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Archive for the category “Musings: Contracts and Debt Collection”

A Collection of Contract and Debt Collection Writings by James W. Cushing, Esquire

Over the course of my career, I have written extensively on a wide variety of contract law issues and debt collection legal principles.  These writings have been published in The Legal IntelligencerUpon Further Review, and The Pennsylvania Family Lawyer as well as posted onto my blog.  I have collected these articles and blog posts and have listed them below.  Thanks for reading!

My Articles:


The Secret Defense to Debt Collection Matters

Unfortunately, many people find themselves in a situation where they get behind on paying their bills and, due to lack of funds, wind up not paying some of them.  Not paying one’s bills will more often than not result in that debt being sold to a collections agency and that agency suing the debtor for payment (and adding on all kinds of things, like interest, attorney’s fees, penalties and the like to boot).

Selling one’s debt to a collection agency is an important step in the process that directly affects the subsequent lawsuit against the debtor.  Typically, large lenders – especially lenders like credit cards companies – have a fair amount of debtors who stop paying (for whatever reason) on the debt owed to the lender which results in their debts being sent to collections.  When these lenders send debts to collections, they do so by selling the debts to a collection agency.  When they sell the debts to a collection agency, they will often sell the debts in bulk, often for pennies on the dollar.  The transaction benefits the creditor as it gets something for the debts owed without having to pursue costly and time consuming litigation.  The transaction benefits the collection agency because it can pursue collection (including law suit) against a debtor for the full amount despite having bought the debt for far less than its principal value, let alone its value inflated by interest and such.

More often than not, when debts are sold to collection agencies, the initial creditor (e.g.: a credit card company) simply provides an affidavit to the collection agency regarding the amount of the debts and the names of those who owe the debts.  Typically, no other document is supplied by the initial creditor to the collection agency, including any contracts with the debtor or anything bearing the signature on the debtor.  Once the collection agency assumes the debt, it has the right to bring suit against the debtor for the unpaid debt.

The lack of documentation of the contract with the debtor is absolutely key to any defense to the collection of the debt.  If the creditor brings suit against the debtor in the Court of Common Pleas and does not attach the contract between the debtor and the creditor which underlies the alleged debt, the debtor can file objections to the complaint (the document which initiates the law suit) asking for it to be dismissed due to the lack of a contract.  I can say, from personal experience, that such a tactic works as, very often, the collection agency pursing the debtor simply does not have the underlying contractual documentation to prove its case against the debtor.

If the case is brought in small claims court, the creditor does not have the obligation to include a copy of the contract to the complaint, so successfully defending against a collections law suit takes some shrewd strategy.  The lack of documentary evidence is still a huge problem for the creditor, but the small claims aspect of this matter makes the approach different and much trickier.  As the complaint does not require the contract to be appended to it, and the primary place for these matters to be resolved is at a hearing before a judge, the creditor has the procedural advantage.  At the hearing, the collection agency, armed with an affidavit from the initial creditor (as described above), secures almost all of the other evidence it needs to win against the debtor through the debtor’s testimony.

Here is how the hearing would play out: the creditor describes the claim to the judge, which is that the debtor had a contract with a credit card company (for example), he did not pay the debt owed, and is now in collections and all of this is supported by the affidavit.  Now, the affidavit, taken alone, is insufficient to win the case as there is no evidence that the debtor actually contracted with the creditor.  So, at the appropriate time during the trial, the creditor will ask the debtor some questions (i.e.: cross-examination).  These questions will be something like: “did you have a credit card from XYZ company on these dates”?  “Did you make charges on it?” “Did you make all the payments on it?”  “Do you owe $XYZ on the credit card?” And other questions like it.  At the end of the examination, the debtor himself provides all of the evidence against himself that the creditor needs to win the case against him.   As a result, the creditor will win the case against the debtor thanks to the debtor supplying all of the evidence, via his testimony, need by the creditor.

So, how does a debtor avoid the fate of the debtor in the above scenario?  That is where a good lawyer comes into play.

The Philadelphia Zoo Tries to Put Bars Around its Visitors

I just purchased a season pass to the Philadelphia Zoo last weekend.  We took a trip to the Zoo last year and my older son loved it and so we decided to try to go regularly this year as it is a nice place to be outside and do something and, for my son, a nice place to do something fairly interesting and educational that does not involve video games, death defying stunts, or tormenting his younger brother.  The fact that he spent an hour staring at a gorilla, which has sparked something of a gorilla obsession for him, is a little weird, but so be it; everyone has their “things”!  At least it led to an evening watching the original King Kong movie after our visit to the Zoo, which is one of my favorite movies.

