Sunday, December 1, 2013
What rights does a customer have when its vendor, with whom it has a valid contract for services, abruptly shuts down its business and, because of that shut down, immediately discontinues providing the services required by the contract? Add to that, the customer did not receive any advance notice from the vendor of the impending shut down, nor did the customer receive any notice from the vendor within a reasonable time period subsequent to the shut down.
If, after the shut down, there isn’t a “subsequent vendor” (a subsequent vendor who exerts its rights to contracts acquired from the previous vendor (or who exerts its rights to contracts acquired from a lender who took control of those contracts by exercising its rights to collateral), then there’s no reason for any debate, at all, since there isn’t a subsequent vendor who’s going to be exerting its rights to contracts.
But, what if there is a “subsequent vendor”, one who, two weeks or so after the previous vendor shut down and stopped performing services, acquires the rights to the previous vendor’s contracts?
FULL DISCLOSURE: I AM NOT A LAWYER! Nor am I a Judge! The opinions expressed in this blog post are only that, opinions! They are, however, opinions that are, I think, based on common-sense reasoning. And, my opinions are based on my 40+ years in business, during which time I had to, at times, make decisions about legal issues, especially those that were not always pure black & white.
Contracts are considered assets. But, not all contracts have continuing value after a vendor has shut down and gone out of business.
Contracts can be assigned to, or acquired by, a subsequent vendor. But, the validity/enforceability of an assigned contract depends on the terms and conditions in the contract. Where a contract provides for a vendor to provide services in return for customer’s payment for those services, both parties have an obligation to each other. But, in order for such contract to be assignable to a subsequent vendor (regardless of how that subsequent vendor obtains rights to the contract), the contract must contain an assignment clause, one that specifically states that the contract is assignable. And, generally speaking, the assignment clause will state the conditions, if any, that must be met for assignment to be effective. In other words, if there isn’t an assignment clause, the contract isn’t assignable. Or, if there is an assignment clause, but assignment requires consent of the customer, then the contract isn’t assignable unless the customer consents to the assignment.
The timing of a discontinuance of services is a major issue, especially when a vendor abruptly shuts down, gives no advance notice of the impending shut down, and gives no notice subsequent to the shut down. This is an especially important point if services are performed on an everyday basis, hour by hour, minute by minute. Does the customer have the right to consider the contract immediately terminated? Or, does the customer have to wait and see what happens later on? My opinion on this particular issue is that a customer can consider its contract terminated at the time the shut down occurred. And, at that very point, the customer has the right to enter into a new contract with any vendor of its choice.
What obligation does a customer have to continue possession of equipment (at the customer’s office) that was effectively abandoned by the vendor who shut down? In my opinion, the customer has the obligation to safeguard that equipment until such time that customer receives notice that a party, with valid legal right, claims ownership of the equipment. But, this does not mean that the customer has an obligation to keep the equipment at its office. The customer can have the equipment removed and stored off-site, and, if that’s done, the customer has the right to be reimbursed for expenses involved in the temporary relocation, and storage, of the equipment. If the customer owes money to the vendor who shut down (or to a subsequent party who has the valid right to collect monies owed to the vendor who shut down), it would be, to me, valid for the customer to claim the removal/storage expense as an “offset” to the monies owed.
What obligation does a customer have for services purchased before the shut down took place? The customer has an obligation to pay for those services, provided that those previously performed services are accurately and timely invoiced. If I were a customer, I’d attempt to negotiate a discount before I paid a dime, especially considering the disruption to my business that the abrupt shut down caused.
While I’m not a lawyer or a judge, I’m totally convinced that I know more, much more, about the reprographics business than do lawyers or judges who aren’t in the reprographics business. If I was asked to be an “expert witness” in a lawsuit involving issues related to the reprographics business, I do believe I’d be considered “highly qualified” to be an expert witness.
Those who’ve been involved in the reprographics business and industry for more than just couple of years have, I’m sure, come to the same conclusions I have as to the unique nature of the relationships that are developed between A/E/C Industry customers and Reprographers.
As I put it to one of the writers at the Boston Business Journal…..
There is an industry - a very large industry (even though it is shrinking, year by year) - known as the "Printing & Graphics" Industry. There are several "sub-industries", one of those being the "Reprographics" industry.
In spite of the fact that "Reprographers" come under the larger, overall P&G Industry, the "reprographics" business is quite different from the "printing" business - - in terms of "frequency" of contact with customers and in terms of "how reprographers serve customers". Customers of reprographers are architects, engineers, builders, real estate developers, construction companies and sub-contractors (who work for general contractors.) (The latter collectively referred to as the A/E/C Industry.)
Typically, a "printing company" gets orders (print orders) from its customers once a week, twice a week, maybe once a month or once a quarter. But, reprographers typically get orders from their customers (A/E/C customers), individual customers, every day and sometimes several times during each day. Because of this, "reprographers" have a much, much closer relationship to their customers than is the case with "printers." This sort of close-relationship thing has a lot to with the word you used, "reverentially." Reprographers who do a good job - or I should say a great job - for their customers have those customers for years, and years, and, in many cases, for decades. A/E/C industry firms are very loyal to reprographers who do a great job, and, typically, an A/E/C firm does not use multiple reprographics firms, just one.
And, there's a second part to this, "reverentially speaking". Years ago, some reprographics firms, _______ was one, began offering FM (also referred to as OnSite) services to their A/E/C customers. An "OnSite" service is where a reprographer "staffs, equips and operates" a reprographics "center" at the customer's office location(s.) Consider, also, that we put into place systems that "capture cost by project" and that "assist the customer in recovering costs that are reimbursable by its clients.). When an Architecture firm has an "OnSite" services program, that develops into an incredibly close "customer-vendor" relationship, for, in those cases, customers can entirely focus on their "core business" (architecture, engineering - planning and design) and not worry, at all, about document production, document management or document distribution. Reprographers who do a great job at this - OnSite services - are considered part of the customer's team, they are not looked at as "just" a vendor.
What I said to the guy at the Boston Business Journal adds fuel to the reasoning that any A/E firm, whose OnSite (FM) Service was abruptly and without any advance notice shut down, had the right to consider that shut down an immediate and complete termination of the vendor’s contract. And, given that, the right to enter into a new contract with any vendor of its choosing!
Posted by Joel Salus at 10:05 AM