penalties for non-compliance.

Over the past year there has been a flurry of lawsuits filed against kitchen cabinet companies alleging consumer fraud. In fact, the New Jersey Supreme Court recently held that the Consumer Fraud Act and its treble-damages remedy can apply to contractors performing interior work on new homes, a ruling that expands the already broad power of the statute. It is expected that many states will follow the New Jersey Supreme Court’s ruling.

Conclusion

It is imperative that you become familiar with your state’s consumer protection laws and stay abreast of recent developments in the law. It may be beneficial to consult with an attorney to ensure that your current business practices, contracts, and customer interactions comply with consumer protection laws. Failure to do so could be very costly to your business.

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.

Critical Collections:Successful sales is about more than just selling

Critical Collections:Successful Sales is About More than Just Selling

By Peter J. Lamont July 09, 2009

The president of a mid-size kitchen cabinet company once noted that the most important facet of his business is sales. He explained that he employs some of the best salespeople in the tri-state area and that their sales have been increasing even in this economy. In his estimation, product knowledge, persistence and absolute commitment to customer satisfaction have been the keys to his success. And many in the industry might agree. After all, if you don't sell, you don't make money.

But while sales are extremely important, there is another component of business that is far more critical. In fact, when the same sales-driven president was asked, "How are your receivables looking?" he stopped in his tracks and responded, "Well, we have been paid on 60 percent of our sales over the last year." Sales are critical, but collecting payment in full for your sales is paramount.

Unfortunately, far too many business owners think, as did our sales-driven friend, that in order to obtain success, all of their focus should be on sales. Nothing could be further from the truth. You can sell 50 kitchens per day, but if you don't get paid for your efforts, your successful sales strategies mean nothing. So now that we have established that collecting full payment for your sales is the most important element of a successful business, what should you be doing to make sure that your receivables are current?

For most of you, your sales are made either to the individual residential customer or a contractor or building owner on larger multi-unit projects. The techniques and mechanisms used to collect outstanding balances differ greatly, depending upon whether it's a homeowner or general contractor that owes you money.

INDIVIDUAL SALES

For individual customer sales, it is wise to ship or deliver all merchandise with an accompanying invoice. In fact, send a duplicate, as many customers find it helpful to receive two copies, one to keep for their records and the other to send with their payment.

Aside from invoices, it is prudent to send monthly statements listing your customer's payments and all unpaid invoices. You will find some customers may not keep accurate records, even losing or forgetting to record your invoices. Sending statements will also alert your customers that you are aware of outstanding invoices and you expect prompt payment.

It goes without saying that it is critical for you to keep an accurate payment history for each customer. To do so, establish a method to monitor your accounts receivables. One great option is to use small business accounting software. Remember, you need to know who owes you money, how much they owe you and how long they have owed it to you.

TAKING ACTION

To collect your money, you will find that you must also aggressively manage your receivables with consistent collection activity. Following are three tactics that work for general collections:

1. As soon as payment is past due, send a copy of the invoice to the customer along with a notation requesting the payment. When you send out your statements, circle the past due invoices.

2. Generally, a handwritten note on a statement or invoice is more effective than computer-printed messages or past-due stamps and stickers.

3. Call your customers yourself. Explain that you are looking for payment of the outstanding invoices and ask when you can expect payment. Daily calls usually get the customer's attention.

If none of these basic techniques work, you will need to be more aggressive. In cases where the customer refuses to respond to your communications, the following techniques are appropriate:

1. Telephone your customer, demanding a check and threaten to turn the account over to a collection agency.

2. If your customer claims to have no money, ask for a post-dated check. If the check bounces, contact your attorney, as there are civil and criminal penalties for passing a bad check. Typically, threats from an attorney will help you recover the money.

3. Pay a personal visit to the customer and demand payment.

4. Finally, if all else fails, file a lawsuit for the full amount owed. If you have a good sales contract, you may be able to demand interest and attorney's fees. While smaller collection matters can be handled pro se, without an attorney, moderate to large amounts should be handled by a competent attorney.

Whether you decide to deal with collection issues yourself or with the assistance of an attorney, remember that your success in business is driven by money in the door, not solely by making sales. The two most important actions to take after you land a sale are (1) keep meticulous and accurate records for that transaction and (2) take immediate action when the customer fails to timely pay an invoice. The longer you wait to collect a paid due account, the less likely you will be to recover the money.

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.

Understanding Errors and Omissions Insurance

It is inevitable that even the most cautious designer, installer or kitchen design specialist will make mistakes from time to time. However, there are ways in which kitchen and bath professionals can attempt to limit liability arising from their errors or omissions. One such way is to purchase Errors and Omissions insurance (E&O), also known as Professional Liability insurance. E&O insurance is separate and distinct coverage from any Commercial General Liability policy (CGL) that you or your company may currently possess.

