Legal Question in Business Law in New York

I have a signed contract with a client. Although the service has been performed and delivered, the client has only paid approx. 1/2 of the contractually owed fees. All fees were due at or prior to closing.

The contract states "If the entire fee stated herein due COMPANY is not paid to COMPANY in full by Applicant, Closing Agent, or Escrow Agent at or prior to closing, the APPLICANT hereby authorizes the Company to execute an ACH pull directly from Applicants bank account for the full balance of fees due by completing the �DEBIT WRITTEN AUTHORIZATION FORM� hereby attached as page three of this agreement. This Agreement is to act as a binding instruction to said Lender, Closing Agent, or Escrow Agent to pay the fee directly to the COMPANY without further instruction from APPLICANT at or prior to closing. If the entire fee is not paid immediately as stated, a lien will be placed on the aircraft and triple the above-stated fee will be due the COMPANY. "

The client DID NOT complete the �DEBIT WRITTEN AUTHORIZATION FORM� but they did sign the agreement containing the above paragraph.

The client confirmed the deal closed on 12/2/16. On 12/15 they wired me 1/2 the owed fees as they stated, as a "good faith payment." I have 2 questions.

1 - 100% of the monies owed are or were late. Nothing was paid at or prior to closing as required by the contract. Am I due triple the total amount due or triple the original balance less the amount paid as even the partial payment was late? The 50% paid was wired into my corporate bank account.

2 - The client signed and thus agreed to allow me to execute an ACH pull directly from their bank account. They didn't complete and sign the �DEBIT WRITTEN AUTHORIZATION FORM.� Do I still have the right to execute an ACH pull because they signed the agreement or does their not completing the �DEBIT WRITTEN AUTHORIZATION FORM� eliminate my right to do so?


Asked on 12/27/16, 11:32 am

1 Answer from Attorneys
Andrew Muchmore Muchmore & Associates PLLC

There is a bit of a fact issue as to the intent of the parties, but you are at least arguably authorized to process the ACH payment. The purchaser may contest it, particularly if you pull more than the remaining balance. Their bank may reverse the payment if they find it was unauthorized.

You also have a potential issue as to whether the treble damages clause would be considered a penalty or liquidated damages by a court. If it is found to be a penalty, it may be unenforceable.

Finally, you should be aware that you need to file a UCC-1 financing statement to perfect your security interest, to the extent the contract language is sufficient to create an enforceable security interest. It does not appear that the contract was drafted particularly well.

I would suggest initiating an ACH pull for the balance only and simultaneously filing a UCC-1 financing statement. If the ACH clears and the purchaser does not contest it, you can file a UCC-3 terminating your security interest. If the purchaser challenges the ACH pull, you probably need to retain counsel to protect your interests. An aircraft is not a small purchase, and enforcing a security interest is a complicated process. Please feel free to contact me if you would like to schedule a free initial consultation.

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Answered on 12/30/16, 9:46 pm


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