Legal Question in Business Law in California

Re: Commercial Collections

You indicate that you are a distributor, which means that you purchase goods from one place and sell them to another customer. If the defect was in manufacture or design, then the original manufacturer would have liability. This may explain why your insurance company has not settled yet. You may want to contact the manufacturer regarding the situation.

As far as using a collection agency, that is somewhat like turning it over to an attorney to handle. Of course, they cannot do anything if you dispute the obligation other than turn it over to an attorney to handle.

Unless there is a large dollar amount involved, this seems to have been blown out of proportion.

Good luck.

Re: Commercial Collections

Collection agencies simply accumulate what is said by merchants and others with whom you deal. They do, however, have the obligation to include in any comment from a creditor or merchant your response to the comment. So, my advice is to write the credit agency and set out your side of the dispute. That will then accompany any inquiry they respond to regarding this particular dispute.

Re: Commercial Collections

I think there are three sub-questions here:

(1) Does your customer have a right to be reimbursed from someone?

(2) If so, from whom -- the insurance company or the insured? and

(3) Is the collection agency doing anything improper, wholly aside from the question of whether they should succeed in collecting from you?

The generic answer is that the customer has a right to demand goods that conform 100% to the contract. If you furnished non-conforming goods, the customer can elect any of several paths to remediate the situation. The one selected must be reasonable in the circumstances. Whether the re-work they did was reasonable depends on many things unknown to me, such as what alternatives they had and customs in your industry, not to mention any language in the contract that bears on the situation.

Assuming the customer has a right to be reimbursed for the re-work, I believe they have a right to expect payment from you, not your insurance company -- again, the contract terms or industry practices could modify this.

The possibility that your loss is covered by insurance, but the insurance company hasn't made a payment in settlement, raises further questions. Has the insurance company accepted responsibility? Have they assumed defense of the claim? Have they declined the claim and/or the defense of the claim? I suggest you work closely with the insurance company so you know what they are going to do, or not do, and why.

I do not see anything improper in the collection attempt per se--the customer probaby has a right to assign its claim against you to a bill collector. That doesn't make the claim any more or less valid, of course, and you have all defenses against the collection agency that you would have against the original "creditor."

Finally, what about your relationship with this customer? Is this a valuable account? If so, you may want to offer to submit the dispute to mediation and/or explain that you are willing to pay but have been waiting on the insurance.