Legal Question in Business Law in California

Hello,

Let's say I'd like to install a $20,000 roof on my house. Instead of paying the full amount at the time of installation or making interest payments afterwards, I might want to set up a contract that would allow the company to, before the installation, automatically deduct a designated amount from my credit card every month for a specified period until the grand total has been paid. Ideally, then the work would completed.

One concern is that if the company were to go out of business during the short-term pre-payment period I might have a hard time getting the money back.

If such a contact could be written, I might need a lawyer to read the document or perhaps even write it.

Could other products or services also be purchased in such a manner?


Asked on 8/11/09, 4:51 pm

2 Answers from Attorneys
Nina Ortega

You are describing a layaway plan, which used to be common for the purchase of retail goods back in the days before credit cards came into vogue. Yes, it can still be done, but it is now so uncommon that most businesses no longer have layaway agreement forms on their shelves.

As you correctly suspected, you risk becoming an unsecured creditor in the vendor's bankruptcy if the vendor goes out of business. If that happens, you will not get the item or service you had on layaway, and you will only get pennies on the dollar back on your deposits. Personally, I would not recommend it if there is even the slightest chance that the vendor will go under.

Instead of paying a series of advance deposits to the contractor, why not pay the same amounts to yourself, in a segregated savings account, then hire the contractor when you have saved up enough to pay cash? That's also the way business used to be conducted back in the days before credit cards, and it still works today, and it is a whole lot safer for you.

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Answered on 8/11/09, 5:06 pm
Bryan C. Becker Your Lawyer for Life.

You are much better off putting that money in a bank account which earns interest and then paying for the roof when the full amount is saved. By putting it on a credit card you are financing the roof anyway, right?

There are too many risks (both legal and financial) if you give the money over before work is performed.

Best,

Bryan

Bryan C. Becker

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Answered on 8/19/09, 9:33 pm


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