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Contract and Debt Assignment

A recent case from the North Carolina Court of Appeals demonstrates the importance of being mindful of what you sign. In Caron Associates v. Southside Manufacturing Corp., a buyer had an agreement with a cabinet maker for the creation and delivery of cabinets for a school. The buyer, Caron,  was to install the cabinets at Bertie County High School, and contracted with Southside Manufacturing for the cabinets to be delivered in November 2013. Caron was to pay Southside 30 days after the cabinets were delivered. There was a delay, and Caron agreed to accept delivery of the cabinets in December 2013. However, before the cabinets were delivered, Southside sent an invoice to Caron for $45,000 for the work that was in progress. Caron rejected the invoice, noting that their contract stated that they were only responsible for payment after the completed cabinets were delivered. On the same day, December 9, 2013, Southside sold their accounts receivable, i.e. their right to receive payment from Caron, to Crown Financial, LLC.

Crown Financial then sent a letter to Caron informing them that Caron was now to pay Crown Financial for the cabinets, instead of Southside. This letter asked Caron to sign and return it to Crown so that Crown would know that Caron acknowledged to whom they were to submit payment for the cabinets. In the signed letter, there was a clause that stated, "Please confirm by signing below that these invoice(s) are in line for payment and the payment obligation of [Caron] is not subject to any offsets, back charges, or disputes of any kind or nature." When Caron signed it and returned the letter, they thought they were agreeing to send payment to Crown instead of Southside; however, Crown took this to mean that Caron had accepted responsibility for the $45,000 invoice that had already been sent to Caron, even though Caron had the defense that the Cabinets had not been delivered.

Southside Manufacturing eventually went out of business, and never delivered any of the cabinets to Caron. Despite the fact that the cabinets were never delivered, and the fact that Crown knew the cabinets weren't delivered, Crown sent a demand letter to Caron for the $45,000 invoice. Caron, rightfully, refused to pay and then sued Crown, asking for a declaratory judgment that they did not owe Crown a debt. At the trial court, Caron won on summary judgment. However, Crown appealed to the Court of Appeals, where Caron won again. The court found that since Caron had no duty to pay the cabinet maker, Southside, who had assigned their rights to Crown, they had no duty to pay Crown either. This is a result that makes perfect sense, Caron should not have to pay anyone for goods they didn't receive. However, Caron still had to go through costly litigation and a lengthy appeals process to be freed from this burden.

The lesson here for all businesses is to make sure that your intentions are clear when you sign a document sent to you by another company. Contractual assignments of accounts receivable, and other debts, is a common practice, and your business may eventually receive a similar letter. Before signing anything, you should always make sure that you understand what you are signing, and you should always state in writing that you aren't waiving any of your claims or defenses. If you have received a letter of assignment, or have a contractual dispute, and need to know more about your rights, contact Miller Law Firm today.

For further reading, see Caron Assocs., Inc. v. Southside Mfg. Corp, No. COA15-1376 (N.C. Ct. App. 2016); N.C. Gen. Stat. §§ 25-9-102, -403 (2015).

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