My visit to the Zoo last weekend inspired this post because of very curious language I discovered on the back of my admission ticket when I got home.  The ticket to park at the Zoo had the normal disclaimers more-or-less about how the Zoo is not responsible for damage done to one’s car in the lot and that the ticket only entitles someone to park there in order to visit the Zoo for the day.  I did not find any of this language questionable or objectionable; indeed, I found it pretty typical.

The back of the admission ticket was what struck me.  The language on the back of the admission ticket says the following: “By accepting this ticket guest agrees to hold the Zoo and its employees harmless and waive any claim against the Zoo and its employees for bodily injury to guest or damage to guest’s property even if caused in whole or in part by the negligence of the Zoo or its employees.”

This language is very problematic in many ways.  Language like the above is commonly known as an “exculpatory clause” which, perhaps obviously, tries to exculpate one party from liability or guilt from certain actions or instances.

First of all, when it comes to exculpatory clauses, they are to “be strictly construed with every intendment against the party seeking their protection.” Phillips Home Furnishings v. Continental Bank, 231 Pa. Super. 174 (1974) citing Kotwasinksi v. Rasner, 436 Pa. 32 (1969). Furthermore, an exculpatory clause will not be valid if there is a disproportionate bargaining power between the parties to the contract at issue. Id. citing Hennigsen v. Bloomfield Motors, Inc., 161 A. 2d 69 (NJ, 1960).  In addition, an exculpatory clause that a Court is unwilling to enforce is where the terms of a contract are unwilling to be altered by its maker.  In other words, a contract where the other party (i.e.: not the drafter of the contract) “has no bargaining power and must accept [the] terms” presented to him and is “powerless to alter” them, with rejection of the contract as the only alternative to executing the contract.  There is no meeting of the minds in this sort of contract negotiation. Galligan v. Arovitch, 421 Pa. 301 (1966).  In addition to the relationship of the parties to a contract, the Court also analyzes whether a party to a contract were “aware of and understood the terms of the release before his agreement can be deemed a particularized expression of the intent to assume risk.” Wang v. Whitetail Mountain Resort, 933 A.2d 110 (Pa.Super., 2007) citing Chepkevich v. Hidden Valley Resort, 911 A.2d 946 (Pa.Super.2006).  Finally, “[i]n determining whether a releasing party had such awareness and understanding, we consider: 1) the release’s placement in the document; 2) the size of the release’s print; and, 3) whether the release is highlighted in some fashion.” Id.,citing Beck-Hummel v. Ski Shawnee, Inc., 902 A.2d 1266, 1269 (Pa.Super.2006)

Based on the above, I think it is pretty clear that the language located on the back of the Zoo’s admission ticket,  in very small print (albeit all in capitals), is problematic. The contract relationship is obviously imbalanced.  A person seeking admission to his local zoo has no choice but to accept the exculpatory clause else he cannot gain access.  Further, the exculpatory clause is printed on an existing ticket which is handed to the Zoo’s guest upon entry.  The guest cannot bargain and negotiate with the person at the Zoo’s ticket window about the terms of the clause and try to change them.  In fact the person at the ticket window likely has no authority at all to act on the Zoo’s behalf in order to change or alter the language on the ticket even if he wanted to do it.  So, obviously, there is a “take-it-or-leave-it” aspect to the admission ticket.  In terms of whether the recipient of the admission ticket was aware of and understood the terms of the exculpatory clause, I think even the average observer can see that there is likely no awareness of this clause, let along comprehension, at the time of purchase.  Who reads the ticket when it is handed to him?  Who gets the language mentioned or explained by the person at the ticket window?  I would guess that the person at the ticket window has likely never read it either or know what it means.  What non-lawyer knows what an exculpatory clause is or how it works and how it could effect him?  Remember, this is all in the context of waiting in a line with dozens of other people at a zoo ticket window with children (likely making some sort of ruckus) in the hot sun in the middle of the day.  Who is taking the time to read the ticket let alone understand the technical legal jargon on it?  Speaking as a parent, I am lucky to be able to receive the ticket from the window and cram it in my pocket in a reasonable way while in line let alone read it intelligently.