While many may have heard of E&O insurance, very few people truly understand what it is. E&O is a piece of insurance that covers you individually, or your company, in the event that one of your clients sues you or otherwise holds you liable for a service that you provided, or failed to provide, that did not meet the expected or promised results. Most doctors, accountants, architects and engineers have some form of E&O coverage. E&O may also be beneficial to kitchen and bath professionals.

For example, assume that your client has requested cabinets with a walnut finish. However, when the units are delivered, they turn out to be cherry. Your client had wanted the cabinets delivered and installed prior to a large social event that she was hosting at her house. Even though you offered to replace the cabinetry at no charge, she sues you, alleging that your negligence has resulted in her sustaining monetary damages as well as the loss of use of the cabinets for her special event. Without E&O coverage, you may end up paying to defend the claim out of your own pocket. It is important to note that the type of loss described in the example above would not be covered under a CGL policy, which typically contains exclusions for work product. If, however, you had a properly construed E&O policy, you may be entitled to coverage that would include the payment of all court costs, judgments, verdicts or settlements and attorneys' fees.

While an E&O policy may seem like a panacea for any negligence on your part, you must be aware that insurance companies typically want to avoid paying out large sums of money on their insureds' policies. The way they avoid doing so is by building into their policies numerous exclusions that may be quite complicated for the average business owner to fully understand. Although E&O policies vary significantly, typical policies will not cover you for liability that you assumed under any contract or agreement unless you would have been legally liable in the absence of the contract because of your negligent act, error or omission in the performance of your professional services. This exclusion would apply if you entered into a contract that contained penalty clauses, guarantees, warranties, liquidated damages or certain other provisions.

Other exclusions include liability (1) for damages or injury to real or personal property that is in your care, custody or control, or that you are repairing; (2) arising out of any dishonest, fraudulent or criminal act or omission, or for other intentional wrongful acts; and (3) for punitive or exemplary damages, fines or penalties or any multiplication of compensatory damages. E&O policies may contain a host of other exclusions of which you should be fully aware before purchasing the coverage.

It is critical that you communicate to your insurance broker your needs for coverage under an E&O policy. You should explain to your broker exactly what services you provide and ask him to explain all of the limitations and exclusions contained in the policy to you. Be prepared to provide copies of your contracts, agreements, purchase orders and other documents to the insurance underwriters. They typically review such documents to determine their risks associated under the policy. Generally speaking, the higher the risk, the higher the premium.

Determining whether an E&O policy is right for you takes a good deal of thought and some in-depth conversations with your insurance broker. E&O policies can protect you and your company from various errors and omissions and save you a good deal of money in the event that you are sued. However, high premiums and confusing or limiting exclusions may impact your decision to purchase a policy. Ultimately, so long as it is economical, having too much insurance coverage is better than being underinsured. Nevertheless, no amount of coverage can protect you from everything. Thus, the best way to limit liability is to utilize properly constructed contracts and to pay close attention to details when dealing with customers.

NJ Supreme Court Rules that NJ Consumer Fraud Act Applies to New-Home Interior Contractors

The New Jersey Supreme Court ruled last week that the Consumer Fraud Act and its treble-damages remedy can apply to contractors performing interior work on new homes. The ruling in Czar Inc. v. Heath , A-114-07 expands the already broad power of the statute.

In Czar v. Heath, the Heaths hired Czar Inc. to install kitchen cabinets, interior doors, moldings and chair rails in their home which was under construction. The homeowners were unhappy with the quality of the work and withheld $80,000 from the bill . Czar then sued the Heaths for the unpaid balance. The Heaths counter-claimed alleging violation of the Consumer Fraud Act.

The Court held that the Consumer Fraud Act, the Contractor’s Registration Act, the New Home Warranty Act, and the regulations promulgated pursuant to those statutes were designed to provide an integrated scheme of protections for homeowners. The contractor, which neither acted as the general contractor nor qualified as a builder of new homes, was engaged in the business of home improvements and subject to the remedies of the Consumer Fraud Act.

This decision is important for those in the kitchen, bath and construction industries. A plaintiff who successfully proves that a violation of the Act occurred will be entitled to treble damages and attorney’s fees.

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.

PA Attorney General announces that registration is now open for home improvement contractors; under new law, contractors must register by July 1

The Pennsylvania Attorney General has announced that registration is now open for home improvement contractors. Accordign to the Attorney General's website, Attorney General Corbett announced that contractors can now begin to register with the Attorney General's Office, in order to comply with a new law that goes into effect July 1.

The website explains that in 2008, the Pennsylvania Legislature passed the Home Improvement Consumer Protection Act, which requires all contractors who perform $5,000 or more in home improvements in a year to register with the Attorney General's Office.

The Attorney General stated, "We have worked to ensure that the registration process is as quick and easy as possible. If you complete your registration online, you will receive your registration number instantaneously."
Click on the link below, which will take you to the PA Attorney General's website to register your business.