Second, even if none of the above applied, I think there are serious contractual issues at play.  The basics of a contract is that one party makes the offer of terms while another accepts them in consideration for some sort of exchange of goods and/or money.  The exchange of money for admission to the Zoo is a type of contract.  The Zoo is trying to append the exculpatory clause as a term of their offer of admission in exchange for one’s money.  The problem with that is that the exculpatory clause is not ever disclosed to the guest until after the transaction is made (i.e.: money for ticket) and once the transaction is made, the Zoo is clear that (from its website and the back of the admission ticket) “[a]ll ticket sales are final and may not be resold. No exchanges or refunds for any reason including inclement weather.”  The transaction for the ticket is as one may expect: the guest stands in long line outside (in whatever weather there is on a given day) with multiple other people (most of which have their share of rambunctious children including the guest purchasing the ticket) who, after shouting through a little porthole in a window with poor acoustics, receives tickets in exchange for money through a little slot at the bottom of the window.  The interaction between the guest and the ticket agent is one which merely involves inquiring into how many people (and their respective ages) for whom the guest would like admission tickets and the payment for the tickets.  It is not until after the tickets are purchased – for which there is no refund – that the guest learns that suddenly he has agreed to an exculpatory clause.  Therefore, this clause was not bargained for by the guest as he had no idea he was buying the clause along with his ticket as the small print on the back of the ticket is the only place where it exists and is communicated to the guest and that all takes place after a non-refundable purchase.  Indeed, not even the “tickets” portion of the Zoo’s website (seen here) has any mention of the exculpatory clause (though they are sure to make sure the reader knows that the purchase is non-refundable on the same page).  On the Zoo’s website, the exculpatory clause language is hidden on the “print tickets” page here, which is a page that one would not look at if purchasing tickets at the window (as I did).

One final note before I conclude.  Children under two years old require no ticket so I suppose one would presume that, even if enforceable, the exculpatory clause does not apply to them, which I find curious in itself.

So, suffice it to say, I think the inclusion of the exculpatory clause on the Zoo’s admission ticket is pretty sneaky and, if I may say so, pretty sleazy, especially considering it purports to exculpate its own negligence.  I do not think the clause is particularly enforceable and is of questionable legitimacy in contractual terms.

But you don’t have to take my word for it…Read It!

Those of us in Generation X and perhaps a little older remember LeVar Burton’s constant refrain in his PBS children’s show “Reading Rainbow”: “But you don’t have to take my word for it!”  Mr. Burton was telling his young viewers that they do not have to take his word when it comes to what a book is about, they should read it themselves to find out.

As adults, Mr. Burton’s suggestion to not take his word for it applies even more.  We read contracts and agreements and other sorts of documents regularly, whether that is when do something significant like buy houses or cars, to something more mundane like secure a credit card, or even something seemingly innocuous like signing up for a store discount card.  Indeed, we click “I agree” to online contracts regularly when we secure a new email address or upload more software.

The question is do we read all of these documents we sign or do we, to paraphrase comedian Eddie Izzard’s bit on online contracts, consistently lie when we click or sign something indicating we have read it?

Not reading contracts can have enormous implications, virtually all negative.  As a signer to a contract, you have the obligation to comply with its terms.  Failing to read it means you do not necessarily know your obligations under the contract, which means you open yourself up to failing to comply with the contract’s terms simply out of ignorance.  Indeed, you must remember that the other party to the contract has remedies and/or actions it can take due to your failing to comply with the contract’s terms, and he very often is more than willing to pursue them against you.

One of the reasons I hear most frequently for not reading a contract is that the other party “told me what it said.”  I am here to tell you: don’t that their word for it, read it yourself!  Don’t take this to mean that the other party is somehow acting slyly or unlawfully, it just may mean that he is telling you what he thinks it says or thinks is important.  Indeed, he may be getting it wrong!   Something to keep in mind is that many contracts specifically state that only its terms apply, therefore any discussion or “understanding” you may have had when you signed the contract will not be considered when you attempt to enforce it in court.

Even though it seems like a pain, or a burden, or just not worth it, at the time, please take the time to read everything thoroughly before you sign.  You will be far better off for it as the risks are far too great not to do so!  Don’t take anyone’s word for what a contract says; read it!

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